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, 2010





or





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




For
the transition period from _____________ to _____________





Commission
file number: 333-113564





WLG
INC.


(Exact
name of registrant as specified in its charter)




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




920
East Algonquin Road, Suite 120


Schaumburg,
IL 60173


(Address
of principal executive offices with zip code)





224-653-2800


(Registrant's
telephone number, including area code)




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





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




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





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





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





On
November 15, 2010, the registrant had 30,880,094 shares of common stock, $0.001
par value per share, issued and outstanding.







WLG
Inc.





TABLE
OF CONTENTS




Part
      I:
                                              Financial
      InformationItem
      1.
                                              Financial
      StatementsCondensed
      Consolidated Statements of Operations for the Three and Nine Months Ended
      September 30, 2010 and 2009
                                              
                                              F-1Condensed
      Consolidated Balance Sheets as of September 30, 2010 and December 31,
      2009
                                              
                                              F-3Condensed
      Consolidated Statements of Cash Flows for the Nine Months Ended September
      30, 2010 and 2009
                                              
                                              F-5Notes
      to Condensed Consolidated Financial Statements
                                              
                                              F-6Item
      2.
                                              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                              
                                              1Item
      3.
                                              Quantitative
      and Qualitative Disclosures About Market Risk
                                              
                                              12Item
      4.
                                              Controls
      and Procedures.
                                              
                                              12Part
      II:
                                              Other
      Information
                                              
                                              12Item
      1.
                                              Legal
      Proceedings
                                              
                                              12Item
      1A.
                                              Risk
      Factors
                                              
                                              12Item
      6.
                                              Exhibits
                                              
                                              12Signatures
                                              
                                              
                                              13




NOTE
REGARDING FORWARD LOOKING STATEMENTS




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





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







Part
I: Financial Information





Item
1. Financial Statements


WLG
Inc.
 
 Consolidated
Statements of Operations and Other Comprehensive Income
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 Three months ended
                              September 30,
                            
                            
                            Nine months ended
                              September 30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Note
                            
                            US$
                            
                            
                            US$
                            
                            
                            US$
                            
                            
                            US$(unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)
                            
                            
                            (unaudited)Revenues:Freight
                            
                            
                            
                            
                            33,917
                            
                            
                            
                            20,638
                            
                            
                            
                            88,573
                            
                            
                            
                            50,690Other
      services
                            
                            
                            
                            
                            18,005
                            
                            
                            
                            19,437
                            
                            
                            
                            48,630
                            
                            
                            
                            50,359Total
      revenues
                            
                            
                            
                            
                            51,922
                            
                            
                            
                            40,075
                            
                            
                            
                            137,203
                            
                            
                            
                            101,049Operating
      expensesCost
      of forwarding/customs
                            
                            
                            
                            
                            (43,874
                            )
                            
                            
                            (33,941
                            )
                            
                            
                            (116,442
                            )
                            
                            
                            (84,771
                            )Selling
      and administrative
                            
                            
                            
                            
                            (7,007
                            )
                            
                            
                            (6,239
                            )
                            
                            
                            (20,487
                            )
                            
                            
                            (17,249
                            )Depreciation
      and amortization
                            
                            
                            
                            
                            (237
                            )
                            
                            
                            (251
                            )
                            
                            
                            (680
                            )
                            
                            
                            (741
                            )Total
      operating expenses
                            
                            
                            
                            
                            (51,118
                            )
                            
                            
                            (40,431
                            )
                            
                            
                            (137,609
                            )
                            
                            
                            (102,761
                            )Income
      (Loss) from operations
                            
                            
                            
                            
                            804
                            
                            
                            
                            (356
                            )
                            
                            
                            (406
                            )
                            
                            
                            (1,712
                            )Other
      income (expense)Interest
      income
                            
                            
                            
                            
                            1
                            
                            
                            
                            -
                            
                            
                            
                            2
                            
                            
                            
                            1Interest
      expense
                            
                            
                            
                            
                            (282
                            )
                            
                            
                            (154
                            )
                            
                            
                            (702
                            )
                            
                            
                            (456
                            )Other
      income (expense), net
                            
                            
                            
                            
                            6
                            
                            
                            
                            (6
                            )
                            
                            
                            82
                            
                            
                            
                            141Income
      (Loss) before income taxes
                            
                            
                            
                            
                            529
                            
                            
                            
                            (516
                            )
                            
                            
                            (1,024
                            )
                            
                            
                            (2,026
                            )Income
      tax provision
                            
                            
                            
                            
                            (180
                            )
                            
                            
                            (150
                            )
                            
                            
                            (124
                            )
                            
                            
                            (92
                            )Net
      income (loss)
                            
                            
                            
                            
                            349
                            
                            
                            
                            (666
                            )
                            
                            
                            (1,148
                            )
                            
                            
                            (2,118
                            )Dividends
      on preferred stock
                            
                            
                            
                            
                            (23
                            )
                            
                            
                            (23
                            )
                            
                            
                            (68
                            )
                            
                            
                            (68
                            )Income
      (Loss) applicable to common stock
                            
                            
                            
                            
                            326
                            
                            
                            
                            (689
                            )
                            
                            
                            (1,216
                            )
                            
                            
                            (2,186
                            )Other
      comprehensive income, net of taxes:Foreign
      currency translation adjustment
                            
                            
                            
                            
                            227
                            
                            
                            
                            128
                            
                            
                            
                            174
                            
                            
                            
                            287Total
      comprehensive income (loss)
                            
                            
                            
                            
                            553
                            
                            
                            
                            (561
                            )
                            
                            
                            (1,042
                            )
                            
                            
                            (1,899
                            )
 
 The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-1
 
 WLG
Inc.
 
 Consolidated
Statements of Operations and Other Comprehensive Income
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 Three months ended
                            September 30,
                          
                          
                          Nine months ended
                            September 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Note
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$(unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)Weighted
      average number of common shares outstandingBasic
                          
                          
                          
                          
                          30,880,094
                          
                          
                          
                          31,400,094
                          
                          
                          
                          30,975,332
                          
                          
                          
                          31,400,094Diluted
                          
                          
                          
                          
                          36,438,656
                          
                          
                          
                          31,400,094
                          
                          
                          
                          30,975,332
                          
                          
                          
                          31,400,094Net
      earnings (loss) per share:Basic
      earnings (loss) per share
                          
                          2
                          
                          
                          0.01
                          
                          
                          
                          (0.02
                          )
                          
                          
                          (0.04
                          )
                          
                          
                          (0.07
                          )Diluted
      earnings (loss) per share
                          
                          2
                          
                          
                          0.01
                          
                          
                          
                          (0.02
                          )
                          
                          
                          (0.04
                          )
                          
                          
                          (0.07
                          )
  The
financial statements should be read in conjunction with the accompanying
notes.
 F-2
 
 WLG
Inc.
 
 Consolidated
Balance Sheets
 At
September 30, 2010 and December 31, 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 At
                                    September 30,
                                    2010
                                  
                                  
                                  At
                                    December 31,
                                    2009Note
                                  
                                  US$
                                  
                                  
                                  US$(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                  
                                  
                                  
                                  
                                  3,431
                                  
                                  
                                  
                                  1,899Restricted
      cash
                                  
                                  
                                  
                                  
                                  701
                                  
                                  
                                  
                                  601Trade
      receivables, net of allowance (2010:$625 ; 2009:
      $570)
                                  
                                  
                                  
                                  
                                  22,490
                                  
                                  
                                  
                                  16,906Deposits,
      prepayments and other current assets
                                  
                                  
                                  
                                  
                                  1,773
                                  
                                  
                                  
                                  1,254Prepaid
      tax
                                  
                                  
                                  
                                  
                                  162
                                  
                                  
                                  
                                  149Total
      current assets
                                  
                                  
                                  
                                  
                                  28,557
                                  
                                  
                                  
                                  20,809Property,
      plant and equipment, net
                                  
                                  
                                  
                                  
                                  1,873
                                  
                                  
                                  
                                  1,427Deposits
      and other non-current assets
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  107Deferred
      tax assets
                                  
                                  
                                  
                                  
                                  429
                                  
                                  
                                  
                                  288Intangible
      assets, net
                                  
                                  
                                  
                                  
                                  1,858
                                  
                                  
                                  
                                  2,183Goodwill
                                  
                                  
                                  
                                  
                                  6,878
                                  
                                  
                                  
                                  6,878Total
      assets
                                  
                                  
                                  
                                  
                                  39,595
                                  
                                  
                                  
                                  31,692LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesBank
      overdraft
                                  
                                  3
                                  
                                  
                                  655
                                  
                                  
                                  
                                  603Trade
      payables
                                  
                                  
                                  
                                  
                                  14,469
                                  
                                  
                                  
                                  10,447Other
      accrued liabilities
                                  
                                  
                                  
                                  
                                  2,938
                                  
                                  
                                  
                                  2,897Bank
      loans - maturing within one year
                                  
                                  3
                                  
                                  
                                  6,443
                                  
                                  
                                  
                                  4,725Current
      portion of capital lease obligations
                                  
                                  
                                  
                                  
                                  62
                                  
                                  
                                  
                                  90Due
      to a director
                                  
                                  5
                                  
                                  
                                  630
                                  
                                  
                                  
                                  670Loan
      from majority shareholder
                                  
                                  5
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  -Convertible
      promissory note
                                  
                                  6
                                  
                                  
                                  1,000
                                  
                                  
                                  
                                  -Income
      tax payable
                                  
                                  
                                  
                                  
                                  180
                                  
                                  
                                  
                                  117Total
      current liabilities
                                  
                                  
                                  
                                  
                                  27,377
                                  
                                  
                                  
                                  19,549Non-current
      liabilitiesNon-current
      portion of capital lease obligations
                                  
                                  
                                  
                                  
                                  81
                                  
                                  
                                  
                                  35Other
      non-current liabilities
                                  
                                  
                                  
                                  
                                  196
                                  
                                  
                                  
                                  187Bank
      loan – maturing after one year
                                  
                                  3
                                  
                                  
                                  400
                                  
                                  
                                  
                                  206677
                                  
                                  
                                  
                                  428
  The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-3
 
 WLG
Inc.
 
 Consolidated
Balance Sheets
 At
September 30, 2010 and December 31, 2009
 (Dollars
in thousands except share data and per share amounts)
 
 At
                      September 30,
                      2010
                    
                    
                    At
                      December 31,
                      2009Note
                    
                    US$
                    
                    
                    US$(unaudited)Commitments
      and contingencies
                    
                    4
                    
                    
                    -
                    
                    
                    
                    -Series
      B convertible redeemable preferred stock, 1.7 million shares issued and
      outstanding (Redemption and liquidation value, $1,700)
                    
                    7
                    
                    
                    1,700
                    
                    
                    
                    1,700Stockholders'
      equityPreferred
      stock, $0.001 par value, 10 million (2009: 5 million)
      shares authorized,- 2
      million shares designated as Series A convertible redeemable preferred
      stock, 2 million shares issued and outstanding (Redemption and liquidation
      value $1,500),
                    
                    
                    
                    
                    2
                    
                    
                    
                    2-
      1.7 million shares designated as Series B convertible redeemable preferred
      stock, 1.7 million shares issued and outstanding (see liabilities
      above),
                    
                    7
                    
                    
                    -
                    
                    
                    
                    --
      978,000 shares designated as Series C convertible redeemable preferred
      stock, 978,000 shares issued and outstanding (Redemption and liquidation
      value $978),
                    
                    8
                    
                    
                    1
                    
                    
                    
                    -- 4
      million shares designated as Series D convertible redeemable preferred
      stock, none issued and outstanding
                    
                    6
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001 par value, 65 million (2009: 55 million)
      shares authorized, 31,400,094 (2009: 31,400,094)
      shares issued, 30,880,094 (2009: 31,400,094)
      shares outstanding
                    
                    
                    
                    
                    31
                    
                    
                    
                    31Additional
      paid-in capital
                    
                    
                    
                    
                    13,781
                    
                    
                    
                    12,784Statutory
      reserve
                    
                    9
                    
                    
                    167
                    
                    
                    
                    167Treasury
      stock, at cost, 520,000 (2009: Nil)shares
                    
                    
                    
                    
                    (130
                    )
                    
                    
                    -Accumulated
      other comprehensive income
                    
                    
                    
                    
                    413
                    
                    
                    
                    239-
      Foreign currency translation adjustmentsAccumulated
      losses
                    
                    
                    
                    
                    (4,424
                    )
                    
                    
                    (3,208
                    )Total
      stockholders' equity
                    
                    
                    
                    
                    9,841
                    
                    
                    
                    10,015Total
      liabilities and stockholders' equity
                    
                    
                    
                    
                    39,595
                    
                    
                    
                    31,692
 The
financial statements should be read in conjunction with the accompanying
notes.
 F-4
 
 WLG
Inc.
 
 Consolidated
Statements of Cash Flows
 Nine
months ended September 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 Nine months ended
                              September 30,2010
                            
                            
                            2009US$
                            
                            
                            US$(unaudited)
                            
                            
                            (unaudited)Cash flows
      from operating activities:Net
      loss
                            
                            
                            (1,148
                            )
                            
                            
                            (2,118
                            )Adjustments
      to reconcile net loss to net cash (used in) provided by operating
      activitiesDepreciation
                            
                            
                            355
                            
                            
                            
                            262Amortization
                            
                            
                            325
                            
                            
                            
                            479Allowance
      for bad debts
                            
                            
                            183
                            
                            
                            
                            455Share-based
      compensation amortization
                            
                            
                            20
                            
                            
                            
                            11Changes
      in working capital:Trade
      receivables
                            
                            
                            (5,646
                            )
                            
                            
                            (1,787
                            )Deposits,
      prepayments and other current assets
                            
                            
                            (542
                            )
                            
                            
                            (153
                            )Trade
      payables
                            
                            
                            4,022
                            
                            
                            
                            1,816Other
      accrued liabilities
                            
                            
                            90
                            
                            
                            
                            495Due
      to a director
                            
                            
                            (40
                            )
                            
                            
                            (54
                            )Income
      tax payable
                            
                            
                            (91
                            )
                            
                            
                            (302
                            )Net
      cash used in operating activities
                            
                            
                            (2,472
                            )
                            
                            
                            (896
                            )Cash
      flows from investing activities:Acquisitions
      of property, plant and equipment (Note)
                            
                            
                            (670
                            )
                            
                            
                            (369
                            )Net
      cash used in investing activities
                            
                            
                            (670
                            )
                            
                            
                            (369
                            )Cash
      flows from financing activities:Restricted
      cash
                            
                            
                            (100
                            )
                            
                            
                            112Bank
      overdraft
                            
                            
                            52
                            
                            
                            
                            119Net
      increase in bank loans
                            
                            
                            1,912
                            
                            
                            
                            584Capital
      lease obligations paid
                            
                            
                            (60
                            )
                            
                            
                            (53
                            )Repayment
      to a director
                            
                            
                            (40
                            )
                            
                            
                            (375
                            )Loan
      from majority shareholder
                            
                            
                            1,000
                            
                            
                            
                            -Issuance
      of convertible promissory note
                            
                            
                            1,000
                            
                            
                            
                            -Issuance
      of Series C convertible redeemable preferred stock
                            
                            
                            978
                            
                            
                            
                            -Dividend
      paid on preferred stock
                            
                            
                            (68
                            )
                            
                            
                            (68
                            )Net
      cash provided by financing activities
                            
                            
                            4,674
                            
                            
                            
                            319Net
      increase (decrease) in cash and cash equivalents
                            
                            
                            1,532
                            
                            
                            
                            (946
                            )Cash
      and cash equivalents at beginning of period
                            
                            
                            1,899
                            
                            
                            
                            2,402Cash
      and cash equivalents at end of period
                            
                            
                            3,431
                            
                            
                            
                            1,456
 
 Note:
 Major
non-cash transaction
 During
the nine months ended September 30, 2010, the Group entered into finance lease
arrangement not provided for in respect of assets with a total capital value at
the inception of the lease of $78.
 
 The
financial statements should be read in conjunction with the accompanying
notes.
 
 F-5
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
 
 WLG Inc.
(“WLG”, the “Company”, or the “Group”) was incorporated in the name of Wako
Logistic, Inc., 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. 2 million shares, 1.7 million shares and 978,000 shares of the preferred
stock were designated as Series A, B and C convertible redeemable preferred
stock and issued in September 2005, June 2008 and June 2010 respectively.
 On September 24, 2010, WLG, filed a Certificate of Amendment to its
Restated Certificate of Incorporation (the "Amendment") with the Secretary of
State of the State of Delaware to increase the Company's authorized shares to 75
million shares, of which (a) 65 million shares are common stock, par value $.001
per share, and (b) 10 million shares are blank check preferred stock, par value
$.001 per share. The Amendment does not make any other changes to the Restated
Certificate of Incorporation. In September 2010, 4 million shares of the
preferred stock were designated as Series D convertible redeemable preferred
stock but unissued as of September 30, 2010.
 
 Pursuant
to the Share Exchange Agreements entered into between WLG and Mr. Wood (and his
nominee) on January 18, 2004, WLG consummated a combination with Wako Express
(H.K.) Company Limited (“WEHK”) and Wako Air Express (H.K.) Company Limited
(“WAE”) (collectively, “Operating Subsidiaries”) by the issuance of 20,000,900
shares of WLG common stock to Mr. Wood in exchange for 100% of the outstanding
stock of WEHK and WAE.
 
 After the
share exchanges, WLG became the parent and controlling company of the Operating
Subsidiaries, and Mr. Wood became the controlling shareholder of WLG. In May
2010, Mr. Wood sold a sufficient number of his shares of WLG common stock to
Jumbo Glory Limited (“Jumbo”), a privately held Hong Kong incorporated company,
so that Jumbo acquired 51% of WLG’s common stock and became WLG’s controlling
shareholder.
 
 The
transfer of Mr. Wood’s 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.
 
 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,
2010.
 
 F-6
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 On April
1, 2005, WLG acquired 100% of the voting interests in Kay O’Neill (USA) LLC
(“KON”), an Illinois limited liability company based in Chicago, Illinois.
 KON also had an office in Detroit, Michigan. KON changed its name to WLG
(USA) LLC (“WLG (USA)”) in June 2005, and, as of the end of 2006, had
discontinued the use of the name KON.  The purchase price for KON consisted
of a $1,000 cash payment and a professional fee of $50.  WLG (USA) is
a non-asset based freight forwarding company and provides freight forwarding and
logistics services to its customers. Effective July 1, 2010, WLG (USA) merged
with World Commerce Services LLC (“WCS”), which is a subsidiary of WLG and WLG
(USA) ceased to exist as a business entity.
 
 Effective
October 1, 2005, WLG acquired all of the issued and outstanding shares of common
stock of Asean Logistics, Inc. (“ALI”), a California corporation, in exchange
for 250,000 restricted shares of WLG’s common stock.  Concurrent with
the acquisition, WLG, by way of a contribution to capital, transferred all of
the ALI shares to WLG (USA).
 
 ALI was a
non-asset based freight forwarding company and provided freight forwarding
services to its customers, which shipped products primarily between Asia and the
United States. As of December 31, 2007, all of ALI’s administrative and
accounting functions had been assumed by WLG (USA), and by June 30, 2008,
all of ALI’s 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 was issued to the
sellers of Asean in 2007 in recognition of Asean achieving certain
financial goals during the fifteen-month period ended December 31, 2006.
 
 Founded
in 1984 and based in Sydney, Australia, Asean also has offices in Melbourne and
Brisbane and maintains relationships with cargo agents in all of Australia’s
mainland states.  Asean provides freight forwarding and logistics
services, as well as customs brokerage services, to its customers, most of whom
ship products primarily between Asia and Australia.
 
 In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG Holdings
(UK) 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 (“U.K.Co.”). This UK Division, which operated in Manchester,
UK, provided sea and air freight forwarding, customs clearance and warehouse
logistics services, mostly to UK based customers.  These activities are now
carried on by WLG (UK).
 
 F-7
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 1.
              ORGANIZATION
      AND BASIS OF PRESENTATION
(CONTINUED)
 
 On
December 1, 2006, WLG (USA) acquired for cash all of the voting shares of
Mares-Shreve & Associates, Inc. (“MSA”) and its wholly-owned subsidiary, Sea
Systems Ocean Line, Inc., (“Sea Systems”) (collectively, the “MSA Group”).
 MSA, which was incorporated on May 15, 1979, in Washington, provides
freight forwarding and customs brokerage services to its customers.  Sea
Systems, incorporated on February 26, 1991, in Washington, was a non-asset based
freight forwarder and provided air and sea freight forwarding and related
logistics services to its customers.  As of June 30, 2008, all of Sea
Systems’ operations had been combined with those of MSA.  MSA mainly
serves customers that ship products from Asia to the US. Effective December 31,
2009, MSA merged with WCS and MSA ceased to exist as a separate
entity.
 
 On July
31, 2007, the Group acquired all of the membership interests in WCS.  WCS
is based in Schaumburg, Illinois, and also has offices in New York, Atlanta and
Los Angeles.  It is a non-asset based freight forwarding company and
provides a full range of logistics and customs brokerage services to its
customers, specializing in freight imports from Asia, mostly by sea, with
an emphasis on imports from China.
 
 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, 2010, 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, 2010, and for the three and nine
months ended September 30, 2010 and 2009, have been prepared by the Company
without audit.
 
 Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations.  However, the Company believes that the disclosures
herein are adequate to make the information presented not
misleading.  These financial statements should be read in conjunction
with the Company’s audited consolidated financial statements and notes thereto
for the year ended December 31, 2009.
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities.  Actual results could
differ from these estimates.
 
 The
unaudited, interim consolidated financial statements of the Company have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information.  In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of September 30, 2010, and results of
operations for the three and nine months ended September 30, 2010 and 2009, and
cash flows for the nine months ended September 30, 2010 and 2009, have been
made.  The results of operations for the three and nine months ended
September 30, 2010 and 2009, are not necessarily indicative of the operating
results for the full year.
 
 F-8
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              EARNINGS
      (LOSS) PER SHARE
 
 Earnings (Loss) per share were computed
as follows:
 
 Three months ended September 30, 2010Income
                          
                          
                          Weighted
                            average
                            number of
                            shares
                          
                          
                          Per share
                            amountUS$
                          
                          
                          
                          
                          
                          US$(unaudited)
                          
                          
                          
                          
                          
                          (unaudited)Net
      income
                          
                          
                          349Dividends
      on Series A convertible redeemable preferred stock
                          
                          
                          23
                          
                          
                          
                          2,000,000
                          
                          
                          
                          0.01Basic
      earnings per shareNet
      income available to common stockholders
                          
                          
                          326
                          
                          
                          
                          30,880,094
                          
                          
                          
                          0.01Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                          
                          
                          -
                          
                          
                          
                          124,823Warrants
      (Note
      #)
                          
                          
                          -
                          
                          
                          
                          -Convertible
      promissory note
                          
                          
                          6
                          
                          
                          
                          1,521,739Series
      A convertible redeemable preferred stock (Note
#)
                          
                          
                          -
                          
                          
                          
                          -Series
      B convertible redeemable preferred stock (Note
#)
                          
                          
                          -
                          
                          
                          
                          -Series
      C convertible redeemable preferred stock
                          
                          
                          -
                          
                          
                          
                          3,912,000Diluted
      earnings per shareNet
      income available to common stockholders
                          
                          
                          332
                          
                          
                          
                          36,438,656
                          
                          
                          
                          0.01
 
 F-9
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              EARNINGS
      (LOSS) PER SHARE (CONTINUED)
  Nine months ended September 30, 2010Loss
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (1,148
                      )Dividends
      on Series A convertible redeemable
    preferred  stock
                      
                      
                      68
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.03Basic
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (1,216
                      )
                      
                      
                      30,975,332
                      
                      
                      
                      (0.04
                      )Effect
      of dilutive securitiesEmployee
      stock options (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Warrants
      (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Convertible
      promissory note (Note
      #)
                      
                      
                      -
                      
                      
                      
                      -Series
      A convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      B convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Series
      C convertible redeemable preferred stock (Note
#)
                      
                      
                      -
                      
                      
                      
                      -Diluted
      loss per shareNet
      loss available to common stockholders
                      
                      
                      (1,216
                      )
                      
                      
                      30,975,332
                      
                      
                      
                      (0.04
                      )
  F-10
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              EARNINGS
      (LOSS) PER SHARE (CONTINUED)
 
 Three months ended September 30, 2009Loss
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (666
                      )Dividends
      on Series A convertible redeemable preferred stock
                      
                      
                      23
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.01Basic
      loss per shareNet
      loss available 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 available to common stockholders
                      
                      
                      (689
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.02
                      )
 
 F-11
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              EARNINGS
      (LOSS) PER SHARE (CONTINUED)
  Nine months ended September 30, 2009Loss
                      
                      
                      Weighted
                        average
                        number of
                        shares
                      
                      
                      Per share
                        amountUS$
                      
                      
                      
                      
                      
                      US$(unaudited)
                      
                      
                      
                      
                      
                      (unaudited)Net
      loss
                      
                      
                      (2,118
                      )Dividends
      on Series A convertible redeemable
    preferred  stock
                      
                      
                      68
                      
                      
                      
                      2,000,000
                      
                      
                      
                      0.03Basic
      loss per shareNet
      loss available 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 available to common stockholders
                      
                      
                      (2,186
                      )
                      
                      
                      31,400,094
                      
                      
                      
                      (0.07
                      )
  # :
              For
      the three months ended September 30, 2010, weighted average number of
      shares outstanding was not increased by the 230,000 outstanding options,
      the 2,000,000 shares related to the Series A convertible redeemable
      preferred stock, the 500,000 shares of common stock issuable to the
      sellers of WCS upon conversion of the Series A convertible redeemable
      preferred stock and the 2,428,571 shares related to the Series B
      convertible redeemable preferred stock as the effect would be
      anti-dilutive. The Company’s potential obligation to issue 500,000 shares
      of common stock to the sellers of WCS terminated as of February 19, 2010.
      The Company’s 100,000 outstanding warrants expired in August 2010 and
      15,000 outstanding options expired upon the termination of employment of
      two employees during the period.
 
 F-12
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 2.
              EARNINGS
      (LOSS) PER SHARE (CONTINUED)
 
 For the
nine months ended September 30, 2010, weighted average number of shares
outstanding was not increased by the 630,000 outstanding options, the
2,000,000 shares related to the Series A convertible redeemable preferred stock,
the 500,000 shares of common stock issuable to the sellers of WCS upon
conversion of the Series A convertible redeemable preferred stock, the 2,428,571
shares related to the Series B convertible redeemable preferred stock,
the 3,912,000 shares related to the Series C convertible redeemable
preferred stock and the 4,000,000 shares related to the convertible
promissory note as the effect would be anti-dilutive. The Company’s potential
obligation to issue 500,000 shares of common stock to the sellers of WCS
terminated as of February 19, 2010. The Company’s 100,000 outstanding warrants
expired in August 2010 and 15,000 outstanding options expired upon the
resignation of the employees during the period.
 
 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
as the effect would be anti-dilutive.
 
 3.
              BANKING
      FACILITIES
 
 The
      Group has bank facilities from creditworthy commercial banks as
      follows:
 
 At
                        September 30,
                        2010
                      
                      
                      At
                        December 31,
                        2009US$
                      
                      
                      US$(unaudited)Facilities
      granted-
      bank guarantees
                      
                      
                      1,152
                      
                      
                      
                      1,145-
      overdraft facility
                      
                      
                      655
                      
                      
                      
                      603-
      bank loans and revolving credit lines
                      
                      
                      8,461
                      
                      
                      
                      5,909-
      foreign exchange facilities
                      
                      
                      242
                      
                      
                      
                      223-
      lease facilities
                      
                      
                      242
                      
                      
                      
                      223Total
      bank facilities
                      
                      
                      10,752
                      
                      
                      
                      8,103
  F-13
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 3.
              BANKING
      FACILITIES (CONTINUED)
 
 The terms
of the revolving loan and bank overdraft facilities, including the amounts and
maturity dates, are set forth in agreements between the banks and the
Group.
 
 Bank
guarantees of $545 will expire within one year from September 30, 2010, but may
be renewed, provided the Group makes available the cash required by the banks to
collateralize each guarantee. A bank guarantee of $133 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 $474 has no fixed expiration date and is cancelable and/or
renewable at the option of the bank.
 
 The bank
loans and revolving loan facilities mature on various dates as follows: (i)
$4,000 revolving credit facility on February 24, 2011 and (ii) loan facility of
$3,880 is an on-going facility that is subject to review in 2010, and, by its
terms, may be terminated by either the bank or WLG giving 30 days notice to the
other party and (iii) two loan facilities of $258 and $323, which are repayable
in 60 monthly installments ending December 2014 and January 2015,
respectively.
 
 The bank
loans and revolving credit facilities of $8,461 are secured as follows: (i)
$4,000 is secured by all of the assets of WCS and WLG (USA), including their
accounts receivables as well as a guarantee provided by the Group’s parent
company, and (ii) $3,880 is secured by Asean’s accounts receivable and a
registered mortgage charge over the assets of Asean and (iii) $581 is secured by
a guarantee provided by the Group’s parent company and a guarantee given by the
Hong Kong Special Administrative Region Government.
 
 Bank
guarantees of $545 are collaterized by cash of $545. Another bank guarantee of
$133 is secured by a letter of support from the Group’s parent company, and a
registered mortgage debenture over all of Asean’s assets. The remaining bank
guarantee of $474 is secured by a fixed and floating charge on all of the assets
of WLG (UK) and by a guarantee of the Group’s parent company.
 
 Asean’s
overdraft facility of $655 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 $242 and a leasing facility of $242, both as of
September 30, 2010, had not been utilized.  In addition, both the
foreign exchange and leasing facility are secured by a comfort letter from the
Group’s parent company.  As of September 30, 2010, and December 31,
2009, the weighted average interest rates of the Group’s bank borrowings were
9.54% and 7.27% per annum, respectively.
 
 F-14
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 3.
              BANKING
      FACILITIES (CONTINUED)
 
 At
                          September
      30,
                          2010
                        
                        
                        At
                          December
      31,
                          2009US$
                        
                        
                        US$(unaudited)UtilizedCommitted
      lines-
      bank guarantees
                        
                        
                        1,152
                        
                        
                        
                        1,145-
      overdraft facility
                        
                        
                        655
                        
                        
                        
                        603-
      bank loans and revolving credit lines
                        
                        
                        6,843
                        
                        
                        
                        4,931Total
      bank facilities utilized
                        
                        
                        8,650
                        
                        
                        
                        6,679
 
 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, 2010, and December 31,
      2009:
 
 At
                          September 30,
                          2010
                        
                        
                        At
                          December 31,
                          2009US$
                        
                        
                        US$(unaudited)Within
      one year
                        
                        
                        1,893
                        
                        
                        
                        1,539Over
      one year but not exceeding two years
                        
                        
                        1,604
                        
                        
                        
                        1,038Over
      two years but not exceeding three years
                        
                        
                        1,131
                        
                        
                        
                        731Over
      three years but not exceeding four years
                        
                        
                        1,014
                        
                        
                        
                        472Over
      four years but not exceeding five years
                        
                        
                        574
                        
                        
                        
                        404Over
      five years
                        
                        
                        729
                        
                        
                        
                        984Total
      operating lease commitments
                        
                        
                        6,945
                        
                        
                        
                        5,168
 
 The
      Group has obligations under various operating lease agreements ranging
      from 3 months to 8 years.  Rent expense under operating leases
      for the nine months ended September 30, 2010 and 2009, was $1,428 and
      $1,280, 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,
      2010, and December 31, 2009, the obligations for the minimum amount of
      such cargo space to be utilized in the coming 12 months were $1,375 and
      $2,249, respectively.
 
 F-15
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 4.
              COMMITMENTS
      AND CONTINGENCIES (CONTINUED)
 
 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, 2010, and December 31, 2009, and subject to the legal proceedings
as described below, the aggregate, outstanding amount of claims was
approximately $372 and $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.
 
 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. In December 2009, WCS settled the case for $100, with an initial
payment of $50 at the time of settlement and is obliged thereafter to make ten
monthly payments of $5 each. During the first quarter of 2010, the cost of this
settlement, as well as certain legal fees, has been reimbursed to the Group by
the return of 520,000 shares of WLG’s common stock by a former shareholder of
WCS. The 520,000 shares of WLG’s common stock is shown as treasury stock as at
September 30, 2010.
 
 5.
              RELATED
      PARTY TRANSACTIONS
 
 Name
      and relationship of related partiesName
                              
                              Relationship
      with the GroupChristopher
      Wood (“CW”)
                              
                              Shareholder,
      director and officer of WLGDavid
      Koontz (“DK”)
                              
                              Officer
      of WLG until August 31, 2010Join
      Wing Properties Limited (“JWP”)
                              
                              CW
      is a shareholder and director of JWPJumbo
      Glory Limited (“Jumbo”)
                              
                              Majority
      shareholder of
WLG
 
 Details
      of related partiesName
                                    
                                    Principal activities
                                    
                                    OwnershipName of owner
                                    
                                    % heldJWP
                                    
                                    Leases
      property to CW
                                    
                                    CW
                                    
                                    
                                    100
                                    %
 
 F-16
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 The
following is a summary of the amounts included in the accompanying balance
sheets:
  At
                            September 30,
                            2010
                          
                          
                          At
                            December 31,
                            2009US$
                          
                          
                          US$(unaudited)Loan from majority shareholder(Note
      iii)
                          
                          
                          1,000
                          
                          
                          
                          -Due to a director(Note i and
      ii)CW
                          
                          
                          630
                          
                          
                          
                          670
 
 Notes:
 
 (i)
              Amounts
      due to director are unsecured and interest-free, except for the director
      loan, which amounted to $570 and $600 as of September 30, 2010 and
      December 2009, respectively, (see note (ii) below),
      which was used as part of the consideration to acquire the membership
      interests of WCS, repayment of bank loans and working
    capital.
 
 (ii)
              On
      July 1, 2008, the Group issued a $600 promissory note to CW, dated July 1,
      2008, (the “Note”) to set forth, among other things, the interest rate and
      repayment terms for $600 that CW had previously loaned to the
      Group.  The Note bears interest at the rate of 12% per annum and
      was to be repaid in twelve monthly installments of $50, with the first
      installment due on January 31, 2009. Upon maturity of the Note, CW has
      agreed that payments due under the Note may be deferred on a month to
      month basis. Principal repayments of $30 had been made to CW as of
      September 30, 2010.  The Note is secured by the Group’s assets
      and will become immediately due and payable upon the earlier to occur of
      (i) an event of default as defined in the Note, (ii) a change in control
      as defined in the Note, (iii) raising not less than $3,000 in new capital,
      and/or (iv) the termination of CW’s
employment.
 
 Under the
original terms of this Note, it became due and payable as a result of the change
of control of the Company that occurred in May 2010.  However, CW and
WLG agreed that commencing (i) June 1, 2010, and continuing until December 31,
2011, WLG may defer making principal payments to Mr. Wood under the Note, and
(ii) commencing June 1, 2010, and extending through December 31, 2011, the
annual interest rate on the Note shall be reduced from 12% to 0%.  The
Note shall be due and payable as of December 31, 2011.
 
 (iii)
              On
      June 3, 2010, WEHK issued a $1,000 promissory note to WLG’s majority
      shareholder which bears interest at 6% per annum and is due on June 3,
      2011.  No monthly payments of principal are due under the terms
      of this note.
 
 F-17
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 5.
              RELATED
      PARTY TRANSACTIONS (CONTINUED)
 
 Additional
details of transactions
 
 Three months ended
                          September 30,
                        
                        
                        Nine months ended
                          September 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)US$
                        
                        
                        US$
                        
                        
                        US$
                        
                        
                        US$Rent
      paid/payableJWP
                        
                        
                        27
                        
                        
                        
                        27
                        
                        
                        
                        81
                        
                        
                        
                        81
 
 Summary
of transactions for the nine months ended September 30, 2010 and 2009, with
director/officer (unaudited):
 
 CW
                      
                      
                      DK
                      
                      
                      TotalUS$
                      
                      
                      US$
                      
                      
                      US$At
      January 1, 2010
                      
                      
                      670
                      
                      
                      
                      -
                      
                      
                      
                      670Interest
      accrued
                      
                      
                      160
                      
                      
                      
                      -
                      
                      
                      
                      160Interest
      paid
                      
                      
                      (130
                      )
                      
                      
                      -
                      
                      
                      
                      (130
                      )Repayment
      of loan
                      
                      
                      (30
                      )
                      
                      
                      -
                      
                      
                      
                      (30
                      )Repayment
      of advance
                      
                      
                      (40
                      )
                      
                      
                      -
                      
                      
                      
                      (40
                      )At
      September 30, 2010
                      
                      
                      630
                      
                      
                      
                      -
                      
                      
                      
                      630At
      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
                      
                      
                      
                      -
                      
                      
                      
                      620
 
 6.
              CONVERTIBLE
      PROMISSORY NOTE
 
 On August
27, 2010, WEHK issued a $1,000 promissory note to a third party which bears
interest at 6% per annum and is due on August 27, 2011. No monthly payments of
principal are due under the terms of this note. At any time prior to the
maturity date, the promissory note holder may convert all or a portion of the
principal amount into shares of Series D convertible redeemable preferred stock
of WLG at a conversion price of $0.25 per share by sending written notice to the
Company. The Series D Preferred
Stock may be converted by the holder from time to time into a maximum of 4
million shares of the Company’s common stock.
  F-18
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 7.
              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 part of 5,000,000
shares authorized but unissued preferred stock of WLG into a new series of
preferred stock consisting of 1,700,000 shares of preferred stock designated as
Series B Preferred Stock, par value $0.001.  The Series B Preferred
Stock was issued on June 30, 2008. The Series B Preferred Stock may be converted
by the holder at any time into shares of the Company’s common stock at a
conversion price of $0.70 per share. The Series B Preferred Stock has a stated,
redemption and liquidation value of $1.00 per share, and shall pay an annual,
cumulative dividend equal to 12% of the stated value per share.
 
 The
Company may require a conversion in the event of a change in control of the
Company. Commencing 24 months after the date of issuance of the Series B
Preferred Stock, the Company has the right to redeem all or a portion of the
then outstanding shares of Series B Preferred Stock at a price of $1.00 per
share, subject to adjustment.  In addition, commencing on the earlier
to occur of 24 months after the issuance date, Mr. Wood’s retirement or his
holding less than 50.1% of the outstanding common stock of the Company, Mr. Wood
may cause the Company to redeem any or all of his outstanding shares of Series B
Preferred Stock, at a price of $1.00 per share, subject to
adjustment.
 
 Pursuant
to the waiver agreement dated June 1, 2010, WLG and CW have agreed to waive
certain terms of the Series B Preferred Stock so that effective June 1, 2010,
and extending through December 31, 2011, the annual dividend rate on the Series
B Preferred Stock shall be reduced from 12% to 8% per annum.  Due to
the change in control of the Company that occurred in May 2010, CW had the right
to require a redemption and the Company had the right to seek a conversion of
the Series B Preferred Stock.  Neither party exercised its conversion
or redemptions rights for the Series B Preferred Stock.
 
 For the
nine months ended September 30, 2010 and 2009, the dividends on the Series B
Preferred Stock were included in interest expense in the amounts of $130 and
$153, respectively.
 
 8.
              SERIES
      C CONVERTIBLE REDEEMABLE PREFERRED
STOCK
 
 On May
14, 2010, Jumbo transferred $978 to WLG which was later applied to the purchase
of the Series C Preferred Stock.  In June, 2010, WLG entered into a
securities purchase agreement with Jumbo, the controlling shareholder of WLG,
pursuant to which Jumbo purchased 978,000 shares of the Company’s newly issued
Series C Convertible Redeemable Preferred Stock (“Series C Preferred Stock”). In
connection therewith, in June 2010, the Company’s Board of Directors approved
the designation of part of 5,000,000 shares authorized but unissued preferred
stock of WLG into a new series of preferred stock consisting of 1,000,000 shares
of preferred stock designated as Series C Preferred Stock, par value $0.001, and
the Series C Preferred Stock was issued on June 3, 2010. The Series C Preferred
Stock may be converted by the holder at any time into shares of the Company’s
common stock at a conversion price of $0.25 per share.  The Series C
Preferred Stock has a stated, redemption and liquidation value of $1.00 per
share, and shall not pay a cash dividend.
 
 F-19
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 8.
              SERIES
      C CONVERTIBLE REDEEMABLE PREFERRED STOCK
  (CONTINUED)
 
 The
Company may require a conversion of the Series C Preferred Stock in the event of
a change in control of the Company.  Commencing 24 months after the
date of issuance of the Series C Preferred Stock, the Company has the right to
redeem all or a portion of the then outstanding shares of Series C Preferred
Stock at a price of $1.00 per share, subject to adjustment.  Since the
issue of the Series C Preferred Stock no event has occurred that would allow the
Company to require a conversion of the Series C Preferred Stock.
 
 9.
              STATUTORY
      RESERVE
 
 WE China
(“the PRC subsidiary”) is a wholly-owned foreign investment enterprise (“WOFIE”)
registered in the PRC.  Under the laws and regulations applicable to a
WOFIE, such enterprises are required to maintain certain statutory reserves for
specific purposes, which include a general reserve, an enterprise development
fund and a staff welfare and bonus fund.  The board of directors of
the PRC Subsidiary shall make an annual determination based on its PRC statutory
financial statements of the amount to be transferred to statutory
reserves.
 
 Minimum
annual transfers to statutory reserves shall be at least 10% of a WOFIE’s after
tax profit which shall be determined in accordance with PRC accounting rules and
regulations.  Annual transfers to the general reserve shall continue
until such reserve balance reaches 50% of a WOFIE’s registered
capital.  The general reserve can only be utilized to offset prior
years' losses or as additional paid-in capital.  No distribution of
the remaining general reserve shall be made other than upon liquidation of the
PRC subsidiary.
 
 No after
tax profit has been appropriated to the general reserve in respect of the nine
months ended September 30, 2010 and 2009, as the transfers are to be made based
on the PRC Subsidiary’s statutory financial statements at the completion of its
fiscal year.
 
 10.
              SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW
INFORMATION
 
 Nine months ended
                        September 30,2010
                      
                      
                      2009(unaudited)
                      
                      
                      (unaudited)US$
                      
                      
                      US$Cash (refund) paid for:Interest
      expense
                      
                      
                      702
                      
                      
                      
                      456Income
      taxes
                      
                      
                      (46
                      )
                      
                      
                      240
 
 F-20
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 11.
              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,
2010, the number of shares reserved under the Plan is 6,280,019.
 
 In
general, stock options awarded under the Plan vest over three years and expire
in a maximum of ten years from their effective dates.  However, the
Plan permits the board to grant options with varying terms, such as changing the
vesting period, the term and/or exercise price.  Once the board, under
provisions of the Plan, grants an option, the Company will estimate the fair
value of the option, and  compensation expense will be recognized over
the vesting period of the option.
 
 Effective
January 15, 2007, the board approved and awarded stock options to three
employees        permitting them to
purchase an aggregate of 20,000 shares of the Company’s common
stock.  The vesting period for the January 2007 options is 3 years,
and these options are now fully vested. The options relating to purchase 15,000
shares of the Company’s common stock lapsed upon the termination of employment
of two employees during the three and nine months ended September 30,
2010.
 
 Effective
January 8, 2008, the board approved and awarded stock options to an employee for
the purchase of 25,000 shares of the Company’s common stock.  The
vesting period for the January 2008 options is 3 years.
 
 Effective
December 1, 2008, the board approved and awarded stock options to an employee
for the purchase of 150,000 shares of Company’s common stock.  The
vesting period for December 2008 options is 2 years. The options lapsed upon the
termination of employment of this employee during 2009.
 
 Effective
July 1, 2010, the board approved and awarded stock options to an employee for
the purchase of 400,000 shares of the Company’s common stock. The option is now
fully vested during the three and nine months ended September 30,
2010.
 
 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, 2010 and 2009, was $21 and $11, respectively.  As of
September 30, 2010, and December 31, 2009, the compensation expense related to
non-vested options totaled $1 and $2, and is expected to be recognized over 3
months and 12 months, respectively.  The total intrinsic value of the
options outstanding and options exercisable as of September 30, 2010, and
December 31, 2009, was zero.  No tax benefit was recognized for the
stock option expense recorded for the nine months ended September 30, 2010 and
2009.
 
 F-21
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 (Dollars
in thousands except share data and per share amounts)
 
 11.
              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,
                        2008
                      
                      
                      July 1,
                        2010Risk-free
      interest rate per annum
                      
                      
                      4.60
                      %
                      
                      
                      4.60
                      %
                      
                      
                      3.59
                      %
                      
                      
                      0.63
                      %
                      
                      
                      0.97
                      %Expected
      life
                      
                      2
      years
                      
                      
                      3
      years
                      
                      
                      3
      years
                      
                      
                      2
      years
                      
                      
                      NilExpected
      volatility (Note
      #)
                      
                      
                      45.00
                      %
                      
                      
                      57.79
                      %
                      
                      
                      46.00
                      %
                      
                      
                      5.03
                      %
                      
                      
                      11.98
                      %Expected
      dividend yield
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %
                      
                      
                      0.00
                      %Post
      vesting terminations
                      
                      No
                      
                      
                      No
                      
                      
                      No
                      
                      
                      No
                      
                      
                      NoWeighted
      average grant-date fair value (per share)
                      
                      $
                      0.28
                      
                      
                      $
                      1.22
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.06
                      
                      
                      $
                      0.05
 
 Note #:
                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
                      
                      
                      175,000
                      
                      
                      
                      0.61Outstanding
      at December 31, 2008
                      
                      
                      395,000
                      
                      
                      
                      0.92
                      
                      
                      
                      8.07Forfeited
      in 2009
                      
                      
                      (150,000
                      )
                      
                      
                      0.60Outstanding
      at December 31, 2009
                      
                      
                      245,000
                      
                      
                      
                      1.12
                      
                      
                      
                      5.95Granted
      in 2010
                      
                      
                      400,000
                      
                      
                      
                      0.13Forfeited
      in 2010
                      
                      
                      (15,000
                      )
                      
                      
                      2.85Outstanding
      at September 30, 2010
                      
                      
                      630,000
                      
                      
                      
                      0.45
                      
                      
                      
                      8.06Exercisable
      at September 30, 2010
                      
                      
                      626,337
                      
                      
                      
                      0.44
                      
                      
                      
                      8.07
 
 F-22
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 12.
              SEGMENTS
      OF THE BUSINESS
 
 (a)
              Business
      segments
 
 The Group
operates mainly in three business segments, being the provision of (i) air
forwarding, (ii) sea forwarding and (iii) customs brokerage
services.  The Group’s operations by air, sea and customs brokerage
services are summarized in the following table:
 
 (i)
              During
      the three months ended September 30, 2010 and 2009
    (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 302010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009
                                  
                                  
                                  2010
                                  
                                  
                                  2009US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$
                                  
                                  
                                  US$Revenue
                                  
                                  
                                  15,575
                                  
                                  
                                  
                                  7,708
                                  
                                  
                                  
                                  21,058
                                  
                                  
                                  
                                  17,094
                                  
                                  
                                  
                                  15,289
                                  
                                  
                                  
                                  15,273
                                  
                                  
                                  
                                  51,922
                                  
                                  
                                  
                                  40,075Costs
      of forwarding/customs
                                  
                                  
                                  (12,582
                                  )
                                  
                                  
                                  (6,169
                                  )
                                  
                                  
                                  (17,429
                                  )
                                  
                                  
                                  (13,619
                                  )
                                  
                                  
                                  (13,863
                                  )
                                  
                                  
                                  (14,153
                                  )
                                  
                                  
                                  (43,874
                                  )
                                  
                                  
                                  (33,941
                                  )Depreciation
                                  
                                  
                                  (32
                                  )
                                  
                                  
                                  (16
                                  )
                                  
                                  
                                  (71
                                  )
                                  
                                  
                                  (53
                                  )
                                  
                                  
                                  (25
                                  )
                                  
                                  
                                  (23
                                  )
                                  
                                  
                                  (128
                                  )
                                  
                                  
                                  (92
                                  )Interest
      income
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -Interest
      expense
                                  
                                  
                                  (60
                                  )
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  (135
                                  )
                                  
                                  
                                  (42
                                  )
                                  
                                  
                                  (53
                                  )
                                  
                                  
                                  (28
                                  )
                                  
                                  
                                  (248
                                  )
                                  
                                  
                                  (85
                                  )Other
      segment income (expense)
                                  
                                  
                                  9
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  44
                                  
                                  
                                  
                                  (14
                                  )
                                  
                                  
                                  6
                                  
                                  
                                  
                                  3
                                  
                                  
                                  
                                  59
                                  
                                  
                                  
                                  (6
                                  )Selling
      and administrative expense
                                  
                                  
                                  (1,970
                                  )
                                  
                                  
                                  (1,154
                                  )
                                  
                                  
                                  (3,155
                                  )
                                  
                                  
                                  (3,315
                                  )
                                  
                                  
                                  (1,240
                                  )
                                  
                                  
                                  (1,280
                                  )
                                  
                                  
                                  (6,365
                                  )
                                  
                                  
                                  (5,749
                                  )Income
      tax provision
                                  
                                  
                                  (121
                                  )
                                  
                                  
                                  (61
                                  )
                                  
                                  
                                  (52
                                  )
                                  
                                  
                                  (77
                                  )
                                  
                                  
                                  (7
                                  )
                                  
                                  
                                  (12
                                  )
                                  
                                  
                                  (180
                                  )
                                  
                                  
                                  (150
                                  )Segment
      income (loss)
                                  
                                  
                                  819
                                  
                                  
                                  
                                  298
                                  
                                  
                                  
                                  261
                                  
                                  
                                  
                                  (26
                                  )
                                  
                                  
                                  107
                                  
                                  
                                  
                                  (220
                                  )
                                  
                                  
                                  1,187
                                  
                                  
                                  
                                  52Unallocated
      parent company  expense
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (838
                                  )
                                  
                                  
                                  (718
                                  )Net
      income (loss)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  349
                                  
                                  
                                  
                                  (666
                                  )Property,
      plant and equipment – additions
                                  
                                  
                                  7
                                  
                                  
                                  
                                  30
                                  
                                  
                                  
                                  146
                                  
                                  
                                  
                                  23
                                  
                                  
                                  
                                  18
                                  
                                  
                                  
                                  35
                                  
                                  
                                  
                                  171
                                  
                                  
                                  
                                  88
 
 F-23
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 12.
              SEGMENTS
      OF THE BUSINESS (CONTINUED)
 
 (a)           Business
segments (Continued)
 
 (ii)
              During
      the nine months ended September 30, 2010 and 2009
    (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
      302010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$Revenue
                          
                          
                          39,305
                          
                          
                          
                          17,162
                          
                          
                          
                          56,926
                          
                          
                          
                          45,701
                          
                          
                          
                          40,972
                          
                          
                          
                          38,186
                          
                          
                          
                          137,203
                          
                          
                          
                          101,049Costs
      of forwarding/customs
                          
                          
                          (32,749
                          )
                          
                          
                          (13,476
                          )
                          
                          
                          (46,396
                          )
                          
                          
                          (35,862
                          )
                          
                          
                          (37,297
                          )
                          
                          
                          (35,433
                          )
                          
                          
                          (116,442
                          )
                          
                          
                          (84,771
                          )Depreciation
                          
                          
                          (79
                          )
                          
                          
                          (43
                          )
                          
                          
                          (202
                          )
                          
                          
                          (158
                          )
                          
                          
                          (74
                          )
                          
                          
                          (61
                          )
                          
                          
                          (355
                          )
                          
                          
                          (262
                          )Interest
      income
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          1
                          
                          
                          
                          1
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2
                          
                          
                          
                          1Interest
      expense
                          
                          
                          (123
                          )
                          
                          
                          (47
                          )
                          
                          
                          (287
                          )
                          
                          
                          (110
                          )
                          
                          
                          (132
                          )
                          
                          
                          (79
                          )
                          
                          
                          (542
                          )
                          
                          
                          (236
                          )Other
      segment income (expense)
                          
                          
                          27
                          
                          
                          
                          37
                          
                          
                          
                          87
                          
                          
                          
                          107
                          
                          
                          
                          20
                          
                          
                          
                          (3
                          )
                          
                          
                          134
                          
                          
                          
                          141Selling
      and administrative expense
                          
                          
                          (5,304
                          )
                          
                          
                          (3,148
                          )
                          
                          
                          (9,793
                          )
                          
                          
                          (9,614
                          )
                          
                          
                          (3,491
                          )
                          
                          
                          (3,310
                          )
                          
                          
                          (18,588
                          )
                          
                          
                          (16,072
                          )Income
      tax (provision) benefit
                          
                          
                          (96
                          )
                          
                          
                          (42
                          )
                          
                          
                          (46
                          )
                          
                          
                          (95
                          )
                          
                          
                          18
                          
                          
                          
                          45
                          
                          
                          
                          (124
                          )
                          
                          
                          (92
                          )Segment
      income (loss)
                          
                          
                          982
                          
                          
                          
                          443
                          
                          
                          
                          290
                          
                          
                          
                          (30
                          )
                          
                          
                          16
                          
                          
                          
                          (655
                          )
                          
                          
                          1,288
                          
                          
                          
                          (242
                          )Unallocated
      parent company expense
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (2,436
                          )
                          
                          
                          (1,876
                          )Net
      loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (1,148
                          )
                          
                          
                          (2,118
                          )Property,
      plant and equipment – additions
                          
                          
                          142
                          
                          
                          
                          73
                          
                          
                          
                          434
                          
                          
                          
                          211
                          
                          
                          
                          172
                          
                          
                          
                          122
                          
                          
                          
                          748
                          
                          
                          
                          406
  F-24
 
 WLG
Inc.
 
 Notes
to the Consolidated Financial Statements
 Three and
nine months ended September 30, 2010 and 2009
 
 12.
              SEGMENTS
      OF THE BUSINESS (CONTINUED)
 
 (a)           Business
segments (Continued)
 
 (iii)         As
of September 30, 2010,  and December 31, 2009
 
 Air forwarding
                          
                          
                          Sea forwarding
                          
                          
                          Customs brokerage
                          
                          
                          TotalAt September
                            30, 2010
                          
                          
                          At December
                            31, 2009
                          
                          
                          At September
                            30, 2010
                          
                          
                          At December
                            31, 2009
                          
                          
                          At September
                            30, 2010
                          
                          
                          At December
                            31, 2009
                          
                          
                          At September
                            30, 2010
                          
                          
                          At December
                            31, 2009US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$
                          
                          
                          US$(unaudited)
                          
                          
                          
                          
                          
                          (unaudited)
                          
                          
                          
                          
                          
                          (unaudited)
                          
                          
                          
                          
                          
                          (unaudited)Segment
      assets
                          
                          
                          9,957
                          
                          
                          
                          5,150
                          
                          
                          
                          13,410
                          
                          
                          
                          10,122
                          
                          
                          
                          7,432
                          
                          
                          
                          7,340
                          
                          
                          
                          30,799
                          
                          
                          
                          22,612Unallocated
      assets
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          8,796
                          
                          
                          
                          9,080Total
      assets
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          39,595
                          
                          
                          
                          31,692
 
 F-25
  12.
              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, 2010 and 2009, analyzed
      by geographical locations:
 
 Three months ended
                                  September 30,
                                
                                
                                Nine months ended
                                  September 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009(unaudited)
                                
                                
                                (unaudited)
                                
                                
                                (unaudited)
                                
                                
                                (unaudited)%
                                
                                
                                %
                                
                                
                                %
                                
                                
                                %RevenuesAmericas
                                
                                
                                32
                                
                                
                                
                                33
                                
                                
                                
                                32
                                
                                
                                
                                35Asia
      and others
                                
                                
                                34
                                
                                
                                
                                23
                                
                                
                                
                                32
                                
                                
                                
                                22Australia
                                
                                
                                30
                                
                                
                                
                                37
                                
                                
                                
                                31
                                
                                
                                
                                35Europe
                                
                                
                                4
                                
                                
                                
                                7
                                
                                
                                
                                5
                                
                                
                                
                                8100
                                
                                
                                
                                100
                                
                                
                                
                                100
                                
                                
                                
                                100
 
 (c)
              The
      Group made no sales during the three months and nine months ended
      September 30, 2010 and 2009, which qualified as sales to a major customer
      (defined as a customer where sales to it represent 10% or more of total
      revenues).
 
 13.
              FAIR
      VALUE DISCLOSURES
 
 The
carrying value of cash and cash equivalents, restricted cash, trade receivables,
deposits, prepayments and other current assets, prepaid tax, trade payables,
other accrued liabilities, amounts due to directors, bank overdraft and bank
loans contained in the consolidated balance sheet approximates fair
value.
 
 F-26
 
 14.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
 
 In
October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13,
Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements—a consensus of the FASB
Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 addresses the accounting
for multiple-deliverable arrangements to enable vendors to account for products
or services separately rather than as a combined unit and modifies the manner in
which the transaction consideration is allocated across the separately
identified deliverables. ASU 2009-13 significantly expands the disclosures
requirements for multiple-deliverable revenue arrangements. ASU 2009-13 will be
effective for the first annual reporting period beginning on or after September
15, 2010, and may be applied retrospectively for all periods presented or
prospectively to arrangements entered into or materially modified after the
adoption date. Early adoption is permitted, provided that the guidance is
retroactively applied to the beginning of the year of adoption. The Company is
currently evaluating the impact this update will have on its consolidated
financial statements.
 
 In April
2010, the FASB issued ASU 2010-13, Compensation – Stock
Compensation. This ASC provides amendments to FASB ASC 718 to clarify
that an employee share-based payment award with an exercise price denominated in
the currency of a market in which a substantial portion of the entity’s equity
securities trade should not be considered to contain a condition that is not a
market, performance, or service condition. As a result, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. The adoption of this ASU
is not expected to have a material impact on the Group’s financial
statements.
 
 In April
2010, the FASB issued ASU 2010-18, Receivables. The ASC provides
amendments to FASB ASC 310 As a result, modifications of loans within a pool
under the ASC do not result in the removal of those loans from the pool even it
the modifications of those loans would otherwise be considered a troubled debt
restructuring. Effective for modifications of loans accounted for within pools
under Subtopic 310-30 occurring in the first interim or annual period ending on
or after July 15, 2010. The amendments are to be applied prospectively. Early
application is permitted. The adoption of this ASU is not expected to have a
material impact on the Group’s financial statements.
 
 In
January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements. This ASU amends FASB ASC 820 to require a number of
additional disclosures regarding fair value measurements. Specifically, this ASU
requires entities to disclose: (1) the amount of significant transfers between
Level 1 and Level 2 of the fair value hierarchy and the reasons for these
transfers; (2) the reasons for any transfers in or out of Level 3; and (3)
information in the reconciliation of recurring Level 3 measurements about
purchases, sales, issuances and settlements on a gross basis. Except for the
requirement to disclose information about purchases, sales, issuances, and
settlements in the reconciliation of recurring Level 3 measurements on a gross
basis, which is effective for fiscal years beginning after December 15, 2010,
all the amendments to FASB ASC 820 made by this ASU are effective for interim
and annual reporting periods beginning after December 15, 2009. The adoption of
this ASU is not expected to have a material impact on the Group’s financial
statements.
 
 In May,
2010, the FASB issued ASU No. 2010-19, Foreign Currency(Topic 830),
which provides guidance for disclosures where there are multiple exchange rates.
A Venezuelan official rate and a parallel Bolivar exchange rate may result in a
difference between actual US Dollar-denominated balances and reported balances.
This update guides the required disclosure. This update has no effect on the
Company’s current accounting practices or financial reporting.
 
 F-27
 
 14.
              RECENT
      ACCOUNTING PRONOUNCEMENTS
(CONTINUED)
 
 In July,
2010, the FASB issued ASU 2010-20, Receivables (Topic 310). The
ASC provides updates to FASC ASC 310 to enhance disclosures about the credit
quality of financing receivables and the allowance for credit losses. Existing
disclosure guidance is amended to require an entity to provide a greater level
of disaggregated information about the credit quality of its financing
receivables and its allowance for credit losses. In addition, the amendments in
this Update require an entity to disclose credit quality indicators, past due
information, and modifications of its financing receivables. For public
entities, the disclosures as of the end of a reporting period are effective for
interim and annual reporting periods ending on or after December 15, 2010. The
adoption of this ASU is not expected to have material impact on the Company’s
consolidated financial statements.
 
 In
September, 2010, the FASB issued ASU 2010-25, Defined Contribution Pension Plans(Topic 962). The ASC provides amendments to require that participant
loans be classified as notes receivable from participants, which are segregated
from plan investments and measured at their unpaid principal balance plus any
accrued but unpaid interest. The amendments in this Update should be applied
retrospectively to all prior periods presented, effective for fiscal years
ending after December 15, 2010. Early adoption is permitted. This update has no
effect on the Company’s current accounting practices or financing
reporting.
 
 15.
              SUBSEQUENT
      EVENT REVIEW
 
 The
Company has evaluated subsequent events up to the date that these consolidated
financial statements were approved and authorized for issue by the Board of
Directors.
 
 F-28




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,
2010, included the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako
Air Express (HK) Co. Ltd. (“WAE”), Wako Express (China) Co. Ltd. (“WE China”),
Asean Cargo Services Pty Limited (“Asean”), WLG (UK) Limited (“WLG (UK)”) and
World Commerce Services, LLC, (“WCS”) dba WLG USA LLC.





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.  On September 24, 2010, we filed a certificate of
amendment to our restated certificate of incorporation to increase the our
authorized shares to 75 million shares, of which 65 million shares are common
stock, and 10 million shares are blank check preferred stock.





Pursuant
to certain Share Exchange Agreements entered into on January 18, 2004, between
us and Mr. Wood (and his nominee), we consummated a combination with WEHK
and WAE by issuing 20,000,900 shares of our common stock in exchange for 100% of
the outstanding shares of common stock of WEHK and WAE.  After these
share exchanges, WEHK and WAE became wholly-owned subsidiaries of
WLG.  Following this transaction, Mr. Wood owned all 20,001,000 shares
of our common stock then issued and outstanding.  In two transactions
occurring on February 8, 2010, and May 11, 2010, Mr., Wood sold a sufficient
number of his shares of WLG’s common stock to Jumbo Glory Ltd. ("Jumbo"), a Hong
Kong based private company, to allow it to acquire 51% of WLG’s common stock.
Effective with the second transaction that was completed on May 11, 2010, Jumbo
became the majority shareholder of WLG.





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




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





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




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




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




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


1




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





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





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





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





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





Overview





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





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





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


2




Freight
Forwarding and Value Added Services (VAS)





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





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





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





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





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





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




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




Customs
Brokerage Operations





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


3


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





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





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





Global
Agency Network





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





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




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





Results
of Operations





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




Results
of Operations





Group
revenues for the three months ended September 30, 2010, increased by about
$11.85 million, from approximately $40.07 million to $51.92 million or 30%, when
compared with the same period in 2009.   Our Hong Kong
based-operations reported increased revenues of $6.07 million, and revenues
from our China offices increased by $2.43 million.  Our US operations
reported a combined increase in revenues of $3.44 million, and Asean’s revenues
grew by $0.61 million.  Revenues in our UK operations declined by
$0.70 million.





Gross
profit for the Group increased from $6.13 million for the three months ended
September 30, 2009, to $8.05 million for the same period in 2010, for an
increase of $1.92 million, or about 31%. The increase is primarily due to
higher volumes of freight shipped by our existing customers and the continued
introduction of new customers.  Of this increase in gross profit,
approximately $0.92 million is attributable to our Hong Kong operations, about
$45,000 is from our offices in China, roughly $0.69 million is from our US
operations and $0.45 million is from Asean.  Gross profit in the UK
fell by $0.19 million in this quarter compared to the third quarter of
2009.




The
Group's gross margin increased slightly from 15.3% for the three months ended
September 30, 2009, to 15.5% for the same period in 2010.


4


Total
operating expenses increased to about $7.24 million for the three months ended
September 30, 2010, as compared to approximately $6.49 million for the same
period in 2009, for an increase of $0.75 million.  Of the total growth
in operating expenses, approximately $0.41 million is attributable to
compensation expense which has increased primarily because of a net increase in
headcount.  Total compensation expense for the third quarter of 2010
was $4.67 million, which compares to $4.27 million at the end of the third
quarter of 2009. The Group had 348 employees as of the end of September 2009,
and this number has grown to 365 persons as of September 30, 2010. Most of
the additional headcount resulted from salary increases and an increase in
staff in Hong Kong, China and Australia as the headcount for our US
operations declined by 15 persons on a quarter to quarter comparison.
 Other selling and administrative costs increased by approximately 18% from
$1.97 million for the three months ended September 30, 2009 to $2.33 million for
the three months ended September 30, 2010, which, when combined with the
increase in personnel costs, resulted in a total increase of approximately $0.76
million in operating costs, not including amortization and
depreciation.  Amortization and depreciation expense decreased from
$0.25 million for the three months ended September 30, 2010 to $0.24 million for
the three months ended September 30, 2010.  Most of this reduction
relates to a decrease in the amortization for WCS’s customer list.  In
2009, we recorded a $0.72 million impairment charge to reflect a decline in the
value of WCS’s customer list, and this has resulted in less monthly amortization
expense for this asset.  SeeOther Operating Expenses
  below.




After the
provision of income taxes, the Group posted a net income of $0.35 million
for the three months ended September 30, 2010, compared to a net loss of $0.67
million for the same period in 2009.   Hong Kong and China’s
operations reported a combined net income of $0.99 million for the three months
ended September 30, 2010, compared to net income of $0.53 million for the same
period in 2009, for an increase in net income of $0.46 million.  Our
US operations recorded a combined net income of $0.18 million for the three
months ended September 30, 2010, compared to a net loss of $0.67 million for the
same period in 2009.   Asean reported a net income of $0.12
million for the three months ended September 30, 2010, compared to net income of
$0.18 million for the same period in 2009.  WLG (UK) reported a net
loss of $0.10 million for the three months ended September 30, 2010, compared to
net income of $9,000 for the same period in 2009.  The parent
company’s loss increased to $0.84 million (before allocation of expenses to the
operating companies) for the three months ended September 30, 2010, compared to
$0.72 million for same period in 2009.  Most of the increase in
loss for the parent company is due to higher salaries for management personnel
that joined in the Group in January and March of 2010.




Segment
Information




Air freight
operations:  Revenues from our air freight operations increased
from $7.71 million for the three months ended September 30 2009, to about $15.58
million for the same period in 2010, for an increase of $7.87
million.  Our Hong Kong and China operations reported a combined
increase in revenues of $6.24 million, increasing from $4.98 million for the
three months ended September 30, 2009, to revenues of $11.22 million for the
same period in 2010.  In addition, our US air freight
revenues increased by $1.56 million for the three months ended September
30, 2010 as compared to the same period in 2009.  Our remaining
subsidiaries reported a net increase of approximately $0.07 million in their air
freight revenues for the three months ended September 30, 2010, compared to the
same period in 2009.




Cost of
sales for our air freight operations increased by $6.41 million from $6.17
million for the three months ended September 30, 2009, to $12.58 million for the
same period in 2010, mainly as a result of an increase in the volumes of cargo
shipped and to significant increases in rates charged by the
airlines.





The
Group’s gross profit margin for its air freight business decreased from 20.0%
for the three months ended September 30, 2009, to 19.2% for the same period in
2010.





Segment
overhead for our air freight operations was $1.24 million for the three months
ended September 30, 2009, which compares to $2.17 million for the same period in
2010.  Our operating costs increased in order to handle the higher volumes
of freight shipped in 2010 compared to 2009, and to compensation costs for new
personnel added to our offices in Hong Kong and China.




Net
segment income for our air freight operations is approximately $0.82 million for
the three months ended September 30, 2010, compared to net income of $0.30
million for the same period in 2009.  For the three months ended
September 30, 2010, our Hong Kong and China air freight operations reported a
combined net income of approximately $0.76 million, compared to combined net
income of approximately $0.36 million for the same period in 2009, for an
increase of $0.40 million.  In addition, our USA operations
posted net incomes of $34,000 for the third quarter of 2010, compared to net
losses of $98,000 for the same period in 2009.  Asean and our UK
operation reported a net income of $23,000 and $7,000 for the three months ended
September 30, 2010, compared to a net income of $37,000 and $3,000 for the same
period in 2009.




Sea freight
operations:  Revenues from our sea freight operations increased
from approximately $17.09 million in the three months ended September 30, 2009,
to $21.06 million for the same period in 2010, for an increase of $3.97
million, or about 23%.  Our China and Hong Kong operations
reported increases in revenues of $0.92 million and $1.34 million, respectively
for the three months ended September 30, 2010 as compared to the same period in
2009.  In addition, Asean posted an increase in revenues of $0.90
million. Our US operations reported a net increase in their sea freight revenues
of approximately $1.12 million, while revenues in our UK business declined by
about $0.31 million.





Cost of
sales for our sea freight operations increased from $13.62 million for the third
quarter of 2009 to $17.42 million for the same period in 2010, due to
an increase in the volumes of cargo shipped and significant increases
in shipping rates and surcharges.


5





The
Group’s gross profit margin decreased from 20.3% for the three months ended
September 30, 2009 to 17.2% in 2010.




Total
segment overhead attributable to our sea freight business decreased by $0.13
million, from approximately $3.50 million for the three months ended September
30, 2009, to $3.37 million for the same period in 2010.





Our sea
freight operations posted a net income of approximately $0.26 million for the
three months ended September 30, 2010, compared to net loss of $27,000 for the
same period in 2009.  In the third quarter of 2010, our Hong Kong and
China operation reported a combined net income of $0.23 million, which compares
to net income of $0.18 million for the same period in 2009.  In
addition, Asean and our US operations posted net incomes of $61,000
and $63,000, respectively, for the three months ended September 30, 2010,
compared to a net income of $0.10 million and a net loss of $0.30 million for
the same period in 2009.  WLG (UK) reported a net loss of $99,000 for
the third quarter of 2010, compared to a net loss of $5,000 for the same period
in 2009.




Customs brokerage
services:  Asean, WLG (UK) and our US operations each have
divisions which provide customs brokerage services.  For the
three months ended September 30, 2010, revenues from customs brokerage services
totaled approximately $15.29 million, compared to $15.27 million for the same
period in 2009.  Direct and administrative costs for this segment
totaled about $15.18 million, producing a net income of $0.11 million for the
three months ended September 30, 2010, compared to a net loss of $0.22 million
for the same period in 2009.





Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses increased by $0.40 million, from $4.27 million for the
three months ended September 30, 2009 to $4.67 million for the same period in
2010.  Compensation expense increased in our Australian and Asian
operating locations, including our parent company, and decreased in both the US
and UK locations.  The increase in salary costs for our operations in
Asia is due to salary increases granted in 2010 and the increase in
staff.  Parent company salary costs increased as a result of adding
management personnel.  Asean’s compensation expense increased due to
additions to its warehouse staff, salary increases given to staff and a
strengthening of the Australian currency against the US
dollar.   Salary costs in our US and UK operations declined due
to a reduction in headcount and a change in the mix of
employees.





Rent




Rent
expense for our facilities remained the same, being about $0.58 million for the
three month period ended September 30, 2010, compared to $0.49 for the three
months ended September 30, 2009.    The increase is mainly
attributable to the new warehouse facilities of Asean.





Other
selling and administrative expenses





Other
SG&A expense totaled about $1.76 million for the three months ended
September 30, 2010, compared to $1.47 million for the same period in 2009, for
an increase of $0.29 million.  The increase in SG&A expenses was
incurred to accommodate the growth in our business.




Depreciation
and Amortization




For the
three months ended September 30, 2010, depreciation expense for property, plant
and equipment was $0.13 million, compared to $92,000 for the same period in
2009, for an increase of $37,000.  Asean acquired new office equipment
and furniture and fixtures which increased its depreciation expense by about
$26,000.





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


6




Interest
Expense




Interest
expense grew from $0.15 million for the three months ended September 30, 2009,
to $0.28 million for the same period in 2010, for an increase of about $0.13
million.  Asean’s interest expense was higher by $38,000 as a result
of  increases in its bank borrowings and related interest
rates,.  WCS’s interest expense increased from $26,000 for the three
months ended September 30, 2009, to about $0.11 million for the same period in
2010.  The increase in WCS’s interest expense is due to higher bank
borrowing and significantly higher interest rates.  WEHK and WAE
obtained new bank loans at the beginning of 2010 and incurred interest expense
of $7,000 for this new debt. In addition, WEHK incurred interest of $30,000 for
a loan of $1 million from a shareholder and for a promissory note of $1
million.  Interest expense for the director’s loans and Series B
Preferred Stock decreased from $69,000 for the three months ended September 30,
2009, to $34,000 for the same period in 2010, due to a decrease in the interest
rate.  All director loans and the Series B Preferred Stock through
June 1, 2010, carried an interest and dividend rate of 12% per
annum.  Subsequent to that date, the interest rate on the director’s
loan became nil, and the dividend rate on the Series B Preferred Stock was
reduced to 8%.





Provision
for Income Taxes





A
provision of income tax of $0.18 million was recorded for the three months ended
September 30, 2010, compared to income tax expenses of about $0.15 million
provided for the same period in 2009.  Income tax of $0.16 million,
was provided on the combined net incomes of $0.94 million for our Hong Kong
and China operation, for an effective tax rate of 17%.   WLG (UK)
reported a net loss of $0.17 million and recorded no tax benefit.
Asean  reported a net loss of $0.13 million and recorded an income tax
benefit of $7,000. The US operations of WLG (USA) is included in a US
consolidated federal income tax return with the Group's parent company, and,
together, these companies reported a consolidated pre-tax loss of approximately
$0.11 million, which included amortization expense of $0.10 million that is not
deductible for income tax purposes.  No federal tax benefit was
provided for the US losses, but the US companies did record an expense
for state income tax of about $29,000.





In
October 2009,  WLG received notification from the US Internal Revenue
Service (IRS) that they would be reviewing WLG’s 2007  federal income
tax return. At the present time, no material effect to WLG is expected although
the audit remains ongoing.





NINE
MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30,
2009.





Results
of Operations





Group
revenues for the nine months ended September 30, 2010, increased by about $36.15
million from approximately $101.05 million to $137.20 million,  when
compared with the same period in 2009.  Our Hong Kong based-operations
reported increased revenues of $14.27 million, while revenues from our
China offices increased by $7.44 million.  Our US operations reported
a combined increase in revenues of $7.60 million and Asean’s revenues grew by
$7.89 million.  Revenues in our UK operations declined by $1.05
million.





Gross
profit increased from $16.28 million for the nine months ended September 30,
2009, to $20.76 million for the same period in 2010, for an increase of $4.48
million, or about 28%. The increase is primarily due to higher volumes of
freight shipped by our existing customers and the continued introduction of new
customers.  Of this increase in gross profit, approximately $1.73
million is attributable to our Hong Kong and China operations, $1.22 million is
from our US operations and $2.17 million is from Asean.  Gross profit
in the UK fell by $0.64 million in the first three quarters of 2010, when
compared to the same period in 2009.





The
Group's gross margin declined from 16.1% for the nine months ended September 30,
2009, to 15.1% for the same period in 2010.





Total
operating expenses increased to about $21.17 million for the nine months ended
September 30, 2010, as compared to approximately $17.99 million for the same
period in 2009, for an increase of $3.18 million.  Of the total growth
in operating expenses, approximately $1.93 million is attributable to
compensation expense which increased because of a net increase in
headcount.  Total compensation expense for the first three quarters of
2010 was $13.89 million, which compares to $11.96 million for the first three
quarters of 2009. The Group had 348 employees as of the end September 2009, and
this number has grown to 365 persons as of September 30, 2010.  Most
of the additional headcount is in Hong Kong, China and
Australia.  Compared to the nine months ended September 30, 2009, the
headcount for our US operations declined by 15 persons.  Other selling
and administrative costs increased by approximately 25% from $5.29 million to
$6.60 million, which, when combined with the increase in personnel costs,
resulted in a total increase of approximately $3.24 million in operating costs,
not including amortization and depreciation.  Amortization and
depreciation expense decreased from $0.74 million to $0.68
million.  Most of this reduction relates to a decrease in the
amortization for WCS’s customer list.  In 2009, we recorded a $0.72
million impairment charge to reflect a decline in the value of WCS’s customer
list, and this has resulted in less monthly amortization expense for this
asset.  SeeOther
Operating Expenses below.


7





After the
provision of income taxes, the Group recorded a net loss of $1.15 million
for the nine months ended September 30, 2010, compared to a net loss of $2.12
million for the same period in 2009.   Hong Kong and China’s
operations reported a combined net income of $1.48 million for the nine months
ended September 30, 2010, compared to net income of $1.24 million for the same
period in 2009, for an increase of $0.24 million.  Our US operations
recorded a net loss of $50,000 for the nine months ended September 30, 2010,
compared to a net loss of $1.47 million for the same period in
2009.  Asean reported a net income of $0.18 million for the nine
months ended September 30, 2010, compared to net loss of $17,000 for the same
period in 2009.  WLG (UK) reported a net loss of $0.32 million for the
nine months ended September 30, 2010, compared to a net income of $5,000 for the
same period in 2009.  The parent company’s loss increased to $2.44
million (before allocation of expenses to the operating companies) for the nine
months ended September 30, 2010, compared to $1.88 million for same period in
2009.




Segment
Information





Air freight
operations:  Revenues from our air freight operations increased
from $17.16 million for the first three quarters of 2009 to about $39.30 million
for the same period in 2010, for an increase of $22.14 million.  Our
Hong Kong and China operations reported a combined increase in revenues of
$16.75 million, increasing from $10.89 million for the nine months ended
September 30, 2009, to $27.64 million for the same period in 2010.  In
addition, our US air freight revenues increased by $5.09 million, compared to
the same period in 2009. Our remaining subsidiaries reported a net increase in
their air freight revenues of approximately $0.30 million for the first nine
months of 2010, compared to the same period in 2009.




Cost of
sales for our air freight operations increased by $19.27 million from $13.48
million for the nine months ended September 30, 2009, to $32.75 million for the
same period in 2010, mainly as a result of an increase in the volumes of cargo
shipped and significant increases in  rates charged by the
airlines.





The
Group’s gross profit margin for its air freight business decreased from 21.5%
for the nine months ended September 30, 2009, to 16.7% for the same period in
2010.





Segment
overhead for our air freight operations was $3.24 million for the nine months
ended September 30, 2009, which compares to $5.57 million for the same period in
2010.  Our operating costs increased in order to handle the higher volumes
of freight shipped in 2010 compared to 2009, and to the compensation costs for
new personnel added to our offices in Hong Kong and China.




Net
segment income for our air freight operations is approximately $0.98 million for
the nine months ended September 30, 2010, compared to net income of $0.44
million for the same period in 2009.  For the nine months ended
September 30, 2010, our Hong Kong and China air freight operations reported a
combined net income of approximately $1.05 million, compared to combined net
income of approximately $0.67 million for the same period in 2009, for an
increase of $0.38 million.  In addition, our UK and USA
operations posted net losses of $93,000 and $14,000, respectively, for the first
three quarters of 2010, compared to net losses of $40,000 and $0.13 million for
the same period in 2009.  Asean reported a net income of $34,000 for
the nine months ended September 30, 2010, compared to a net loss of $62,000 for
the same period in 2009.




Sea freight
operations:  Revenues from our sea freight operations increased
from approximately $45.70 million in the nine months ended September 30, 2009,
to $56.93 million for the same period in 2010, for an increase of $11.23
million.  Our China and Hong Kong operations reported increases in
revenues of $2.08 million and $2.89 million, respectively.  In
addition, Asean posted an increase in revenues of $5.97 million. Our US
operations reported an increase in their sea freight revenues of approximately
$0.99 million, and revenues in our UK business declined by about $0.70
million.





Cost of
sales for our sea freight operations increased from $35.86 million for the first
three quarters of 2009 to $46.40 million for the same period in 2010, due to
an increase in the volumes of cargo shipped and significant increases
in shipping rates and surcharges.




The
Group’s gross profit margin decreased from 21.5% for the nine months ended
September 30, 2009 to 18.5% in 2010.




Total
segment overhead attributable to our sea freight business increased by $0.37
million, from approximately $9.87 million for the nine months ended September
30, 2009, to $10.24 million for the same period in 2010.





Our sea
freight operations posted a net income of approximately $0.29 million for the
nine months ended September 30, 2010, compared to a net loss of $30,000 for the
same period in 2009.  For the nine months ended September 30, 2010,
Hong Kong and China reported net incomes of $0.43 million, which compares to net
incomes of $0.57 million, for the same period in 2009.  In
addition, Asean posted a net income of $95,000 for the nine months ended
September 30, 2010, compared to a net income of $0.13 million for the same
period in 2009.  WLG (UK) and our US operation reported net losses of
$0.21 million and $23,000, respectively, for the first three quarters of 2010,
compared to a net income of $93,000 and a net loss of $0.82 million for the same
period in 2009.




Customs brokerage
services:  Asean, WLG (UK) and our US operation each have a
division that provides customs brokerage services.  For the nine
months ended September 30, 2010, revenues from customs brokerage services
totaled approximately $40.97 million, compared to $38.19 million for the same
period in 2009, for an increase of about $2.78 million.  Direct and
administrative costs for this segment totaled about $40.96 million, producing a
net income of $16,000 for the nine months ended September 30, 2010, compared to
a net loss of $0.66 million for the same period in 2009.


8




Other
Operating Expenses





Salaries
and allowances




Salaries
and related expenses increased by $1.93 million, from $11.96 million for the
nine months ended September 30, 2009, to $13.89 million for the same period in
2010.  Compensation expense increased in our Australian and Asian
operating locations, including our parent company, and decreased in both the US
and UK locations Salary costs for our operations in Asia increased by about
$0.95 million for the first nine months of 2010, compared to the same period in
2009, mainly due to salary increases granted in 2010 and to the increase in
staff.  Parent company salary costs increased in the first nine months of
2010 by about $0.49 million over the same period last year as a result of adding
management personnel in the first three months of 2010.  Asean’s
compensation costs in the first three quarters of 2010 increased by $1.33
million, when compared to the same period in 2009, and the increase is due to
salary adjustments, an increase in warehouse staff and a strengthening of the
Australian currency against the US dollar.  Salary costs in our US and
UK operations declined due to a reduction in headcount and a change in the mix
of employees.




Rent




Rent
expense for our facilities increased by approximately $0.13 million to about
$1.50 million for the nine months ended September 30, 2010, compared to rent
expense of $1.37 million for the same period in 2009.  The increase is
mainly attributable to the new warehouse facilities of Asean.





Other
selling and administrative expenses





Other
SG&A expense totaled about $5.10 million for the nine months ended September
30, 2010, compared to $3.92 million for the same period in 2009, for an increase
of $1.18 million. The increase in SG&A expenses was incurred to
accommodate the growth in our business.




Depreciation
and Amortization




For the
nine months ended September 30, 2010, depreciation expense for property, plant
and equipment was $0.36 million, compared to $0.26 million for the same period
in 2009, for an increase of about $0.1 million.  Asean acquired new
office equipment and furniture and fixtures which increased its depreciation
expense by about $65,000 for the first three quarters of 2010, compared to the
same period in 2009.





Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK) and WCS.  In connection with the
acquisition of WLG (USA), we recorded a customer list asset of $0.51 million,
which is now being amortized on a straight-line basis over 4
years.  Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years.  WLG (UK)'s customer
list was valued at $0.83 million and was being amortized over 5
years.  In 2009, WLG (UK)’s customer list became fully amortized due
to prior amortization and a reduction in carrying value of $0.60 million
resulting from the cancellation of an earn-out arrangement.  WCS’s
customer list was valued at $2.84 million and is being amortized over 9
years.   In addition, the Group periodically reviews the book value
and estimated useful lives of its intangible assets to ensure that the rate of
amortization is consistent with the expected pattern of economic benefits to be
received from its intangible assets.  This review for 2009 resulted in
the Group recognizing an impairment charge of $0.72 million to WCS’s customer
list.  In 2008, a similar review indicated that the remaining useful
lives for the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5
years, respectively.  Due to this review, the useful lives of the
intangible assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4
years and from 3 years to 5 years, respectively, effective from January 1,
2009. For the nine months ended September 30, 2010, amortization expense
totaled $0.32 million, and is attributable to WLG (USA), Asean and WCS in the
approximate amounts of $24,000, $146,000 and $154,000,
respectively.  Amortization expense for the nine months ended
September 30, 2009 was $0.48 million and related to WLG (USA), Asean, WLG (UK)
and WCS in the approximate amounts of $24,000, $146,000, $74,000 and $236,000,
respectively.




Interest
Expense




Interest
expense grew from $0.46 million for the nine months ended September 30, 2009, to
$0.70 million for the same period in 2010, for an increase of about $0.24
million.  Asean’s interest expense was higher by $98,000, mainly as a
result of increases in its bank borrowings and interest rates as well as a
strengthening of Australia's currency against the US dollar.  WCS’s
interest expense increased from $70,000 for the nine months ended September 30,
2009, to about $0.23 million for the same period in 2010.  The
increase in WCS’s interest expense is due to higher bank borrowing,
significantly higher interest rates and other charges attributable to the
new loan facility it obtained at the end of February 2010.  WEHK and
WAE obtained new bank loans at the beginning of 2010 and incurred interest
expense of $21,000 for this debt.  In addition, WEHK incurred interest
of $30,000 for a loan of $1 million from a shareholder and for a promissory note
of $1 million.  Interest expense for the director’s loans and Series B
Preferred Stock decreased from $0.22 million for the nine months ended September
30, 2009, to $0.16 million for the same period in 2010, as one of the loans was
fully repaid in 2009.  All director loans and the Series B Preferred
Stock until June 1, 2010, carried an interest and dividend rate of 12% per
annum.  Subsequent to that date, the interest rate on the director’s
loan became nil, and the dividend rate on the Series B Preferred Stock was
reduced to 8%.


9


Provision
for Income Taxes





A
provision for income taxes of $0.12 million was recorded for the nine months
ended September 30, 2010, compared to income tax expenses of about $92,000
provided for the same period in 2009.  Income tax of $0.19 million was
provided on combined net incomes of our Hong Kong and China operations of
$1.12 million, for an effective tax rate of 17%.  WLG (UK) reported a
net loss of $0.52 million and recorded no tax benefit.  Asean reported
a net loss of $0.48 million and recorded an income tax benefit of $0.11 million.
WLG (USA) 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 $1.14 million, which included
amortization expense of $0.30 million that is not deductible for income tax
purposes.  No federal tax benefit was provided for the US
losses, but the US companies did record an expense for state income tax of about
$39,000.





LIQUIDITY
AND CAPITAL RESOURCES




Our
operations used cash of approximately $2.48 million for the nine months ended
September 30, 2010, compared to cash of $0.9 million used by operations for the
same period in 2009.  During the first nine months of 2010, cash was
provided by the following sources: amortization and depreciation expense of
$0.68 million; provision for bad debts of $0.18 million; an increase in trade
payables of $4.02 million; an increase in accrued liabilities of $90,000 and
other non-cash item of $20,000.  Major components that used cash for
operations during the first nine months of 2010 include: net loss of $1.15
million; increase in trade receivables of $5.65 million; increases in deposits
and prepayments of $0.54 million; decrease in due to director of $40,000 and a
decrease in income tax payable of $91,000.





Net cash
provided by financing activities totaled about $4.68 million for the nine months
ended September 30, 2010, compared to net cash of $0.32 million provided by
financing activities for the same period in 2009.  Cash provided by
financing activities in the first nine months of 2009 included an increase in
bank debt of $0.70 million and a decrease in restricted cash of $0.11
million.  Cash used by financing activities in the nine months of 2009
included a repayment of capital lease obligation of $53,000; repayment to loan
from director of $0.38 million and cash dividends of $68,000 paid on
preferred stock.  Cash provided by financing activities for the nine
months ended September 30, 2010, included increase in bank debts of $1.96
million, two loans of each of $1.0 million, the purchase of $0.98 million of the
Company’s Series C Preferred stock by the Group’s new majority
shareholder.  Cash used by financing activities for the nine months
ended September 30, 2010 included an increase in restricted cash of $0.10
million, repayment of a loan from a director of $40,000; repayment of
capital lease obligations of $60,000; and cash dividends of $68,000 paid on
preferred stock.




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





An
Australian bank has provided a guarantee of about $0.13 million in favor of the
owner of the office premises occupied by Asean.  In addition, a UK
bank has provided a guarantee of $0.47 million to the UK Customs and Excise
Department for the benefit of WLG (UK).  In return for this guarantee,
the UK Customs and Excise Department grants credit terms to WLG
(UK).  A parent company guarantee has been given to the UK
bank.  In addition, a parent company guarantee has been given as
support for the  rental obligations related to WLG (UK)’s office and
warehouse facilities.  This latter guarantee is limited to an amount
equal to three years rent plus rates at the date the guarantee is
enforced.  As of September 30, 2010, our contingent obligation under
this guarantee was about $0.91 million, plus assessed rates.





In
January 2010, WEHK borrowed $0.32 million for use as general working capital,
and this loan is repayable in equal installments over five years. As of
September 30, 2010, the outstanding balance of this loan was $0.28
million.





In
December 2009, WAE borrowed $0.26 million for use as general working capital,
and this loan is repayable in equal installments over five years. As of
September 30, 2010, the outstanding balance of this loan was $0.22
million.





During
2010, WEHK issued a promissor note in the aggregate principal amount of $1.0
million to a majority shareholder.  The promissory notes carried an
interest rate at 6% per annum. In addition, in August 2010, WEHK received a
loan of $1.0 million from an individual.  The terms of the loan have
not been set forth in a promissory note, however WEHK and the lender have agreed
that the loan will bear interest at a rate of 6% per annum and be convertible
into newly designated shares of WLG preferred stock at a conversion price of
$0.25 per share.


10





Asean has
a revolving loan facility in the face amount of approximately $3.88 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
$0.65 million.  At September 30, 2010, Asean's bank debt under its
revolving loan and overdraft facilities was $2.46 million and $0.65 million,
respectively, with interest rates of approximately 10.43% for the receivables
line and 9.53% for the overdraft facility.  Asean's bank, in addition
to having a charge over all of its accounts receivable, holds a first registered
mortgage over all of its remaining assets.  Asean’s overdraft
facility is guaranteed by the Group’s parent company.




During
2008, WCS had a revolving loan facility from a bank in the face amount of $3.0
million.  This facility, which was secured in part by all of the trade
receivables of WCS, MSA and WLG (USA), allowed borrowings equal to 80% of the
eligible receivables of all three companies.  The loan facility was
renewed in October 2009 in the face amount of $2.5 million, but was subsequently
reduced to $2.08 million when it was renewed in November 2009. This loan
facility expired on February 28, 2010, and was not renewed. In February
2010, WCS and WLG (USA) obtained a revolving banking facility of $3.0
million from another lender, and this new facility will expire in
February 2011. This new loan facility, which permits borrowings equal to 78% of
eligible receivables and carries a minimum interest rate of 9.5% per annum, is
secured by all of the assets of WCS and WLG (USA) and by a guarantee from the
Group’s parent company.  In addition, an origination and commitment fee
totaling 2% of the loan facility, a monthly collateral management fee of 0.35%
per month of the outstanding loan balance and certain other charges are payable
for this loan facility. Effective July 6, 2010, WCS’s bank amended the $3.0
million revolving loan facility to increase it by $1.0 million to a face amount
of $4.0 million.  In exchange for the additional credit facility of
$1.0 million, WCS paid an origination fee to the bank equal to 1% of $1.0
million, and paid all of the bank’s legal fees in connection with amending the
loan agreement.  As of September 30, 2010, our US companies owed
approximately $3.88 million to the bank.





In our
past reports, we have expressed a strong intent to continue executing our
business plan, which, among other things, called for us to make strategic
acquisitions to supplement our internal growth.  In 2005, we completed
the acquisitions of three freight forwarding and logistics companies, one of
which had a customs brokerage business.  We followed this in 2006 by
acquiring two freight forwarding and customs brokerage companies.  In
July of 2007, we acquired WCS, which operates both a freight forwarding business
and customs brokerage practice.  In May of 2009, we hired
approximately 10 individuals that had previously worked with an international
freight forwarding company in New York.  Several of the new
employees have strong business connections in Asia and specialize in air-freight
shipments in the US-Asia trade lanes.  We paid no cash to hire
these individuals, but we did incur some capital costs and also added
office space to our existing branch office in New York.   Late in
2009 and during the first quarter of 2010, we added over twenty
new employees to our operations in Hong Kong and China without incurring
any outlay of funds, except for on-going salaries.  All of these
individuals previously worked for a large multi-national freight forwarding and
logistics company and have strong backgrounds in sales,
air-freight forwarding and logistics.  During the first nine
months of 2010, the Group raised additional operating funds by selling
a new Series C Preferred Stock and a 6% note to Jumbo Glory Ltd., its
majority shareholder, in the amounts of $1.0 million and $1.0 million,
respectively.  During the third quarter of 2010, the Group sold a 6%
note to an individual investor in the amount of $1.0M.  The Group will
continue to look for opportunities to raise additional funds to order to grow
our existing business and improve our profitability.




Our
approximate contractual cash obligations as of September 30, 2010, for the
periods shown are set forth in the table below and are expected to equal
approximately $0.58 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
                
                $
                2,570
                
                
                $
                2,000
                
                
                $
                570
                
                
                
                —
                
                
                
                —Facilities
      rental and equipment leases
                
                $
                6,945
                
                
                $
                1,893
                
                
                $
                2,735
                
                
                $
                1,588
                
                
                $
                729Cargo
      space commitments
                
                $
                1,375
                
                
                $
                1,375
                
                
                
                —
                
                
                
                —
                
                
                
                —Redeemable
      preferred stock
                
                $
                1,700
                
                
                
                1,700
                
                
                $
                —
                
                
                
                —
                
                
                
                —Total
      contractual cash obligations
                
                $
                12,590
                
                
                $
                6,968
                
                
                $
                3,305
                
                
                $
                1,588
                
                
                $
                729




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





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





·
            trading
      activities in non-exchange traded
contracts.




11


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





Changes
in Internal Control Over Financial Reporting





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





Part
II: Other Information




Item
1. Legal Proceedings.





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





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





Item
5. Other Information.





In
August  2010, WEHK received a loan of $1.0 million from an
individual.  The terms of the loan have not been set forth in a
promissory note, however WEHK and the lender have agreed that the loan will bear
interest at a rate of 6% per annum and be convertible into newly designated
shares of WLG preferred stock.





Item
6. Exhibits.





Exhibits





3.1
              
              Second
      restated certificate of incorporation.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)).




12




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 15, 2010
              By:
              /s/ Andrew JillingsAndrew
      JillingsChief
      Executive Officer,
                (
      Principal Executive Officer)Date:
      November 15, 2010
              By:
              /s/Edmund PawelkoEdmund
      PawelkoChief Financial Officer,
                (Principal
      Financial Officer)




13




EXHIBIT
INDEX





Exhibit
                  Number
                
                Description of Exhibit3.1
                
                Second
      restated certificate of incorporation.31.1
                
                Certification
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002(Rule 15d-14(a)).31.2
                
                Certification
      of the Chief Financial Officer to Section 302 of the Sarbanes-Oxley Act of
      2002 (Rule15d-14(a)).32.1
                
                Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (Rule
15d-14(b)).




14