UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM
10-Q





(Mark One)




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




For
the quarterly period ended September 30, 2009





or





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




For
the transition period from _____________ to _____________





Commission
file number: 333-113564





WLG
INC.


(Exact
name of registrant as specified in its charter)




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




920
East Algonquin Road, Suite 120


Schaumburg,
IL 60173


(Address
of principal executive offices with zip code)





224-653-2800


(Registrant's
telephone number, including area code)




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





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




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





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





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





On
November 13, 2009, the registrant had 31,400,094 shares of common stock, $0.001
par value per share, issued and outstanding.





WLG
Inc.





TABLE
OF CONTENTS




Part
      I:
                                        
                                        Financial
      InformationItem
      1.
                                        
                                        Financial
      StatementsCondensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      September 30, 2009 and 2008
                                        
                                        F-1Condensed
      Consolidated Balance Sheets as of September 30, 2009 and December 31,
      2008
                                        
                                        F-3Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended September
      30, 2009 and 2008
                                        
                                        F-5Notes
      to Condensed Consolidated Financial Statements
                                        
                                        F-6Item
      2.
                                        
                                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                        
                                        3Item
      3.
                                        
                                        Quantitative
      and Qualitative Disclosures About Market Risk
                                        
                                        17Item
      4.
                                        
                                        Controls
      and Procedures.
                                        
                                        17Part
      II:
                                        
                                        Other
      Information
                                        
                                        17Item
      1.
                                        
                                        Legal
      Proceedings
                                        
                                        17Item
      1A.
                                        
                                        Risk
      Factors
                                        
                                        17Item
      6.
                                        
                                        Exhibits
                                        
                                        17Signatures
                                        
                                        
                                        
                                        18




NOTE
REGARDING FORWARD LOOKING STATEMENTS




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





The
Company cautions readers regarding certain forward-looking statements in this
document and in all of its communications to shareholders and others, including
press releases, securities filings and all other communications. WLG also
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Such forward-looking
statements are based on the beliefs of WLG's management as well as on
assumptions made by and information currently available to WLG at the time such
statements were made. Forward-looking statements are subject to a variety of
risks and uncertainties that could cause actual events or results to differ from
those reflected in the forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements, as a result
of either the matters set forth or incorporated in this report generally or
certain economic and business factors, some of which may be beyond the control
of WLG. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected expenses, failure to gain
or maintain approvals for the sale and expansion of WLG's services in the
jurisdictions where WLG conducts its business, or the failure to capitalize upon
access to new markets and those factors referred to or identified in Item 1A of
our Report on Form 10-K for the year ended December 31, 2008, and in Item 1A of
our Report on Form 10-Q for the three months ended June 30, 2009. WLG
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.








Part
I: Financial Information





Item
1. Financial Statements


WLG
Inc.
 
 Consolidated
      Statements of Operations and other comprehensive incomeThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 Three months ended
                            September 30,
                          
                          
                          Nine months ended
                            September 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Notes
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$(unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)Revenues:Freight
                          
                          
                          
                          
                          20,638
                          
                          
                          
                          31,604
                          
                          
                          
                          50,690
                          
                          
                          
                          98,963Other
      services
                          
                          
                          
                          
                          19,437
                          
                          
                          
                          24,975
                          
                          
                          
                          50,359
                          
                          
                          
                          69,318Total
      revenues
                          
                          
                          
                          
                          40,075
                          
                          
                          
                          56,579
                          
                          
                          
                          101,049
                          
                          
                          
                          168,281Operating
      expensesCost
      of forwarding/customs
                          
                          
                          
                          
                          (33,941
                          )
                          
                          
                          (49,319
                          )
                          
                          
                          (84,771
                          )
                          
                          
                          (147,311
                          )Selling
      and administrative
                          
                          
                          
                          
                          (6,239
                          )
                          
                          
                          (6,115
                          )
                          
                          
                          (17,249
                          )
                          
                          
                          (18,202
                          )Depreciation
      and amortization
                          
                          
                          
                          
                          (251
                          )
                          
                          
                          (319
                          )
                          
                          
                          (741
                          )
                          
                          
                          (958
                          )Total
      operating expenses
                          
                          
                          
                          
                          (40,431
                          )
                          
                          
                          (55,753
                          )
                          
                          
                          (102,761
                          )
                          
                          
                          (166,471
                          )(Loss)
      Income from operations
                          
                          
                          
                          
                          (356
                          )
                          
                          
                          826
                          
                          
                          
                          (1,712
                          )
                          
                          
                          1,810Other
      (expense) incomeInterest
      income
                          
                          
                          
                          
                          -
                          
                          
                          
                          6
                          
                          
                          
                          1
                          
                          
                          
                          28Interest
      expense
                          
                          
                          
                          
                          (154
                          )
                          
                          
                          (241
                          )
                          
                          
                          (456
                          )
                          
                          
                          (680
                          )Other
      (expense) income, net
                          
                          
                          
                          
                          (6
                          )
                          
                          
                          126
                          
                          
                          
                          141
                          
                          
                          
                          48(Loss)
      Income before income taxes
                          
                          
                          
                          
                          (516
                          )
                          
                          
                          717
                          
                          
                          
                          (2,026
                          )
                          
                          
                          1,206Income
      tax provision
                          
                          
                          
                          
                          (150
                          )
                          
                          
                          (267
                          )
                          
                          
                          (92
                          )
                          
                          
                          (494
                          )Net
      (loss) income
                          
                          
                          
                          
                          (666
                          )
                          
                          
                          450
                          
                          
                          
                          (2,118
                          )
                          
                          
                          712Dividends
      on preferred stock
                          
                          
                          
                          
                          (23
                          )
                          
                          
                          (23
                          )
                          
                          
                          (68
                          )
                          
                          
                          (68
                          )(Loss)
      Income applicable to common stock
                          
                          
                          
                          
                          (689
                          )
                          
                          
                          427
                          
                          
                          
                          (2,186
                          )
                          
                          
                          644Other
      comprehensive income, net of taxes:Foreign
      currency translation adjustment
                          
                          
                          
                          
                          128
                          
                          
                          
                          (243
                          )
                          
                          
                          287
                          
                          
                          
                          (163
                          )Total
      comprehensive (loss) income
                          
                          
                          
                          
                          (561
                          )
                          
                          
                          184
                          
                          
                          
                          (1,899
                          )
                          
                          
                          481
  The
financial statements should be read in conjunction with the accompanying
notes.
  F-1
 
 WLG
Inc.
 
 Consolidated
      Statements of Operations and other comprehensive incomeThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 Three months ended
                          September 30,
                        
                        
                        Nine months ended
                          September 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Notes
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)Net
      (loss) income per share:Basic
      (loss) earnings per share
                        
                        2
                        
                        
                        
                        (0.02
                        )
                        
                        
                        0.01
                        
                        
                        
                        (0.07
                        )
                        
                        
                        0.02Diluted
      (loss) earnings per share
                        
                        2
                        
                        
                        
                        (0.02
                        )
                        
                        
                        0.01
                        
                        
                        
                        (0.07
                        )
                        
                        
                        0.02Weighted
      average number of shares of common stock outstandingBasic
                        
                        
                        
                        
                        
                        31,400,094
                        
                        
                        
                        31,400,094
                        
                        
                        
                        31,400,094
                        
                        
                        
                        31,400,094Diluted
                        
                        
                        
                        
                        
                        31,400,094
                        
                        
                        
                        33,900,094
                        
                        
                        
                        31,400,094
                        
                        
                        
                        31,400,094
  The
financial statements should be read in conjunction with the accompanying
notes.
  F-2
  WLG
Inc.
 
 Consolidated
      Balance SheetsAt
      September 30, 2009 and December 31, 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 At
                          September 30,
                          2009
                        
                        
                        At
                          December 31,
                          2008Notes
                        
                        
                        US$
                        
                        
                        US$(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                        
                        
                        
                        
                        
                        1,456
                        
                        
                        
                        2,402Restricted
      cash
                        
                        
                        
                        
                        
                        601
                        
                        
                        
                        713Trade
      receivables, net of allowance (2009:$865 ; 2008:
      $499)
                        
                        
                        
                        
                        
                        16,780
                        
                        
                        
                        15,246Deposits,
      prepayments and other current assets
                        
                        
                        
                        
                        
                        1,091
                        
                        
                        
                        903Prepaid
      tax
                        
                        
                        
                        
                        
                        204
                        
                        
                        
                        50Total
      current assets
                        
                        
                        
                        
                        
                        20,132
                        
                        
                        
                        19,314Property,
      plant and equipment, net
                        
                        
                        
                        
                        
                        1,344
                        
                        
                        
                        1,115Deposits
      and other non-current assets
                        
                        
                        
                        
                        
                        107
                        
                        
                        
                        142Deferred
      tax assets
                        
                        
                        
                        
                        
                        387
                        
                        
                        
                        248Intangible
      assets, net
                        
                        
                        
                        
                        
                        3,451
                        
                        
                        
                        3,931Goodwill
                        
                        
                        
                        
                        
                        9,328
                        
                        
                        
                        9,328Total
      assets
                        
                        
                        
                        
                        
                        34,749
                        
                        
                        
                        34,078LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesBank
      overdraft
                        
                        3
                        
                        
                        
                        585
                        
                        
                        
                        466Trade
      payables
                        
                        
                        
                        
                        
                        9,908
                        
                        
                        
                        8,092Other
      accrued liabilities
                        
                        
                        
                        
                        
                        3,161
                        
                        
                        
                        2,702Bank
      loans - maturing within one year
                        
                        3
                        
                        
                        
                        4,480
                        
                        
                        
                        3,896Current
      portion of capital lease obligations
                        
                        
                        
                        
                        
                        90
                        
                        
                        
                        72Due
      to directors
                        
                        5
                        
                        
                        
                        620
                        
                        
                        
                        990Income
      tax payable
                        
                        
                        
                        
                        
                        174
                        
                        
                        
                        183Total
      current liabilities
                        
                        
                        
                        
                        
                        19,018
                        
                        
                        
                        16,401Non-current
      liabilitiesNon-current
      portion of capital lease obligations
                        
                        
                        
                        
                        
                        57
                        
                        
                        
                        91Other
      non-current liabilities
                        
                        
                        
                        
                        
                        193
                        
                        
                        
                        216Total
      non-current liabilities
                        
                        
                        
                        
                        
                        250
                        
                        
                        
                        307Commitments
      and contingencies
                        
                        4
                        
                        
                        
                        -
                        
                        
                        
                        -Series
      B convertible redeemable preferred stock, $0.001 par value, 1.7 million
      shares authorized and issued (Redemption and liquidation value,
      $1,700)
                        
                        6
                        
                        
                        
                        1,700
                        
                        
                        
                        1,700
  The
financial statements should be read in conjunction with the accompanying
notes.
  F-3
  WLG
Inc.
 
 Consolidated
      Balance SheetsAt
      September 30, 2009 and December 31, 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 At
                          September 30,
                          2009
                        
                        
                        At
                          December 31,
                          2008US$
                        
                        
                        US$(unaudited)Stockholders'
      equityPreferred
      stock, $0.001 par value, 5 million sharesauthorized
      and none issued
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        -Series
      A convertible redeemable preferred stock, $0.001 parvalue,
      2.0 million shares authorized and issued(Redemption
      and liquidation value $1,500)
                        
                        
                        
                        
                        
                        2
                        
                        
                        
                        2Common
      stock, $0.001 par value, 55 million sharesauthorized,
      31,400,094 (2008:
      31,400,094) shares issued and outstanding
                        
                        
                        
                        
                        
                        31
                        
                        
                        
                        31Additional
      paid-in capital
                        
                        
                        
                        
                        
                        12,780
                        
                        
                        
                        12,770Statutory
      reserve
                        
                        7
                        
                        
                        
                        124
                        
                        
                        
                        124Accumulated
      other comprehensive loss-
      Foreign currency translation adjustments
                        
                        
                        
                        
                        
                        64
                        
                        
                        
                        (223
                        )Retained
      earnings
                        
                        
                        
                        
                        
                        780
                        
                        
                        
                        2,966Total
      stockholders' equity
                        
                        
                        
                        
                        
                        13,781
                        
                        
                        
                        15,670Total
      liabilities and stockholders' equity
                        
                        
                        
                        
                        
                        34,749
                        
                        
                        
                        34,078
  The
financial statements should be read in conjunction with the accompanying
notes.
  F-4
  WLG
Inc.
 
 Consolidated
      Statements of Cash FlowsNine
      months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 Nine months ended
                            September 30,2009
                          
                          
                          2008US$
                          
                          
                          US$(unaudited)
                          
                          
                          (unaudited)Cash
      flows from operating activities:Net
      (loss) income
                          
                          
                          (2,118
                          )
                          
                          
                          712Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activitiesDepreciation
                          
                          
                          262
                          
                          
                          
                          307Amortization
                          
                          
                          479
                          
                          
                          
                          651Allowance
      for bad debts
                          
                          
                          455
                          
                          
                          
                          190Other
      non-cash items
                          
                          
                          11
                          
                          
                          
                          7Changes
      in working capital:Trade
      receivables
                          
                          
                          (1,787
                          )
                          
                          
                          1,262Deposits,
      prepayments and other current assets
                          
                          
                          (153
                          )
                          
                          
                          (36
                          )Trade
      payables
                          
                          
                          1,816
                          
                          
                          
                          (1,638
                          )Other
      accrued liabilities
                          
                          
                          495
                          
                          
                          
                          (140
                          )Due
      to directors
                          
                          
                          (54
                          )
                          
                          
                          (432
                          )Income
      tax payable
                          
                          
                          (302
                          )
                          
                          
                          155Net
      cash (used in) provided by operating activities
                          
                          
                          (896
                          )
                          
                          
                          1,038Cash
      flows from investing activities:Acquisitions
      of property, plant and equipment
                          
                          
                          (369
                          )
                          
                          
                          (221
                          )Net
      cash used in investing activities
                          
                          
                          (369
                          )
                          
                          
                          (221
                          )Cash
      flows from financing activities:Restricted
      cash
                          
                          
                          112
                          
                          
                          
                          (64
                          )Bank
      overdraft
                          
                          
                          119
                          
                          
                          
                          83Net
      increase (decrease) in short term bank loans
                          
                          
                          584
                          
                          
                          
                          (1,464
                          )Capital
      lease obligations paid
                          
                          
                          (53
                          )
                          
                          
                          (85
                          )(Repayment
      to) and loans from directors
                          
                          
                          (375
                          )
                          
                          
                          1,637Dividend
      paid on preferred stock
                          
                          
                          (68
                          )
                          
                          
                          (68
                          )Net
      cash provided by financing activities
                          
                          
                          319
                          
                          
                          
                          39Net
      (decrease) increase in cash and cash equivalents
                          
                          
                          (946
                          )
                          
                          
                          856Cash
      and cash equivalents at beginning of period
                          
                          
                          2,402
                          
                          
                          
                          1,631Cash
      and cash equivalents at end of period
                          
                          
                          1,456
                          
                          
                          
                          2,487
 
 The
financial statements should be read in conjunction with the accompanying
notes.
  F-5
  WLG
Inc.
 
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 1.
                ORGANIZATION
      AND BASIS OF PRESENTATION
 
 WLG Inc.
(“WLG”, the “Company”, or the “Group”) was incorporated on December 2, 2003,
pursuant to the laws of Delaware in the United States of America, with
authorized and outstanding share capital of 100 million shares of common stock,
par value of $0.001 per share.  All outstanding common stock was issued to
Mr. Christopher Wood (“Mr Wood”).
 
 On
January 8, 2004, WLG changed its name to Wako Logistics Group, Inc.  On the
same date, its authorized number of shares was reduced to 60 million shares, of
which 55 million shares were common stock, and 5 million shares were preferred
stock.
 
 Pursuant
to the Share Exchange Agreements entered into between WLG and Mr. Wood (and his
nominee) on January 18, 2004, WLG consummated a combination with Wako Express
(H.K.) Company Limited (“WEHK”) and Wako Air Express (H.K.) Company Limited
(“WAE”) (collectively, “Operating Subsidiaries”) by the issuance of 20,000,900
shares of WLG common stock to Mr. Wood in exchange for 100% of the outstanding
stock of WEHK and WAE.
 
 After the
share exchanges, WLG became the parent and controlling company of the Operating
Subsidiaries, and Mr. Wood became the controlling shareholder of
WLG.
 
 The
transfer of Mr. Wood’s common stock in the Operating Subsidiaries to WLG
was a reorganization of companies under common control and has been accounted
for effectively as a pooling of interests, and the consolidated financial
statements of the Group have been presented as if the Operating Subsidiaries had
been owned by WLG since the earliest date covered by these financial
statements.
 
 WEHK was
incorporated in Hong Kong on June 4, 1982.  Since its inception, WEHK’s
principal activity has been the provision of sea freight forwarding
services.
 
 WAE was
incorporated in Hong Kong on February 24, 1989, and since that date, WAE’s
principal activity has been the provision of air freight forwarding
services.
 
 In July
and November 2004, the Group established two 100% owned subsidiaries, Wako
Express (China) Co. Ltd. (“WE China”) in the People’s Republic of China (“PRC”)
and Wako Express (China) Co. Limited (“WECCL”) in Hong Kong.  WE China
began business in China in February 2005 as a full-service freight forwarding
company.  WECCL had not commenced business as of September 30,
2009.
 
 On April
1, 2005, WLG completed the acquisition of 100% of the voting interests in Kay
O’Neill (USA) LLC (“KON”), an Illinois limited liability company based in
Chicago, Illinois.  KON also had an office in Detroit, Michigan. KON
changed its name to WLG (USA) LLC (“WLG (USA)”) in June 2005, and, as of the end
of 2006, had discontinued the use of the name KON.  The purchase price for
KON totaled $1,000 in cash and shares valued at $50.  WLG (USA)
is a non-asset based freight forwarding company and provides freight forwarding
and logistics services to its customers.
  F-6
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 1.
                ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 Effective
October 1, 2005, WLG acquired all of the issued and outstanding shares of common
stock of Asean Logistics, Inc. (“ALI”), a California corporation, in exchange
for 250,000 restricted shares of WLG’s common stock.  Concurrent with
the acquisition, WLG, by way of a contribution to capital, transferred all of
the ALI shares to WLG (USA).
 
 ALI was a
non-asset based freight forwarding company and provided freight forwarding
services to its customers, which shipped products primarily between Asia and the
United States.  As of September 30, 2008, all of ALI’s operations
had been combined with those of WLG (USA).
 
 On
November 9, 2005, WLG (Australia) Pty Ltd. (“WLG (Aust)”), a wholly-owned
Australian subsidiary of WLG, completed the acquisition of all the issued and
outstanding common stock of Asean Cargo Services Pty Limited (“Asean”) in
exchange for 3.5 million restricted shares of WLG’s common stock.  An
additional 1.3 million shares of WLG’s restricted common stock were issued to
the sellers of Asean in 2007 in recognition of Asean achieving certain
financial goals during the fifteen-month period ended December 31, 2006.
 
 Founded
in 1984 and based in Sydney, Australia, Asean also has offices in Melbourne and
Brisbane and maintains relationships with cargo agents in all of Australia’s
mainland states.  Asean provides freight forwarding and logistics
services, as well as customs brokerage services, to its customers, most of whom
ship products primarily between Asia and Australia.
 
 In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG (UK)
Holdings Limited (“WLG (UK) Holdings”) as a first tier subsidiary and WLG (UK)
Limited (“WLG (UK)”) as a subsidiary of WLG (UK) Holdings.  Effective
September 15, 2006, WLG (UK) acquired for cash the operating assets and assumed
limited liabilities of a division (“UK Division”) of a UK freight forwarding and
logistics company. This UK Division, which operated in Manchester, UK, provided
sea and air freight forwarding, customs clearance and warehouse logistics
services, mostly to UK based customers.  These activities are now carried
on by WLG (UK).
 
 On
December 1, 2006, WLG (USA) acquired for cash all of the voting shares of
Mares-Shreve & Associates, Inc. (“MSA”) and its wholly-owned subsidiary, Sea
Systems Ocean Line, Inc., (“Sea Systems”) (collectively, the “MSA Group”).
 MSA, which was incorporated on May 15, 1979, in Washington, provides
freight forwarding and customs brokerage services to its customers.  Sea
Systems, incorporated on February 26, 1991, in Washington, is a non-asset based
freight forwarder and provided air and sea freight forwarding and related
logistics services to its customers.  As of September 30, 2008, all of Sea
Systems’ operations had been combined with those of MSA.  MSA mainly
serves customers that ship products from Asia to the US.
 
 On July
31, 2007, the Group acquired all of the membership interests in World Commerce
Services LLC (“WCS”).  WCS is based in Schaumburg, Illinois, and also has
offices in New York and Los Angeles.  It is a non-asset based freight
forwarding company and provides a full range of logistics and customs brokerage
services to its customers, specializing in freight imported from Asia,
mostly by sea, with an emphasis on imports from China.
  F-7
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 1.
                ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 On
December 7, 2007, the Company filed an amendment to the Company’s Restated
Certificate of Incorporation to change the Company’s name from Wako Logistics
Group, Inc. to WLG Inc., which became effective December 21, 2007.
 
 As of
September 30, 2009, all subsidiaries are wholly-owned and all material
intercompany balances and transactions have been eliminated in
consolidation.
 
 The
accompanying financial data as of September 30, 2009, and for the three and nine
months ended September 30, 2009 and 2008, have been prepared by the Company
without audit.
 
 Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations.  However, the Company believes that the disclosures
herein are adequate to make the information presented not
misleading.  These financial statements should be read in conjunction
with the Company’s audited, consolidated financial statements and notes thereto
for the year ended December 31, 2008.
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities.  Actual results could
differ from these estimates.
 
 The
unaudited, interim consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information.  In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of September 30, 2009, and results of
operations for the three and nine months ended September 30, 2009 and 2008, and
cash flows for the nine months ended September 30, 2009 and 2008, have been
made.  The results of operations for the three and nine months ended
September 30, 2009 and 2008, are not necessarily indicative of the operating
results for the full year.
  F-8
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 2.
                (LOSS)
      EARNINGS PER SHARE
 
 (Loss) earnings per share were computed
as follows:
 Three months ended September 30, 2009Loss
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (666
                      )Less
      dividends on Series A convertible redeemable preferred
    stock
                      
                      
                      23
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.01Basic
      loss per shareNet
      loss attributable to common stockholders
                      
                      
                      (689
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.02
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss applicable to common stockholders
                      
                      
                      (689
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.02
                      )
  F-9
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 2.
                (LOSS)
      EARNINGS PER SHARE (CONTINUED)
 
 Nine months ended September 30, 2009Loss
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (2,118
                      )Less
      dividends on Series A convertible redeemable
      preferred  stock
                      
                      
                      68
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.03Basic
      loss per shareNet
      loss applicable to common stockholders
                      
                      
                      (2,186
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.07
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss applicable to common stockholders
                      
                      
                      (2,186
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.07
                      )
  F-10
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 2.
                (LOSS)
      EARNINGS PER SHARE (CONTINUED)
 
 Three months ended September 30, 2008Income
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      income
                      
                      
                      450Less
      dividends on Series A convertible redeemable preferred
    stock
                      
                      
                      23
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.01Basic
      earnings per shareNet
      income available to common stockholders
                      
                      
                      427
                      
                      
                      
                      31,400,094
                      
                      
                      
                      0.01Effect
      of dilutive securitiesEmployee
      stock options (Notes
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      23
                      
                      
                      
                      2,000,000Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      earnings per shareNet
      income available to common stockholders
                      
                      
                      450
                      
                      
                      
                      33,400,094
                      
                      
                      
                      0.01
  F-11
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 2.
                (LOSS)
      EARNINGS PER SHARE (CONTINUED)
 
 Nine months ended September 30, 2008Income
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      income
                      
                      
                      712Less
      dividends on Series A convertible redeemable preferred
    stock
                      
                      
                      68
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.03Basic
      earnings per shareNet
      income available to common stockholders
                      
                      
                      644
                      
                      
                      
                      31,400,094
                      
                      
                      
                      0.02Effect
      of dilutive securitiesEmployee
      stock options (Notes#)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      earnings per shareNet
      income available to common stockholders
                      
                      
                      644
                      
                      
                      
                      31,400,094
                      
                      
                      
                      0.02
 #
      :
                For
      the three and nine months ended September 30, 2009, common stock was not
      increased by the 2,000,000 shares of Series A convertible redeemable
      preferred stock, the 500,000 shares of common stock issuable to the
      sellers of WCS upon the conversion of the Series A convertible redeemable
      preferred stock, the exercise of the 100,000 outstanding warrants granted
      to a consultant in exchange for services rendered, the exercise of 395,000
      outstanding stock options, and the 2,428,571 shares related to the Series
      B convertible redeemable preferred stock.  For the three months
      ended September 30, 2008, common stock was not increased by the exercise
      of the 100,000 outstanding warrants granted to a consultant in exchange
      for services rendered, or the exercise of 245,000 outstanding stock
      options, and the 2,428,571 shares related to the Series B convertible
      redeemable preferred stock.  For the nine months ended September
      30, 2008, common stock was not increased by the 2,000,000 shares of Series
      A convertible redeemable preferred stock, the 500,000 shares of common
      stock issuable to the sellers of WCS upon the conversion of the Series A
      convertible redeemable preferred stock, the exercise of the 100,000
      outstanding warrants granted to a consultant in exchange for services
      rendered, or the exercise of 245,000 outstanding stock options, and the
      2,428,571 shares related to the Series B convertible redeemable preferred
      stock.  Under an agreement with the sellers of WCS, the Company
      was potentially obligated to issue up to 1,962,506 shares of its common
      stock to them if certain earnings targets were achieved during the 24
      months ended July 31, 2009.  None of the earnings targets were
      achieved as of September 30, 2009 and 2008, and no further obligation
      exists.  The effect of these conversions would be
      anti-dilutive.
  F-12
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
  3.
                BANKING
      FACILITIES
 
 The
      Group has bank facilities from creditworthy commercial banks as
      follows:
 
 At
                        September 30,
                        2009
                      
                      
                      At
                        December 31,
                        2008US$
                      
                      
                      US$(unaudited)Facilities
      granted-
      bank guarantees
                      
                      
                      1,142
                      
                      
                      
                      1,074-
      overdraft facility
                      
                      
                      589
                      
                      
                      
                      466-
      revolving credit lines
                      
                      
                      6,490
                      
                      
                      
                      7,261-
      foreign exchange facilities
                      
                      
                      218
                      
                      
                      
                      173-
      lease facilities
                      
                      
                      254
                      
                      
                      
                      173Total
      bank facilities
                      
                      
                      8,693
                      
                      
                      
                      9,147
 
 The terms
of the revolving loan and other bank facilities, including the amounts and
maturity dates, are agreed between the banks and the Group from time to
time.
 
 Bank
guarantees of $544 will expire within one year from September 30, 2009, but may
be renewed, provided the Group makes available the cash required by the banks to
collateralize each guarantee. A bank guarantee of $120 and the overdraft
facility have no expiry dates, but the bank or WLG may terminate either facility
by giving 30 days notice to the other party.  The remaining bank
guarantee of $478 has no fixed expiration date and is cancelable and/or
renewable at the option of the bank.
 
 The
revolving loan facilities mature on various dates as follows: (i) a revolving
credit facility of $3,000 on September 30, 2009 and (ii) a revolving credit
facility of $3,490 is an on-going facility that is subject to review in 2009,
and, by its terms, may be terminated by either the bank or WLG giving 30 days
notice to the other party.
 
 The
revolving credit facilities of $6,490 are secured as follows: (i) $3,000 is
secured by all of the assets of WCS, WLG (USA) and MSA, including their accounts
receivables as well as a guarantee provided by the Group’s parent company, and
(ii) $3,490 is secured by Asean’s accounts receivable and a registered mortgage
charge over the assets of Asean.
 
 WCS’s
revolving credit facility in the face amount of $3,000 requires that WCS comply
with certain covenants, one of which is that WCS must at all times have excess
availability of at least $1,000, which was reduced to $750 in December 2008. In
addition, WCS is required at the end of each quarter to be in compliance with a
tangible capital funds covenant, and it was not in compliance with this covenant
at September 30, 2009. The bank has not restricted the use of this facility
because of the covenant violation. This facility, which by its terms expired on
March 31, 2009, was renewed and did mature on September 30, 2009, but was again
extended and is to expire on November 16, 2009.  No amounts were
charged by the bank or any third parties in connection with the renewals of this
revolving credit facility.  Other than the following amendments, the
terms of the facility when it was renewed after the March 31, 2009, expiration
date are substantially the same as those of the existing facility that expired
on March 31, 2009:
 
 Ÿ
                Maximum
      amount of the credit line was reduced to $3,000 from
    $4,500.
  F-13
 WLG
Inc.
 Notes
      to the Consolidated Financial StatementsThree
      and nine months ended September 30, 2009 and 2008(Dollars
      in thousands except share data and per share
  amounts)
 
 3.
                BANKING
      FACILITIES (CONTINUED)
 
 Ÿ
                Interest
      rate was increased to 2% over the prime rate of the bank from the previous
      interest rate which was the bank’s prime
rate.
 
 Following
the expiration of this credit facility on September 30, 2009, the facility was
renewed with the following changes:
 Ÿ
                Maximum
      amount of the credit line was reduced to $2,500 from $3,000,
      and
 Ÿ
                Matures
      on November 16, 2009.
  WCS has
negotiated an agreement with its exiting bank to extend the maturity
date of its loan facility from November 16, 2009, to January 31, 2010. In
addition WCS is in active discussions with other lenders to replace it existing
loan facility.
  Of the
total bank guarantees of $1,142, one in the amount of $544 is collateralized by
cash.  Another bank guarantee of $120 is secured by (i) a letter of
support from the Group’s parent company, and (ii) a registered mortgage
debenture over all of Asean’s assets.   The remaining bank
guarantee of $478 is secured by a fixed and floating charge on all of WLG (UK)’s
assets and by a guarantee of the Group’s parent company.
 
 Asean’s
overdraft facility of $589 is secured by (i) a comfort letter from the Group’s
parent company and (ii) a registered mortgage debenture over all of Asean’s
assets.
 
 Asean has
a foreign exchange facility of $218, which at September 30, 2009, had not been
utilized.  Asean has a leasing facility of $254, with $37 outstanding
as of September 30, 2009, and which is secured by the assets under
lease.  In addition, both the foreign exchange and leasing facility
are secured by a comfort letter from the Group’s parent company.  As
of September 30, 2009, the leasing facility carried an interest rate of 7.68%
per annum.  As of September 30, 2009, and December 31, 2008, the
weighted average interest rates of the Group’s short-term bank borrowings were
6.98% and 7.27% per annum, respectively.
 
 At
                        September 30,
                        2009
                      
                      
                      At
                        December 31,
                        2008US$
                      
                      
                      US$(unaudited)UtilizedCommitted
      lines-
      bank guarantees
                      
                      
                      1,142
                      
                      
                      
                      1,074-
      overdraft facility
                      
                      
                      585
                      
                      
                      
                      466-
      revolving credit lines
                      
                      
                      4,480
                      
                      
                      
                      3,896-
      lease facilities
                      
                      
                      37
                      
                      
                      
                      2Total
      bank facilities utilized
                      
                      
                      6,244
                      
                      
                      
                      5,438
  F-14
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 4.
              COMMITMENTS
      AND CONTINGENCIES
 
 Commitments under operating
leases
 The
      Group rents office and warehouse space, staff quarters and certain office
      equipment under non-cancellable operating leases.  The following
      table summarizes these approximate, future minimum lease payments for
      operating leases in effect as of September 30, 2009, and December 31,
      2008:
 
 At
                          September 30,
                          2009
                        
                        
                        At
                          December 31,
                          2008US$
                        
                        
                        US$(unaudited)Within
      one year
                        
                        
                        1,528
                        
                        
                        
                        1,365Over
      one year but not exceeding two years
                        
                        
                        924
                        
                        
                        
                        966Over
      two years but not exceeding three years
                        
                        
                        638
                        
                        
                        
                        567Over
      three years but not exceeding four years
                        
                        
                        432
                        
                        
                        
                        351Over
      four years but not exceeding five years
                        
                        
                        395
                        
                        
                        
                        290Over
      five years
                        
                        
                        1,102
                        
                        
                        
                        1,184Total
      operating lease commitments
                        
                        
                        5,019
                        
                        
                        
                        4,723
 
 The
      Group has obligations under various operating lease agreements ranging
      from three months to nine years.  Rent expense under operating
      leases for the nine months ended September 30, 2009 and 2008, was $1,280
      and $1,486, respectively.
 
 Cargo
      space commitments
 The
      Group, in the course of its business, enters into agreements with various
      air and ocean freight carriers pursuant to which the Group commits to
      utilize a minimum amount of cargo space each year. As of September 30,
      2009, and December 31, 2008, the obligations for the minimum amount of
      such cargo space to be utilized in the coming 12 months were $1,977 and
      $2,420, respectively.
 
 Contingencies
– outstanding claims
 The
      Group is subject to claims that arise primarily in the ordinary course of
      business.  In general, such claims are covered by insurance
      policies issued for the Group’s
businesses.
 
 As of
September 30, 2009, and December 31, 2008, and subject to the legal proceedings
as described below, the aggregate, outstanding amount of claims was
approximately $40. The Group believes that the ultimate liability, if any, for
these claims, both filed and potential, will not have a material adverse effect
on its financial position.
 
 In
      the first quarter of 2008, three parties filed legal actions against the
      Group totaling about $150. These claims were covered by insurance, except
      for amounts equal to or less than the deductible payment required under
      these policies, which totaled about $23, and for which a provision was
      made in 2008.  As of March 31, 2009, all claims from these three
      parties had been settled, and the Group paid $23 as its share of the
      settlements.
  F-15
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 4.
              COMMITMENTS
      AND CONTINGENCIES (CONTINUED)
 
 Contingencies
– outstanding claims (Continued)
 
 During
the three months ended March 31, 2009, the Group was notified by several parties
that they would file claims against the Group, unless payment was made to them
for certain cargoes that were allegedly released by the Company without proper
documentation and for which no payments were made by the purchaser of the
goods.  Subsequent to March 31, 2009, two parties did file claims
against the Company.  In July, 2009, the Company paid about $125 in
final settlement of the claims.
  WCS has
been named as a third-party defendant in pending proceedings filed in the United
States District Court for the Southern District of New York and the United
States District Court, Central District of California relating to claims arising
out of the derailment of a Union Pacific train at Tyrone, Oklahoma on April 21,
2005.  The total amount of damages sought equals approximately $6,800,
including an unspecified amount for costs of delay, lost profit and lost
revenue.  The Group intends to vigorously defend each of the foregoing
actions.  WCS has been advised by its legal counsel that it has been
named as a third-party defendant for technical reasons and that the likelihood
of any material liability being assigned to WCS is minimal, but is subject to
the normal risks of litigation.  Management believes that the
disposition or ultimate resolution of this pending litigation will not have a
material adverse effect on the financial position of the Group.
 
 5.
              RELATED
      PARTY TRANSACTIONS
 
 Name
      and relationship of related parties
 
 Name
                  
                  Relationship with the GroupChristopher
      Wood (“CW”)
                  
                  Shareholder,
      director and officer of WLGDavid
      Koontz (“DK”)
                  
                  Director
      and officer of WLG and a director of Asean and WLG
  (Aust)Join
      Wing Properties Limited (“JWP”)
                  
                  CW
      is a shareholder and director of
JWP
 
 Details
of related parties
 
 Name
                  
                  Principal activities
                  
                  OwnershipName of owner
                  
                  % heldJWP
                  
                  Leases
      property to CW
                  
                  CW
                  
                  100%
  F-16
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(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
                      September 30,
                      2009
                    
                    
                    At
                      December 31,
                      2008US$
                    
                    
                    US$(unaudited)Due
      to directors (Notes)CW
                    
                    
                    620
                    
                    
                    
                    615DK
                    
                    
                    -
                    
                    
                    
                    375620
                    
                    
                    
                    990
 
 Notes:
 
 (i)
                Amounts
      due to directors are unsecured and interest-free, except for a director
      loan of $600 (see note (ii) below) due to CW, which was used (i) as part
      of the consideration to acquire the membership interests of WCS, (ii) to
      repay certain bank loans and (iii) as working capital.  The
      directors’ loans carry an interest rate of 12% per annum.  The
      director loan of $600, by its terms, was to be repaid in 12
      equal installments which were to begin on January 31, 2009, but
      see Note (ii) below. The remaining balance of $20 has no fixed
      repayment term.
 
 (ii)
              On
      July 1, 2008, the Group issued a $600 promissory note to CW, dated July 1,
      2008, (the “Note”) to set forth, among other things, the interest rate and
      repayment terms for $600 that CW had previously loaned to the
      Group.   The Note bears interest at the rate of 12% per
      annum and is repayable in twelve monthly installments of $50, with the
      first installment due on January 31, 2009.  CW has agreed that
      payments due under this note may be deferred on a month-to-month basis.No
      principal payments had been made to CW as of September 30,
      2009.  The Note is secured by the Group’s assets and will become
      immediately due and payable upon the earlier to occur of (i) an event of
      default as defined in the Note, (ii) a change in control as defined in the
      Note, (iii) raising not less than $3,000 in new capital, and/or (iv) the
      termination of CW’s employment.
 
 Additional
details of transactions
 
 Three months ended
                              September 30,
                            
                            
                            Nine months ended
                              September 30,2009
                            
                            
                            2008
                            
                            
                            2009
                            
                            
                            2008(unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)US$
                            
                            
                            US$
                            
                            
                            US$
                            
                            
                            US$Rent
      paid/payableJWP
                            
                            
                            27
                            
                            
                            
                            27
                            
                            
                            
                            81
                            
                            
                            
                            81
  F-17
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 Summary
of transactions for the nine months ended September 30, 2009 and 2008, with
directors/stockholders (unaudited):
 
 CW
                            
                            
                            DK
                            
                            
                            TotalUS$
                            
                            
                            US$
                            
                            
                            US$At
      January 1, 2009
                            
                            
                            615
                            
                            
                            
                            375
                            
                            
                            
                            990Reclassification
      from accrued liabilities
                            
                            
                            60
                            
                            
                            
                            -
                            
                            
                            
                            60Interest
      accrued
                            
                            
                            207
                            
                            
                            
                            13
                            
                            
                            
                            220Interest
      paid
                            
                            
                            (184
                            )
                            
                            
                            (13
                            )
                            
                            
                            (197
                            )Repayment
      of loan
                            
                            
                            -
                            
                            
                            
                            (375
                            )
                            
                            
                            (375
                            )Repayment
      of advance
                            
                            
                            (78
                            )
                            
                            
                            -
                            
                            
                            
                            (78
                            )At
      September 30, 2009
                            
                            
                            620
                            
                            
                            
                            -
                            
                            
                            
                            620At
      January 1, 2008
                            
                            
                            960
                            
                            
                            
                            750
                            
                            
                            
                            1,710Loans
      from directors
                            
                            
                            1,637
                            
                            
                            
                            -
                            
                            
                            
                            1,637Repayment
      of loan
                            
                            
                            -
                            
                            
                            
                            (187
                            )
                            
                            
                            (187
                            )Interest
      accrued
                            
                            
                            100
                            
                            
                            
                            66
                            
                            
                            
                            166Interest
      paid
                            
                            
                            (40
                            )
                            
                            
                            (66
                            )
                            
                            
                            (106
                            )Expenses
      paid
                            
                            
                            (305
                            )
                            
                            
                            -
                            
                            
                            
                            (305
                            )Converted
      to redeemable preferred stock
                            
                            
                            (1,700
                            )
                            
                            
                            -
                            
                            
                            
                            (1,700
                            )At
      September 30, 2008
                            
                            
                            652
                            
                            
                            
                            563
                            
                            
                            
                            1,215
 
 Note:
  ·
                Expenses
      include amounts that were either paid directly to or for the benefit of
      CW.
 
 6.
              SERIES
      B CONVERTIBLE REDEEMABLE PREFERRED
STOCK
  On June
30, 2008, the Company entered into a conversion agreement with Christopher Wood,
the Company’s Chief Executive Officer, director and controlling shareholder,
pursuant to which Mr. Wood and the Company agreed to convert $1,700 of
outstanding loans that Mr. Wood had made to the Company into 1.7 million shares
of the Company’s Series B Convertible Redeemable Preferred Stock (“Series B
Preferred Stock”).  In connection therewith, in June 2008, the
Company’s Board of Directors approved the designation of a new series of
preferred stock consisting of 1.7 million shares of authorized, but unissued,
shares of preferred stock designated as Series B Preferred Stock, par value
$0.001.  The Series B Preferred Stock was issued on June 30, 2008. The
Series B Preferred Stock may be converted by the holder at any time into shares
of the Company’s common stock at a conversion price of $0.70 per share. The
Series B Preferred Stock has a stated, redemption and liquidation value of $1.00
per share, and shall pay an annual, cumulative dividend equal to 12% of the
stated value per share.
  F-18
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 6.
              SERIES
      B CONVERTIBLE REDEEMABLE PREFERRED STOCK
  (CONTINUED)
 
 The
Company may require a conversion in the event of a change in control of the
Company. Commencing 24 months after the date of issuance of the Series B
Preferred Stock, the Company has the right to redeem all or a portion of the
then outstanding shares of Series B Preferred Stock at a price of $1.00 per
share, subject to adjustment.  In addition, commencing on the earlier
to occur of 24 months after the issuance date, Mr. Wood’s retirement or his
holding less than 50.1% of the outstanding common stock of the Company, Mr. Wood
may cause the Company to redeem any or all of his outstanding shares of Series B
Preferred Stock, at a price of $1.00 per share, subject to
adjustment.
 
 For the
nine months ended September 30, 2009, dividends of $153 on the Series B
Preferred Stock were included in interest expense.
 
 7.
              STATUTORY
      RESERVE
 
 WE China
(“the PRC subsidiary”) is a wholly-owned foreign investment enterprise (“WOFIE”)
registered in the PRC.  Under the laws and regulations applicable to a
WOFIE, such enterprises are required to maintain certain statutory reserves for
specific purposes, which include a general reserve, an enterprise development
fund and a staff welfare and bonus fund.  The board of directors of
the PRC subsidiary shall determine on an annual basis the amount to be
transferred to statutory reserves.
 
 Minimum
annual transfers to statutory reserves shall be at least 10% of a WOFIE’s after
tax profit and shall be determined in accordance with PRC accounting rules and
regulations.  Annual transfers to the general reserve shall continue
until such reserve balance reaches 50% of a WOFIE’s registered
capital.  The general reserve can only be utilized to offset prior
years' losses or as additional paid-in capital.  No distribution of
the remaining general reserve shall be made other than upon liquidation of the
PRC subsidiary.
 
 During
the nine months ended September 30, 2009 and 2008, no after tax profits have
been appropriated to the general reserve, as the transfers shall be made at the
end of 2009 and 2008.
 
 8.
              SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW
INFORMATION
 
 Nine months ended
                      September 30,2009
                    
                    
                    2008(unaudited)
                    
                    
                    (unaudited)US$
                    
                    
                    US$Cash
      paid for:Interest
      expense
                    
                    
                    456
                    
                    
                    
                    621Income
      taxes
                    
                    
                    240
                    
                    
                    
                    339
  F-19
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 9.
              SHARE-BASED
      PAYMENT
 
 In April
2005, the board and stockholders of the Company approved the Wako Logistics
Group, Inc. 2005 Stock Incentive Plan (the “Plan”).  The Plan, which
is effective until April 19, 2015, provides for awarding stock options, stock
appreciation rights and restricted stock to our officers, employees, directors
and consultants, as well as to officers, employees, directors and consultants
who provide services to any of the Group’s subsidiaries or
affiliates.  The Plan is administered by our board, provided that the
board may appoint a committee to administer the Plan.  At the
inception of the Plan, 4,000,000 shares of common stock were approved for the
issuance of awards under the Plan, which amount shall be automatically increased
(but not decreased) to 20% of the total number of the Company’s shares of common
stock issued and outstanding on January 1st of each year beginning on January 1,
2006.  Based on shares of common stock outstanding as of January 1,
2009, the number of shares reserved under the Plan is 6,280,019.
 
 In
general, stock options awarded under the Plan vest over three years and expire
in a maximum of ten years from their effective dates.  However, the
Plan permits the board to grant options with varying terms, such as changing the
vesting period, the term and/or exercise price.  Once the board, under
provisions of the Plan, grants an option, the Company will estimate the fair
value of the option, and shall recognize compensation expense over the vesting
period of the option.
 
 As of August 2005, the Company had committed to award 200,000
options to purchase common stock to one of its officers, and, as of that date,
all substantial terms and conditions for the option were communicated to, and
agreed with, the officer.  As such, the Company established August
2005 as the grant date for this option.  The board has now formally
approved the award and this option is fully vested.
 
 Effective
January 15, 2007, the board awarded stock options to three employees permitting
them to purchase an aggregate of 20,000 shares of the Company’s common
stock.  The vesting period for the January 2007 options is 3
years.
 
 Effective
January 8, 2008, the board awarded stock options to an employee for the purchase
of 25,000 shares of the Company’s common stock.  The vesting period
for the January 2008 options is 3 years.
 
 Effective
December 1, 2008, the board awarded stock options to an employee for the
purchase of 150,000 shares of Company’s common stock.  The vesting
period for the December 2008 options is 2 years.
 
 The
Company accounts for stock-based compensation in accordance with FASB ASC 718,
Compensation – Stock Compensation.  Under FASB ASC 718, the
compensation expense related to the fair value of stock options charged to the
unaudited, consolidated statement of operations for the nine months ended
September 30, 2009 and 2008, was $11 and $7, respectively.  As of
September 30, 2009 and December 31, 2008, the compensation expense related to
non-vested options totaled $9 and $20, and is expected to be recognized over 15
months and 24 months, respectively.  The total intrinsic value of the
options outstanding and options exercisable as of September 30, 2009, and
December 31, 2008, was nil.  No tax benefit was recognized for the
stock option expense recorded for the nine months ended September 30, 2009 and
2008.
  F-20
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008(Dollars
      in thousands except share data and per share
  amounts)
 
 9.
              SHARE-BASED
      PAYMENT (CONTINUED)
 
 The
      Company estimates the fair value of stock options using the Black-Scholes
      option pricing model, with the following
  assumptions:
 
 Options granted onAugust 1,
                      2005
                    
                    
                    January 15,
                      2007
                    
                    
                    January 8,
                      2008
                    
                    
                    December 1,
                      2008Risk-free
      interest rate per annum
                    
                    
                    4.60
                    %
                    
                    
                    4.60
                    %
                    
                    
                    3.59
                    %
                    
                    
                    0.63
                    %Expected
      life
                    
                    2
      years
                    
                    
                    3
      years
                    
                    
                    3
      years
                    
                    
                    2
      yearsExpected
      volatility(Note #)
                    
                    
                    45.00
                    %
                    
                    
                    57.79
                    %
                    
                    
                    46.00
                    %
                    
                    
                    5.03
                    %Expected
      dividend yield
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %Post
      vesting terminations
                    
                    No
                    
                    
                    No
                    
                    
                    No
                    
                    
                    NoWeighted
      average grant-date fairvalue
      (per share)
                    
                    $
                    0.28
                    
                    
                    $
                    1.22
                    
                    
                    $
                    0.23
                    
                    
                    $
                    0.06
 
 #:
              The
      expected volatility is based on the underlying share price of WLG’s shares
      and a comparison to the volatility of the share price of peer
      companies.
 
 The
following table set forth the outstanding options granted under the
Plan:
 
 Shares
                      
                      
                      Weighted
                        ave.
                        exercise
                        price
                      
                      
                      Weighted ave.
                        remaining
                        contractual
                        term (years)Outstanding
      at April 30, 2005 (inception of Plan)
                      
                      
                      -
                      
                      
                      
                      -Granted
      in 2005
                      
                      
                      200,000
                      
                      
                      
                      1.00Outstanding
      at December 31, 2005
                      
                      
                      200,000
                      
                      
                      
                      1.00
                      
                      
                      
                      9.58Granted
      in 2007
                      
                      
                      20,000
                      
                      
                      
                      2.85Outstanding
      at December 31, 2007
                      
                      
                      220,000
                      
                      
                      
                      1.17
                      
                      
                      
                      7.71Granted
      in 2008
                      
                      
                      175,000Outstanding
      at September 30, 2009
                      
                      
                      395,000
                      
                      
                      
                      0.92
                      
                      
                      
                      7.32Exercisable
      at September 30, 2009
                      
                      
                      268,333
                      
                      
                      
                      1.05
                      
                      
                      
                      6.51
  F-21
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
 
 10.
              SEGMENTS
      OF THE BUSINESS
 
 (a)
              Business
      segments
 
 The Group
operates mainly in three business segments, being the provision of (i) air
forwarding, (ii) sea forwarding and (iii) customs brokerage
services.  The Group’s operations by air, sea and customs brokerage
services are summarized in the following table:
 
 (i)
              During
      the three months ended September 30, 2009 and 2008
    (unaudited)
 
 Air forwarding
                          
                          
                          Sea forwarding
                          
                          
                          Customs brokerage
                          
                          
                          TotalThree months ended September 30
                          
                          
                          Three months ended September 30
                          
                          
                          Three months ended September 30
                          
                          
                          Three months ended September 302009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$Revenue
                          
                          
                          7,708
                          
                          
                          
                          8,506
                          
                          
                          
                          17,094
                          
                          
                          
                          29,426
                          
                          
                          
                          15,273
                          
                          
                          
                          18,647
                          
                          
                          
                          40,075
                          
                          
                          
                          56,579Costs
      of forwarding/customs
                          
                          
                          (6,169
                          )
                          
                          
                          (7,082
                          )
                          
                          
                          (13,619
                          )
                          
                          
                          (24,786
                          )
                          
                          
                          (14,153
                          )
                          
                          
                          (17,451
                          )
                          
                          
                          (33,941
                          )
                          
                          
                          (49,319
                          )Depreciation
                          
                          
                          (16
                          )
                          
                          
                          (13
                          )
                          
                          
                          (53
                          )
                          
                          
                          (69
                          )
                          
                          
                          (23
                          )
                          
                          
                          (20
                          )
                          
                          
                          (92
                          )
                          
                          
                          (102
                          )Interest
      income
                          
                          
                          -
                          
                          
                          
                          2
                          
                          
                          
                          -
                          
                          
                          
                          2
                          
                          
                          
                          -
                          
                          
                          
                          2
                          
                          
                          
                          -
                          
                          
                          
                          6Interest
      expense
                          
                          
                          (15
                          )
                          
                          
                          (23
                          )
                          
                          
                          (42
                          )
                          
                          
                          (78
                          )
                          
                          
                          (28
                          )
                          
                          
                          (50
                          )
                          
                          
                          (85
                          )
                          
                          
                          (151
                          )Other
      income (expense)
                          
                          
                          5
                          
                          
                          
                          33
                          
                          
                          
                          (14
                          )
                          
                          
                          72
                          
                          
                          
                          3
                          
                          
                          
                          22
                          
                          
                          
                          (6
                          )
                          
                          
                          127Selling
      and administrative expense
                          
                          
                          (1,154
                          )
                          
                          
                          (991
                          )
                          
                          
                          (3,315
                          )
                          
                          
                          (3,911
                          )
                          
                          
                          (1,280
                          )
                          
                          
                          (1,075
                          )
                          
                          
                          (5,749
                          )
                          
                          
                          (5,977
                          )Taxation
                          
                          
                          (61
                          )
                          
                          
                          (74
                          )
                          
                          
                          (77
                          )
                          
                          
                          (124
                          )
                          
                          
                          (12
                          )
                          
                          
                          (34
                          )
                          
                          
                          (150
                          )
                          
                          
                          (232
                          )Segment
      income (loss)
                          
                          
                          298
                          
                          
                          
                          358
                          
                          
                          
                          (26
                          )
                          
                          
                          532
                          
                          
                          
                          (220
                          )
                          
                          
                          41
                          
                          
                          
                          52
                          
                          
                          
                          931Unallocated
      parent company  expenses
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (718
                          )
                          
                          
                          (481
                          )Net
      (loss) income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (666
                          )
                          
                          
                          450Property,
      plant and equipment – additions
                          
                          
                          30
                          
                          
                          
                          12
                          
                          
                          
                          23
                          
                          
                          
                          29
                          
                          
                          
                          35
                          
                          
                          
                          16
                          
                          
                          
                          88
                          
                          
                          
                          57
  F-22
  WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
  10.
              SEGMENTS
      OF THE BUSINESS (CONTINUED)
 
 (ii)
              During
      the nine months ended September 30, 2009 and 2008
    (unaudited)
 
 Air forwarding
                    
                    
                    Sea forwarding
                    
                    
                    Customs brokerage
                    
                    
                    TotalNine months ended September 30
                    
                    
                    Nine months ended September 30
                    
                    
                    Nine months ended September 30
                    
                    
                    Nine months ended September 302009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$Revenue
                    
                    
                    17,162
                    
                    
                    
                    29,509
                    
                    
                    
                    45,701
                    
                    
                    
                    86,166
                    
                    
                    
                    38,186
                    
                    
                    
                    52,606
                    
                    
                    
                    101,049
                    
                    
                    
                    168,281Costs
      of forwarding/customs
                    
                    
                    (13,476
                    )
                    
                    
                    (24,807
                    )
                    
                    
                    (35,862
                    )
                    
                    
                    (73,500
                    )
                    
                    
                    (35,433
                    )
                    
                    
                    (49,004
                    )
                    
                    
                    (84,771
                    )
                    
                    
                    (147,311
                    )Depreciation
                    
                    
                    (43
                    )
                    
                    
                    (47
                    )
                    
                    
                    (158
                    )
                    
                    
                    (196
                    )
                    
                    
                    (61
                    )
                    
                    
                    (64
                    )
                    
                    
                    (262
                    )
                    
                    
                    (307
                    )Interest
      income
                    
                    
                    -
                    
                    
                    
                    9
                    
                    
                    
                    1
                    
                    
                    
                    13
                    
                    
                    
                    -
                    
                    
                    
                    6
                    
                    
                    
                    1
                    
                    
                    
                    28Interest
      expense
                    
                    
                    (47
                    )
                    
                    
                    (72
                    )
                    
                    
                    (110
                    )
                    
                    
                    (249
                    )
                    
                    
                    (79
                    )
                    
                    
                    (142
                    )
                    
                    
                    (236
                    )
                    
                    
                    (463
                    )Other
      income (expense)
                    
                    
                    37
                    
                    
                    
                    9
                    
                    
                    
                    107
                    
                    
                    
                    23
                    
                    
                    
                    (3
                    )
                    
                    
                    16
                    
                    
                    
                    141
                    
                    
                    
                    48Selling
      and administrative expense
                    
                    
                    (3,148
                    )
                    
                    
                    (3,497
                    )
                    
                    
                    (9,614
                    )
                    
                    
                    (10,817
                    )
                    
                    
                    (3,310
                    )
                    
                    
                    (3,438
                    )
                    
                    
                    (16,072
                    )
                    
                    
                    (17,752
                    )Taxation
                    
                    
                    (42
                    )
                    
                    
                    (149
                    )
                    
                    
                    (95
                    )
                    
                    
                    (301
                    )
                    
                    
                    45
                    
                    
                    
                    (44
                    )
                    
                    
                    (92
                    )
                    
                    
                    (494
                    )Segment
      income (loss)
                    
                    
                    443
                    
                    
                    
                    955
                    
                    
                    
                    (30
                    )
                    
                    
                    1,139
                    
                    
                    
                    (655
                    )
                    
                    
                    (64
                    )
                    
                    
                    (242
                    )
                    
                    
                    2,030Unallocated
      parent company expenses
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,876
                    )
                    
                    
                    (1,318
                    )Net
      (loss) income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,118
                    )
                    
                    
                    712Property,
      plant and equipment – additions
                    
                    
                    73
                    
                    
                    
                    45
                    
                    
                    
                    211
                    
                    
                    
                    112
                    
                    
                    
                    122
                    
                    
                    
                    64
                    
                    
                    
                    406
                    
                    
                    
                    221
 
 (iii)
              As
      of  September 30, 2009 and December 31,
  2008
 Air forwarding
                    
                    
                    Sea forwarding
                    
                    
                    Customs brokerage
                    
                    
                    TotalAt September 30,
                      2009
                    
                    
                    At December 31,
                      2008
                    
                    
                    At September 30,
                      2009
                    
                    
                    At December 31,
                      2008
                    
                    
                    At September 30,
                      2009
                    
                    
                    At December 31,
                      2008
                    
                    
                    At September 30,
                      2009
                    
                    
                    At December 31,
                      2008US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$
                    
                    
                    US$(unaudited)
                    
                    
                    
                    
                    
                    (unaudited)
                    
                    
                    
                    
                    
                    (unaudited)
                    
                    
                    
                    
                    
                    (unaudited)Segment
      assets
                    
                    
                    4,870
                    
                    
                    
                    4,965
                    
                    
                    
                    10,211
                    
                    
                    
                    10,530
                    
                    
                    
                    6,851
                    
                    
                    
                    5,240
                    
                    
                    
                    21,932
                    
                    
                    
                    20,735Unallocated
      assets
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    12,817
                    
                    
                    
                    13,343Total
      assets
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    34,749
                    
                    
                    
                    34,078
  F-23
 
 WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
  10.
              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, 2009 and 2008, analyzed
      by geographical locations:
 
 Three months ended
                      September 30,
                    
                    
                    Nine months ended
                      September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)%
                    
                    
                    %
                    
                    
                    %
                    
                    
                    %RevenuesAmericas
                    
                    
                    33
                    
                    
                    
                    45
                    
                    
                    
                    35
                    
                    
                    
                    46Asia
      and others
                    
                    
                    23
                    
                    
                    
                    20
                    
                    
                    
                    22
                    
                    
                    
                    22Australia
                    
                    
                    37
                    
                    
                    
                    26
                    
                    
                    
                    35
                    
                    
                    
                    24Europe
                    
                    
                    7
                    
                    
                    
                    9
                    
                    
                    
                    8
                    
                    
                    
                    8100
                    
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100
 
 (c)
              The
      Group made no sales during the three months and nine months ended
      September 30, 2009 and 2008, which qualified as sales to a major customer
      (defined as a customer where sales to it represent 10% or more of total
      revenues).
 
 11.
              FAIR
      VALUE DISCLOSURES
 
 Effective
January 1, 2008, we adopted FASB ASC 820, Fair Value Measurements and
Disclosures, (“ASC 820”) which requires disclosures about our assets and
liabilities that are measured at fair value. Further information about such
assets and liabilities is presented below. We began to apply the provisions of
ASC 820 to non-financial assets and liabilities beginning January 1,
2009.
 
 Our
assets and liabilities recorded at fair value have been categorized based upon a
fair value hierarchy in accordance with ASC 820. Level 1 inputs utilize quoted
prices in active markets for identical assets or liabilities. Level 2 inputs are
based on other observable market data, such as quoted prices for similar assets
and liabilities, and inputs other than quoted prices that are observable, such
as interest rates and yield curves. Level 3 inputs are developed from
unobservable data reflecting our own assumptions, and include situations where
there is little or no market activity for the asset or liability.
 
 Certain
assets such as property, plant and equipment, intangible assets and goodwill are
measured at fair value on an annual basis. The fair values of these assets were
determined using unobservable inputs (Level 3).
 
 The
carrying value of cash and cash equivalents, restricted cash, trade receivables,
deposits, prepayments and other current assets, prepaid tax, trade payables,
other accrued liabilities, amounts due to directors, bank overdraft and bank
loans contained in the consolidated balance sheet approximates fair
value.
  F-24
  WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
  12.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
 
 In June 2009, the Financial Accounting
Standards Board (“FASB”) issued the FASB Accounting Standards Codification
(“ASC”). Effective in the third quarter of 2009, the ASC became the single
source for all authoritative GAAP recognized by the FASB, and is required to be
applied to financial statements issued for interim and annual periods ending
after September 15, 2009. The ASC does not change GAAP and did not impact
the Company’s condensed consolidated financial statements.
 
 In
December 2007, the FASB issued FASB ASC 805, Business
Combinations.  FASB ASC 805 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition date, measured at
their fair values as of that date.  This Statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The adoption of this Statement did not have a
material impact on the Company’s financial position or results of
operations.  The Company will be required to expense costs related to
acquisitions after December 31, 2008, if any.
 
 In
December 2007, the FASB issued FASB ASC 810, Non-controlling
Interests.  FASB ASC 810 amends ARB 51 to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary and clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  This
Statement is effective for fiscal years beginning on or after December 15,
2008.  The adoption of this Statement did not have a material impact
on the Company’s financial position or results of operations.
 
 In March
2008, the FASB issued FASB ASC 815, Derivative and Hedging, an Amendment of FASB
Statement No. 133 (“SFAS No.133”).  ASC 815 amends SFAS No. 133 and
requires entities to enhance their disclosures about (a) how and why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows.  ASC 815 is
effective for fiscal years beginning on or after November 15,
2008.  The adoption of ASC 815 did not have a material impact on the
Company’s financial position or results of operations.
 
 In
February 2008, the FASB issued FSAB ASC 820-10-65, Transition and Open Effective
Date Information (“ASC 820-10-65”), which delays the effective date of ASC 820
for all nonfinancial assets and nonfinancial liabilities, except for items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), until 2009.  The Group is
currently evaluating the inputs and techniques used in these measurements,
including items such as impairment assessments of goodwill and intangible assets
impairment testing.  The Group adopted ASC 820 for non-financial
assets and non-financial liabilities effective January 1, 2009.  The
adoption of ASC 820-10-65 did not have a material impact on the Group’s results
of operations, financial position, and cash flows.
 
 In June
2008, the FASB issued FSAB ASC 470-20, “Debt With Conversion and Other Option”
(“ASC 470-20”).  The objective of ASC 470-20 is to provide transition
guidance for conforming changes made to ASC 470-20-05, “Convertible Securities
and Beneficial Conversion Features and ASC 470-20-35 “Contingently Adjustable
Conversion Ratios”, that result from ASC 470-20-30 “Application Specific
Instruments”, and ASC 480, “Distinguishing liabilities from
Equity”.  This Issue is effective for financial statements issued for
fiscal years ending after December 15, 2008, with early application permitted.
The adoption of ASC 470-20 is not expected to have a material impact on the
Company’s financial position or results of operations.
  F-25
  WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
  12.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
 
 In June
2008, the FASB issued FSAB ASC 815, “Derivatives and Hedging” (“ASC
815”).  ASC 815 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.  Early application is not permitted.  ASC 815
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Company's own stock and (b) classified
in stockholders' equity in the statement of financial position would not be
considered a derivative financial instrument.  ASC 815 provides a new
two-step model to be applied in determining whether a financial instrument or an
embedded feature is indexed to an issuer's own stock.  The adoption of
ASC 815 did not have a material impact on the Group’s results of operations
or financial position.
 
 In May
2009, the FASB issued FASB ASC 855, “Subsequent Events” (“ASC 855), which
established general accounting standards and disclosure for subsequent
events.  The Company adopted ASC 855 during the second quarter of
2009.  In accordance with ASC 855, the Company has evaluated
subsequent events through the date the financial statements were issued, which
was on November 14, 2009.
 
 In April
2009, the FASB issued three related FASB Staff Positions (“FSP”): (i) FASB ASC
320, “Other-Than-Temporary
Impairments” (“ASC 320”), (ii) FASB ASC 825, “Financial Instruments” (“ASC
825”), and (iii) FASB ASC 820, “Fair Value When Markets Are Not
Active” (“ASC 820”), which are effective for interim and annual reporting
periods ending after June 15, 2009. ASC 320 amends the other-than-temporary
impairment guidance in the GAAP for debt securities to modify the requirement
for recognizing other-than-temporary impairments, change the existing impairment
model, and modify the presentation and frequency of related disclosures. ASC 825
require disclosures about fair value of financial instruments for interim
reporting periods as well as in annual financial statements. ASC 820 provides
additional guidance for estimating fair value in accordance with ASC 820, “Fair
Value Measurements and Disclosures”. The impact on the adoption of the three
related FSPs related only to the disclosures of the Company’s financial
instruments and has no material impact on the consolidated financial position or
results of operations. The disclosure requirements of ASC 820 are presented in
note 11 to the consolidated financial statements.
 
 In
June 2009, the FASB issued the following two new accounting standards,
which have not yet been integrated into the ASC. Accordingly, these accounting
standards will remain authoritative until integrated:
 
 Statement
of Financial Accounting Standards (“SFAS”) No. 166, “Accounting for Transfer of Financial
Assets, an amendment of FSAB Statement No.140 (“SFAS 166”);
and
 
 SFAS
No. 167, “Amendments to FASB Interpretation
No.46(R)”( “SFAS
167”).
 
 SFAS No.
166 amends the de-recognition accounting and disclosure guidance relating to
SFAS No. 140. SFAS No. 166 eliminates the exemption from consolidation for
qualifying special-purpose entity “(QSPE”), it also requires a transferor to
evaluate all existing QSPE to determine whether it must be consolidated in
accordance with SFAS No. 166. SFAS No. 166 is effective for financial asset
transfers occurring after the beginning of an entity’s first fiscal year that
begins after November 15, 2009. The management believes that the adoption of
SFAS No. 166 in future periods will not have a material impact on the
consolidated financial position or results of operations.
  F-26
  WLG
      Inc.Notes
      to the Consolidated Financial StatementsThree and nine months ended September 30, 2009 and
      2008
  12.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
 
 The FASB
issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R)” (“SFAS No. 167”), which amends FASB Interpretation No. 46
(revised December 2003) to address the elimination of the concept of a
qualifying special purpose entity. SFAS No. 167 also replaces the
quantitative-based risks and rewards calculation for determining which
enterprise has a controlling financial interest in a variable interest entity
with an approach focused on identifying which enterprise has the power to direct
the activities of a variable interest entity and the obligation to absorb losses
of the entity or the right to receive benefits from the entity. Additionally,
SFAS No. 167 provides more timely and useful information about an enterprise’s
involvement with a variable interest entity. SFAS No. 167 is effective for
fiscal years beginning after November 15, 2009. The management believes that the
adoption of SFAS No. 167 in future periods will not have a material impact on
the consolidated financial position or results of operations.
  In August 2009, the FASB issued Accounting
Standards Update (“ASU”) No. 2009-04, Accounting for Redeemable Equity
Instruments — Amendment to Section 480-10-S99. This ASU represents an
update to Section 480-10-S99, Distinguishing Liabilities from Equity, per
Emerging Issues Task Force Topic D-98, “Classification and Measurement of
Redeemable Securities.” The adoption of ASU 2009-04 will not have a material
impact on the consolidated financial position or results of
operations.
 
 In
August 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) —
Measuring Liabilities at Fair Value. This Accounting Standards Update amends
Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the fair
value measurement of liabilities. The adoption of ASU 2009-05 is not expected to
have a material impact on the consolidated financial position or results of
operations.
  In
September 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-06, Implementation Guidance on Accounting for Uncertainty in
Income Taxes and Disclosure Amendments for Nonpublic Entities. This Accounting
Standards Update provides additional implementation guidance on accounting for
uncertainty in income taxes and eliminates the disclosures required by paragraph
740-10-50-15(a) through (b) for nonpublic entities. The adoption of ASU
2009-06 did not have a material impact on consolidated financial position or
results of operations.
 
 In
September 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-08, Earnings Per Share Amendments to Section 260-10-S99. This
Codification Update represents technical corrections to Topic 260-10-S99,
Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per Share
for a Period that Includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.
The adoption of ASU 2009-08 will not have a material impact on the consolidated
financial position or results of operations.
  F-27
 Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations





General





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





WLG's
business is conducted by its operating subsidiaries, which, as of September 30,
2009, included the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako
Air Express (HK) Co. Ltd. (“WAE”), Wako Express (China) Co. Ltd. (“WE China”),
WLG (USA) LLC (“WLG (USA)”) (formerly dba “Kay O'Neill”), Mares-Shreve &
Associates, Inc. (“MSA”), Asean Cargo Services Pty Limited (“Asean”), WLG (UK)
Limited (“WLG (UK)”) and World Commerce Services, LLC, (“WCS”).





WLG was
incorporated in Delaware on December 2, 2003, under the name Wako Logistics,
Inc., and in January 2004, changed its name to Wako Logistics Group, Inc. In
December 2007, we changed our name to WLG Inc.  Under our certificate
of incorporation, we were initially authorized to issue 100 million shares of
common stock, par value $0.001 per share.  On the date of our first
name change, we reduced the number of authorized shares to 60 million, of which
55 million shares were designated as common stock, and 5 million shares were
designated as blank check preferred stock.   Immediately
following the formation of WLG, Mr. Christopher Wood (“Mr. Wood”) became our
sole shareholder.





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





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




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





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




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





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




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




3




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





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





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





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




With the
exception of performing administrative, oversight and regulatory tasks, no other
business activities are carried on by the parent company, WLG Inc.





Overview





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





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




4





Our
revenues are generated from the air, sea and local freight transportation
services that we arrange, customs brokerage services we perform and the VAS we
provide such as scanning, pick and pack, price ticketing and warehousing of
goods.  We believe that our customers benefit from the extensive
experience we have in arranging the transportation of freight, performing
customs clearance services and providing VAS in the many countries in which we
operate and/or in which we maintain agency relationships.  For our
freight forwarding business, our experience allows us to focus on large cargo
shipments, because these types of shipments normally require the use of advanced
tracking systems and access to sophisticated logistical networks in many
countries, which we have established over the past 25 years.





Freight
Forwarding and Value Added Services (VAS)





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





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





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





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





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





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




The VAS
that we provide may also involve receiving goods from one or multiple factories
on behalf of a customer - often an overseas retail buyer - and warehousing such
goods prior to packing the goods in individual containers for shipment to the
customer's distribution centers or retail outlets.  Goods are often
shipped “store ready”, meaning they are sorted and price-tagged, ready for sale
in each retail location.  As mentioned in the past, we see the demand
for VAS increasing because a large portion of a retailer's higher labor and
storage costs may be “exported” to lower-cost locations, such as China, thus
bypassing costly de-consolidation and distribution centers in the customer's
home country.  With the economic downturn that began in the latter
months of 2008, we are seeing an increasing interest on the part of our
customers to seek low-cost logistics and distributions
services.  Thus, performing these services at the point of shipment in
the country of manufacture may provide a more efficient and less costly means
for a customer to store and distribute its products. Performance of VAS relies
on the application of a wide range of information technologies, and requires an
ability to receive, process and provide shipping and inventory information from
and to our customers on a time-sensitive basis. Our billings for VAS vary with
the type of services performed, but they are often based on a per-piece count
measured by the actual number of units we store and prepare for
shipment.




5





Customs
Brokerage Operations





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





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





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





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





Global
Agency Network





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





We work
with over 300 overseas agents worldwide, many of whom that have offices in
strategic cities around the world.  As a result, we may be represented
by more than one agent in many cities, and we do not generally need to rely on a
single agent in any one city.




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




6




Results
of Operations





THREE
MONTHS ENDED SEPTEMBER 30, 2009 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30,
2008.




Results
of Operations





Our
revenues for the three months ended September 30, 2009, continued to be affected
by the economic downturn that began in 2008.  We booked less business
for the three months ended September 30, 2009, than we did for the same period
in 2008, and saw shipping rates worldwide fall by significant amounts, both of
which reduced our top-line revenues.  Falling rates did not
necessarily impact our profitability, but the declining volumes of cargos we
shipped on behalf of our customers did negatively affect our
profitability.




Total
revenues for the three months ended September 30, 2009, decreased by about
$16.50 million, or 29%, compared with the same period in 2008, down from
approximately $56.58 million to $40.08 million.  Our Hong Kong
operations reported decreased revenues of $1.87 million.  Revenues
from our China offices fell by $0.33 million.  Our US operations
reported a combined decrease in revenues of $12.48 million.  Of this
total decrease, about $0.73 million is from WLG (USA), $2.08 million from
MSA and $9.67 million from WCS.  In addition, WLG (UK)’s revenues
fell by $2.18 million, while Asean reported an increase in its revenue by $0.36
million.




Gross
profit decreased from $7.26 million for the three months ended September 30,
2008, to $6.13 million for the same period in 2009, for a decrease of $1.13
million, or 16%, primarily due to a decline in the volume of freight shipped by
our customers and less clearances in our customs practice.





The
Group's gross margin increased from 12.8% for the three months ended September
30, 2008, to 15.3% for the same period in 2009. The increase in our gross margin
is due to several factors, including reductions in fuel surcharges levied by the
various airlines and shipping lines and more favorable rates for cargo
space.  Falling shipping rates have the effect of reducing our gross
revenues and increasing our gross margin.  This occurs because the
direct shipping charges, which are passed on to our customers, result in lower
gross revenues, but, in many cases, leave us with the ability to bill the same
net amount for our services, regardless of the rates charged by shipping lines
and air carriers.




Total
operating expenses increased to about $6.49 million for the three months ended
September 30, 2009, as compared to approximately $6.43 million incurred for the
same period in 2008, for an increase of $0.06 million.  WCS
established a new operation in May 2009 in New York and incurred additional
overhead for this office. Moreover, additional expense was incurred for
professional fees to assist the Group to meet its obligations under the
Sarbanes-Oxley Act. For the three months ended September 30, 2009, salaries and
related personnel costs decreased by about $0.08 million, or 2%, from $4.35
million to $4.27 million.  Other selling and administrative costs
increased by approximately 11% from $1.77 million to $1.97 million, which, when
combined with the decrease in personnel costs, resulted in a net increase of
approximately $0.12 million in operating costs, not including amortization and
depreciation.  Amortization and depreciation expense decreased from
$0.32 million to $0.25 million, or about 22%.  Most of this decrease
relates to amortization expense for intangible assets.  There was no
amortization expense for MSA for the three months ended September 30, 2009,
because the cost basis of MSA’s intangible assets was written down to zero at
the end of 2008.  In addition, the amortization expense recorded by
WLG (USA) and WLG (UK), decreased because of an extension in the useful lives of
their intangible assets.  SeeOther Operating Expenses
below.




After the
provision for income taxes, the Group recorded a net loss of $0.67 million for
the three months ended September 30, 2009, compared to net income of $0.45
million for the same period in 2008.  Hong Kong and China’s operations
reported a combined net income of $0.53 million for the three months ended
September 30, 2009, compared with net income of $0.74 million for the same
period in 2008, for a decrease of approximately $0.21 million.  Our US
operations incurred a net loss of $0.67 million for the three months ended
September 30, 2009, compared to a net loss of $0.14 million for the same period
in 2008.  Specifically, WLG (USA) and MSA reported net incomes of
$74,000 and $23,000, respectively, while WCS posted a net loss of $0.77 million,
all for the three months ended September 30, 2009, compared to a net loss of
$90,000, net income of $41,000 and a net loss of $89,000, respectively, for the
same period in 2008.  Our US operations were also impacted by the
start-up of an operation in New York in May 2009, which increased WCS’s loss by
about $0.21 million.  Asean reported a net income of $0.18 million for
the three months ended September 30, 2009, compared to net income of $0.29
million for the same period in 2008.  WLG (UK) reported a net income
of $9,000 for this period, compared to net income of $33,000 for the three
months ended September 30, 2008. The parent company’s loss increased by
about $0.24 million for the three months ended September 30, 2009, compared to
the same period last year. During this same period in 2008, all costs for two
officers were charged to operations.  In 2009, because of a
realignment of responsibilities, the salaries of these two officers, which
totaled about $0.16 million, were charged to the parent company.  In
addition, professional fees of approximately $0.13 million were incurred in
connection with a review of our reporting procedures for compliance with
the  Sarbanes-Oxley Act.




7





Segment
Information





Air freight
operations:  Revenues from our air freight operations decreased
from $8.51 million for the three months ended September 30, 2008, to about $7.71
million for the same period in 2009, for a decline of $0.80
million.  Most of the decrease is attributable to our Hong Kong and
China operations, which experienced a drop in revenues of $0.92 million and
$0.16 million, respectively.  In addition, WLG (USA) and WLG (UK)
reported decreases in their revenues of $0.10 million and $0.19 million,
respectively. Revenues fell because of a lack of demand for products at
destination and a reluctance of customers to incur the higher per unit costs to
ship their goods by air.  The above decreases in revenue were offset
by increases in the revenue of WCS and Asean, which reported higher revenues of
$0.30 million and $0.27 million, respectively.




Cost of
sales for our air freight operations decreased from $7.08 million for the three
months ended September 30, 2008, to $6.17 million for the same period in 2009,
mainly as a result of a decline in the volumes of cargo shipped and reduced
freight charges.





The
Group’s gross profit margin for its air freight business increased from 16.7%
for the three months ended September 30, 2008, to 19.9% for the same period in
2009.   Most of this increase is due to lower fuel surcharges and
to a decline in cargo rates charged by the airlines for the three months ended
September 30, 2009, compared to the same period in 2008.





Segment
overhead for our air freight operations increased by approximately $0.17
million, from $1.07 million for the three months ended September 30, 2008, to
$1.24 million for the same period in 2009.





Net
segment income for our air freight operations is approximately $0.30 million for
the three months ended September 30, 2009, compared to net income of $0.36
million for the same period in 2008.  Our Hong Kong and China air
freight operations reported net incomes of approximately $0.25 million and $0.11
million for the three months ended September 30, 2009, respectively, compared to
net incomes of approximately $0.22 million and $98,000, respectively, for the
same period in 2008, for a combined increase of $42,000.  In addition,
Asean and WLG (USA) reported net incomes of $37,000 and $11,000, respectively,
compared to net incomes of $56,000 and net loss of $17,000, respectively, for
the same period in 2008.  WCS posted a net loss of $0.11 million for
the three months ended September 30, 2009, compared to a net loss of $4,000 for
the same period in 2008.





Sea freight
operations:  Revenues from our sea freight operations decreased
from approximately $29.43 million for the three months ended September 30, 2008,
to $17.09 million for the same period in 2009, for a decrease of $12.34
million.  All of our operating subsidiaries reported declines in their
sea freight revenues.  For the three months ended September 30, 2009,
WE China, WEHK, WLG (USA), MSA, WCS, Asean and WLG (UK) reported declines in
revenue of $0.17 million, $0.95 million, $0.63 million, $2.39 million, $6.50
million, $0.78 million and $0.92 million, respectively, compared to the same
period in 2008.   Mostly, the declines in revenue resulted from
less cargo shipped and falling shipping rates.





Cost of
sales for our sea freight operations decreased from $24.79 million for the three
months ended September 30, 2008, to $13.62 million for the same period in 2009,
as a result of the decrease in cargo shipped and reduced shipping
rates.




The
Group’s gross profit margin increased from approximately 15.8% for the three
months ended September 30, 2008, to 20.3% for the same period in
2009.  Gross margins tend to rise in periods of falling shipping rates
because the amount we earn is compared to lower direct shipping charges
from the ocean carriers. All direct shipping costs are recharged to our
customers.




Total
segment overhead attributable to our sea freight business decreased by $0.61
million, or 15%, from approximately $4.11 million for the three months ended
September 30, 2008, to $3.50 million for the same period in
2009.  Most of this reduction is due to decreases in the overhead
expense of WLG (USA) and WCS. The decrease in WCS and WLG (USA)’s overhead costs
is mainly due to a decrease in its payroll costs stemming from a reduction in
staff levels, and to cost cutting measures taken by these two companies. In
addition, there was a reallocation of certain payroll costs from this segment to
the parent company.




8




Net
segment loss for our sea freight operations is approximately $26,000 for the
three months ended September 30, 2009, compared to net income of $0.53 million
for the same period in 2008.  WEHK and WE China reported a net loss of
$56,000 and net income of $0.23 million, respectively, for the three months
ended September 30, 2009, which compares to net incomes $0.26 million and $0.17
million for this period in 2008.  WCS reported a net loss of $0.39
million for the three months ended September 30, 2009, compared to a net loss of
$56,000 for the same period in 2008.  Asean, MSA and WLG (USA)
reported net incomes of $0.10 million, $21,000 and $63,000, respectively, for
the three months ended September 30, 2009, compared to net incomes of $0.15
million, $40,000 and a net loss of $73,000, respectively, for the same period in
2008. Lastly, WLG (UK) posted a net loss of $5,000 for the three months ended
September 30, 2009, compared to net income of $38,000 for the same period last
year.





Customs brokerage
services:  Asean, MSA, WLG (UK) and WCS each have a division
that provides customs brokerage services.  For the three months ended
September 30, 2009, revenues from customs brokerage services totaled
approximately $15.27 million, compared to $18.65 million for the same period in
2008, for a decrease of about $3.38 million.  Some of the decline in
revenues is due to the US companies paying less duty on behalf of their
customers.  The US companies assisted their customers to use procedures
that permit importers to make direct payment of import duties to the
government on credit terms.  Direct and administrative costs for this
segment totaled about $15.49 million, producing a net loss of $0.22 million for
the three months ended September 30, 2009, compared to a net income of $41,000
for the same period in 2008.  The loss is attributable to WCS, which
reported a net loss of $0.28 million for the three months ended September 30,
2009, compared to a net loss of $29,000 for the same period in
2008.  The remaining subsidiaries posted  a decrease of
approximately $10,000 in their combined incomes for this segment.





Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses decreased by $0.08 million, or 2%, from $4.35 million for
the three months ended September 30, 2008, to $4.27 million for the same period
in 2009.  Salary expense decreased mainly due to reductions in staff
in our Hong Kong, US and UK operations. These decreases were offset by
additional payroll cost for our new air freight operations in New
York.




Rent




Rent
expense for our facilities decreased by 4% from $0.51 million for the three
months ended September 30, 2008, to $0.49 million for the same period in 2009,
for an overall decrease of $0.02 million





Other
selling and administrative expenses





Other
SG&A expense for the three months ended September 30, 2009, totaled about
$1.47 million, compared to $1.26 million for the same period in 2008, for an
increase of $0.21 million.  This increase is partly attributable to
approximately $0.13 million of professional fees incurred in connection with
certain work for the Sarbanes Oxley Act and legal expenses of about $0.04
million.





Depreciation
and Amortization




Depreciation
expense for property, plant and equipment decreased by $10,000, to $92,000 for
the three months ended September 30, 2009, compared to $102,000 for the same
period in 2008.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK), the MSA Group and WCS.  In connection with
the acquisition of WLG (USA), we recorded a customer list asset of $0.51
million, which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and is being amortized over 5
years.  A cost of $1.55 million was assigned to the MSA Group customer
list, which was being amortized over 10-years.  In 2007 and 2008, the
carrying cost of MSA’s customer list was reduced by $0.60 million and $0.80
million, respectively, due to MSA not achieving certain earnings targets, and
pursuant to an agreement with MSA’s former shareholders by which they gave up
their rights to receive additional proceeds for the sale of their
shares.  As of the end of 2008, MSA's customer list was fully
amortized due to prior amortization and the reductions of $0.60 million and
$0.80 million described above.  WCS’s customer list was valued at
$2.84 million and is being amortized over 9 years.  It is the Group's
policy to periodically review the estimated useful lives of its intangible
assets to ensure that the rate of amortization is consistent with the expected
pattern of economic benefits from the intangible assets.  This review
as of December 31, 2008, indicated that the remaining useful lives for the
intangible assets of WLG (USA) and WLG (UK) were 4 years and 5 years,
respectively.  Due to this review, the useful lives of WLG (USA) and
WLG (UK)’s intangible were extended from 1.25 years to 4 years and from 3 years
to 5 years, respectively, effective from January 1, 2009.  For the
three months ended September 30, 2009, amortization expense totaled $0.16
million, and is attributable to WLG (USA), Asean, WLG (UK) and WCS in the
approximate amounts of $8,000, $49,000, $24,000 and $79,000,
respectively.  Amortization expense for the three months ended
September 30, 2008 was $0.22 million and related to WLG (USA), Asean, WLG (UK),
the MSA Group and WCS in the approximate amounts of $26,000, $49,000, $42,000,
$22,000 and $79,000, respectively.




9





Interest
Expense




Interest
expense declined from $0.24 million for the three months ended September 30,
2008, to $0.15 million for this same period in 2009, for a decrease of $0.09
million.  Asean and WCS’s interest expense fell by $40,000 and
$26,000, respectively, mainly as a result of a decrease in their bank
borrowings.  The Group incurred interest expense of about $69,000 for
a director’s loan of $0.60 million and $1.7 million of Series B Preferred
Stock.  Under US GAAP rules, the dividends on the Series B Preferred
Stock are reported as interest expense.  The director loan and the
Series B Preferred Stock carry an interest and dividend rate of 12% per
annum.




Other
income/expense





Other
expense for the three months ended September 30, 2009, totaled $6,000, compared
to other income of $126,000 for the same period in 2008.  The change
from year to year is primarily due to foreign exchange gains and other
miscellaneous items of other income during the three months ended September 30,
2008, and to foreign exchange losses attributable to the three months ended
September 30, 2009.





Provision
for Income Taxes





The
provision for income taxes decreased from $0.27 million for the three months
ended September 30, 2008, to $0.15 million for the same period in
2009.  Income tax of $0.15 million was provided on the net income of
$0.59 million attributable to our Hong Kong, China and Australian operations,
for an effective tax rate of 25%.  The US operations of WLG (USA), MSA
and WCS are included in a US consolidated federal income tax return with the
Group's parent company, and, together, these companies reported a consolidated
pre-tax loss of approximately $1.06 million.   No tax benefit was
recorded for the US losses. State income taxes of about $4,000 were provided for
our US operations.  WLG (UK) had a pre-tax loss of $47,000 and no tax
benefit was provided for its loss.  After giving effect to all losses
and to amortization and other expenses for which no income tax deduction is
allowed, the Group recorded an income tax provision of $0.15 million on its
pre-tax loss of $0.52 million.





NINE
MONTHS ENDED SEPTEMBER 30, 2009 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30,
2008.




Results
of Operations





Our
revenues for the nine months ended September 30, 2009, were adversely affected
by the economic downturn that began in 2008 and which has
continued throughout 2009.  Falling demand and declining shipping
rates in the markets that we serve have resulted in us booking less business and
posting lower revenues in the first nine months of 2009 compared to the same
period for last year.  Falling rates did not necessarily impact our
profitability, but the declining volumes of cargos shipped by our customers did
have a negative impact on our earnings.




Total
revenues for the nine months ended September 30, 2009, decreased by about $67.23
million, or 40%, compared with the same period in 2008, from approximately
$168.28 million to $101.05 million.  Our Hong Kong operations reported
decreased revenues of $10.20 million.  Revenues from our China offices
fell by $3.91 million.  Our US operations reported a combined decrease
in revenues of $42.58 million.  Of this total decrease, about $3.47
million is from WLG (USA), $5.07 million from MSA and $34.04 million from
WCS.  Lastly, Asean’s revenues declined by $5.27 million, and WLG
(UK)’s revenues fell by $5.27 million.




10




Gross
profit decreased from $20.97 million for the nine months ended September 30,
2008, to $16.28 million for the same period in 2009, for a decrease of $4.69
million, or about 22%, primarily due to a decline in the volume of freight
shipped by our customers.





The
Group's gross margin increased from 12.5% for the nine months ended September
30, 2008, to 16.1% for the same period in 2009.  The increase in our
gross margin is due to several factors, including reductions in fuel surcharges
levied by the various air and shipping lines and lower rates for cargo
space.  Falling shipping rates have the effect of reducing our gross
revenues and increasing our gross margin.  This occurs because the
direct shipping charges, which are passed on to the customer, result in lower
gross revenues, which are then measured against our fees.





Total
operating expenses decreased to about $17.99 million for the nine months ended
September 30, 2009, as compared to approximately $19.16 million incurred for the
same period in 2008, for a decrease of $1.17 million.  In the face of
reduced volumes and falling demand, we adopted a number of measures to reduce
our overhead costs, including freezing salaries and making reductions in force
throughout the Group.  For the nine months ended September 30, 2009,
salaries and related personnel costs decreased by about $0.66 million, or 5%,
from $12.62 million to $11.96 million.  Other selling and
administrative costs decreased by approximately 5% from $5.59 million to $5.30
million, which, when combined with the decrease in personnel costs, resulted in
a total reduction of approximately $0.95 million in operating costs, not
including amortization and depreciation.  Moreover, the reduction in
costs on a year to year basis would have been even greater except for higher bad
debts experienced in 2009, compared to the same period in 2008.  Total
bad debt expense in the nine months ended September 30, 2009, was about $0.45
million compared to just under $0.19 million for the same period in
2008.  This increase in bad debts resulted from several of our
customers that were forced to file for bankruptcy.  We did tighten our
credit policies in 2009, but these actions were not enough to prevent us from
suffering higher credit losses. In addition, we incurred about $0.53
million in operating costs for an operation that we commenced during the second
quarter in New York. We have also incurred professional fees of
approximately $0.13 million for services performed in connection with the
Sarbanes Oxley Act. Amortization and depreciation expense decreased from $0.96
million to $0.74 million, or about 23%.  Most of this decrease relates
to amortization expense of intangible assets.  There was no
amortization expense for MSA for the nine months ended September 30, 2009,
because the cost basis of MSA’s intangible assets was written down to zero at
the end of 2008.  In addition, the amortization expense recorded by
WLG (USA) and WLG (UK) decreased because of an extension in the useful lives of
the intangible assets of each company.  SeeOther Operating Expenses
below.




After the
provision for income taxes, the Group recorded a net loss of $2.12 million for
the nine months ended September 30, 2009, compared to net income of $0.71
million for the same period in 2008.  Hong Kong and China’s operations
reported a combined net income of $1.24 million for the nine months ended
September 30, 2009, compared with net income of $1.75 million for the same
period in 2008, for a decrease of approximately $0.51 million.  Our US
operations recorded a combined net loss of $1.47 million for the nine months
ended September 30, 2009, compared to a net income of $19,000 for the same
period in 2008.  WLG (USA), MSA and WCS reported net income of $0.24
million, net loss of $3,000 and net loss of $1.71 million, respectively, for the
nine months ended September 30, 2009, compared to net loss of $0.11 million, net
income of $0.18 million and net loss of $52,000, respectively, for the same
period in 2008.  WCS' net loss of $1.71 million for the nine months
ended September 30, 2009, includes a loss of $0.34 million attributable to
the commencement in May 2009 of air freight operations in New York.  Asean
reported a net loss of $17,000 for the nine months ended September 30, 2009,
compared to net income of $0.40 million for the same period in
2008.  Asean’s net loss is mainly due to provisions for doubtful debts
of approximately $0.25 million and $0.12 million for certain cargo claims during
the nine months ended September 30, 2009.  WLG (UK) reported a net
income of $5,000 for the nine months ended September 30, 2009, compared to a net
loss of $0.14 million for the same period in 2008.  The parent
company’s loss increased by about $0.56 million for the nine months ended
September 30, 2009, compared to the same period last year.  Beginning
in 2009, because of a realignment of responsibilities, the salaries and related
costs for two officers, which totaled about $0.49 million, were charged to Group
overhead. In 2008, all costs for these two officers were charged to operations.
In addition, the parent company incurred professional fees of approximately
$0.13 million in connection with the Sarbanes Oxley Act.




Segment
Information





Air freight
operations:  Revenues from our air freight operations decreased
from $29.51 million for the nine months ended September 30, 2008, to about
$17.16 million for the nine months ended September 30, 2009, for a decrease of
$12.35 million.  Most of the decrease is attributable to our China and
Hong Kong operations, which experienced a decline in revenues of $3.37 million
and $6.92 million, respectively.  Revenues fell because of a lack of
demand for products at destination and a reluctance of customers to incur the
higher per unit costs to ship goods by air. Our remaining subsidiaries reported
a total decrease in their air freight revenues of approximately $2.06
million.




11




Cost of
sales for our air freight operations decreased from $24.81 million for the nine
months ended September 30, 2008, to $13.48 million for the same period in 2009,
mainly as a result of a decline in the volumes of cargo shipped and a reduction
in shipping rates for air freight.





The
Group’s gross profit margin for its air freight business increased from 15.9%
for the nine months ended September 30, 2008, to 21.5% for the same period in
2009.  Most of this increase is due to lower fuel surcharges and to a
decline in cargo rates charged by the airlines during the nine months ended
September 30, 2009, compared to the same period in 2008.





Segment
overhead for our air freight operations decreased by approximately $0.51
million, from $3.75 million for the nine months ended September 30, 2008, to
$3.24 million for the same period in 2009.  This decrease is after
incurring about $0.53 million for a new operation that commenced in May 2009 in
New York to improve and expand our air freight capabilities in the US
market.





Net
segment income for our air freight operations is approximately $0.44 million for
the nine months ended September 30, 2009, compared to net income of $0.96
million for the same period in 2008, for a decrease of $0.52
million.  Our Hong Kong and China air freight operations reported net
incomes of approximately $0.50 million and $0.17 million, respectively, for the
nine months ended September 30, 2009, compared to net incomes of approximately
$0.69 million and $0.20 million, respectively, for the same period in 2008, for
a combined decrease of $0.22 million.  In addition, Asean, WLG (UK)
and WCS reported net losses of $62,000, $40,000 and $0.15 million, respectively,
compared to net incomes of $79,000, $15,000, and a net loss of $2,000,
respectively, for the same period in 2008.  WLG (USA) posted a net
income of $25,000 for the nine months ended September 30, 2009, compared to a
net loss of $22,000 for the same period in 2008.




Sea freight
operations:  Revenues from our sea freight operations decreased
from approximately $86.17 million for the nine months ended September 30, 2008,
to $45.70 million for the same period in 2009, for a decrease of $40.47
million.  All of our operating subsidiaries reported declines in their
sea freight revenues.  For the nine months ended September 30, 2009,
WEHK, WE China, WLG (USA), MSA, WCS, Asean and WLG (UK) reported lower revenues
of $3.29 million, $0.55 million, $2.90 million, $5.20 million, $21.69 million,
$4.89 million and $1.95 million, respectively, compared to the same period in
2008.  In all cases, the declines in revenue suffered by our operating
companies resulted from less cargo shipped and falling shipping
rates.





Cost of
sales for our sea freight operations decreased from $73.50 million for the nine
months ended September 30, 2008, to $35.86 million for the same period in 2009,
as a result of the decline in the volumes in cargo shipped and falling
shipping rates.




The
Group’s gross profit margin increased from approximately 14.7% for the nine
months ended September 30, 2008, to 21.5% for the same period in
2009.  Gross margins tend to rise in periods of falling shipping rates
because the amount we earn per shipment is compared to a much lower revenue
amount.




Total
segment overhead attributable to our sea freight business decreased by $1.66
million, or about 14%, from approximately $11.53 million for the nine months
ended September 30, 2008, to $9.87 million for the same period in
2009.  Most of this reduction is due to decreases in personnel costs
and for reductions in legal and professional fees, travel and entertainment
expenses.  The drop in personnel costs is partially due to the
reallocation of certain payroll costs from this business segment to the Group’s
parent company, and to a reduction in force throughout most of the
Group.




Net
segment loss for our sea freight operations is approximately $30,000 for the
nine months ended September 30, 2009, compared to net income of $1.14 million
for the same period in 2008.  WEHK and WE China reported net incomes
of $0.18 million and $0.39 million, respectively, for the nine months ended
September 30, 2009, which compares to $0.56 million and $0.31 million for the
same period in 2008.  MSA and WCS reported net losses of $3,000 and
$1.03 million, respectively, for the nine months ended September 30, 2009,
compared to a net income of $0.17 million and a net loss of $33,000,
respectively, for the same period in 2008.  WLG (USA), WLG (UK) and
Asean reported net incomes of $0.21 million, $94,000 and $0.13 million,
respectively, for the nine months ended September 30, 2009, compared to a net
loss of $87,000, net incomes of $20,000 and $0.20 million, respectively, for the
same period in 2008.




12





Customs brokerage
services:  Asean, MSA, WLG (UK) and WCS each have a division
that provides customs brokerage services.  For the nine months ended
September 30, 2008, revenues from customs brokerage services totaled
approximately $52.61 million, compared to $38.19 million for the same period in
2009, for a decrease of about $14.42 million.  Some of the decline in
revenues is due to the US companies paying less duty on behalf of their
customers and assisting them to use certain procedures that allow importers
to make direct payment of customs duties to the government on credit
terms.  Direct and administrative costs for this segment totaled about
$38.85 million, producing a net loss of $0.66 million for the nine months ended
September 30, 2009, compared to a net loss of $64,000 for the same period in
2008.  Most of the loss is attributable to WCS and Asean, which
reported net losses of $0.52 million and $86,000, respectively, for the nine
months ended September 30, 2009, compared to a net loss of $16,000 and net
income of $0.12 million, respectively, for the same period in
2008.  MSA posted a net loss in this segment of approximately $1,000,
which compares to a net income of about $10,000 for the nine months ended
September 30, 2008.  WLG (UK) reported a net loss in this segment of
$49,000 for the nine months ended September 30, 2009, compared to a loss of
$0.18 million for the same period in 2008.





Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses decreased by $0.66 million, or 5%, from $12.62 million for
the nine months ended September 30, 2008, to $11.96 million for the same period
in 2009.  Salary expense decreased mainly due to reductions in staff
in our Hong Kong, US and UK operations.




Rent




Rent
expense for our facilities decreased by 6% from $1.45 million for the nine
months ended September 30, 2008, to $1.37 million for the same period in 2009,
for an overall decrease of $0.08 million.  Rent expense of WLG (USA)
decreased by $43,000 because the lease for its Chicago office expired at
the end of September 2008, and was not renewed.  Shortly after the
acquisition of WCS, all of WLG (USA)’s Chicago-based operations were moved to
WCS’s Chicago office.  In addition, Asean and WLG (UK) reported a
decrease in rental expense of $68,000 and $74,000, respectively, because of a
weakening in their local currencies, and because WLG (UK) paid duplicate rent in
the first quarter of 2008 as part of its move to new office and warehouse
facilities.  WE China’s rent expense increased by $62,000 following
its move to a larger warehouse facility in Shanghai at the beginning of
2009.





Other
selling and administrative expenses





Other
SG&A expense for the nine months ended September 30, 2009, totaled about
$3.92 million, compared to $4.13 million for the same period in 2008, for a
decrease of $0.21 million.  This decline is attributable to cost
control measures taken by the Group towards the end of 2008.  Late in
2008, we took action to reduce and/or limit our general overhead costs and
these measures,
which are continuing in 2009, included cutting back on many of our discretionary
costs.




Depreciation
and Amortization




Depreciation
expense for property, plant and equipment decreased to $0.26 million for the
nine months ended September 30, 2009, compared to $0.31 million for the same
period in 2008, for a decrease of $50,000.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK), the MSA Group and WCS.  In connection with
the acquisition of WLG (USA), we recorded a customer list asset of $0.51
million, which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and is being amortized over 5
years.  A cost of $1.55 million was assigned to the MSA Group customer
list, which was being amortized over 10-years.  In 2007 and 2008, the
carrying cost of MSA’s customer list was reduced by $0.60 million and $0.80
million, respectively due to MSA not achieving certain earnings targets, and
pursuant to an agreement with MSA’s former shareholders by which they gave up
their rights to receive additional proceeds for the sale of their
shares.  As of the end of 2008, MSA's customer list was fully
amortized due to prior amortization and the reductions of $0.60 million and
$0.80 million described above.  WCS’s customer list was valued at
$2.84 million and is being amortized over 9 years.  The Group
periodically reviews the estimated useful lives of its intangible assets to
ensure that the rate of amortization is consistent with the expected pattern of
economic benefits to be received from its intangible assets.  This
review as of December 31, 2008, indicated that the remaining useful lives for
the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5 years,
respectively.  Due to this review, the useful lives of the intangible
assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4 years and
from 3 years to 5 years, respectively, effective from January 1,
2009.  For the nine months ended September 30, 2009, amortization
expense totaled $0.48 million, and is attributable to WLG (USA), Asean, WLG (UK)
and WCS in the approximate amounts of $24,000, $147,000, $72,000 and $240,000,
respectively.  Amortization expense for the nine months ended
September 30, 2008, was $0.65 million and related to WLG (USA), Asean, WLG (UK),
the MSA Group and WCS in the approximate amounts of $77,000, $147,000, $125,000,
$66,000 and $240,000, respectively.




13





Interest
Expense




Interest
expense declined from $0.68 million for the nine months ended September 30,
2008, to $0.46 million for this same period in 2009, for a decrease of $0.22
million.  WLG (USA) incurred no interest expense in 2009, compared to
interest expense of $13,000 for the nine months ended September 30, 2008, due to
the repayment in full in 2008 of its bank debt.  Asean and WCS’s
interest expense fell by $93,000 and $117,000, respectively, mainly as a result
of a decrease in their bank borrowings.  In addition, the Group
incurred interest expense of about $0.21 million for a director’s loan of $0.60
million and $1.7 million of Series B Preferred Stock.  Under US GAAP
rules, the dividends paid on the Series B Preferred Stock are reported as
interest expense.  Interest expense of $13,000 relates to a loan from
another director, which was fully repaid as of June 30, 2009.  For the
nine months ended September 30, 2009, the related interest expense on director
loans and Series B Preferred Stock totaled $0.22 million. All director loans and
the Series B Preferred Stock carry an interest and dividend rate of 12% per
annum.




Other
income/ expense





Other
income for the nine months ended September 30, 2009, totaled $141,000, compared
to other income of $48,000 for the same period in 2008, for an increase of
$93,000.  The increaser for 2009 over 2008 is primarily due to an
increase in miscellaneous items of other income.




Provision
for Income Taxes





For the
nine months ended September 30, 2009, the Group recorded a provision for income
taxes of $92,000, compared to a provision for income taxes of $0.49 million for
the same period last year.  Asean incurred an operating loss of $0.52
million for the nine months ended September 30, 2009, and recorded a tax benefit
of $0.16 million, at the rate 30%, which is the statutory rate of tax applicable
to Asean’s income.  Income tax of $0.23 million was provided on the
combined net income of $1.16 million attributable to the operations of Hong Kong
and China, for an effective tax rate of 20%.  The US operations of WLG
(USA), MSA and WCS are included in a US consolidated federal income tax return
with the Group's parent company, and, together, these companies reported a
consolidated pre-tax loss of approximately $2.23 million.  No tax
benefit was recorded for the US losses. State income taxes of about $18,000 were
provided for our US operations.  WLG (UK) has a pre-tax loss of $0.14
million and no tax benefit was provided for this loss.  After
giving effect to all losses and to amortization and other expenses for which no
income tax deduction is allowed, the Group recorded an income tax provision of
$92,000 on its pre-tax loss of $2.03 million.




14





LIQUIDITY
AND CAPITAL RESOURCES




For the
nine months ended September 30, 2009, our operations used cash of approximately
$0.90 million, compared with cash of $1.04 million provided by operations for
the same period in 2008.  For the nine months ended September 30,
2009, cash was provided by the following sources: amortization and depreciation
expense of $0.74 million; provision for bad debts of $0.45 million; other
non-cash items of $11,000; an increase in trade payables of $1.82 million and an
increase in other accrued liabilities of $0.49 million.  Major
components that used cash for operations for the nine months ended September 30,
2009, include: net loss of $2.12 million; increases in trade receivables of
$1.79 million, increases in deposits and prepayments of $0.15 million; decrease
in due to director of $54,000 and a decrease in income tax payable of $0.30
million.




Net cash
provided by financing activities totaled about $0.32 million for the nine months
ended September 30, 2009, compared to net cash of $39,000 provided by financing
activities for the same period in 2008.  Cash used by financing
activities for the nine months ended September 30, 2008, included an increase in
restricted cash of $64,000; a decrease in bank debt of $1.38 million; repayment
of capital leases of $85,000 and cash dividends of $68,000 paid on preferred
stock.  Cash provided by financing activities for the nine months
ended September 30, 2008, included loans from directors of $1.64 million. Cash
used by financing activities for the nine months ended September 30, 2009,
included repayment of a loan from a director of $0.38 million; repayment of
capital lease obligations of $53,000; and cash dividends of $68,000 paid on our
preferred stock.  Cash provided by financing activities for the nine
months ended September 30, 2009, included an increase in bank debt totaling
$0.70 million and a decrease in restricted cash of $0.12 million.





As of
September 30, 2009, certain banks in Hong Kong and China had issued bank
guarantees of $0.54 million to several airlines on behalf of WAE and WE
China.  With these guarantees, the airlines, in turn, grant credit
terms to WAE and WE China.  In general, payments for air freight
shipments must be made to the airlines prior to the time we receive payments
from our customers.  These guarantees are secured by cash of
approximately $0.54 million held in restricted bank accounts.  An
Australian bank has provided a guarantee of about $0.12 million in favor of the
owner of the office premises occupied by Asean.  In addition, a UK
bank has provided a guarantee of $0.48 million to the UK Customs and Excise
Department for the benefit of WLG (UK).  In return for this guarantee,
the UK Customs and Excise Department grants credit terms to WLG
(UK).  A parent company guarantee has been given to the UK
bank.  A parent company guarantee has also been given as support for
the rental obligations related to WLG (UK)’s office and warehouse
facilities.  This latter guarantee is limited to an amount equal to
three years rent at the date the guarantee is enforced.  As of
September 30, 2009, our contingent obligation under this guarantee was about
$0.90 million.





In
October 2007, WEHK borrowed $0.28 million to pay income taxes, and this loan,
which was repayable in equal installments over twelve months, was repaid by
November 2008.  As of September 30, 2009, WEHK had no bank
debt.





In
November 2006, WLG (USA) obtained a $1.0 million revolving line of credit and a
five year, $1.0 million term loan from a US bank.  The term loan was
to be repaid ratably over 60 months.  Both loans were secured by all
of the assets of WLG (USA) and MSA and by a guarantee given by the Group’s
parent company.  Under these two loan facilities, WLG (USA) had to
maintain certain financial ratios, including minimum cash flow coverage and
maximum funded debt to earnings before taxes, interest and non-cash items, each
of which was to be measured on a rolling basis at the end of each calendar
quarter.  The term loan of approximately $0.75 million was fully
repaid in the first half of 2008.  The line of credit had a balance of
$0.13 million at the time it was repaid, which was on April 15,
2008.  These loans were repaid from the Group’s working capital and
from a loan provided by a director.





Asean has
a revolving loan facility in the face amount of approximately $3.49 million,
which is secured by, and based on, 100% and 80% of its accounts receivable,
respectively.  It also has an overdraft facility with a limit of about
$0.59 million.  At September 30, 2009, Asean's bank debt under its
revolving loan and overdraft facilities was $1.94 million and $0.58 million,
respectively, with interest rates of approximately 8.93% for the receivables
line and 8.03% for the overdraft facility.  Asean's bank, in addition
to having a charge over all of its accounts receivable, holds a first registered
mortgage over all of its remaining assets.  Asean’s overdraft
facility is guaranteed by the Group’s parent company.




During
2008, WCS had a revolving loan facility from a bank in the face amount of $3.0
million.  This facility, which is secured in part by all of the trade
receivables of WCS, MSA and WLG (USA), allows borrowings equal to 80% of the
eligible receivables of all three companies.  As of September 30,
2009, the maturity date of this facility, WCS owed approximately $2.54 million
to the bank.  This loan facility, which carried an interest rate of 5.25%
per annum, is secured by all of the assets of WCS, WLG (USA), and MSA and by a
guarantee from the Group’s parent company.  The loan facility was
renewed in October 2009 in the face amount of $2.5 million and is set to expire
on November 16, 2009.  WCS is in active discussions to renew this
facility on a short-term basis while it seeks a longer-term credit facility from
another lender.




15




In our
past reports, we have expressed a strong intent to continue executing our
business plan, which, among other things, calls for us to make strategic
acquisitions to supplement our internal growth.  In 2005, we completed
the acquisitions of three freight forwarding and logistics companies, one of
which had a customs brokerage business.  We followed this in 2006 by
acquiring two freight forwarding and customs brokerage companies.  In
July of 2007, we acquired WCS, which operates both a freight forwarding business
and customs brokerage practice.  And in May of 2009, we hired
approximately 10 individuals that had previously worked with an international
freight forwarding company in New York.  Several of the new
employees have strong business connections in Asia and specialize in air-freight
shipments in the US-Asia trade lanes.  We paid no money to hire these
individuals, but we did incur some capital costs and also added office
space to our existing branch office in New York.  Finding and hiring
capable and experienced personnel in this industry is a means to expand our
services and increase our revenues and is a practice that we will continue
as opportunities arise.  Our long-term strategy to acquire
companies offering strong growth opportunities and to pursue aggressive internal
growth has not changed.  However, due to the global downturn in
business that began in 2008 and which is continuing in our industry, we have
delayed any acquisition plans that we might have until there is greater
visibility and certainty in the global markets that we
serve.





Our
approximate contractual cash obligations as of September 30, 2009, are set forth
in the table below and are expected to equal approximately $0.34 million per
month over the following twelve months.





Payments Due by Period (in thousands)Contractual Obligations
                
                Total
                
                
                Less than
                  1year
                
                
                1-3 years
                
                
                4-5 years
                
                
                After 5
                  yearsShort-term debt
                
                $
                600
                
                
                $
                600
                
                
                $
                —
                
                
                
                —
                
                
                
                —Facilities
      rental and equipment leases
                
                $
                5,019
                
                
                $
                1,528
                
                
                $
                1,562
                
                
                $
                827
                
                
                $
                1,102Cargo
      space commitments
                
                $
                1,977
                
                
                $
                1,977
                
                
                
                —
                
                
                
                —
                
                
                
                —Redeemable
      preferred stock
                
                $
                1,700
                
                
                
                —
                
                
                $
                1,700
                
                
                
                —
                
                
                
                —Total
      contractual cash obligations
                
                $
                9,296
                
                
                $
                4,105
                
                
                $
                3,262
                
                
                $
                827
                
                
                $
                1,102




During
the nine months ended September 30, 2009 and 2008, 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.




16





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





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





ITEM 4. CONTROLS AND
PROCEDURES





Evaluation
of Disclosure Controls and Procedures





The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as Amended
(the “Exchange Act”)) as of the end of the period covered by this Quarterly
Report on Form 10-Q.   Based on such evaluation, the Company's
Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of such period, the Company's disclosure controls and procedures are
effective, as of the end of the period covered by this Report on Form 10-Q, in
ensuring that material information relating to the Company required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported on a timely
basis.




Changes
in Internal Control Over Financial Reporting





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





Part
II: Other Information




Item
1: Legal Proceedings:





During
the three months ended September 30, 2009, there have been no material changes
to legal proceedings from those discussed in our Annual Report on Form 10-K for
the year ended December 31, 2008, and in our Quarterly Report on Form 10-Q filed
for the three months ended June 30, 2009.





Items 1A: Risk Factors: There
have been no material changes in the Risk Factors set forth in our Annual Report
on Form10-K for the year ended December 31, 2008, and in our Quarterly Report on
Form 10-Q for the three months ended June 30, 2009.




Item
6. Exhibits.





Exhibits





31.1
              
              Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (Rule15d-14(a)).31.2
              
              Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule 15d-14(a).32.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).
  17





SIGNATURES





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





WLG
      INC.Date:
      November 13, 2009
              By:
              /s/ Christopher
      WoodChristopher
      WoodChief
      Executive Officer,
                (
      Principal Executive Officer) and DirectorDate:
      November 13, 2009
              By:
              /s/ David L. KoontzDavid
      L. KoontzChief Financial Officer,
                (Principal Financial Officer and Accounting Officer)
                and Director


18


EXHIBIT
INDEX





Exhibit
                  Number
                
                Description of Exhibit31.1
                
                Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002(Rule 15d-14(a)).31.2
                
                Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule15d-14(a)).32.1
                
                Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).


19