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 September 30,
                    2006




OR




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





Commission
      File Number: 333-113564




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




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




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




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





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


Yes
x    
      No o




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


Yes
o No
x




As
      of
      November 10, 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 SEPTEMBER 30, 2006**





Item
                Number inForm
                10-QSB
            
            PagePART
                I. FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            F-1Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            1Item
                3.
            Controls
                and Procedures
            18PART
                II. OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            20Signatures
            
            21





**NOTE
      REGARDING FORWARD LOOKING STATEMENTS**





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





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











**PART
      I. FINANCIAL INFORMATION**




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




**Wako
                Logistics Group, Inc.**
  **Condensed
        Consolidated Statements of Operations**
 For
        the 3
        and 9 months ended September 30, 2005 and 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*
 
 **3
                  months ended**
                **September
                  30,**
              
              **9
                  months ended**
                **September
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***Note*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$**(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)***Revenues:**Freight
              
              
              
              
              
              11,163
              
              
              13,169
              
              
              25,335
              
              
              38,428Agency
                  services
              
              
              
              
              
              382
              
              
              767
              
              
              625
              
              
              2,082Other
                  services
              
              
              
              
              
              1,538
              
              
              12,347
              
              
              3,381
              
              
              26,385**Total
                  revenues**
              
              
              
              
              
              13,083
              
              
              26,283
              
              
              29,341
              
              
              66,895**Operating
                  expenses**Cost
                  of forwarding
              
              
              
              
              
              (10,656
              )
              
              (22,271
              )
              
              (24,042
              )
              
              (56,303
              )Selling
                  and administrative expenses
              
              
              
              
              
              (1,913
              )
              
              (3,163
              )
              
              (4,509
              )
              
              (9,528
              )Depreciation
                  and amortization
              
              
              
              
              
              (59
              )
              
              (141
              )
              
              (133
              )
              
              (427
              )Total
                  operating expenses
              
              
              
              
              
              (12,628
              )
              
              (25,575
              )
              
              (28,684
              )
              
              (66,258
              )**Income
                  from operations**
              
              
              
              
              
              455
              
              
              708
              
              
              657
              
              
              637**Other
                  income/(expense)**Interest
                  income
              
              
              
              
              
              2
              
              
              6
              
              
              8
              
              
              28Interest
                  expense
              
              
              
              
              
              (26
              )
              
              (91
              )
              
              (52
              )
              
              (273
              )Other
                  income, net
              
              
              
              
              
              35
              
              
              5
              
              
              74
              
              
              72**Income****before
                  income taxes**
              
              
              
              
              
              466
              
              
              628
              
              
              687
              
              
              464Provision
                  for income taxes
              
              
              
              
              
              (142
              )
              
              (225
              )
              
              (222
              )
              
              (313
              )**Net
                  Income**
              
              
              
              
              
              324
              
              
              403
              
              
              465
              
              
              151Dividends
                  on preferred stock
              
              
              
              
              
              -
              
              
              (23
              )
              
              -
              
              
              (68
              )**Income****applicable
                  to common stock**
              
              
              
              
              
              324
              
              
              380
              
              
              465
              
              
              83Other
                  comprehensive income, net of taxes:Foreign
                  currency translation adjustment
              
              
              
              
              
              -
              
              
              18
              
              
              -
              
              
              28**Total
                  comprehensive income**
              
              
              
              
              
              **324**
              
              
              **398**
              
              
              **465**
              
              
              **111**
 **Net
                  Income per share:****Basic
                  earnings per share**
              
              
              ***2***
              
              
              **0.02**
              
              
              **0.01**
              
              
              **0.02**
              
              
              **0.00****Diluted
                  earnings per share**
              
              
              ***2***
              
              
              **0.01**
              
              
              **0.01**
              
              
              **0.02**
              
              
              **0.00****Weighted
                  average common shares outstanding**Basic
              
              
              
              
              
              20,641,000
              
              
              25,390,080
              
              
              20,575,066
              
              
              25,390,080Diluted
              
              
              
              
              
              22,204,000
              
              
              27,416,244
              
              
              21,840,417
              
              
              25,421,577
  The
        financial statements should be read in conjunction with the accompanying
        notes.
  F-1
  **Wako
                  Logistics Group, Inc.**
  **Condensed
          Consolidated Balance Sheets**
 At
          December 31, 2005 and September 30, 2006
 
 *(Dollars
          in thousands except share data and per share
          amounts)*
  **At****December
                  31,****2005**
              
              **At****September
                  30,****2006***Note*
              
              *US$*
              
              *US$**(unaudited)***ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              
              
              
              
              1,212
              
              
              872Restricted
                  cash
              
              
              
              
              
              282
              
              
              372Certificates
                  of deposit, restricted
              
              
              
              
              
              245
              
              
              245Trade
                  receivables, net of allowance (2006 - $340 ; 2005 - $310)
              
              
              
              
              
              10,446
              
              
              10,984Deposits,
                  prepayments and other current assets
              
              
              
              
              
              525
              
              
              1,278Due
                  from related parties
              
              
              *5*
              
              
              542
              
              
              213Tax
                  prepaid
              
              
              
              
              
              67
              
              
              77**Total
                  current assets**
              
              
              
              
              
              13,319
              
              
              14,041Property,
                  plant and equipment, net
              
              
              
              
              
              850
              
              
              799Deferred
                  tax assets
              
              
              
              
              
              213
              
              
              215Intangible
                  assets, net
              
              
              
              
              
              2,105
              
              
              2,093Goodwill
              
              
              
              
              
              2,588
              
              
              2,588**Total
                  assets**
              
              
              
              
              
              19,075
              
              
              19,736**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities**Bank
                  overdrafts
              
              
              
              
              
              584
              
              
              922Trade
                  payables
              
              
              
              
              
              5,802
              
              
              5,860Accrued
                  charges and other creditors
              
              
              
              
              
              996
              
              
              1,388Bank
                  loans - maturing within one year
              
              
              *3*
              
              
              2,870
              
              
              2,514Current
                  portion of capital lease obligations
              
              
              
              
              
              122
              
              
              125Due
                  to related parties
              
              
              *5*
              
              
              46
              
              
              24Due
                  to directors
              
              
              *5*
              
              
              325
              
              
              459Income
                  tax payable
              
              
              
              
              
              208
              
              
              291Total
                  current liabilities
              
              
              
              
              
              10,953
              
              
              11,583**Non-current
                  liabilities**Non-current
                  portion of capital lease obligations
              
              
              
              
              
              150
              
              
              72Other
                  non-current liabilities
              
              
              
              
              
              21
              
              
              16171
              
              
              88Commitments
                  and contingencies
              
              
              *4*
              
              
              -
              
              
              -
 The
          financial statements should be read in conjunction with the accompanying
          notes.
 F-2
  **Wako
                    Logistics Group, Inc.**
  **Condensed
            Consolidated Balance Sheets**
 At
            December 31, 2005 and September 30, 2006
 
 *(Dollars
            in thousands except share data and per share
            amounts)*
 
 **At****December
                  31,****2005**
              
              **At****September
                  30,****2006***US$*
              
              *US$**(unaudited)***Stockholders'
                  equity**Preferred
                  stock, $0.001 par value, 5 million shares authorized and nil
                  issued
              
              
              -
              
              
              -Convertible
                  redeemable preferred stock, $0.001 par value, 2.0 million shares
                  authorized and issued (Redemption and liquidation value $1.5
                  million)
              
              
              2
              
              
              2Common
                  stock $0.001 par value, 55 million shares authorized, 25,390,080
                  (At
                  12.31.2005*:
                  25,390,080)*shares issued and outstanding
              
              
              25
              
              
              25Additional
                  paid-in capital
              
              
              6,714
              
              
              6,714Accumulated
                  other comprehensive income
              
              
              19
              
              
              47Employee
                  benefit compensation
              
              
              (8
              )
              
              (5
              )Retained
                  earnings
              
              
              1,199
              
              
              1,282**Total
                  stockholders' equity**
              
              
              7,951
              
              
              8,065**Total
                  liabilities and stockholders' equity**
              
              
              19,075
              
              
              19,736
 
 The
          financial statements should be read in conjunction with the accompanying
          notes.
  F-3
  **Wako
                    Logistics Group, Inc.**
  **Condensed
              Consolidated Statements of Cash Flows**
 For
              the 9
              months ended September 30, 2005 and 2006
 
 *(Dollars
              in thousands except share data and per share
              amounts)*
 
 **9
                  months ended****September
                  30,****2005**
              
              **2006***Note*
              
              *US$*
              
              *US$**(unaudited)*
              
              *(unaudited)***Cash
                  flows from****operating
                  activities:**Net
                  income
              
              
              
              
              
              465
              
              
              151**Adjustments
                  to reconcile net income to net cash****used
                  by operating activities**Depreciation
              
              
              
              
              
              82
              
              
              177Stock
                  based compensation
              
              
              
              
              
              7
              
              
              1Bad
                  debts written off
              
              
              
              
              
              -
              
              
              83Amortization
                  of intangible assets
              
              
              
              
              
              51
              
              
              249Other
                  non-cash items
              
              
              
              
              
              6
              
              
              -**Changes
                  in working capital:**Trade
                  receivables
              
              
              
              
              
              (2,472
              )
              
              (570
              )Deposits
                  and prepayments
              
              
              
              
              
              (72
              )
              
              (751
              )Due
                  from related parties
              
              
              
              
              
              195
              
              
              215Trade
                  payables
              
              
              
              
              
              1,150
              
              
              (105
              )Accrued
                  charges and other creditors
              
              
              
              
              
              198
              
              
              399Due
                  to related parties
              
              
              
              
              
              (53
              )
              
              (22
              )Due
                  to directors
              
              
              
              
              
              -
              
              
              (125
              )Income
                  tax payable
              
              
              
              
              
              194
              
              
              72**Net
                  cash used in operating activities**
              
              
              
              
              
              (249
              )
              
              (226
              )**Cash
                  flows from investing activities:**Acquisitions
                  of property, plant and equipment
              
              
              
              
              
              (227
              )
              
              (73
              )Acquisition
                  of subsidiary
              
              
              
              
              
              (1,000
              )
              
              -Acquisition
                  of operating assets of U.K. Division
              
              
              *7*
              
              
              -
              
              
              (163
              )Due
                  from related parties
              
              
              
              
              
              128
              
              
              114**Net
                  cash used in investing activities**
              
              
              
              
              
              (1,099
              )
              
              (122
              )**Cash
                  flows from financing activities:**Restricted
                  cash
              
              
              
              
              
              (64
              )
              
              (90
              )Bank
                  overdrafts
              
              
              
              
              
              236
              
              
              338New
                  bank loan
              
              
              
              
              
              325
              
              
              -Bank
                  loan repaid
              
              
              
              
              
              (185
              )
              
              (356
              )Repayment
                  of capital lease obligations
              
              
              
              
              
              -
              
              
              (75
              )Dividends
                  paid
              
              
              
              
              
              -
              
              
              (68
              )Due
                  to directors
              
              
              
              
              
              186
              
              
              -Advance
                  from a director
              
              
              
              
              
              1,000
              
              
              259**Net
                  cash****provided
                  by financing activities**
              
              
              
              
              
              1,498
              
              
              8**Net
                  increase/(decrease) in cash and cash equivalents**
              
              
              
              
              
              150
              
              
              (340
              )**Cash
                  and cash equivalents at beginning of period**
              
              
              
              
              
              306
              
              
              1,212**Cash
                  and cash equivalents at end of period**
              
              
              
              
              
              456
              
              
              872
 
 The
          financial statements should be read in conjunction with the accompanying
          notes.
 F-4
 **Wako
                Logistics Group, Inc.**
  **Notes
        to the Consolidated Financial Statements**
 For
        the 3
        and 9 months ended September 30, 2005 and 2006
 *(Dollars
        in thousands except share data and per share amounts)*
 
 **1.**  **BASIS
        OF PRESENTATION**
 
 Wako
        Logistics Group, Inc. (“WLG,” the “Company,” or the “Group”) is an
        international, non-asset-based logistics company that provides air and ocean
        freight forwarding, contract logistics, customs brokerage and other supply
        chain
        management services from its offices in Hong Kong, the Peoples Republic of
        China
        (“PRC”, or “China”), Australia, the United States, the United Kingdom and
        through a worldwide network of agents. WLG’s business is conducted by its
        operating subsidiaries, which include the following entities: Wako Express
        (HK)
        Co. Ltd. (“WEHK”), Wako Air Express (HK) Co. Ltd.  (“WAE”) , Wako Express
        (China) Co. Ltd. (“WE China”), a wholly-owned subsidiary of WEHK, WLG (USA) LLC
        (“WLG (USA)”) (formerly dba “Kay O’Neill”), Asean Cargo Services Pty Limited
        (“Asean”), Asean Logistics, Inc. (“ALI”) and WLG (UK) Limited (“WLG (UK)”), which
        is
        wholly-owned by WLG (UK) Holdings Limited (‘WLG UK Holdings”).
  The
        Group
        acquired WLG (USA) in April 2005, and it acquired ALI and Asean and established
        WLG (Australia) Pty Limited (“WLG (Aust)”) in the fourth quarter of 2005. Each
        of these companies’ financial information is included in the Group’s
        consolidated financial statements for the three months and nine months ended
        September 30, 2006. In February 2006, WLG formed two United Kingdom (“UK”)
        subsidiaries, WLG (UK) Holdings as a first tier subsidiary and WLG (UK) as
        a
        second tier subsidiary, to use as vehicles to make acquisitions and conduct
        business in the U.K. Effective September 15, 2006, WLG (UK) acquired all
        of the
        operating assets of a Manchester, UK division (“UK Division”) of a UK company.
        WLG (UK) now carries on the business of the UK Division, which includes air
        and
        sea freight forwarding and warehousing services, primarily for UK based
        customers.
  As
        of
        September 30, 2006, all subsidiaries are wholly owned, and all material
        intercompany balances and transactions have been eliminated on
        consolidation.
 
 The
        accompanying financial data as of September 30, 2006, and for the three months
        and nine months periods ended September 30, 2006, and 2005, have been prepared
        by the Company without audit.
 
 Certain
        information and footnote disclosures normally included in financial statements
        prepared in accordance with accounting principles generally accepted in the
        United States of America have been condensed or omitted pursuant to such
        rules
        and regulations. However, the Company believes that the disclosures herein
        are
        adequate to make the information presented not misleading. These financial
        statements should be read in conjunction with the financial statements and
        the
        notes thereto included in the Company’s audited, consolidated financial
        statements for the year ended December 31, 2005.
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates that affect the reported amounts of assets, liabilities, revenues
        and
        expenses and the disclosure of contingent assets and liabilities. Actual
        results
        could differ from these estimates.
 
 The
        unaudited, interim consolidated financial statements of the Company have
        been
        prepared in accordance with accounting principles generally accepted in the
        United States for interim financial information. In the opinion of management,
        all adjustments (which include only normal recurring adjustments) necessary
        to
        present fairly the financial position, results of operations for the three
        and
        nine months ended September 30, 2006, and 2005, and cash flows for the nine
        months ended September 30, 2006, and 2005, have been made. The results of
        operations for the three and nine months ended September 30, 2006, and 2005,
        are
        not necessarily indicative of the operating results for the full
        year.
  F-5
  **Wako
                Logistics Group, Inc.**
 **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **2.**  **EARNINGS
        PER SHARE**
 
 Earnings
        per share were computed as follows:
 **3
                    months ended September 30, 2005****Income**
                
                **Weighted
                    average number of shares**
                
                ***Per
                    share amount****US$*Net
                    income
                
                
                324Basic
                    earnings per shareIncome
                    available to common stockholders
                
                
                324
                
                
                20,641,000
                
                
                0.02Diluted
                    earnings per shareIncome
                    available to common stockholders
                
                
                324
                
                
                22,204,000
                
                
                0.01There
                    are no anti-dilutive shares.
  **9
                  months ended September 30, 2005****Income**
              
              **Weighted
                  average number of shares**
              
              
              **Per
                    share amount***US$*Net
                  income
              
              
              465Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              465
              
              
              20,575,066
              
              
              0.02Diluted
                  earnings per shareIncome
                  available to common stockholders
              
              
              465
              
              
              21,840,417
              
              
              0.02There
                  are no anti-dilutive shares.
  **3
                  months ended September 30, 2006****Income**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              403Dividends
                  on convertible redeemable preferred stock
              
              
              (23
              )
              
              2,000,000
              
              
              0.01Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              380
              
              
              25,390,080
              
              
              0.01Effect
                  of dilutive securitiesWarrants
              
              
              -
              
              
              26,164Convertible
                    redeemable preferred stock
              
              
              
              
              
              2,000,000Diluted
                  earnings per shareIncome
                  available to common stockholdersassuming
                  conversion
              
              
              403
              
              
              27,416,244
              
              
              0.01
  F-6
  **Wako
                Logistics Group, Inc.**
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 9 months ended September 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
  **2.** **EARNINGS
          PER SHARE (CONTINUED)**
  **9
                  months ended September 30, 2006****Income**
              
              **Weighted
                  average number of shares**
              
              **Per
                  share amount***US$*Net
                  income
              
              
              151Dividends
                  on convertible redeemable preferred stock
              
              
              (68
              )
              
              2,000,000
              
              
              0.03Basic
                  earnings per shareIncome
                  available to common stockholders
              
              
              83
              
              
              25,390,080
              
              
              0.00Effect
                  of dilutive securitiesWarrants
              
              
              -
              
              
              31,497Diluted
                  earnings per shareIncome
                  available to common stockholdersassuming
                  conversion of Warrants
              
              
              83
              
              
              25,421,577
              
              
              0.00
  Common
          stock equivalents related to convertible redeemable preferred stock of
          2,000,000
          are not included in the calculation of dilutive earnings per share for
          the nine months ended September 30, 2006, because they have an
          anti-dilutive effect.
 **3.**  **BANKING
        FACILITIES**
 The
            Group
            has obtained bank facilities from creditworthy commercial banks as
            follows:
  **At**
                **December
                  31,**
                **2005**
              
              
              **At**
                **September
                  30,**
                **2006***US$*
              
              
              *US$*
                *(unaudited)***Facilities
                  granted**Committed
                  line - bank guarantees
              
              
              681
              
              
              774-
                  overdraft facilities
              
              
              425
              
              
              435-
                  bank loans
              
              
              3,520
              
              
              4,318Total
                  committed bank facilities
              
              
              4,626
              
              
              5,527
 
 The
        terms
        of the loan facilities, including the amounts, are agreed by the banks and
        the
        Group from time to time.
 
 Bank
        guarantees of $603 will expire within one year from September 30, 2006, but
        may
        be renewed as long as the Group makes available to the banks the amount of
        cash
        collateral that is required to support each guarantee. The remaining bank
        guarantee of $171 and the overdraft facilities have no expiry date but may
        be
        terminated by either the bank or WLG by giving 30 days notice. The bank loan
        facilities mature on various dates as follows: (i) $750 on October 1, 2006,
        (ii)
        $452 in October 2006, and (iii) $129 on December 24, 2006. The remaining
        loan
        facility of $2,987 is an on going facility
        that was renewed on 27 January, 2006. After 12 months from its renewal date,
        the
        facility may be terminated by either the bank or WLG giving 30 days
        notice.
 
 For
        the
        total loan facility granted of $4,318, (i) $581 is unsecured and repayable
        within two years by monthly installments, (ii) $750 is secured by substantially
        all of the assets of WLG (US) and a personal guarantee provided by an employee
        of the Group, (iii) $2,987 is secured by accounts receivables of Asean and
        (iv)
        a registered mortgage charge over the assets of Asean and personal guarantees
        from the former shareholders of Asean. As of September 30, 2006, these bank
        loans carried interest rates of 7% to 11.35% per annum.
  F-7
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **3.**  **BANKING
        FACILITIES (CONTINUED)**
  **At**
                **December
                  31,**
                **2005**
              
              **At**
                **September
                  30,**
                **2006***US$*
              
              *(unaudited)*
                *US$***Utilized**Committed
                  line - bank guarantees
              
              
              681
              
              
              774-
                  overdraft facilities
              
              
              425
              
              
              435-
                  bank loans
              
              
              2,870
              
              
              2,514Total
                  bank facilities utilized
              
              
              3,976
              
              
              3,723
  Bank
        guarantees of $603 are collateralized by cash of $617. The remaining bank
        guarantee of $171 is secured by (i) a guarantee and Indemnity provided by
        WLG
        (Aust) and various individuals and entities associated with Asean, (ii) a
        registered mortgage debenture over all of the assets of Asean and (iii) real
        estate owned by various individuals associated with Asean. The overdraft
        facilities of $435 are secured by (i) a guarantee and Indemnity from WLG
        (Aust)
        and personal guarantees provided by various individuals and entities associated
        with Asean, (ii) a registered mortgage debenture over all of the assets of
        Asean
        and (iii) real estate owned by various individuals associated with
        Asean.
 
 F-8
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **4.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 ***Commitments
        under operating leases***
 The
            Group
            rents office space, staff quarters and certain office equipment under
            non-cancelable operating leases. The following table summarizes the approximate
            future minimum lease payments for obligations in effect as of September
            30,
            2006:
  **At**
                **December
                  31,**
                **2005**
              
              **At**
                **September
                  30,**
                **2006***US$*
              
              *(unaudited)*
                *US$*Within
                  one year
              
              
              626
              
              
              547Over
                  one year but not exceeding two years
              
              
              456
              
              
              354Over
                  two years but not exceeding three years
              
              
              282
              
              
              130Over
                  three years but not exceeding four years
              
              
              98
              
              
              88Over
                  four years but not exceeding five years
              
              
              47
              
              
              11Total
                  operating lease commitments
              
              
              1,509
              
              
              1,130
 
 Rent
                  expense under operating leases for the 9 months ended September
                  30, 2005,
                  and 2006, was $295 and $555,
                  respectively.
 
 ***Cargo
                  space commitments***
 
 The
                  Group has entered into written agreements with various commercial
                  airfreight carriers pursuant to which the Group is committed to
                  utilize a
                  guaranteed minimum amount of cargo space each year. As of September
                  30,
                  2006, the cost of the minimum amount of cargo space to be utilized
                  for the
                  coming twelve months is $4,098.
 
 ***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
        September 30, 2006, the aggregate outstanding amount claimed by third parties
        was approximately $22. It is the opinion of management that the disposition
        or
        ultimate resolution of such claims will not have a material adverse effect
        on
        the financial position of the Group.
  F-9
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **5.**  **RELATED
        PARTY TRANSACTIONS**
 
 **Name
                  and relationship of related parties**Name
              
              Relationship
                  to the GroupChristopher
                  Wood (“CW”)
              
              Shareholder
                  and director of WLGYip
                  King Lin, Paul (“PY”)
              
              Director
                  of the Group’s subsidiaries until April 2006Paul
                  Pomroy (‘’PP’’)
              
              Director
                  of Asean and WLG (Aust) Pty Ltd.Wako
                  Express (China) Company Limited (“WEC”)
              
              Common
                  shareholders and directorsAsean
                  Cargo Services Pty Ltd (“Asean”)
              
              CW
                  was a shareholder and director of Asean until June 25, 2004. On
                  November
                  9, 2005, Asean became a subsidiary of the Group.Asean
                  Logistics Inc (“ALI”)
              
              PY
                  was a shareholder of ALI until January 3, 2005. On October 1, 2005,
                  ALI
                  became a subsidiary of the GroupWako
                  Logistic (Thailand) Co. Ltd (“WLT”)
              
              CW
                  is a shareholder and director of WLTJoin
                  Wing Properties Limited (“JWP”)
              
              CW
                  is a shareholder and director of JWPAngus
                  International Freight Pty Limited (“AIFP”)
              
              PP
                  was a director of AIFP until May 1, 2006Warehouse
                  Solutions International Pty Limited (“WSIP”)
              
              PP
                  was a director of WSIP until May 1, 2006Asean
                  Cargo Services (Old) Pty Limited (“ACSQ”)
              
              PP
                  is a director of ACSQBettervale
                  Pty Limited (“BPL”)
              
              PP
                  is a director of BPL
  F-10
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Details
                  of related parties**Name
              
              Principal
                  activities
              
              Ownership
                  (as of September 30, 2006)*Name
                  of owner*
              
              *%
                  held*WEC
              
              Provision
                  of sea and air freight forwarding services in the PRC until Feb.
                  2005, and
                  then became dormant #
              
              CW
                PY
              
              50%
                50%Asean
              
              Provision
                  of sea and air freight forwarding and customs brokerage services
                  in
                  Australia #
              
              WLG
                  (Aust)
              
              100%ALI
              
              Provision
                  of sea 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
              
              Property
                  holding for renting to the Wako Group
              
              CW
              
              100%
 
 #
                :
              In
                  the normal course of its business, the Group enters into agency
                  agreements
                  with various overseas agents so that both the Group and the overseas
                  agents can jointly handle customer shipments on behalf of the other
                  in
                  both the port of loading and the port of destination.
 
 Under
        these agency agreements, the Group and the overseas agents are obliged to
        perform their respective services at their own places of business and, in
        return, earn their respective service fees from the other party and either
        the
        shipper or the consignee.
 
 In
        addition to the above, under the agency agreements, sometimes either the
        Group
        or the overseas agent is obliged to act as “collection agent” to collect the
        freight revenue from customers (either the shipper or the consignee). Since
        the
        decision as to who has to pay the freight cost is solely determined by either
        the shipper or the consignee, both the Group and the overseas agent only
        act in
        accordance with the customers’ instructions in the collection process. In case
        the collecting party is not the party who pays the freight cost to the carrier,
        the collecting party has to reimburse the other party to enable it to settle
        the
        freight cost.
 
 In
        both
        cases, either the Group or the overseas agent has to raise an invoice to
        the
        other party for an amount attributable to it. The invoice amounts include
        the
        services fees earned and may also include the freight cost collected by the
        other party.
 
 During
        the periods indicated, one of these overseas agents is a related party (nine
        months ended September 30, 2005: three). 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. Similarly, 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-11
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 The
        following is a summary of the amounts included in the accompanying balance
        sheets:
  **At**
                **December
                  31,**
                **2005**
              
              **At**
                **September
                  30,**
                **2006***US$*
              
              *(unaudited)*
                *US$***Due
                  from related parties (Note (i))**WLT
              
              
              13
              
              
              18AIFP
              
              
              190
              
              
              -ACSQ
              
              
              179
              
              
              185WSIP
              
              
              146
              
              
              -BPL
              
              
              7
              
              
              -PP
              
              
              7
              
              
              10542
              
              
              213**Due
                  to related parties (Note (i))**ACSQ
              
              
              24
              
              
              24WSIP
              
              
              22
              
              
              -46
              
              
              24**Due
                  to directors (Note (ii))**CW
              
              
              325
              
              
              459
 
 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)
                  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 as of September 30, 2005, did bear
                      interest at
                      the rate of 6% p.a.
  F-12
  **Wako
                Logistics Group, Inc.** **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
 
 **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Summary
        of transactions with related entities (unaudited):**
 
 **WEC**
              
              **Asean**
              
              **ALI**
              
              **WLT**
              
              **Total***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*January
                  1, 2005
              
              
              208
              
              
              -
              
              
              97
              
              
              11
              
              
              316Trade
                  transactions
              
              
              202
              
              
              -
              
              
              -
              
              
              10
              
              
              212Expenses
                  paid
              
              
              128
              
              
              -
              
              
              -
              
              
              -
              
              
              128Net
                  settlements
              
              
              (493
              )
              
              -
              
              
              -
              
              
              (20
              )
              
              (513
              )Reclassified
                  as non-related parties
              
              
              -
              
              
              -
              
              
              (97
              )
              
              -
              
              
              (97
              )September
                  30, 2005
              
              
              45
              
              
              -
              
              
              -
              
              
              1
              
              
              46
 
 **AIFP**
              
              **ACSQ**
              
              **WSIP**
              
              **BPL**
              
              **PP**
              
              **WLT**
              
              **Total***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*January
                  1, 2006
              
              
              189
              
              
              156
              
              
              124
              
              
              7
              
              
              7
              
              
              13
              
              
              496Trade
                  transactions
              
              
              -
              
              
              -
              
              
              (27
              )
              
              (71
              )
              
              -
              
              
              41
              
              
              (57
              )Net
                  settlements
              
              
              (189
              )
              
              5
              
              
              (2
              )
              
              66
              
              
              3
              
              
              (36
              )
              
              (153
              )Reclassified
                  as non-related parties
              
              
              -
              
              
              -
              
              
              (95
              )
              
              (2
              )
              
              -
              
              
              -
              
              
              (97
              )September
                  30, 2006
              
              
              -
              
              
              161
              
              
              -
              
              
              -
              
              
              10
              
              
              18
              
              
              189
 
 Notes :
 
 ·
                Trade
                    transactions for WEC, Asean, ALI and WLT include revenues earned
                    by the
                    Group and amounts collected on behalf of the Group (or freight
                    costs
                    incurred by the Group and amounts collected on behalf of the
                    agents) in
                    the ordinary course of business. For BPL, the trade transactions
                    are for
                    rental expenses paid to BPL. For WSIP, the trade transactions
                    refer to
                    warehouse service fees of $61 paid to WSIP and rental income
                    of $28 paid
                    by WSIP.
 
 ·
                Expenses
                    include amounts paid by the Group on the related parties’ behalf (or paid
                    by the related parties on the Group’s
                    behalf).
 
 ·
                Net
                    settlements are the amounts that the Group paid (or received)
                    in respect
                    of the intercompany balances owed and/or
                    receivable.
  F-13
   **Wako Logistics Group, Inc.**
  **Notes
        to the Consolidated Financial Statements**
 For
        the 3
        and 9 months ended September 30, 2005 and 2006
 
 *(Dollars
        in thousands except share data and per share amounts)*
  **5.**  **RELATED
        PARTY TRANSACTIONS (CONTINUED)**
 
 **Additional
        details of transactions:**
  **3
                  months ended**
                **September
                  30**
              
              **9
                  months ended**
                **September
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)**US$*
              
              *US$*
              
              *US$*
              
              *US$***Handling
                  income received/receivable**WEC
              
              
              -
              
              
              -
              
              
              5
              
              
              -WLT
              
              
              -
              
              
              -
              
              
              1
              
              
              -**Handling
                  fee paid/payable**WEC
              
              
              -
              
              
              -
              
              
              16
              
              
              -WLT
              
              
              -
              
              
              -
              
              
              -
              
              
              2**Rental
                  paid/payable**JWP
              
              
              27
              
              
              27
              
              
              70
              
              
              81
  **Summary
        of transactions during the periods with directors /
        shareholders:**
 
 **CW***(unaudited)**US$*Balance
                  as of January 1, 2005
              
              
              (733
              )Advance
              
              
              (1,261
              )Conversion
                  to preferred stock
              
              
              1,500Expense/draws
              
              
              76Balance
                  as of September 30, 2005
              
              
              (418
              )Balance
                  as of January 1, 2006
              
              
              (325
              )Advance
              
              
              (259
              )Expense/repayment
              
              
              125Balance
                  as of September 30, 2006
              
              
              (459
              )
 
 Notes :
  Expenses
        / loan repayment include amounts that were either paid directly to or for
        the
        benefit of CW.
  F-14
  **Wako
                  Logistics Group, Inc.**
  **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 9 months ended September 30, 2005 and 2006
 
 *(Dollars
          in thousands except share data and per share amounts)*
  **6.**  **SUPPLEMENTAL
        DISCLOSURES OF CASH FLOW INFORMATION**
 
 **9
                  months ended**
                **September
                  30,****2005**
              
              **2006***(unaudited)*
              
              *(unaudited)**US$*
              
              *US$***Cash
                  paid for:**Interest
                  expense
              
              
              52
              
              
              273Income
                  taxes
              
              
              29
              
              
              190
  **7.**  **ACQUISITION
        OF BUSINESS OF UK DIVISION**
  On
        September 15, 2006, WLG’s wholly owned second tier UK subsidiary, WLG (UK),
        entered into a Purchase Agreement (“Agreement”) with the Administrators acting
        for a U.K. company (“UK Co.”) pursuant to which WLG (UK) acquired in an all cash
        transaction (the “Transaction”) certain of the assets of UK Co.’s business
        located in Manchester, United Kingdom, (“UK Division”).
 
 WLG
        (UK)
        acquired the assets of UK Division on an “as is” and “where is” basis and
        received no warranties or other representations customarily provided in normal
        purchase transactions. UK Co. had been placed in administration under United
        Kingdom law (similar to a bankruptcy filing in the United States) on September
        11, 2006, and, at the time of the Transaction, was under the legal control
        of
        the Administrators, who were acting for UK Co. As such, the Administrators
        made
        no representations nor provided any warranties of substance to WLG
        (UK).
  WLG
        (UK)
        paid GBP 80,000 (approximately US$150,000, the “Purchase Price”) for the
        acquisition of certain tangible assets, work-in-progress (“WIP”) and intangible
        assets including the customer list of UK Division. Except for certain
        liabilities related to the WIP, which included certain “duress” liabilities to
        creditors and past due employee salaries and wages, WLG (UK) did not assume
        any
        other liabilities of UK Division. As part of the Agreement, WLG (UK) is to
        be
        paid a fee to collect the outstanding receivables of UK Co., all of which
        were
        retained by the Administrators for the benefit of the creditors of UK Co.
 
 Following
        the Transaction, all of UK Division’s management and key employees joined WLG
        (UK), including certain employees that worked in UK Co.’s London headquarters.
        At the time of the Transaction, WLG made an oral commitment to provide a
        profit
        sharing arrangement to certain of UK Division’s key employees. As contemplated,
        the profit-sharing arrangement will run for three years and will give these
        key
        employees the right to receive WLG shares based on the profitability of UK
        Division.
 
 UK
        Co.
        began business in February 2006, and is the successor to a UK company that
        ceased business in February 2006, also as a result of being placed in
        administration. Prior
        to
        being in placed in administration, UK Division provided a full range of cargo
        management and logistics services to its customers, including
        freight-forwarding, customs clearances and warehouse facilities, with a
        large concentration of its business in the trade lanes that run to the UK
        from
        Asia and the Indian subcontinent. WLG and UK Division had worked together
        prior
        to the Transaction, providing freight forwarding and logistics services to
        the
        customers of each. WLG (UK) now carries on the business of UK
        Division.
 
 F-15
  **Wako
                    Logistics Group, Inc.**
  **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 
 *(Dollars
            in thousands except share data and per share amounts)*
 **7.**  **ACQUISITION
        OF BUSINESS OF UK DIVISION (CONTINUED)**
  The
        acquisition of UK Division has been recorded using the purchase method of
        accounting in accordance with SFAS No. 141. WLG (UK) has allocated the Purchase
        Price to the tangible assets, liabilities and intangible assets acquired,
        based
        on the fair value of the net assets at the effective date of the acquisition.
        At
        September 15, 2006, the fair value of identifiable assets, less the fair
        value of liabilities of UK Division, was approximately $163, which
        comprised gross assets of approximately $326, including an intangible asset
        for
        customer relationships of $236, less total liabilities of about $163. The
        intangible asset is being amortized over a period of five years. No goodwill
        has
        been recorded in connection with the acquisition of UK Division. UK Division
        has
        been through two bankruptcies in the U.K during 2006, (February and September)
        and, as such, it is unlikely that any goodwill attaches to this
        business.
 
 Net
                  assets acquired of:*US$*Property,
                  plant and equipment, net
              
              
              38Work
                  in progress
              
              
              52Trade
                  and other payables
              
              
              (163
              )Intangible
                  assets
              
              
              236Net
                  assets
              
              
              163Cash
                  consideration
              
              
              152Other
                  costs capitalized
              
              
              11Total
                  consideration
              
              
              163Goodwill
                  arising on acquisition
              
              
              -
  F-16
  **Wako
                      Logistics Group, Inc.**
 
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 9 months ended September 30, 2005 and 2006
 
 *(Dollars
          in thousands except share data and per share amounts)*
 **8.**  **SEGMENTS
        OF THE BUSINESS**
 
 **(a)**
                **Business
                    segments**
 
 The
        Group
        operates mainly in three business segments, being the provision of (i) air
        forwarding; (ii) sea forwarding; and (iii) customs brokerage services. The Group ’s
        operations by air, sea and customs brokerage services are summarized in the
        following table:
 
 **(i)**  **For
        the 3 months ended September 30, 2005, and 2006
        (unaudited):**
  **Air
                  forwarding**
              
              **Sea
                  forwarding**
              
              **Customs
                  brokerage**
              
              **Total****2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*Revenue
              
              
              6,604
              
              
              7,501
              
              
              6,479
              
              
              11,943
              
              
              -
              
              
              6,839
              
              
              13,083
              
              
              26,283Costs
                  of forwarding/customs
              
              
              (5,557
              )
              
              (6,465
              )
              
              (5,099
              )
              
              (9,469
              )
              
              -
              
              
              (6,337
              )
              
              (10,656
              )
              
              (22,271
              )Depreciation
              
              
              (14
              )
              
              (17
              )
              
              (19
              )
              
              (35
              )
              
              -
              
              
              (6
              )
              
              (33
              )
              
              (58
              )Interest
                  income
              
              
              1
              
              
              3
              
              
              1
              
              
              3
              
              
              -
              
              
              -
              
              
              2
              
              
              6Interest
                  expense
              
              
              (5
              )
              
              (17
              )
              
              (6
              )
              
              (47
              )
              
              -
              
              
              (27
              )
              
              (11
              )
              
              (91
              )Other
                  segment income
              
              
              25
              
              
              1
              
              
              11
              
              
              4
              
              
              -
              
              
              -
              
              
              36
              
              
              5Other
                  segment expenses
              
              
              (800
              )
              
              (887
              )
              
              (1,036
              )
              
              (1,758
              )
              
              -
              
              
              (387
              )
              
              (1,836
              )
              
              (3,032
              )Taxation
              
              
              (61
              )
              
              (55
              )
              
              (81
              )
              
              (144
              )
              
              -
              
              
              (26
              )
              
              (142
              )
              
              (225
              )Net
                  income before parent company expenses
              
              
              193
              
              
              64
              
              
              250
              
              
              497
              
              
              -
              
              
              56
              
              
              443
              
              
              617Allocation
                  of parent company expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (119
              )
              
              (214
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              324
              
              
              403Segment
                  assets
              
              
              5,684
              
              
              5,812
              
              
              3,353
              
              
              7,499
              
              
              -
              
              
              1,715
              
              
              9,037
              
              
              15,026Unallocated
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,234
              
              
              4,710Total
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,271
              
              
              19,736Property,
                  plant and equipment - additions
              
              
              44
              
              
              7
              
              
              46
              
              
              10
              
              
              -
              
              
              3
              
              
              90
              
              
              20
  F-17
  **Wako
                  Logistics Group, Inc.**
 **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 9 months ended September 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **8.**  **SEGMENTS
        OF THE BUSINESS (CONTINUED)**
 
 The
        Group
        operates mainly in three business segments, being the provision of (i) air
        forwarding; (ii) sea forwarding; and (iii) customs brokerage services. The Group ’s
        operations by air, sea and customs brokerage services are summarized in the
        following table:
 
 **(ii)**  **For
        the 9 months ended September 30, 2005, and 2006
        (unaudited):**
  **Air
                  forwarding**
              
              **Sea
                  forwarding**
              
              **Customs
                  brokerage**
              
              **Total****2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006***US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*
              
              *US$*Revenue
              
              
              15,683
              
              
              20,830
              
              
              13,658
              
              
              28,049
              
              
              -
              
              
              18,016
              
              
              29,341
              
              
              66,895Costs
                  of forwarding/customs
              
              
              (13,626
              )
              
              (17,691
              )
              
              (10,416
              )
              
              (21,791
              )
              
              -
              
              
              (16,821
              )
              
              (24,042
              )
              
              (56,303
              )Depreciation
              
              
              (31
              )
              
              (54
              )
              
              (51
              )
              
              (103
              )
              
              -
              
              
              (19
              )
              
              (82
              )
              
              (176
              )Interest
                  income
              
              
              6
              
              
              16
              
              
              2
              
              
              11
              
              
              -
              
              
              1
              
              
              8
              
              
              28Interest
                  expense
              
              
              (10
              )
              
              (64
              )
              
              (13
              )
              
              (131
              )
              
              -
              
              
              (78
              )
              
              (23
              )
              
              (273
              )Other
                  segment income
              
              
              38
              
              
              15
              
              
              35
              
              
              56
              
              
              -
              
              
              1
              
              
              73
              
              
              72Other
                  segment expenses
              
              
              (1,715
              )
              
              (2,812
              )
              
              (2,656
              )
              
              (5,213
              )
              
              -
              
              
              (1,083
              )
              
              (4,371
              )
              
              (9,108
              )Taxation
              
              
              (87
              )
              
              (67
              )
              
              (135
              )
              
              (230
              )
              
              -
              
              
              (16
              )
              
              (222
              )
              
              (313
              )Net
                  income before parent company expenses
              
              
              258
              
              
              173
              
              
              424
              
              
              648
              
              
              -
              
              
              1
              
              
              682
              
              
              822Allocation
                  of parent company expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (217
              )
              
              (671
              )Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              465
              
              
              151Segment
                  assets
              
              
              5,684
              
              
              5,812
              
              
              3,353
              
              
              7,499
              
              
              -
              
              
              1,715
              
              
              9,037
              
              
              15,026Unallocated
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,234
              
              
              4,710Total
                  assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              10,271
              
              
              19,736Property,
                  plant and equipment - additions
              
              
              94
              
              
              23
              
              
              133
              
              
              41
              
              
              -
              
              
              9
              
              
              227
              
              
              73
  F-18
  **Wako
                    Logistics Group, Inc.**  **Notes
            to the Consolidated Financial Statements**
 For
            the 3
            and 9 months ended September 30, 2005 and 2006
 *(Dollars
            in thousands except share data and per share
            amounts)*
  **Wako
                  Logistics Group, Inc.**  **Notes
          to the Consolidated Financial Statements**
 For
          the 3
          and 9 months ended September 30, 2005 and 2006
 *(Dollars
          in thousands except share data and per share amounts)*
 
 **8.**  **SEGMENTS
        OF THE BUSINESS (CONTINUED)**
 
 (b)
              The
                  table below summarizes the percentage of the Group’s revenues during the
                  three months and nine months ended September 30, 2006, and 2005,
                  analyzed
                  by geographical locations:
  **3
                  months ended**
                **September
                  30,**
              
              **9
                  months ended**
                **September
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)**%*
              
              *%*
              
              *%*
              
              *%***Revenues**Americas
              
              
              14
              
              
              13
              
              
              12
              
              
              12Asia
                  and others
              
              
              12
              
              
              45
              
              
              12
              
              
              45Australia
              
              
              56
              
              
              28
              
              
              55
              
              
              28Europe
              
              
              18
              
              
              14
              
              
              21
              
              
              15100
              
              
              100
              
              
              100
              
              
              100
  (c)
              The
                  Group made sales during the three months and nine months ended
                  September
                  30, 2005, which qualified as sales to a major customer (a major
                  customer
                  is defined as a customer for which sales to it represent 10% or
                  more of
                  total revenues). Sales to this customer as a percentage of total
                  sales are
                  as follows:
  **3
                  months ended**
                **September
                  30,**
              
              **9
                  months ended**
                **September
                  30,****2005**
              
              **2006**
              
              **2005**
              
              **2006***(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)*
              
              *(unaudited)**%*
              
              *%*
              
              *%*
              
              *%*Customer
                  A
              
              
              12
              
              
              -
              
              
              13
              
              
              -
  F-19




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





OVERVIEW





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





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 $0.001 per share. On the date of our name change, we
      reduced the number of authorized shares to 60 million shares, of which 55
      million shares were designated as common stock, and 5 million shares were
      designated as blank check preferred stock. Immediately following the formation
      of Wako Logistics Group, Inc., Mr. Christopher Wood (“Mr. Wood”) became its sole
      shareholder.





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





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




1




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





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




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





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





Effective
      October 1, 2005, WLG acquired all of the voting stock of ALI, a company
      incorporated in California in September 1999 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
      February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG UK
      Holdings as a first tier subsidiary and WLG UK as a second tier subsidiary,
      to
      use as vehicles to make acquisitions and conduct business in the UK. Effective
      September 15, 2006, WLG UK acquired the operating assets and assumed limited
      liabilities of a division (“UK Division”) of a UK freight forwarding and
      logistics company (“UK Co.”). At the date of this acquisition, UK Co. was in
      bankruptcy proceedings in the United Kingdom. As such, WLG UK purchased for
      cash
      the operating assets of UK Division on a “as is” and “where is” basis from the
      court appointed Administrator. This UK Division, which operated in Manchester,
      UK, provided sea and air freight forwarding and warehouse logistics services,
      mostly to UK based customers. These activities are now carried on by WLG UK.
      Prior to this acquisition, the Group and UK Co. had worked together in a limited
      capacity on several mutual customers.




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.




In
      addition to our subsidiaries and branch offices, we also have working
      relationships with over 200 overseas agents, many of whom have offices in
      strategic cities in Europe, North and South America, and the Middle East. As
      a
      result, we are represented by more than one agent in many cities and do not
      generally need to rely on a single agent in any one city.




2




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





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





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




Gross
      revenues for our freight business, value added services and customs brokerage
      practice represent the total dollar value of the services we provide to our
      customers. Our costs for transportation and handling services 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 related services) is a good 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 and our knowledge of the logistics industry,
      we are generally able to negotiate shipping rates that are better than the
      rates
      our customers could negotiate directly with transportation providers. Often,
      the
      shipping rates we negotiate may be reduced due to the increase in the freight
      volumes that we arrange to have shipped. As a result, our customers, by placing
      their freight shipments through us, benefit from theses lower rates, and we,
      in
      turn, benefit by increasing our revenues.





A
      significant portion of our expenses for each of our business segments is
      variable and relates directly to the amount of business we book, or the services
      we provide. Direct transportation costs are our largest variable expense.
      Personnel costs represent our second largest expense. Due to the nature of
      our
      business and, given our experience, we are generally able to staff our
      operations based on the number of customer orders we fulfill. Nonetheless,
      staff
      costs are less flexible than other variable costs, and, for short periods,
      we
      may not be able to reduce or increase our staff levels to adjust for unexpected
      peaks and downturns in our business. We also have other significant costs that
      in short periods, such as three to six months, are essentially the same as
      fixed
      costs. Such costs include normal operating expenses such as rent, insurance.
      computer and other costs.


3




We
      also
      derive a significant portion of our freight revenues from the consolidation
      of
      cargo for shipment by air. In this part of our business, we always seek to
      combine a mix of light and heavy cargo in order 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 cargo space we guarantee, even if we do not
      use
      the space. Generally, we have been able to minimize our risk of loss by
      carefully gauging customer demand, and by entering into arrangements with other
      freight forwarders that will pay us to use the excess cargo space that we are
      unable to fill. However, we are not able to require our customers to ship
      minimum amounts, and, as such, we can not pass this risk on to our customers.
      *See segment information for three months ended September 30,
      2006.*





Our
      business is seasonal, and, historically, the first two quarters of the calendar
      year are our slowest periods. Because of the seasonality of our business and
      the
      level of our fixed operating costs, our operating results for the first half
      of
      the year are less than the results we expect to record for the remaining
      quarters of calendar 2006. As an example, the total revenues and net income
      for
      the quarter ended September 30, 2006, were approximately $26.3 million and
      $0.40
      million, respectively. This compares to revenues of $40.6 million and a net
      loss
      and of $0.25 million reported for the first six months of 2006.





We
      completed two acquisitions in the fourth quarter of last year. The business
      of
      each of these companies is seasonal, as is the business of the other companies
      in the Group. The smaller of the two acquisitions, ALI, has incurred an
      operating loss totaling $162,000 for the first three quarters of 2006, which
      has
      negatively impacted our results for this year. The second and larger
      acquisition, Asean, incurred an operating loss in the first three months of
      2006, but has reported operating profits for the second and third quarters
      of
      2006.  Asean reported a net operating loss of $166,000 for the first six
      months, and for the third quarter of 2006, reported a net profit of $171,000,
      giving it a year to date net income of $5,000. As part of the
      integration plans for Asean, efforts were undertaken by it to review its
      customer base with a view to eliminating low margin customers, and this has
      been on-going throughout 2006, with the biggest gains in its gross margin
      starting to occur in the second quarter of 2006.





A number
      of
      factors, other than seasonality, have contributed to the operating losses
      reported by ALI, and we have taken steps to eliminate these. For example, during
      2006, ALI’s management was replaced and substantially all of its administrative
      and customer service functions were moved to our Chicago office, which was
      able
      to absorb this work without increasing the number of its staff. Steps are still
      underway to introduce new business to ALI and to improve its operating margins.
      With these improvements, ALI's operating loss was reduced from nearly $103,000
      in the first quarter to about $30,000 each for the second and third quarters
      of
      2006. Reviewing the profitability and prospects of ALI will continue with a
      view
      to taking further actions if ALI continues to report losses.




WAE,
      which provides airfreight services from Hong Kong, has incurred operating
      losses in each of the first three quarters of this year. Because WAE has
      been profitable for many years, these losses were unanticipated. In general,
      WAE’s operating losses resulted from both seasonal delays and a general downturn
      in the airfreight market for shipments from Hong Kong. In addition, increasing
      fuel prices and fuel surcharges have continued to discourage customers from
      using air carriers to ship their goods. All of this has
      been exacerbated by the fact the air freight business has become extremely
      competitive in the Hong Kong market.


4




During
      the first three quarters of 2006, we continued to incur management costs and
      time to integrate the three acquisitions made in 2005, and the new offices
      in
      China into the Group's existing operations. These costs and the related time
      are
      necessary parts of the Group's plan to grow its business, and are important
      to
      ensure that both the new companies and the China offices become synergistic
      to
      the business of the Group. In addition, we have explored fund-raising
      opportunities and have actively pursued four acquisitions during the first
      three
      quarters of 2006, all of which are a part of our efforts to execute our
      business plan. In September 2006, we completed one of the four acquisitions
      and,
      as of the date of this report, are working on closing a second acquisition,
      but
      there can be no assurance that we will be successful in doing so. While not
      certain, it is likely that we will not continue to pursue the other two
      acquisition candidates.





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





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





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





Total
      revenue for the three months ended September 30, 2006, increased approximately
      101% for an increase of $13.2 million, compared with total revenue for the
      three
      months ended September 30, 2005, growing from about $13.08 million to $26.28
      million. Revenues from our operations in China grew by $0.88 million over the
      same period last year, adding approximately 6% to the total increase. Revenue
      from WLG (USA) for the three months ended September 30, 2006, increased
      approximately $1.59 million, adding 12% to the increase in total revenues.
      The
      growth in WLG (USA)’s revenues is attributable to internal growth of its
      existing business. ALI, which was acquired on October 1, 2005, added
      approximately $0.14 million in revenues, accounting for 1% of the total
      increase. The remaining increase of $11.03 million was provided by Asean in
      Australia, which, for reporting purposes, was considered as having been
      acquired on October 1, 2005. Due to a weakening of the airfreight business
      in
      Hong Kong, the revenue from our Hong Kong air operations decreased by $ 0.42
      million, from $4.25 million in the third quarter of last year to $3.83 million
      for the three months ended September 30, 2006.





Gross
      profit rose from $2.43 million in the three months ended September 30, 2005,
      to
      $4.01 million for an increase of $1.58 million for the three months ended
      September 30, 2006. Of this increase, our Hong Kong and China operations added
      $0.29 million, and WLG (USA) contributed $0.09 million. Asean and ALI, the
      two
      acquisitions made in the fourth quarter of 2005, contributed gross profit of
      $1.42 million and $0.02 million, respectively. WAE reported a decrease in gross
      profit of $0.24 million for the three months ended September 30, 2006, compared
      with same period last year. The Group's overall gross margin was 15.3% for
      the
      three months ended September 30, 2006, compared to 18.6% for the same period
      in
      2005. The decrease is mainly due to the lower profit margin of Asean's customs
      brokerage operations, which reported a gross margin of about 7.3% for the three
      months ended September 30, 2006, and to a reduction in the gross margin of
      Hong
      Kong’s air freight operations, which reported a gross margin of 5.6% for the
      third quarter of 2006, compared to 10.7% for the same period in
      2005.




During
      the three months ended September 30, 2006, our total operating expenses
      increased to about $3.30 million, as compared to approximately $1.97 million
      for
      the three months ended September 30, 2005, for an increase of nearly 68%. Of
      this increase, salaries and employee costs increased from $1.20 million to
      $2.22
      million, and all other selling and administrative expenses increased from $0.71
      million to $0.94 million. Amortization and depreciation increased from $0.06
      million to $0.14 million for an increase of 133%. Of the total increase in
      operating expenses of $1.33 million, approximately $1.27 million is attributable
      to the acquisitions made in 2005 and about $0.11 is related to the new business
      commenced in China. There was a small reduction in operating costs of about
      $46,000 in the other Group companies for the third quarter of 2006, compared
      to
      the same period in 2005. See *discussion of Operating Expenses* below.


5




After
      the
      provision for income taxes, the Group had net income of $403,000 for the three
      months ended September 30, 2006, compared to net income of $324,000 for the
      same
      period in 2005. Two of our subsidiaries, WAE and ALI, reported operating losses
      for the three months ended September 30, 2006. WAE's loss of approximately
      $95,000 was mainly attributable to low freight volumes, reduced selling rates
      and rising fuel costs for air shipments. ALI's loss for the period was about
      $28,000 and represents an improvement over the losses of $103,000 and $30,000
      reported by ALI for the first and second quarters of 2006, respectively. All
      other operating companies in the Group reported net operating profits for the
      third quarter.




**Segment
      Information**





***Airfreight
      operations*** :
      Revenue
      from airfreight operations for the three months ended September 30, 2006,
      increased from approximately $6.60 million to $7.50 million, or approximately
      14% when compared to the same period in 2005. Of this increase, approximately
      2%
      is attributable to the growth in WE China's operations. Revenues of WLG (USA)
      accounted for 4% of the growth, and ALI, also in the U.S., which was not part
      of
      the Group during the first three quarters of 2005, contributed 1% to the growth
      in revenues. Asean, our subsidiary in Australia, which was acquired during
      the
      fourth quarter of 2005, accounted for the remaining growth in revenues, or
      93%.
      The increase in revenues of $0.9 million is net of a reduction of $0.4 million
      in revenues recorded by our Hong Kong airfreight business, which represented
      a
      decline in its revenues of 10%.





Cost
      of
      sales for our airfreight forwarding operations increased by approximately 16%,
      from about $5.56 million to $6.47 million. This increase was due to an overall
      increase in freight traffic arranged by us, but was also caused by higher
      costs charged by the airlines, consisting mainly of additional fuel
      charges.





Gross
      profit margins decreased from 15.8% for the three months ended September 30,
      2005, to 13.7% for the same period in 2006. This decrease was primarily
      attributable to the higher costs charged by the airlines which we were not
      able
      to fully pass on to our customers, and to the cost of guaranteed cargo space
      for
      Hong Kong shipments that we were unable to use or to resell at a price
      sufficient to maintain our normal gross margin.





Total
      segment overhead attributable to our airfreight operations increased by
      approximately 14%, from $854,000 for the three months ended September 30, 2005,
      to $972,000 for the same period in 2006. Substantially all of this increase
      is
      attributable to the overhead costs of ALI and Asean, both of which were acquired
      in the fourth quarter of 2005. The overhead of WAE decreased by $11,000, and
      the
      overhead of WE China increased by about $20,000. In addition, the overhead
      expenses allocated to WLG (USA)'s airfreight business decreased by approximately
      $138,000 due to a disproportionate increase in WLG (USA)’s sea freight
      revenues.


6




Net
      segment income for our airfreight operations totaled approximately $64,000
      for
      the three months ended September 30, 2006, compared to net income of $193,000
      in
      the prior period of 2005. The decrease is mainly attributable to the losses
      incurred in the airfreight operations of WAE and ALI, which were $95,000 and
      $17,000, respectively




***Sea
      freight operations:*** Revenues
      from sea freight operations for the three months ended September 30, 2006,
      increased by approximately $5.46 million, or 84%, when compared with 2005,
      growing from approximately $6.48 million to $11.94 million. Growth in our Hong
      Kong business accounted for 1% of the increase, and the revenues generated
      by WE
      China accounted for 16% of the growth. Revenues of WLG (USA) contributed 28% of
      the growth. In addition, Asean and ALI's sea freight business, which we acquired
      in the fourth quarter of 2005, provided 55% of the increase in revenues, most
      of
      which is attributable to Asean.





Cost
      of
      sales for our sea freight operations increased by $4.38 million, or 86%, from
      $5.09 million for the three months ended September 30, 2005, to $9.47 million
      for the same period in 2006. The increase is mainly attributable to a
      corresponding increase in sea freight revenues for the reasons cited above,
      as
      well as higher freight costs during the peak shipping seasons that we were
      unable to fully charge back to our customers.





Gross
      profit margins decreased from approximately 21.5% for the three months ended
      September 30, 2005, to 20.7% for the same period in 2006. The decrease is due
      to
      higher freight costs charged by the shipping lines.





Total
      segment overhead attributable to our sea freight business increased by
      approximately 73%, from $1.13 million for the three months ended September
      30,
      2005, to $1.98 million for the same period in 2006. About $602,000 of this
      increase is attributable to the overhead costs added by the acquisitions of
      ALI
      and Asean. WE China’s overhead increased by $96,000 to handle the increase in
      business in China. WLG (USA)'s overhead expenses increased by approximately
      $160,000 to cope with an increase in its freight business. Overhead costs for
      our Hong Kong business decreased by about $13,000.




Net
      segment income for our sea freight operations totaled approximately $497,000,
      compared to net income of $250,000 for the same period of 2005, for an
      increase of nearly 100%. Net income was up for all Group companies, except
      ALI.
      Our Hong Kong, China and US operations recorded a combined net income of
      $439,000, and Asean contributed net income for this segment of approximately
      $69,000. ALI reported a net loss of $11,000 for this quarter.




***Customs
      brokerage services:*** Asean's
      operations include a division that provides customs brokerage services. During
      the three months ended September 30, 2006, revenue from Asean’s customs duty
      services totaled approximately $6.84 million. Direct and administrative costs,
      including taxation, totaled $6.78 million for the period. Taken together, this
      business segment generated a net operating profit of about $56,000 for the
      three
      months ended 2006.




**Operating
      Expenses**




*Salaries
      and employee costs*




Salaries
      and personnel related allowances for the three months ended September 30, 2006,
      grew 85% from $1.20 million to $2.22 million, for an increase of $1.02 million.
      Most of this increase is attributable to the payroll and related personnel
      costs
      of the Asean and ALI acquisitions and to the start up of business in China.
      Together, these companies added salaries and related costs of about $0.98
      million to the Group’s personnel costs, accounting for about 96% of the
      total increase of $1.02 million. The remaining increase of about $39,000 was
      attributable to normal increments in employee salaries granted at the beginning
      of 2006, and to new hires.


7




*Sales
      Commissions*




Sales
      commissions payable by us during the three months ended September 30, 2006,
      were
      $33,000, compared to $27,000 for the same period in 2005, reflecting an increase
      of 22%. 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 24% from $117,000 for the three months
      ended September 30, 2005, to $145,000 for the same period in 2006, for
      a total increase of $28,000. Near the end of 2005, four offices of WE China
      moved to larger offices in anticipation of increased business in China, adding
      about $30,000 of rent expense per quarter for 2006 over 2005. In addition,
      WLG
      (USA) opened one additional office in the U.S., which added an additional
      $14,000 in rent expense for the third quarter of 2006 over the same period
      in
      2005. Rental expense for our Hong Kong operations declined in the third quarter
      of 2006 by about $17,000, compared to the same period in 2005.




*Other
      Selling and Administrative Expenses (“Other SG&A”)*





Other
      SG&A expenses for the three months ended September 30, 2006, totaled
      $942,000 compared to $713,000 for the comparable period in 2005, for an increase
      of about $229,000. The entire increase of $229,000 was attributable to the
      Other
      SG&A expenses of Asean and ALI, which we acquired in the fourth quarter of
      2005. For the other companies in the Group, there was no net increase in Other
      SG&A expenses for the third quarter of 2006, compared to the same period in
      2005.





*Depreciation
      and Amortization*




Depreciation
      expense for property, plant and equipment increased from $33,000 for the three
      months ended September 30, 2005, to $58,000 for the same period in 2006. This
      increase of $25,000 is mostly attributable to the combined depreciation expense
      for the operations of ALI and Asean, which recorded depreciation expense of
      $1,000 and $17,000, respectively, and to additional depreciation expense of
      about $5,000 for computer and office equipment acquired for operations in
      China.




Amortization
      expense is attributable to the customer lists acquired in conjunction with
      the
      acquisitions of WLG (USA), ALI and Asean. We recorded a customer list asset
      of
      $512,000 as part of the WLG (USA) acquisition 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 September 30, 2006, amortization expense
      attributable to WLG (USA), Asean and ALI was $25,614, $48,831 and $8,207,
      respectively. WLG (USA) was acquired on April 1, 2005, and the amortization
      expense attributable to its customer list for the three months ended September
      30, 2005, was $25,614.




*Interest
      Expense*




Interest
      expense increased from $26,000 for the three months ended September 30, 2005,
      to
      $91,000 for the same period in 2006. This increase is attributable to interest
      expense of $75,000 for Asean’s bank and other debt facilities. Asean was not
      part of the Group during the third quarter of 2005.




*Provision
      for Income Taxes*




The
      provision for income taxes increased from $142,000 for the three months ended
      September 30, 2005, to $225,000 for the same period in 2006. The provision
      of
      $225,000 is attributable to the net incomes of Asean, Hong Kong's sea freight
      operations and China, which together reported pre-tax income of $860,000, and
      is
      an effective income tax rate of 26% for the income of these Group companies.
      Our
      U.S. operations of ALI and WLG (USA) are consolidated for tax purposes with
      WLG
      and, combined, have a consolidated operating loss for the third quarter. As
      such, no provision for U.S. federal and state income taxes was required, and
      no
      income tax benefit was given for their losses, which combined, totaled $56,000
      after excluding approximately $42,000 of non-deductible expenses. After
      consideration of all losses for which no income tax benefit was provided, the
      effective tax rate on the Group's income for the third quarter of 2006 is
      approximately 35%.


8




NINE
      MONTHS ENDED SEPTEMBER 30, 2006 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30,
      2005





Total
      revenue for the nine months ended September 30, 2006, increased approximately
      128% compared with total revenue for the same period in 2005, growing from
      approximately $29.34 million to $66.90 million. Approximately $0.18 million,
      or
      0.5% of this increase, is attributable to revenues from our Hong Kong business.
      Revenues from our operations in China, which commenced in February 2005, grew
      by
      $3.79 million over the same period last year, adding approximately 10% to the
      total increase. The acquisition of WLG (USA) in the U.S., which occurred on
      April 1, 2005, added revenues of approximately $4.90 million, or 13%, for the
      nine months ended September 30, 2006. Our second U.S. acquisition, ALI, which
      was acquired on October 1, 2005, added approximately $0.79 million in revenues,
      accounting for 2% of the total increase. The remaining increase of $27.90
      million, or 74.5%, in revenue is from Asean which, for reporting
      purposes, was considered as having been acquired on October 1,
      2005.





Gross
      profits rose from $5.30 million for the nine months ended September 30, 2005,
      to
      $10.59 million for the same period in 2006, for an increase of $5.29 million,
      or
      100%. Of this increase, our Hong Kong operations contributed $0.12 million
      and
      our China operations and the three acquisitions completed in 2005 added $5.17
      million. The Group's overall gross margin was 15.8 % for the nine months ended
      September 30, 2006, compared to 18.1% for the same period in 2005. This decrease
      in gross margin is mainly due to the lower profit margins for Asean's customs
      service operations, which reported a gross margin of about 6.6% for the nine
      months ended September 30, 2006, and to lower gross margins reported by WLG
      (USA) and WAE. WLG (USA) reported a gross margin of 24.5% in 2005, and for
      2006,
      has reported a gross margin of 17.9%. The decrease in WLG (USA)’s gross margin
      is largely due to our decision to increase its import business from Asia. In
      growing this geographical segment of its business, WLG (USA) has had to
      initially accept lower margins than what it has earned on business from and
      to
      other parts of the world. WAE's gross margin for the nine months ended September
      30, 2006, was 8%, as compared to about 10% for the same period in 2005. A
      weakening of the airfrieght business in Hong Kong and the inability to use
      all
      guaranteed cargo space during about the third quarter of 2006, compared to
      the same period last year, is responsible for the decrease in WAE's gross
      margin.




During
      the nine months ended September 30, 2006, total operating expenses increased
      to
      about $9.95 million, as compared to approximately $4.64 million for the nine
      months ended September 30, 2005, for an increase of 114%. Of this increase,
      salaries and related personnel costs increased nearly 128% from $2.77 million
      to
      $6.30 million, and other selling and administrative costs increased by
      approximately 86% from $1.74 million to $3.23 million, for a total increase
      of
      $1.49 million. Amortization and depreciation increased from $0.13 million to
      $0.43 million, for an increase of 231%. Of the total increase in operating
      costs
      of $5.31 million, approximately $4.29 million is attributable to the
      acquisitions made in 2005 and about $0.59 million is related to the new
      business commenced in China in 2005. The remaining increase of $0.43 million
      in
      operating costs is in line with the increases in our sales revenue, and with
      the
      additional management and staff added in late 2005. Also, part of the $0.43
      million increase is due to a bad debt of approximately $61,000 which arose
      from
      the bankruptcy of a major customer in the United Kingdom.  See *discussion of Operating Expenses* below.





After
      the
      provision for income taxes, the Group’s net income for the nine months ended
      September 30, 2006, totaled $151,000, compared to net income of $465,000 for
      the
      same period in 2005. All operating subsidiaries, except WAE and ALI, reported
      net profits for the nine months ended September 30, 2006. WAE and ALI
      had net losses of about $118,000 and $163,000, respectively for the nine
      months ended September 30, 2006. For the nine months ended September 30, 2005,
      WAE reported a net profit of $174,000, and ALI was not part of the Group as
      of
      this date.


9




**Segment
      Information**





***Airfreight
      operations*** :
      Revenue
      from airfreight operations for the nine months ended September 30, 2006,
      increased from approximately $15.68 million to $20.83 million, or approximately
      33% when compared to the same period in 2005. Revenues from our China airfreight
      business accounted for 30% of the total growth of this segment. As part of
      the
      development of our airfreight business in China, we signed cargo space
      commitment agreements with airlines serving China to ensure we had adequate
      capacity for shipments from this market. Obtaining this guaranteed space for
      China helped to increase our revenues in this market. WLG (USA), which was
      acquired during the second quarter of 2005, added revenues equal to 14% of
      the
      growth for this segment. ALI's operations in the U.S., which were not part
      of
      the Group during the first nine months of 2005, contributed revenues accounting
      for 2% of the growth. Airfreight revenues attributable to our subsidiary in
      Australia, which we acquired during the fourth quarter of 2005, accounted for
      the remaining growth of 54%. Due to a softening in the general market for
      airfreight in Hong Kong, the revenue of our Hong Kong operations decreased
      by
      about $1.0 million, or 10%.





Cost
      of
      sales for our airfreight operations increased by approximately 30%, from about
      $13.63 million to $17.69 million. This increase was due to higher volumes of
      freight traffic arranged by us, and to higher operating costs with the primary
      one being fuel costs passed on to us by the airlines. We were not able to pass
      all of these higher costs on to our customers. In addition, our costs increased,
      particularly in the third quarter, because we were unable to use all of the
      space that we had guaranteed to the airlines and/or to resell it at a price
      sufficient to maintain our normal gross margin.





Gross
      profit margins increased from 13.1% for the nine months ended September 30,
      2005
      to 15.1% 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 of Asean, which reported a gross margin of 20.4%, and which offset
      the
      lower margins reported by WAE. Asean was not part of the Group during the first
      nine months of 2005.





Total
      segment overhead attributable to our airfreight operations increased by
      approximately $1.17 million, or 65%, from approximately $1.80 million for the
      nine months ended September 30, 2005, to $2.97 million for the same period
      in
      2006. Approximately $0.82 million of this increase is attributable to the
      overhead expenses resulting from the acquisitions of ALI and Asean. We have
      also
      added more resources to accelerate the development of WE China's airfreight
      business, which commenced in February, 2005, resulting in an increase of $0.38
      million in overhead costs over last year. Overhead costs for our operations
      in
      Hong Kong increased by approximately $22,000, WLG (USA)'s overhead costs
      decreased by nearly $42,000, mainly as a result of more of its overhead costs
      being allocated to its sea freight business, which grew at a faster rate than
      its airfreight operations.





Net
      segment income for our airfreight operations totaled approximately $173,000
      for
      the nine months ended September 30, 2006, compared to net income of $258,000
      in
      the prior period of 2005. WAE reported a loss of approximately $118,000 in
      the
      nine months ended September 30, 2006, but this loss was partially offset by
      the
      growth in net income in our China airfreight business.




***Sea
      freight operations:*** Revenues
      from sea freight operations for the nine months ended September 30, 2006,
      increased approximately 105% when compared to the same period in 2005, growing
      from approximately $13.66 million to $28.05 million. Growth in our Hong Kong
      business accounted for 9% of the increase, and revenues generated by WE China's
      operations accounted for 13% of the growth. WLG (USA), which was not part of
      the
      Group until April 1, 2005, contributed revenues equal to 28% of the growth.
      In
      addition, Asean and ALI's sea freight businesses, which we acquired in the
      fourth quarter of 2005, provided 45% and 5% of the increase in revenues,
      respectively.


10




Cost
      of
      sales for our sea freight operations increased 109% from $10.42 million for
      the
      nine months ended September 30, 2005, to $21.79 million for the same period
      in
      2006. This increase is mainly attributable to a corresponding increase in sea
      freight revenues for the reasons cited above.





Gross
      profit margins decreased from approximately 23.7% for the nine months ended
      September 30, 2005, to 22.31% for the same period in 2006. The decrease is
      due
      to increasing freight rates charged by the shipping lines and to lower profit
      margins attributable to WLG (USA) and ALI, which recorded gross margins of
      16.9%
      and 10.5%, respectively, for the nine months ended September 30, 2006. We were
      not able to pass on to our customers all of the increases in freight rates
      that
      we were charged by the shipping lines.





Total
      segment overhead attributable to our sea freight business increased by $2.79
      million, or 99%, from approximately $2.82 million for the nine months ended
      September 30, 2005, to $5.61 million for the same period in 2006. The increase
      is partially attributable to the acquisitions of ALI and Asean, which added
      overhead costs of $1.74 million to the Group. Overhead for WE China increased
      by
      $0.39 million to cope with the increases in its business. In addition, WLG
      (USA)'s overhead added approximately $0.65 million to the Group following its
      acquisition on April 1, 2005. Overhead expenses in our Hong Kong businesses
      increased by $10,000.





Net
      segment income for our sea freight operations was approximately $648,000 for
      the
      nine month ended September 30, 2006, compared to net income of $424,000 in
      the
      same period of 2005. ALI recorded a loss of approximately $148,000, mainly
      attributable to insufficient shipment volumes arranged by it during the first
      nine months of 2006. ALI's loss was offset by the growth in the net
      income of our Hong Kong, China and US operations, which together recorded
      net income of $796,000.




***Customs
      brokerage services:*** Asean's
      operations include a division that provides customs brokerage services. During
      the nine months ended September 30, 2006, revenue from customs duty services
      was
      approximately $18.02 million. Direct and administrative costs, net of taxation
      of $16,000, totaled about $18.02 million producing net income of $1,000 for
      the
      nine months ended September 30, 2006.




**Other
      Operating Expenses**




*Salaries
      and allowances*




Salaries
      and personnel related allowances for the nine months ended September 30, 2006,
      increased by $3.54 million, or 128%, from $2.76 million to $6.30 million. This
      increase was attributable to normal increments in employee salaries given at
      the
      beginning of 2006, and to increases in the number of operational staff and
      management personnel. The acquisitions of WLG (USA), Asean and ALI and the
      start
      up of business in China added about 144 new employees to our headcount, and
      increased personnel costs by $3.24 million for the nine months ended
      September 30, 2006, compared to the same period in 2005. As of September 30,
      2006, the Group’s employee headcount was 223.




*Sales
      Commissions*




Sales
      commissions payable by us during the nine months ended September 30, 2006,
      were
      $103,000 compared to $86,000 for the same period in 2005, reflecting an increase
      of 20%. This increase is attributable to higher sales revenues generated by
      the
      sales staff for our Hong Kong freight business.


11




*Rent*




Rent
      expense for our facilities increased 86% from $278,000 for the nine months
      ended
      September 30, 2005, to $516,000 for the same period in 2006, for an overall
      increase of $238,000. We leased eight offices for our operation in China
      beginning February 2005, and four of these locations moved to larger offices
      near the end of 2005 in anticipation of a growth in business in 2006. In total,
      the new offices in China added about $107,000 in rent expense to the Group.
      WLG
      (USA) opened one additional office in the U.S., accounting for an additional
      $15,000 of rent for the nine months ended September 30, 2006, compared to the
      same period in 2005. Two more offices were added with the acquisition of Asean
      and another office was added following the acquisition of ALI. Asean and ALI
      were acquired in the fourth quarter of 2005, which added rent expense of $58,000
      and $9,000, respectively. Rent expense for the nine months ended September
      30,
      2006, for our Hong Kong operations declined by about $33,000 compared to the
      same period in 2005.




*Other
      Selling and Administrative Expenses*





Other
      SG&A expenses for the nine months ended September 30, 2006, totaled $3.23
      million compared to $1.74 million for the same period in 2005, for an increase
      of about $1.49 million over Other SG&A expenses for the same period last
      year. Of this increase, approximately $1.20 million is attributable to the
      Other
      SG&A costs taken on in conjunction with the acquisitions made in 2005. In
      addition, $160,000 was attributable to Other SG&A expenses for WE China,
      which commenced business in February of 2005. For the other companies in the
      Group, there was a net increase of $135,000 in Other SG&A costs for the nine
      months of 2006, compared to the same period in 2005.





*Depreciation
      and Amortization*




Depreciation
      expense for property, plant and equipment increased from $82,000 for the nine
      months ended September 30, 2005, to $176,000 for the same period in 2006. This
      increase of $94,000 is partially due to the combined depreciation expense of
      ALI
      and Asean, which totaled $59,000 for the nine months ended September 30, 2006.
      The remaining increase is attributable to additional depreciation expense for
      the additions of office and computer equipment, mostly for our offices in
      China.





Amortization
      expense is mainly attributable to the customer lists acquired in conjunction
      with the acquisitions of WLG (USA), ALI and Asean. In connection with the
      acquisition of WLG (USA), we recorded a customer list asset of $512,000, which
      is being amortized on a straight-line basis over 5 years. Asean's customer
      list
      was valued at $1.56 million and is being amortized on a straight-line basis
      over
      8 years. A value of $164,000 was assigned to ALI's customer list, and is being
      amortized over five years. During the nine months ended September 30, 2006,
      amortization expense attributable to WLG (USA), Asean and ALI was $76,842,
      $146,495 and $24,621, respectively. WLG (USA) was acquired on April 1, 2005,
      and
      the amortization expense attributable to its customer list for the nine months
      ended September 30, 2005 was $51,228.




*Interest
      Expense*




Interest
      expense increased from $52,000 for the nine months ended September 30, 2005,
      to
      $273,000 for the same period in 2006. This increase is mainly attributable
      to
      interest expense of $228,000 for Asean’s bank and other debt facilities. Asean
      was not part of the Group during the third quarter of 2005.




*Provision
      for Income Taxes*




The
      provision for income taxes increased from $222,000 for the nine months ended
      September 30, 2005, to $313,000 for the same period in 2006, mainly attributable
      to income recorded by our Hong Kong, China and Australian operations. Income
      tax
      of $313,000, representing an effective income tax rate of 25%, was provided
      for
      the net incomes of Hong Kong's sea freight business, China's operations and
      Asean’s operations, which combined reported total net income of $1.25 million.
      The U.S. operations of ALI and WLG (USA) are included in a consolidated income
      tax return with the Group’s parent company and, together, these companies had a
      consolidated net loss. As such, no provision for U.S. federal or state income
      taxes was required, and no income tax benefit was given for their losses, which
      totaled $354,000 after elimination of $170,000 of non-deductible expenses.
      Also,
      no income tax benefit has been provided for the operating loss incurred by
      Hong
      Kong's air freight operations. After consideration of all losses for which
      no
      income tax benefit was provided, the effective tax rate on the Group's net
      income for the nine months ended September 30, 2006, is approximately
      67%.


12




**LIQUIDITY
      AND CAPITAL RESOURCES**




For
      the
      nine months ended September 30, 2006, our operations used net cash of
      approximately $226,000 compared with $249,000 of cash used for the nine months
      ended September 30, 2005. In 2006, cash was provided by the following sources:
      an increase in accrued charges of $399,000, amortization and depreciation of
      $427,000, provision for bad debts of $83,000, a decrease in due from related
      parties of $215,000, an increase in income tax payable of $72,000 and net income
      of $151,000. Major components that used cash in the first nine months of 2006
      included an increase in trade receivables of $570,000, an increase in deposits
      and prepayments of $751,000, a decrease in trade payables of $105,000, repayment
      to a director of $125,000 and a decrease of $22,000 in amounts owed to related
      parties.




Net
      cash
      provided by financing activities totaled about $8,000 for the nine months ended
      September 30, 2006, compared with $1.50 million of net cash provided for the
      same period in 2005. Cash provided for financing activities for the nine months
      ended September 30, 2005, consisted primarily of a loan of $1.0 million in
      March
      2005, from the Company's Chief Executive Officer and controlling shareholder
      for
      the purchase of WLG (USA), as well as new bank loans of $376,000. The loan
      from
      the Company’s Chief Executive Officer was converted to convertible redeemable
      preferred stock at the end of the third quarter of 2005. Cash provided by
      financing activities for the nine months ended September 30, 2006, consists
      of
      an increase in bank debt of $338,000 and an advance of $259,000 from the
      Company’s Chief Executive Officer used for the purchase of and initial
      working capital for the UK Division. Cash used by financing activities for
      the
      nine months ended September 30, 2006, consisted primarily of the repayment
      of
      bank loans and capital lease obligations of $356,000 and $75,000, respectively.
      In addition, we paid dividends of $68,000 on our preferred stock. We also
      increased restricted cash and pledged deposits by $90,000 for bank guarantees
      used to support our airfreight business.




As
      of
      September 30, 2006, we have provided bank guarantees of $603,000 to certain
      airlines as support for credit facilities provided to one of our subsidiaries
      to
      allow it to make freight payments, which must be paid to the airlines prior
      to
      payments being received from our customers. These guarantees are secured by
      restricted cash deposited in separate bank accounts, along with certificates
      of
      deposit, which, in the aggregate, total approximately $617,000. We also have
      given a bank guarantee of approximately $171,000 in favor of the owner of the
      premises occupied by our subsidiary in Australia.




In
      April
      2004, WEHK and WAE (“The Hong Kong Subsidiaries”) obtained a short-term bank
      loan of approximately $67,000, of which $45,000 was used for the purchase of
      capital assets. The remaining $22,000 was used for general working capital
      purposes. This short-term bank loan was repaid in full by September 30, 2005.
      In
      October 2004, the Hong Kong Subsidiaries obtained an additional bank loan of
      $449,000, which was used to pay income taxes and for general working capital
      needs. This loan is repayable in 24 equal monthly installments, with interest
      at
      the best rate charged by the lending bank, less one percent. The interest rate
      on this loan was 7% per annum and the outstanding principal amount was
      approximately $19,000 as of September 30, 2006. In October 2005, the Hong Kong
      Subsidiaries obtained an additional loan of approximately $129,000, and used
      the
      proceeds from it to pay income taxes and for general working capital purposes.
      As of September 30, 2006, the principal amount of this loan was approximately
      $22,000, and it carried an annual interest rate of 8%.




At
      September 30, 2006, WLG (USA) owed $533,000 in bank debt used by it for general
      working capital needs. This bank loan, which bore interest at the rate of 8.25%
      as of September 30, 2006, is secured by substantially all of the assets of
      WLG
      (USA) and the personal guarantee of WLG (USA)'s Chief Executive Officer. WLG
      (USA)'s borrowings are subject to certain covenants, including the maintenance
      of its tangible net worth, which must be at least $200,000 and debt service
      coverage of at least 1.2 to 1.0. WLG (USA) was in violation of the debt service
      covenant as of December 31, 2005, but the violation was waived by the bank
      until
      the maturity date of the loan facility, which, as extended, is November 1,
      2006.
      Negotiations are underway with this bank to increase and renew this loan
      facility, and also with a second bank to obtain a new and larger credit
      facility.


13




Asean
      has
      a receivables loan facility of approximately $2.99 million, which is secured
      by
      and based on its accounts receivable. It also has an overdraft facility of
      $435,000. At September 30, 2006, Asean's outstanding bank debt for both
      facilities was approximately $2.38 million, with interest rates of approximately
      8.9% for the overdraft facility and 11.35% for the receivables loan facility.
      In
      addition to a charge over all of Asean's accounts receivable, the bank also
      holds a first registered mortgage over all of Asean's assets, and it has
      personal guarantees from each of the former shareholders of the
      company.




Part
      of
      our business plan is to make strategic acquisitions as a means of expanding
      our
      business to provide services 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 we
      may
      need because the amount will vary with the size, type and nature of the
      prospective acquisitions. However, there can be no assurance that we will be
      successful in identifying suitable acquisition targets and, if we do, there
      can
      be no certainty that we will be able to complete the acquisitions of the target
      companies. Nor can there be any assurance that we would be successful in our
      efforts to raise additional capital either in the form of long-tem debt and/or
      equity.




Our
      approximate contractual cash obligations as of September 30, 2006, are outlined
      in the table below which includes our equipment lease and office rental
      obligations, as well as payments due under our cargo space commitments. These
      cash obligations are expected to equal approximately $387,000 per month over
      the
      following twelve months.




Payments
                Due by Period
              (in
                thousands)Contractual
                Obligations
            
            
            Total
            
            
            Less
                than 1 year
            
            
            1-3
                years
            
            
            4-5
                years
            
            
            After
                5 yearsFacilities
                Obligations: Equipment lease and office rental obligations
            
            $
            1,130
            
            $
            547
            
            $
            484
            
            $
            99
            
            $
            -Other
                Obligations: Cargo space commitment
            
            $
            4,098
            
            $
            4,098
            
            
            -
            
            
            -
            
            
            -Total
                Contractual Cash Obligations
            
            $
            5,228
            
            $
            4,645
            
            $
            484
            
            $
            99
            
            $
            -




During
      the nine months ended September 30, 2006 and 2005, we have not engaged in
      any:


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




·
                  trading
                      activities in non-exchange traded
                      contracts.
 
 14
  **CRITICAL
          ACCOUNTING POLICIES AND ESTIMATES**




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




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




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




**Revenue
      Recognition Policy**




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




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




Airfreight
      revenues reflect income for shipments when we act as a freight consolidator.
      Ocean freight revenues reflect income for shipments when we act as a Non-Vessel
      Operating Common Carrier. In each case we are acting as an indirect carrier.
      When acting as an indirect carrier, revenues related to shipments are recognized
      when freight is received from the shipper (for import freight) or when freight
      leaves the carrier's terminal (for export freight) with accrual of the estimated
      direct costs to complete delivery of the freight to its ultimate destination.
      We
      have reviewed the effect on our reported results if we were to recognize revenue
      and accrue the associated costs only upon the completion of a shipment to its
      ultimate destination compared to reporting revenues and accruing costs at the
      points of departure for air freight and ports of arrival for sea freight. We
      have determined that no material differences exist for either air or sea freight
      such that revenues and direct costs associated with air and ocean shipments,
      as
      reported, would not be materially different than what would have been reported
      if all revenue and associated costs were recognized after the freight arrived
      at
      its destination.




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




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




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


15




**Recognition
      of Costs of Freight Forwarding**




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




**Accounting
      for Income Taxes**




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




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





**Foreign
      Subsidiaries**





The
      Company has foreign subsidiaries whose local currency has been determined to
      be
      the functional currency. For these foreign subsidiaries, the assets and
      liabilities have been translated using the current exchange rates, and the
      income and expenses have been translated using the weighted average of
      historical exchange rates during the reporting period. The adjustments resulting
      from translation have been recorded separately in shareholders' equity as “other
      comprehensive income (loss)” and are not included in determining the
      consolidated net loss. As of September 30, 2006, other comprehensive income
      (loss) included approximately $28,000 of cumulative income from foreign
      currency translation.




**Off-balance
      Sheet Arrangements**





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


16




**Accounting
      for Stock-Based Compensation**





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





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




17




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





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





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


18





**PART
      II. OTHER INFORMATION**





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




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





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




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




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





None




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





None




**ITEM
      5. OTHER INFORMATION**





None


19





**ITEM
      6. EXHIBITS**





Exhibits
      (filed herewith)





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





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




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




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


20




**SIGNATURES**





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


WAKO
                LOGISTICS GROUP, INC.Date: November
                13, 2006
            By:
            /s/ Christopher
                WoodChristopher
                WoodChief
                Executive Officer, ( Principal Executive Officer) and
                Director


Date: November
                13, 2006
            By:
            /s/ David
                L. KoontzDavid
                L. KoontzChief
                Financial Officer, (Principal Financial Officer and Accounting
                Officer)




21





**EXHIBIT
      INDEX**




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




22