Attached files
| file | filename |
|---|---|
| EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - WLG INC | v178101_ex31-1.htm |
| EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - WLG INC | v178101_ex21-1.htm |
| EX-32.1 - CERTIFICATION OF CEO AND CFO PURSUANT TO SECTION 906 - WLG INC | v178101_ex32-1.htm |
| EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - WLG INC | v178101_ex31-2.htm |
| EX-23 - WLG INC | v178101_ex23-1.htm |
| EX-10.20 - WLG INC | v178101_ex10-20.htm |
| EX-10.17 - WLG INC | v178101_ex10-17.htm |
| EX-10.18 - WLG INC | v178101_ex10-18.htm |
| EX-10.19 - WLG INC | v178101_ex10-19.htm |
| EX-10.16 - WLG INC | v178101_ex10-16.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x Annual Report Pursuant
to Section 13 or 15(d) of the Securities Exchange
Act of
1934 for the fiscal year ended December 31, 2009
or
¨ Transition Report
pursuant to Section 13 or 15(d) of the Securities
Exchange
Act of 1934
Commission
File Number: 333-113564
WLG
INC.
(Exact
name of registrant as specified in its Charter)
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Delaware
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20-0262555
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|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer Identification No.)
|
920 East
Algonquin Road
Suite
120
Schaumburg,
IL USA 60173
(Address
of principal executive offices)(Zip code)
(224)
653-2800
(Registrant's
Telephone Number, including area code)
Securities
registered pursuant to Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: None
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes ¨ No x
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. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
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 ¨
|
|
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Non-accelerated
filer ¨ (Do not
check if a smaller reporting company)
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Smaller
reporting company x
|
Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes ¨ No x
Registrant's
revenues for its most recent fiscal year: $143,785,000
The
aggregate market value of the voting stock held by non-affiliates of the
registrant on June 30, 2009 (the last business day of the registrant’s most
recently completed second fiscal quarter), computed by the average bid and asked
price as of June 30, 2009, at which the stock was sold, was $1,380,634
assuming solely for purposes of this calculation that all directors and
executive officers of the issuer are "affiliates." This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
On March
30, 2010, the registrant had 30,880,094 shares of common stock, $0.001 par value
per share, issued and outstanding.
WLG
INC.
FORM
10-K
FISCAL
YEAR ENDED DECEMBER 31, 2009
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Item Number in
Form 10-K
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Page
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PART
I
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1.
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Business
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4
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1A.
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Risk
Factors
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15
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1B.
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Unresolved
Staff Comments
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18
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2.
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Properties
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18
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3.
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Legal
Proceedings
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20
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4.
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Submission
of Matters to a Vote of Security Holders
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20
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PART
II
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||
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5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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20
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6.
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Selected
Financial Data
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22
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7.
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Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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23
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7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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31
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8.
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Financial
Statements and Supplementary Data
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31
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9.
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
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31
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9A(T).
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Controls
and Procedures
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31
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9B.
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Other
Information
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PART
III
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||
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10.
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Directors,
Executive Officers and Corporate Governance
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32
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11.
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Executive
Compensation
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34
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12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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37
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13.
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Certain
Relationships and Related Transactions, and Director
Independence
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38
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14.
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Principal
Accounting Fees and Services
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39
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15.
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Exhibits,
Financial Statement Schedules
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40
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2
NOTE
REGARDING FORWARD LOOKING STATEMENTS
Certain
statements in this report, including statements in the following discussion, may
constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. This report on Form 10-K contains
forward-looking statements concerning WLG Inc. (“WLG,” the “Company” or the
“Group”) and its subsidiaries and its future operations, plans and other
matters. Any statements that involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using phrases such as “expects”,
or “does not expect”, “is expected”, “anticipates” or “does not anticipate”,
“plans”, “estimates” or “intends”, or stating that certain actions, events or
results “may”, “could”, “might”, or “will” be taken or occur or be achieved) are
not statements of historical fact and may be “forward looking
statements.”
The
Company cautions readers regarding certain forward-looking statements in this
document and in all of its communications to shareholders and others, including
press releases, securities filings, and all other communications. WLG also
cautions readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. Such forward-looking
statements are based on the beliefs of WLG's management as well as on
assumptions made by and information currently available to WLG at the time such
statements were made. Forward-looking statements are subject to a variety of
risks and uncertainties which could cause actual events or results to differ
from those reflected in the forward-looking statements. Actual results could
differ materially from those projected in the forward-looking statements, as a
result of either the matters set forth or incorporated in this report generally
or certain economic and business factors, some of which may be beyond the
control of WLG. These factors include adverse economic conditions, entry of new
and stronger competitors, inadequate capital, unexpected costs, failure to gain
or maintain approvals for the sale and expansion of WLG's services in the
jurisdictions where WLG conducts its business or the failure to capitalize upon
access to new markets and those factors referred to or identified in Item 1A,
and elsewhere, in this Report on Form 10-K for the year ended December 31, 2009.
WLG disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated
events.
3
PART
I
ITEM 1. BUSINESS
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 December 31,
2009, included the following entities: Wako Express (HK) Co. Ltd. (“WEHK”), Wako
Air Express (HK) Co. Ltd. (“WAE”), Wako Express (China) Co. Ltd. (“WE China”),
WLG (USA) LLC (“WLG (USA)”) (formerly dba “Kay O'Neill”), , Asean
Cargo Services Pty Limited (“Asean”), WLG (UK) Limited (“WLG (UK)”)
and World Commerce Services, LLC, (“WCS”).
WLG was
incorporated in Delaware on December 2, 2003, under the name Wako Logistics,
Inc. In January 2004, we changed our name to Wako Logistics Group,
Inc., and, in December 2007, we changed our name to WLG Inc. Under our
certificate of incorporation, we were initially authorized to issue 100 million
shares of common stock, par value $0.001 per share. On the date of our first
name change, we reduced the number of authorized shares to 60 million, of which
55 million shares were designated as common stock, and 5 million shares were
designated as blank check preferred stock. Immediately following the formation
of WLG, Mr. Christopher Wood (“Mr. Wood”) became our sole
shareholder.
Pursuant
to certain Share Exchange Agreements entered into on January 18, 2004, between
us and Mr. Wood (and his nominee), we consummated a combination with WEHK
and WAE by issuing 20,000,900 shares of our common stock in exchange for 100% of
the outstanding shares of common stock of WEHK and WAE. After these share
exchanges, WEHK and WAE became wholly-owned subsidiaries of WLG. Following this
transaction, Mr. Wood owned all 20,001,000 shares of our common stock then
issued and outstanding.
WEHK was
incorporated in Hong Kong on September 4, 1982, and carries on the business of
handling 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 the commencement of business by it in February
2005.
On April
1, 2005, we completed the acquisition of all of the voting interests in Kay
O'Neill (USA) LLC, an Illinois limited liability company. Kay
O'Neill operated a US based logistics business, which primarily
served its customers by providing services similar to those offered by the
Group in Asia and elsewhere. At the acquisition date, Kay O'Neill had only one
office in the US, which was in Des Plaines, Illinois. As part of the process of
creating brand identity for the Group in the United States, Kay O'Neill, on June
29, 2005, changed its name to WLG (USA) LLC and began immediately to operate as
WLG (USA). In June of 2005, WLG (USA) opened an office in Taylor,
Michigan.
Pursuant
to the Closer Economic Partnership Agreement (“CEPA”) signed in June 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 services as well as 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. At the date of acquisition, ALI
was 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 and administrative functions 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.
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.
4
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 from the Administrator acting on
behalf of the UK Co. This UK Division, which operated in Manchester, UK,
provided sea and air freight forwarding, brokerage and warehouse logistics
services, mostly to UK based customers. These activities are now carried on by
WLG (UK). Prior to this acquisition, the Group and UK Co. had worked together in
a limited capacity on several mutual customers.
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 provides air and
sea freight forwarding and related logistics services to its customers. The MSA
Group mainly serves customers that ship products from Asia to the West Coast of
the U.S. for onward shipment to locations throughout the country.
Traditionally, the business of the MSA Group has been more focused on its
customs brokerage practice than 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 have been taken over by MSA.
Effective December 31, 2009, we merged MSA with and into WCS.
Effective
July 31, 2007, WLG acquired all of the membership interests of WCS in exchange
for WLG common stock and cash. WCS, incorporated in Illinois in January 2004, is
the successor to a company of the same name, which began business in 1976. Like
its predecessor, WCS is a non-asset based freight forwarding company and
provides a full range of air and sea freight forwarding, logistics and customs
brokerage services. It serves a wide range of customers that primarily import
product 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, Atlanta, Georgia and Los Angeles, California. Prior to the
acquisition, the Group and WCS had not worked together.
With the
exception of performing administrative, oversight and regulatory tasks on behalf
of the Group, no other business activities are carried on by the parent
company, WLG Inc.
Industry
The
global logistics industry consists of companies, large and small, that provide
supply chain management, freight forwarding, distribution, warehousing and
customs brokerage services. Within the industry, there is a continuing
trend for logistics companies to provide a wide range of non-freight forwarding
services known as value added services (“VAS”). VAS include warehousing,
scanning, pick and pack, inventory tracking, labeling and other related
activities used to determine inventory needs, as well as services to hold,
prepare and distribute product to wholesalers, retailers and to the ultimate
consumer. Moreover, with the continuing technical requirements of this industry,
customers expect their logistics providers to have and maintain
sophisticated information systems to track shipments and provide timely
shipment and delivery information to them. Given the growing level of
technology required by the logistics industry, we believe that to be successful,
companies in our industry must be able to provide their customers with
integrated, global supply chain solutions. All of our operating companies use a
single IT system that allows the Group’s clients to have global access to
shipping data. As supply chain management becomes more complicated, we think it
likely that customers of this industry will increasingly seek full service
solutions from a single or limited number of service providers that are familiar
with the requirements, processes and procedures for serving companies that do
business globally.
Business
Overview
We are a
global, non-asset based freight forwarder providing supply chain logistics
services, including freight forwarding, customs brokerage and VAS 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 from and to most major production, trading and
consumer locations throughout the world. Historically, the Group has
concentrated on freight shipments originating in Asia, and mostly in Hong Kong
and China for shipment to Australia and to a lesser extent to Europe. However,
with our acquisitions in the US, the group is now focusing more of its attention
on the US markets.
For the
year ended December 31, 2009, approximately 68.0 % of WLG’s revenues were
derived from our freight forwarding operations and the remaining 32.0% were
attributable to our VAS and customs brokerage business. Considering only our
freight forwarding business, approximately 69.0% and 31.0% of our revenues were
attributable to ocean and air freight shipments, respectively.
WLG does
not own or operate any transportation assets such as aircraft, ships, river
barges or railroads. Instead, we contract with companies owning these types of
assets to provide the transportation and logistics services required for
shipping freight on behalf of our customers. We have developed a core of skills
that allow us to arrange shipments for many types of cargoes, including garments
on hangers, electronic goods, auto parts, refrigerated goods, hazardous
materials and perishable goods. In addition, we provide a portfolio of other
services to our customers that may include customs brokerage, local pick-up and
delivery and supply chain management services.
5
As an
example of the normal services we provide, we will arrange for the pick-up of a
shipment at the customer's location or third-party factory and either deliver
the goods directly to a commercial carrier or to a warehouse where we may be
engaged by our customer to provide certain VAS, such as packing or consolidation
of a shipment before the goods are delivered to a commercial carrier. The goods
are then delivered by the commercial carrier to the destination airport, port
facility, warehouse, ship, or railway station. Upon the shipment's arrival, we
may then, using either one of our offices or an overseas cargo agent, arrange
for the delivery of the goods to the recipient's location. Although we deliver
packages and shipments of any size, we focus primarily on large cargo shipments.
Given the size of our average shipment and the fact that we are a non-asset
based logistics provider, we do not generally compete with overnight couriers or
expedited small package companies such as Federal Express Corporation, United
Parcel Service of America, Inc. or the local postal services.
Much of
our work is performed in conjunction with independent, overseas cargo agents. We
have written agreements with some but not all of our overseas cargo agents. Our
current practice is to execute agreements with all new agents. All of these
relationships are non-exclusive and generally have no termination date. As a
result, we normally engage the services of our agents on a shipment by shipment
basis, depending on several factors, including shipping rates and the services
required. Our costs for maintaining this network of cargo agents are not
substantial, but do require considerable management time and
travel.
Revenue
derived from our freight forwarding services is generally earned on a job by job
basis and is based on the rates that we charge our customers for the movement of
their goods from origin to destination. Carriers contract directly with us, not
with our customers, and, as such, we are responsible for the payment of the
carriers’ charges. In assuming the responsibility for the shipment of our
customers' goods, we also become liable for any claims for damages to their
goods while in transit. In most cases, we are able to obtain reimbursement from
the carriers for any such damage claims, but since some shippers may not
carry insurance sufficient to cover all potential losses or may dispute
liability, we also carry insurance to cover any unreimbursed claims for goods
that may be lost or damaged. For our custom brokerage business, we are generally
compensated for each clearance of the customer’s goods, based on fees negotiated
with the customer. Our revenues for the VAS that we perform are
normally based either on fees for storage or on services performed.
We act
principally as a service provider to add value and expertise in the procurement
and execution of a full range of transportation services for our customers.
Reported gross revenue represents the total amount charged for the services we
provide to our customers. Our costs for transportation and handling services
include only the direct costs of transportation, including ground
transportation, rail, ocean, air and other directly-related costs. In
addition, to ensure that we are able to maintain an “inventory” of space on
air carriers, we frequently commit to space with airlines prior to receiving
orders from our customers. To the extent we are unable to use such space, we
incur a liability to the airlines. We also have contracts with shipping lines
that guarantee to us a certain amount of container space at agreed rates. Under
the normal operating practices of this industry, freight forwarders do not incur
a liability to the shipping lines for space not utilized, but shipping lines
retain the right to require payment for unutilized space. Our gross profit
(gross revenues less the direct costs of transportation, handling and services)
is the primary indicator of our ability to source, add value and resell
transportation and other services that are provided by third party owners of
the transportation assets.
As noted
earlier, we utilize a network of freight forwarding agents around the world. We
in turn act as an overseas agent for other cargo agents. Under these
arrangements, each party performs services for the customer of the originating
agent. Commissions earned on air and sea freight shipments are generally shared
equally between us and the applicable cargo agent, but on some shipments
different revenue sharing arrangements may apply.
In the
normal course of business, we may be the originating agent for exports, and, for
imports, we may provide services to an overseas agent. In general:
Our cargo
agents:
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·
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Collect
freight on our behalf for shipments routed to the designated location,
which may be anywhere in the world;
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·
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Arrange local
delivery of the goods;
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·
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Provide
break-bulk services, (i.e. consolidation and deconsolidation) for various
shipments, and also customs clearance;
and
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·
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Provide
sales and marketing support.
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For our
cargo agents, we;
6
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·
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Arrange
for shipments of cargo from the point of origin to the point of
destination;
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·
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Provide
local pick-up and transshipment services from point of origin
to the consignee;
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|
|
·
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Provide
break-bulk services, (i.e. consolidation and deconsolidation) for some
shipments, and also customs clearance and local delivery of goods;
and
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|
·
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Provide
warehousing, storage and other value added services such as pick
& pack, bar coding and quality control
inspection.
|
Operations
in Hong Kong
Hong
Kong, as a Special Administrative Region (“SAR”) of the PRC, is under the Basic
Law of Hong Kong, a mini-constitution which was codified prior to the return of
Hong Kong in July 1997 by the British government to the PRC (the “Handover”).
Since the Handover, the Chinese government has respected the new law; however,
we accept that the PRC may choose to make major changes to the law.
Notwithstanding that there is no certainty as to the plans that China may have
for the SAR, the evidence to date suggests that China intends to respect the
autonomy of Hong Kong. It is important to our business that the Basic Law of
Hong Kong continues as currently applied because the Hong Kong legal system
provides a stable framework not only for our business operations, but also for
our customers. In addition, the applicable fiscal regulations, legal structure
and tax rates in Hong Kong are simpler, better understood and lower, and
therefore more beneficial to our business, than the commercial laws, tax rules
and rates imposed on businesses in China. Our two companies in Hong Kong, WEHK
and WAE, provide traditional air and sea freight forwarding services to our
customers and support our offices in other countries. In addition, they also act
as the local agent for shipments of originating cargo agents in other parts of
the world. Some limited value added services are performed by our Hong Kong
companies, but with the opening of China, the differential in wage rates and the
expanding production in the PRC, most VAS activities we provide are now
performed at the major manufacturing and shipping centers in
China.
Operations
in China
Following
the commencement of operations in the PRC in February 2005 by our wholly-owned
subsidiary, WE China, our revenues in China have grown from
about $10.3 million for the year ended December 31, 2005, to $19.0
million for calendar year 2009. In establishing our offices in China, we were
able to take advantage of the CEPA, signed in June 2003, between the PRC and
Hong Kong, which permitted Hong Kong companies to establish wholly-owned
enterprises in the PRC to provide a full range of freight forwarding and
logistics services to local and international customers. Our ability to continue
operations and grow our business in the PRC is dependent on China's continued
willingness to provide business and trading opportunities through arrangements
such as the CEPA, as well as adopting and maintaining a stable legal and
economic environment for foreign companies. As of the start of 2008,
we had received approvals to conduct a full range of freight forwarding and
logistics operations in Beijing, Shanghai, Shenzhen and
Guangzhou, four of China's key commercial cities. We maintain five other
offices located throughout China, and of these, four are now full service
offices and are located in Tianjin, Ningbo Qingdao, and Xiamen, which
we opened in 2009. Our remaining office is classified as a
liaison office, and is located in Dalian As business increases, we
will apply to have our Dalian office converted to a full service
office. Our offices in China provide air and sea freight forwarding and
local transportation services and VAS to our customers as well as acting as an
agent to overseas freight forwarders. Consistent with prior years, we continue
to see an increased interest on the part of our customers to have our China
offices provide a wider range of value added services. The revenues from this
part of our business are small. However, we do see a growing need for VAS in
China, so that as the global economies recover, we will likely have
to add more resources to increase our capacity to provide value added
services to our overseas customers. In January 2009, we did add additional
warehouse space in to accommodate customer demands for VAS.
Operations
in Australia
We
operate our business in Australia through a wholly-owned subsidiary, Asean,
which we acquired in the fourth quarter of 2005. Australia has stable legal,
political and economic systems and a relatively open import and export
environment. Asean provides air and sea freight forwarding, customs brokerage
services and VAS to its customers, with a concentration on a large number of
Australian businesses that import goods into Australia from China and other
parts of Asia. Our ability to continue to grow our Australian business
will depend on the retention and growth of our customer base, business expansion
opportunities in Australia and New Zealand and our ability to develop import and
export opportunities with North America and Europe, particularly in tandem with
the offices we have acquired over the past years in these jurisdictions. In mid
2007, Asean opened a leased warehouse facility in Melbourne in response to the
requests of several of its customers to provide warehousing and distribution
services. Even with the current slowdown in business, Asean intends to continue
to look for opportunities to establish offices in other Australian cities, as
well as in New Zealand, but will do so only when the economy in each country
improves.
7
Operations in the
USA
In April
2005, we acquired all of the voting interests of Kay O'Neill, which was based in
Des Plaines, and which is a suburb of Chicago, Illinois. As part of
the process to create brand identity for the Group in the North American
market, we changed Kay O’Neill’s name to WLG (USA) LLC in June 2005. WLG (USA)
opened a branch in Taylor, Michigan, (a suburb of Detroit) in June 2005.
Effective October 2005, WLG (USA) acquired all of the voting stock of ALI, a
company based in Torrance, California, and which continued to do business under
the name Asean Logistics Inc. During 2006, all of ALI’s operations, except for
sales, were transferred to WLG (USA)’s Chicago office, and discontinued the use
of the name Asean Logistics Inc. By the end of 2007, all of ALI’s sales
operations had been transitioned to WLG (USA)’s Chicago office.
As part
of our expansion strategy, the Group acquired MSA in December 2006, which had
offices in Seattle, Washington, and Long Beach, California. Each of these
offices has a customs practice and the Seattle office also carries on a
freight-forwarding and logistics business. With this acquisition, we obtained
two locations in the US that provide customs clearance services. Having an
in-house customs practice provides us with a competitive advantage in the US
market by ensuring that we can offer an increased range of services to our US
customers.
On July
31, 2007, WLG acquired all of the membership interests of WCS in exchange for
WLG common stock and cash. WCS, which was incorporated in Illinois in January
2004, is the successor to a company of the same name, which began business in
1976. Like its predecessor, WCS is a non-asset based freight forwarding company
and provides a full range of air and sea freight forwarding, logistics and
customs brokerage services. WCS has offices in Long Island, New York, Atlanta,
Georgia (sales and operations support only) and in Los Angeles, California.
Prior to the acquisition, the Group did not have offices in the key gateway
cities of New York and Atlanta.
Following
the acquisition of WCS, the Des Plaines office of WLG (USA) was closed and all
of its Chicago based personnel and operations moved to WCS’s office in
Schaumburg, Illinois. As a consequence of these changes, WCS assumed
management and oversight for all of the Group’s US business and has
responsibility for our day-to-day operations in the US. Not all companies
in the US had used the Group’s operations and financial software, but a project
was completed in 2009 by which these companies have now fully implemented the
Group’s software.
Our plans
for the US are to eventually merge all of the operations in the US into WCS and
then change its name to WLG (USA). Most of WCS’s revenues are derived from
import transactions and customs services, with the vast majority of its freight
forwarding business being sourced in Asia, mostly from China. In contrast, WLG
(USA)'s main focus is on export forwarding from the US to Europe, Asia, Bermuda
and the Middle East. However, during 2006, WLG (USA) began a sales and marketing
effort to obtain more import business, particularly from Asia. Acquiring WCS
added a large import business to our US operations and has provided additional
business to our offices in Hong Kong and China, and has increased our
volume of import shipments to the US from Asia. With the acquisition of MSA in
late 2006, the Group acquired a customs practice and freight forwarding business
on the West Coast, with offices in the gateway cities of Seattle, Washington,
and Long Beach, California. Following the WCS acquisition, the WCS and MSA
operations in the Los Angeles area were consolidated into one location. As part
of the consolidation efforts to combine the operation of WCS and WLG (USA) and
to streamline our US operations, we discontinued our presence in Houston,
Texas. And effective December 31, 2009, MSA and WCS completed a
statutory merger by which WCS acquired all of the assets and liabilities of
MSA.
The US
freight forwarding business is highly regulated and our US companies have all of
the permits and approvals that are required by them to conduct business in the
US.
Operations
in the United Kingdom
In
September 2006, we purchased for cash a freight-forwarding and logistics
business located in Manchester, England, using a second-tier, wholly owned UK
subsidiary, WLG (UK), and that business is now conducted by WLG (UK). Prior to
the acquisition, the Manchester business was a branch of a freight forwarding
company that was headquartered in London.
The
Manchester business is a full-service logistics provider with
a long-standing VAS business. In February 2008, WLG (UK) moved both its
office and warehouse operations to a new leased facility of approximately 40,000
sq. ft., which is more than double the size of its prior location. WLG (UK)
serves a large number of customers that import product from Asia and also has
some key customers that import goods from the US. In addition, its export
business includes a significant amount of shipments that go to Bermuda. Our
offices in China, Australia and the US now work closely with WLG (UK). We
expect these synergies to continue.
WLG (UK)
also provides in-house customs brokerage services, but this practice is common
among freight forwarders in the UK, and provides only marginal gross income to
our UK operations.
8
WLG (UK)
has fully implemented the Group’s operating and financial software. In reviewing
the UK market, the Group believes it will eventually need to open an office in
London and continues to look for an opportunity to acquire a London-based
freight forwarding business, but, with the recent downturn in global trade,
these plans have been put on hold.
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 are
authorized to make commitments or to execute any contracts on our behalf. In
most cases, the fees payable to these agents for freight forwarding services are
shared 50:50 with them, and may include additional billings for specific
services.
We work
with over 600 overseas agents worldwide, many of whom have offices in strategic
cities in Europe, North and South America, Africa and the Middle East. As a
result, we may be represented by more than one agent in 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 have been able
to expand our global activities without the costs typically associated with the
ownership and maintenance of company-owned offices. Given the importance of
these overseas cargo agents to our business, we believe it is critical that
senior management be involved on a regular basis with them 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.
Our
Services
Key to
developing and growing our core business of freight forwarding and logistics
services is our ability to consistently provide cost-effective, reliable
and personalized services to our customers. To this end, we always seek to use
our Group offices, our global network of agents, information technology systems,
relationships with transportation providers and expertise in logistics services
to improve our customers' supply chain management, all with the goal of
strengthening our customer relationships to the point that we become their
logistics partner.
Many of
our competitors may offer only one type of transportation carrier or limited
services to their customers. However, as many customers grow their
business, they will likely have a need to utilize more than one type of
transportation carrier. For example, a customer may source product from an
inland factory in China which would require it to transport a container by
truck, have it loaded via a feeder boat and then transported by a large cargo
vessel or aircraft. A customer in this situation would have to engage three
separate transportation agents to ship its goods. Next, the customer may then
need third party assistance to store and pack its goods. By contrast, as a
multi-service provider offering ground, air and sea freight forwarding and VAS,
we can provide our customers with one-stop transportation solutions, arranging
for all necessary forms of transportation at the same time, as well as a wide
range of warehousing and distribution services.
We have a
diverse customer base. Our customers operate across a wide range of industries,
which include textile and apparel retailers, a broad range of consumer goods
including perishable food products, office and residential furniture, industrial
plant and machinery, computer and electronic equipment and printed materials.
For our Asian operations in calendar year 2009, approximately 80% of our freight
customers were direct shippers or importers, and the remaining 20% were other
freight forwarders who co-load with us when we have excess capacity. To the
extent possible, we charge these freight forwarders market rates for co-loading,
which vary from time to time based upon available capacity. However,
due to the need to utilize space or fulfill contracts with carriers, we may not
be able to charge market rates to some co-loaders.
One air
freight carrier, Qantas Airways Limited, accounted for approximately 14.8% of
our air freight shipping activity for the twelve months ended December 31, 2009.
Orient Overseas Container Line, Ltd., a major shipping line, accounted for
approximately 7.9% of our sea freight business for the year ended December 31,
2008.
Freight
Forwarding Services
On
instructions from of our customers, we routinely arrange for the import and
export of many types of goods, including garments, electronics, auto parts,
fabrics, books, and perishable foods from and to Hong Kong, China,
Australia, UK , US and other countries around the world .
9
An import
or export freight forwarding transaction usually commences when we receive a
shipment advice from a customer, overseas agent, or shipping agent listing the
location, quantity and nature of cargo shipped or to be shipped and the expected
date of arrival or departure. We promptly notify the relevant shipment details
to the consignee of the cargo, and, depending on the consignee's instructions,
we may arrange with third parties that own transportation assets for all forms
of transportation within the supply chain to ensure that the product reaches the
consignee by an agreed date. In addition, we may provide customs
brokerage and clearance services and, if required, we will arrange for other
services such as temporary storage, local delivery and distribution. In cases
where we provide local delivery of cargo, we contract with
subcontractors to provide such services. Implicit in our freight forwarding
business is the importance of having and maintaining sophisticated software
programs that allow for the timely tracking and identity of shipments. We
continually review our ability to provide these services and have taken steps to
integrate our freight tracking programs with our VAS work.
We derive
our income from air and sea freight forwarding services from the receipt of
handling, delivery and other amounts charged to our customers and from
commissions and other service fees paid to us by our overseas
agents.
Custom
Brokerage Services
With the
acquisitions of Asean in 2005, WLG (UK) and MSA in 2006 and WSC in 2007, we
added an in-house brokerage capability to our portfolio of services for each of
our major markets. Customs brokerage services are performed for freight and
brokerage customers and 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 includes preparing all
documentation required for the clearance of goods through customs and collecting
and making payment of import duties to the appropriate governmental agencies. In
addition, our customs personnel will often provide ancillary services which
could include assistance with customs examinations, advice on duty rates and
regulations as well as arranging for the local delivery of goods.
As part
of our customs practice, we may be required, because of competitive pressures,
to advance funds on behalf of our customers to pay the duty on their import
shipments. These advances represent a considerable use of cash and causes us to
incur a credit risk. For this reason, we maintain stringent checks on
the creditworthiness of all brokerage customers. Normally, countries have
electronic payment procedures which encourage the importer to make payments
directly to the government customs agency, and we have implemented programs
to inform and assist our customers to use these payment facilities. If our
customers do remit customs duties directly to the respective governmental
agency, we benefit by not providing cash, as well as avoiding the credit risk on
the cash advances that we might otherwise provide.
Brokerage
margins are generally less than the margins we earn from our
freight-forwarding and VAS operations. However, operating a brokerage business
gives us a competitive advantage in some locations and a level playing field in
others, which helps us to attract and retain more profitable freight forwarding
customers.
Generally,
billings for customs brokerage services are based on the number of freight
clearances for a particular shipment 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, and, 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
this business segment.
Value
Added Logistic Services (“VAS”)
VAS is
growing as a source of revenue for the Group and includes distribution,
warehousing, pick and pack for direct shipments to retail stores, preparation of
goods for sale in stores, such as placing garments on hangers, packaging
garments and price-ticketing them, bar coding items or cartons for more
efficient processing at destination, quality control inspection and information
management. During 2007, Asean leased a warehouse facility in
Melbourne and now provides VAS to a number of its customers. WLG (UK)
has a well established VAS business in Manchester, and in February 2008, moved
to a new warehouse facility with about 42,000 sq. ft. of space, which
is double that of its old warehouse. The Group hopes to use the experience
gained in Australia and the UK as a guide to expanding its VAS business in other
locations, once the economic recovery makes it economically attractive to take
on more leased warehouse facilities.
As an
example of the services listed above, the VAS we provide may 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 them 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.
In addition, performing these services at the point of shipment in the country
of manufacture may provide our customers with a more efficient and less costly
means to store and distribute their products.
WLG has
invested in an automated software system that accepts customers' orders and logs
allocations electronically. Packing instructions and bar code labels are then
produced electronically, with the system assuring the integrity of the packing
process through computer controlled scanning. We have completed a project
to place all operations in the Group on a central computer system that will
enhance the ability for customers to access information about their shipments
and the VAS performed by us. By having all information on a central computer
system, a customer of any Group company will be able to view the status of its
shipments and other services, regardless of which Group company or companies are
involved in the supply chain for each of its shipments.
10
An
important benefit of providing VAS is that it helps to “lock in” the
relationship between the Group and its customers. A logistics relationship
founded on VAS necessitates a very close interaction between the customer and
the Group. In providing these services, our personnel and technology form
essential elements in the customer’s supply chain, helping to make each Group
company a logistics partner with its customer.
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,
process and/or prepare for shipment.
In
general, we believe the advantages of providing value added services to our
customers are:
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Increased
revenues and profits
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Integration
with customer’s business
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Better
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More
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Greater
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Improved
customer retention
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Insurance
We carry
transport liability insurance on every shipment arranged by us. In general,
coverage is limited to $1.0 million for any one loss, or in the aggregate. The
Group also carries errors and omissions insurance for $1.0 million in the
aggregate for any one policy year. In addition, we have a warehouse liability
policy with a limit of $250,000 for any one loss, or in the aggregate. We
believe that this insurance is adequate to cover potential claims by our
customers and other third parties, although there can be no assurance that we
will not suffer losses in excess of our coverage. We also maintain
insurance to cover normal casualty events and for employee related
matters.
Customers
We have a
very broad and varied customer base, including garment manufacturers and
retailers, shoes, textiles, household electrical products, auto parts, medical
products, food products, office and residential furniture, industrial plant and
machinery, major household appliances such as refrigerators, freezers and
microwave ovens, household entertainment appliances, hardware, kitchenware,
books and magazines, and giftware. In the year ended December 31, 2009, we
served about 5,800 customers on a recurring basis. Moreover,
we believe that the diversity of cargo shipped enhances our ability to
achieve economies of scale. In calendar year 2009, no customer accounted for 10
% of our air, sea or customs revenues.
Generally,
our customers wish to retain the flexibility to choose freight forwarders on a
shipment by shipment basis, and prefer to avoid contractual commitments so that
they are able to select and change forwarders at any time because of rates,
quality of service or for other reasons such as availability of space.
Therefore, we normally render freight forwarding services to our customers on a
shipment by shipment basis, rather than under the terms of an on-going
contractual relationship. However, we do have some customers which enter
into contracts that call for us to arrange shipments of their cargo over
specified periods, often at fixed prices, and with many of our customers, we do
provide freight forwarding services on a continuing basis for most of their
shipments. In addition, some customers have contracted with us to
provide then with VAS
In
general, all of our customers, regardless of the size of their businesses,
require us to provide them with rate quotations as a condition to engaging our
services. Our rates are normally subject to fluctuation and are adjusted
according to changes in the market. As a result, the freight rate quotations we
provide do not always guarantee that a particular customer will use our services
for any one shipment, or that it will continue to have its cargo shipments
arranged by us.
It is not
unusual for a customer to seek quotations from several agents in order to obtain
the lowest rate for any particular shipment. If a customer has a large shipment,
it may award the shipment based on several criteria, which may
include the lowest rates, available space or the fastest transit
time. Therefore, although we might lose the business of a customer with respect
to any one shipment, we may be successful in obtaining additional business from
that customer with respect to future shipments.
11
Some of
our business is conducted with other freight forwarders who are also our
competitors, as in the case where we use the services of other cargo agents.
Since these companies may handle customs clearance and local delivery of goods
for some of our customers, we must cooperate with these competitors and bill
them to obtain payment for the air or sea freight shipments of cargo for our
customers. Moreover, because these competitors may also be major freight
forwarders serving the same routes as we serve, they may attempt to solicit our
customers directly for their business. We expend substantial efforts to retain
the business of our customers by providing what we believe is a very high level
of service at competitive rates. Nonetheless, there is no assurance that we will
not lose all or a portion of the shipments we arrange for our customers to these
other freight forwarders. With the
in-house customs practices of Asean, WCS, MSA and WLG (UK), respectively, we
believe we have mitigated, to a certain extent, the likelihood of losing freight
customers to other forwarders that have in-house customs
capabilities.
As noted
earlier, we also conduct part of our business through unrelated, overseas
agents. We cannot control the level of service provided by these agents, and, as
such, we may risk losing business as a result of problems our customers may
encounter in dealing with these agents.
Due to
the nature of the freight forwarding and logistics industry, we must
continuously seek new customers as a means of growing our business. As
previously mentioned, we generally do not have contractual arrangements with our
customers. Some companies with high-volume shipping requirements may
enter into contractual arrangements with larger freight forwarders to handle
their shipping and related logistics needs. Because we lack branch offices
in some key gateway cities, we may be at a competitive disadvantage and may
not be in a position to compete for large, international customers. In
these cases, we would have to rely on overseas agents to serve these types of
customers, and this may be unacceptable to them. As a result, there can be
frequent changes in our customer list, and we may not be able to maintain our
service relationship with any particular customer.
Sales
and Marketing
We are
committed to providing competitive pricing and efficient, reliable services to
our customers worldwide. We believe the Group has good relationships with its
customers, overseas agents and its service providers such as major airlines and
shipping lines. Also, we believe that our experience in identifying and working
with overseas agents to ensure compatibility with our operations, as well as the
ability of our personnel to foster and maintain these valuable relationships,
are key factors to maintaining a high service level and are important factors in
contributing to our growth.
Our sales
and operational personnel are responsible for marketing our services to a
diversified base of customers and for establishing new customer relationships.
Sales and operational personnel in each of our operating companies make regular
visits to existing and potential customers to obtain current information on
their shipping requirements, VAS needs and to gauge customer satisfaction.
During these visits and throughout the year, our personnel often provide
customers with suggestions to improve the cost-effectiveness and efficient
delivery of their goods, and will recommend services intended to meet the
customer's particular needs as to VAS, seasonal demands and special services
that may be unique to certain types of shipments.
Our
marketing and sales efforts are directed primarily to senior management,
distribution, procurement and marketing managers of businesses which we believe
have substantial requirements for the international transportation of
cargo.
As part
of our on-going efforts to increase revenues and operating profits, we have
targeted China and the US as areas where we want to expand our sales and
marketing forces. In each of these markets, we have increased the
number of sales personnel, and we are looking to expand the range of services we
offer in each location. As an example, we have identified domestic
customers and additional VAS as growth opportunities in China. In the US, our
plans call for us to increase our air-freight business, which we did in 2009 by
adding new personnel in our New York office who specialize in
handling air-freight shipments.
We also
depend on our cargo agents to actively market and coordinate our
freight-forwarding business in their respective markets.
Transaction
currencies and credit
Our
transactions are denominated in a variety of currencies, including Hong Kong
dollars, Australian dollars, Chinese Renminbi, Euros, US dollars and British
pounds, but our operating results are reported in US dollars. Exchange risk due
to currency fluctuation is negligible for the Hong Kong dollar because it
remains pegged to the US dollar at 7.75:1. However, we do face the possibility
of currency losses for the fluctuations of other currencies against the US
dollar, and, in the past, we have taken specific steps to mitigate currency
losses. As an example, in response to an appreciation in the Chinese Renminbi,
we now invoice certain customers in that currency instead of the US dollar,
which is the billing currency we previously used. We did experience exchange
losses in 2008 due to the rapid decline in the value of the British pound and
the Australian dollar against the US dollar, but in 2009, we recorded a small
exchange gain for all of our operations. As our sales
grow, and, particularly in different currencies, we will continue to review our
exposure to currency losses, and where cost effective, we will take actions to
lessen these exposures.
Sales are
generally made on credit, with freight customers requiring that we give them 30
days or more in which to pay. Also, we do make some sales on a cash basis, which
requires that a customer pay for our services as a condition to having its goods
released. We normally obtain credit references for all new customers, and the
credit references are reviewed by our senior staff. Approval by a senior
executive is required for all orders in excess of a pre-determined amount.
Credit terms for our customs brokerage practices are shorter than for our
freight business, and include credit for both our services and the duty advances
that we make on behalf of our customers. Credit terms for this part of our
business usually vary from 7 to 15 days. Because of tightening
credit, exchange fluctuations and the overall decline in the global economy,
especially in the last quarter of 2008 and which continued through 2009, we have
intensified our scrutiny of both credit terms and the financial strength of our
customers.
12
We
generally receive 30 days credit from airlines, but many airlines require that
we provide bank guarantees to ensure payment by us. As a condition of providing
these bank guarantees, the banks require that we place cash deposits with them
to support the guarantees. In contrast, shipping lines normally do not
grant credit to their customers, but we do receive some credit in limited cases.
For shipping lines, we are usually required to pay a carrier three days prior to
the arrival of the vessel at its destination.
Competition
Competition
within the freight forwarding, logistics and supply chain management industry is
intense, and is expected to remain so, particularly given the downturn in
business that began in 2008 and which has continued for all of 2009. We compete
with large international firms that have worldwide capabilities to provide all
of the types of services that we offer. We also face competition from smaller
regional and local logistics providers, integrated transportation companies that
operate their own aircraft, cargo sales agents and brokers, surface freight
forwarders, ocean carriers, airlines, associations of shippers organized to
consolidate their members' shipments to obtain lower freight rates, and
Internet-based freight exchanges. In addition, computer information and
consulting firms, which traditionally have operated as service providers to the
supply chain management industry, are now expanding their scope of services to
include supply chain related activities as a means of serving the logistics
needs of their existing and potential customers.
Competitive
factors in the freight forwarding and logistics industry include reliability and
scope of service, price, available cargo space, industry specific knowledge,
technological and VAS capabilities and efficient tracking systems.
Our
principal competitors are UTI Worldwide Inc., DHL Logistics, DB Schenker, Kuehne
& Nagel Logistics, Inc., Panalpina World Transport (Holding) Ltd., Ceva,
Inc., Expeditors International of Washington, Inc. and a host of local and
regional freight forwarders. All of the named companies are considerably larger,
have greater resources than us, and generally conduct their businesses through
their own offices located around the world, rather than using independent agents
as we do. The fact that many of our competitors have greater resources than we
do may provide them with the ability to attract larger multi-national customers.
They may also have the ability to acquire and develop more sophisticated
computerized tracking and tracing applications and other information systems
that are necessary to handle the freight forwarding and logistics requirements
of multi-national customers.
Our
ability to provide customs clearance services and a range of valued-added
services may give us a competitive advantage over smaller companies whose
services are limited to freight forwarding, and which do not have the technical
expertise to provide these additional services. Our decision to invest in
sophisticated industry software and to implement these systems in all of our
Group companies may also give us an advantage over many of our competitors.
Also, we believe that the relationships we maintain with cargo agents and
carriers around the world have helped us to secure business that may otherwise
have gone to our larger competitors.
Our
ability to compete with other freight forwarding and logistics companies is
dependent on our expertise to price our services competitively in the markets we
serve, the provision of reliable services, securing available capacity and to
offer a range of value-added services that address the needs of our
customers. We offer a distinctive blend of services involving all modes of
transportation, including shipments by truck, ship, rail and air. In addition,
we offer warehousing, logistics and other value-added services. We also have
in-house customs practices in the UK, US and Australia. Lastly, we believe we
have a strategic advantage by having a strong business presence in and a
commitment to Hong Kong and the PRC, which gives us an authentic China
“platform” that many of our competitors do not have. With our presence in the
PRC, we are in a good position to take advantage of the significant increase in
China's import and export of goods, which has been helped by its membership in
the World Trade Organization.
Government
Regulations
We are
licensed as airfreight forwarders in Hong Kong, the US, the UK and Australia by
the International Air Transport Association. In China, we have received
approvals to operate full service offices offering sea freight and
logistics services in eight locations, including Beijing, Shanghai,
Shenzhen and Guangzhou, four of China's most important
commercial centers. We are also approved to operate a liaison office in
another city in China. In addition, we have applied and expect to be granted in
2010 a specific license needed to conduct air-freight operations in China. With
our application pending for an air-freight license in China, we believe that
each of our Group companies has or will have obtained all required licenses to
carry-on business as presently conducted, and that each Group company is in
compliance with all requirements under these licenses.
WEHK,
WCS, and WLG (USA) are each licensed as an ocean freight forwarder
and are registered as an ocean transportation intermediary with the Federal
Maritime Commission. The Federal Maritime Commission has mandated qualifications
for shipping agents, including surety bonding requirements. The Federal Maritime
Commission is also responsible for the economic regulation of non-vessel
operating common carriers that contract for and sell space to commercial
shippers and other non-vessel operating common carrier operators for freight
originating or terminating in the United States. To comply with these
regulations, vessel operators and non-vessel operating common carriers are
required to file tariffs which set forth the rates that are charged for the
movement of specified commodities into and out of the United States. The Federal
Maritime Commission has the power to enforce its regulations by assessing
penalties. For ocean shipments not originating or terminating in the United
States, the applicable regulations and licensing requirements of other countries
are typically less stringent than those in the United States. We believe we are
in compliance with all applicable regulations and licensing requirements for sea
freight shipments in all countries in which we transact business.
13
Prior to
the acquisition of WLG (USA), our operations were not significantly affected by
compliance with United States governmental regulations. With the acquisitions of
WLG (USA), MSA and WCS, our business is now subject to more stringent
regulations. Our air freight forwarding business in the United States is subject
to regulation, as an indirect air carrier, under the Federal Aviation Act by the
Department of Transportation, although air freight forwarders are exempted from
most of this Act's requirements by the applicable regulations. Our air freight
forwarding business in the United States is also subject to regulation by the
Transportation Security Administration. We are registered as an indirect air
carrier and we believe we are in compliance with the Indirect Air Carrier
Standard Security Program Change 3 mandated by the Federal Aviation
Administration's regulations. To facilitate compliance with “known shipper”
requirements, the Group is part of a national database which helps delineate
shipper status for security purposes. Our foreign air freight forwarding
operations are subject to similar regulations by the regulatory authorities of
the respective foreign jurisdictions. The air freight forwarding industry is
subject to regulatory and legislative changes that can affect the economics of
the industry by requiring changes in operating practices or influencing the
demand and costs of providing services to customers.
The U.S.
Federal Maritime Commission regulates ocean freight forwarding and non-vessel
operating common carrier operations to and from the United States, and licenses
intermediaries (combined ocean freight forwarders and non-vessel operating
common carrier operators). Indirect ocean carriers are subject to U.S. Federal
Maritime Commission regulation under this Commission's tariff publication and
surety bond requirements, and under the Shipping Act of 1984 and the Ocean
Reform Shipping Act of 1998, particularly those terms proscribing rebating
practices.
We must
comply with export and import regulations of the United States Department of
State, including the International Traffic in Arms Regulations, the United
States Department of Commerce and the U.S. Customs and Border Protection of the
Department of Homeland Security (“CBP”) regarding the type of commodities
shipped, the applicable destinations, the persons to whom and for what end-use,
as well as statistical reporting requirements. We cannot predict what
impact future regulations may have on our business. Our failure to maintain
required permits or licenses, or to comply with applicable regulations, could
result in substantial fines or revocation of our operating rights.
The Group
companies are members of many different national and international industry and
regulatory bodies, including the following:
|
|
Ø
|
International
Air Transport Association
|
|
|
Ø
|
Hong
Kong Association of Freight Forwarding Agents
Ltd.
|
|
|
Ø
|
International
Federation of Freight Forwarders
Association
|
|
|
Ø
|
British
International Freight
Association
|
|
|
Ø
|
National
Customs Brokers and Forwarders Association of
America
|
|
|
Ø
|
National
Motor Freight Transport Association
|
|
|
Ø
|
Australian
Quarantine Inspection Service
|
|
|
Ø
|
Customs
Brokers & Forwarders Council of Australia,
Inc.
|
|
|
Ø
|
Australian
Federation of International
Forwarders
|
In
addition, our Group companies hold a number of certifications, approvals, and
registrations that include the following:
|
|
Ø
|
Joint
OTI Registration
|
|
|
Ø
|
Indirect
Air Carrier (TSA)
|
|
|
Ø
|
Ocean
Freight Forwarder Registration
|
|
|
Ø
|
US
Food and Drug Administration
(HACCP)
|
|
|
Ø
|
Certified
Licensed Customhouse Brokers
|
14
|
|
Ø
|
U.S.
Federal Maritime Commission
|
|
|
Ø
|
U.S.
Federal Aviation Act
|
|
|
Ø
|
U.S.
Transportation Security
Administration
|
|
Ø
|
Customs-Trade
Partnership Against Terrorism
(C-TPAT)
|
Environmental
Regulations
In the
United States, we are subject to federal, state and local laws regulating the
discharge of materials into the environment. Similar laws apply in many of the
foreign jurisdictions in which we operate. Although our operations have not been
significantly affected by compliance issues in the past, we cannot predict the
impact that environmental regulations may have on our business in the future. We
do not anticipate making any material capital expenditures for environmental
control purposes in the foreseeable future.
Employees
As of the
end of 2009, we employed 368 persons, all of whom were employed on a full-time
basis, as follows:
|
Function/Company
|
Parent
|
WEHK
|
WAE
|
W-China
|
Asean
|
WLG USA
|
MSA
|
WCS
|
WLG (UK)
|
Total
|
||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||
|
Management
|
3 | 2 | 2 | 1 | 5 | 2 | 1 | 8 | 1 | 25 | ||||||||||||||||||||||||||||||
|
Operations
|
21 | 8 | 86 | 76 | 7 | 5 | 29 | 16 | 248 | |||||||||||||||||||||||||||||||
|
Sales
|
5 | 6 | 14 | 8 | 1 | 0 | 2 | 2 | 38 | |||||||||||||||||||||||||||||||
|
Administration
|
3 | 2 | 4 | 3 | 0 | 4 | 0 | 16 | ||||||||||||||||||||||||||||||||
|
IT
Department
|
1 | 0 | 2 | 3 | 0 | 1 | 0 | 7 | ||||||||||||||||||||||||||||||||
|
Accounts
|
7 | 2 | 14 | 5 | 1 | 0 | 4 | 1 | 34 | |||||||||||||||||||||||||||||||
|
Total
|
3 | 39 | 20 | 121 | 100 | 11 | 6 | 48 | 20 | 368 | ||||||||||||||||||||||||||||||
We are
not a party to any collective bargaining agreements in any of the jurisdictions
in which we conduct business. Also, we believe that our relationships with our
employees are satisfactory in all of our companies.
ITEM
1A. RISK FACTORS
We
are dependent on third parties for transportation assets and services essential
to operate our business, and we could lose customers, revenues and operating
profits if we do not have access to these transportation assets and services at
acceptable rates.
We rely
on third parties that own transportation assets to transport the freight we
arrange to have shipped. Thus, our ability to ship our customers’ freight
is dependent on our ability to find carriers willing to ship such freight at
acceptable prices. This, in turn, depends on a number of factors beyond our
control, including availability of cargo space, which may depend on the season
of the year, the transportation lane, the number and types of
transportation providers and the availability of equipment. An increase in the
cost of cargo space due to supply shortages, increases in fuel cost or other
factors would increase costs and may reduce our operating profits, as has
occurred in the past in cases where we were unable to pass the full amount of
increased transportation costs to the customer.
We
rely on independent cargo agents to provide services to us and to our customers,
and our ability to conduct business may be affected if we are unable to maintain
our relationships with these independent cargo agents.
We rely
extensively on the services of independent cargo agents, who may also provide
services to our competitors. Although we believe our relationships with our
cargo agents are satisfactory, we may not be able to maintain these
relationships. If we are unable to maintain these relationships in a
satisfactory manner or develop new relationships, our service levels, operating
efficiency, future freight volumes and operating profits may be adversely
affected.
15
Political
uncertainty in Hong Kong and the PRC makes it difficult to develop long-range
business plans, which may reduce our revenues and operating
profits.
The
transition in 1997 of Hong Kong from the United Kingdom to the PRC has resulted
in some uncertainty regarding the extent to which the PRC will impose and
enforce its laws or change the business practices in Hong Kong. At present, Hong
Kong’s status is that of a semi-independent entity, and there can be no
assurance that China will permit Hong Kong to continue as such. Our operating
subsidiaries rely heavily on business to and from Hong Kong. Any change in the
political status of Hong Kong may make it more difficult for us to continue
operations in the region and may reduce our revenues and operating
profits.
In
February 2005, our business in China increased significantly as a result of the
commencement of operations by WE China in the PRC. We were able to take
advantage of the CEPA between the PRC and Hong Kong, which was signed in June
2003, permitting Hong Kong companies to set up wholly-owned enterprises in the
PRC to provide freight forwarding and logistics services in China. Our ability
to continue operations and to grow our business in the PRC is dependent on
China's willingness to provide business and trading opportunities to foreign
businesses through arrangements such as the CEPA, as well as to ensure the
presence of a stable and suitable legal and economic environment for foreign
owned enterprises. Any change in China's legal and political environment may
reduce our revenues and operating profits.
Our
business is seasonal and our operating results and financial condition may
therefore fluctuate.
Our
business, as is true generally in the freight forwarding industry, is seasonal.
The first quarter of the calendar year has traditionally been the weakest while
the third and fourth quarters have generally been the strongest. Significant
portions of our revenues are derived from customers distributing and selling
apparel and department store merchandise, whose shipping patterns are tied
closely to consumer demand, which is seasonal. To the extent that the principal
industries we serve experience cyclical fluctuations, our operating results will
also fluctuate.
We
could lose customers because we do not have on-going contractual relationships
with them, which could reduce our revenues and operating profits.
We have a
very broad and varied customer base. In general, our customers prefer to avoid
on-going contractual commitments so that they are free to select and change
forwarders and service providers at any time on the basis of a variety of
factors, three of the most important being rates, space
availability and quality of service. Therefore, in the vast majority of
cases, we render freight forwarding and related services to our customers on a
transaction by transaction basis, rather than under the terms of any type of
on-going contractual relationship. A loss of customers would reduce our revenues
and operating profits.
We
incur significant credit and liquidity risks in the operation of our business,
which could reduce our operating profits.
Certain
aspects of freight forwarding, logistics and customs brokerage operations
involve significant credit risks. It is standard practice for exporters and
importers to expect freight forwarders to offer 30 days or more credit for
payment of their invoices from the time cargo has been delivered for shipment or
received at the ultimate destination. Competitive conditions require that we
offer 30 days or more credit to many of our customers. Also, it is often
necessary to advance funds on behalf of brokerage customers to pay import duties
on their behalf. In order to avoid cash flow problems and bad debts, we attempt
to maintain tight credit controls and to avoid doing business with customers we
believe may not be creditworthy. However, we may not be able to avoid periodic
cash flow problems or to avoid losses in the event our customers either delay
their payments to us or become unable or unwilling to pay our invoices, all of
which could reduce our cash flow and operating profits. As part of
our VAS business, we may be required to enter into long-term leases for
warehouse facilities that obligate us to pay rents over the period of the lease,
regardless of whether we have customers for the warehouse. If we are
unable to attract profitable VAS business for a particular warehouse location,
out revenues and operating profits may be adversely affected.
Because
the majority of our costs for air freight are incurred under space contracts
that require we pay for the space whether or not we utilize such space, we incur
significant a risk of loss which could reduce our operating
profits.
The
majority of our costs for air freight are incurred under contracts pursuant to
which we agree in advance to purchase cargo space from air carriers or guarantee
a minimum volume of shipments per week. In some cases, we are required to honor
the guarantees and pay for this cargo space even if we did not have cargo from
our customers to fill the space. In other situations, we must pay the difference
between a negotiated discounted rate and full rate if we do not ship guaranteed
minimum amounts. In prior years, we have been able to minimize any losses from
these commitments by carefully gauging customer demand and the availability of
goods and by making arrangements with other freight forwarders to absorb the
excess capacity. However, we may not be able to avoid such losses in the future,
and as a result, we may be required to absorb the cost of committed space
without having goods to ship on behalf of our customers. In the latter part of
2008, we did incur some losses as a result of a downturn in the air freight
business and our inability to ship minimum quantities with certain air carriers,
but we incurred no losses in 2009 for these airline
contracts. Losses resulting from these space contracts and/or credit
risks would reduce our operating profits and would do so in the future if the
same conditions prevail.
16
Many
transactions in our operating subsidiaries are denominated in Hong Kong dollars,
Chinese Renminbi, Euros, British pounds and Australian dollars.
Fluctuations in exchange rates between these currencies and the US dollar could
adversely affect our operating profits.
Although
we use the United States dollar for financial reporting purposes and much of our
business is conducted in US dollars, many of the transactions of our operating
subsidiaries are denominated in other foreign currencies, including Hong Kong
dollars, the Chinese Renminbi, Euros, British pounds and the Australian dollar.
Even though the value of the Hong Kong dollar is currently pegged to the United
States dollar, it may not continue to be linked, and if the link is terminated,
the exchange rate of the Hong Kong dollar may fluctuate significantly against
the US dollar. The Australian dollar, Euros and British pound are floating
currencies, and the Chinese Renminbi is considered to be a managed currency, so
that if these currencies fluctuate against the US dollar, we may experience
currency exchange rate losses. We do not currently engage in hedging activities
to protect against foreign currency risks. Even if we choose to engage in such
hedging activates, we may not be able to do so in a cost effective manner.
Future adverse movements in the exchange rates of currencies against the US
dollar could reduce our operating profits.
Because
one airfreight carrier accounted for approximately 14.8% of our airfreight
shipping and one shipping line accounted for approximately 7.9% of our sea
freight shipments for the year ended December 31, 2009, the loss of either of
these carriers could reduce our revenues and operating profits.
One air
freight carrier accounted for approximately 14.8% of our air freight shipments,
and one shipping line accounted for approximately 7.9% of our sea freight
shipments for the year ended December 31, 2009. Because we are generally able to
negotiate more favorable shipping rates as a result of shipping greater volumes
of product with a limited number of transportation providers, the loss of one or
both of these providers could result in cost increases due to the higher
rates that we might have to pay to replacement carriers.
Our revenues and operating profits
are dependent on stable trade flows, strong economies and growth in
international business. To the extent that global economic
conditions decline, continue to decline or are slow to improve, our revenues,
operating profits and cash flow may be adversely affected
.
In the
latter part of 2008, business and trade declined by a significant amount in many
of the countries in which we operate. As economic conditions have worsened, our
customers placed fewer orders with us and some discontinued business, and this
trend continued during calendar year 2009. As a result, the global
economic downturn that began in 2008 and which continued in 2009 has and may
continue to adversely affect our revenues and operating profits.
Moreover, because of the poor economic conditions in the markets that our
customers conduct their business, they may not be able to pay our invoices on a
timely basis or, at all, if their businesses do not return to a sustained level
of profitability. The inability to collect our receivables in full
on a timely basis or at all would have a negative effect on our working capital
and would impact our ability to pay our suppliers.
We
and many of our customers are dependent on banking institutions to provide
credit facilities to us and to them for working capital. If banks
decline to provide credit facilities to us and to our customers, our ability and
the ability of our customers to conduct business would be adversely
affected.
A
contributing factor to the global economic problems that began in 2008 and which
continued throughout 2009 has been a tightening of the credit markets which has
make it difficult to obtain or expand bank facilities used to finance working
capital. Banks in the US and Australia have granted credit
facilities to our subsidiaries which they use to finance their working capital
needs. If one or both banks decline to continue these facilities,
and, if similar facilities cannot be obtained from other banks, the Group’s
operations in the US and Australia could be adversely effected and could be at
risk of not continuing. Many of our customers are under similar
banking and credit restraints, and if they lose their bank facilities and are
unable to secure new bank lines, our revenues and operating profits may be
adversely affected.
We
are heavily dependent on our management and key employees.
Our
success depends to a large degree upon the skills of our senior management team
and key employees. If we cannot continue to retain the services of our
management team and key employees, or replace them with other qualified
personnel if the need arises to do so, our operating profits and growth could be
adversely affected. (See Item 10 for a discussion of the terms of employment for
the named officers.)
Control
by Management.
Mr. Wood,
Chief Executive Officer and Chairman of the Board, owned approximately 63% of
our common stock at the end of calendar year 2009. This concentration of
ownership provides Mr. Wood with the ability to control and influence all
corporate decisions and matters of stockholder voting, including, with the
exception of Mr. Picchietti, the addition and removal of directors.
Additionally, Mr. Wood is able to approve a variety of actions, including any
proposed amendment to our certificate of incorporation, merger proposal,
proposed sale of assets or other major corporate transactions or a
non-negotiated takeover attempt. (See Item 10 for changes in
management subsequent to December 31, 2009.)
17
Holding
company operating implications.
All of
our business operations are conducted through subsidiaries, which in turn are
owned by a holding company. Consequently, we rely on dividends or advances from
our subsidiaries to meet the financial obligations of our holding company and to
pay dividends on our common and preferred stock. The ability of our subsidiaries
to pay dividends and our ability to obtain advances is subject to applicable
local law and other restrictions including, but not limited to, tax laws and
limitations contained in the credit agreements that our operating subsidiaries
have with local banks. In general, our subsidiaries cannot pay dividends to us
in excess of their retained earnings, and some countries in which we conduct
business require tax to be withheld on the remittance of dividends and the
payment of interest. Such laws and restrictions could limit the distributions of
dividends and the payment of interest between Group companies, which
would restrict our ability to meet the financial obligations of other Group
companies, including our holding company.
Local
management control in each jurisdiction.
We
conduct our business in several countries around the world, with local and
regional management retaining responsibility for day-to -day operations,
profitability and the growth of the business in those jurisdictions. Our
operating approach may make it difficult for us to implement strategic
decisions, achieve coordinated actions and to obtain agreement from local
management to follow group-wide policies.
Our
common stock is traded on the Over the Counter Bulletin Board, and trading in
our common stock may be limited and the price of our common stock may be subject
to substantial volatility.
Our
common stock is traded on the Over the Counter Bulletin Board, where the trading
volumes may be more limited and sporadic than if our common stock was traded on
a national stock exchange. Additionally, the price of our common stock may be
more volatile as a result of a number of factors, including, but not limited to,
the following:
|
|
Ø
|
large
purchases or sales of common stock
|
|
|
Ø
|
actual
or anticipated announcements of new services by us or
competitors
|
|
|
Ø
|
acquisitions
of companies by us
|
|
|
Ø
|
investor
perception of our business prospects or the freight forwarding/logistics
industry
|
|
|
Ø
|
general
conditions in the markets in which we
operate
|
|
|
Ø
|
economic, financial
and political conditions
|
Our
common stock is subject to penny stock regulations of the Securities and
Exchange Commission, which may limit trading in our common stock.
Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain rules adopted by the Securities and Exchange Commission. Penny stocks
generally are equity securities with a price of less than $5.00, subject to
exceptions. The rules require that a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction and monthly
account statements showing the market value of each penny stock held in the
customer’s account. In addition, the rules generally require that prior to a
transaction in a penny stock, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may reduce the liquidity of penny stocks. Our common
stock is subject to the penny stock rules, and investors acquiring shares of our
common stock may find it difficult to sell their shares of our common
stock.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not
applicable.
ITEM 2. PROPERTIES
Our
corporate offices are located at 920 East Algonquin Road, Suite 120, Schaumburg,
Illinois 60173, and our administrative offices are located in Hong Kong at Units
1301-3 & 11-12 Tower 1 Ever Gain Plaza, 88 Container Port Road, Kwai Chung,
N.T. Hong Kong, SAR.
18
As of
December 31, 2009, the Group leased approximately 178,000 sq. ft. of space,
inclusive of both office and warehouse facilities, at an aggregate, annual
rental cost of about $1.78 million. We believe that the facilities we now occupy
are adequate for our present needs, and that, if needed, additional facilities
would be available to us on reasonably acceptable terms. We own no real property
assets.
The
following tables set forth a summary of property leased by each company in the
Group.
Hong
Kong premises:
|
WEHK/ WAE
|
Usage
|
Area (sq ft)
|
Lease expiration
|
Annual lease
rental
|
|||||||
|
Hong
Kong
|
Office
|
10,000 |
31-Oct-12
|
$ | 155,276 | ||||||
China premises:
|
Wako China
|
Usage
|
Area (sq ft)
|
Lease expiration
|
Annual lease
rental
|
|||||||
|
Beijing
|
Office
|
740 |
30-Nov.-11
|
$ | 13,591 | ||||||
|
Shanghai
|
Office
|
5,170 |
19-Oct-10
|
179,453 | |||||||
|
China –
4 staff apartments
|
Quarters
|
1,600 |
Various
|
27,000 | |||||||
|
Shanghai
|
Warehouses
|
11,464 |
15-Jan.-11
|
83,175 | |||||||
|
Guangzhou
|
Office
|
1,500 |
10-May-11
|
19,872 | |||||||
|
Tianjin
|
Office
|
1,090 |
08-Nov.-10
|
21,652 | |||||||
|
Qingdao
|
Office
|
700 |
06-July-11
|
10,422 | |||||||
|
Ningbo
|
Office
|
1,421 |
31-May-11
|
11,928 | |||||||
|
Dalian
|
Office
|
480 |
14-Sept.-10
|
4,210 | |||||||
|
Shenzhen
|
Warehouse
|
10,000 |
30-June-10
|
47,106 | |||||||
|
Shenzhen
|
Office
|
1,400 |
4-Dec-11
|
24,656 | |||||||
|
Xiamen
|
Office
|
936 |
31-Jan.-11
|
6,490 | |||||||
|
Total
China
|
36,501 | $ | 449,575 | ||||||||
US
premises:
|
WLG USA
|
Usage
|
Area (sq ft)
|
Lease expiration
|
Annual lease
rental
|
|||||||
| $ | |||||||||||
|
Taylor,
Michigan
|
Office and Warehouse
|
4,800 |
31-Jul-11
|
33,600 | |||||||
|
MSA
|
|||||||||||
|
Seattle,
Washington
|
Office
|
1,775 |
31-July-09
|
25,296 | |||||||
|
WCS
|
|||||||||||
|
Schaumburg,
Illinois
|
Office
|
14,728 |
31-Mar-12
|
226,443 | |||||||
|
Long
Beach, California
|
Office
|
1,264 |
30-Apr-10
|
39,561 | |||||||
|
Rosedale,
New York
|
Office
|
5,170 |
31-May-14
|
78,875 | |||||||
|
Total
USA
|
27,737 | $ | 403,775 | ||||||||
Australian
premises:
|
Asean — Australia
|
Usage
|
Area (sq ft)
|
Lease expiration
|
Annual lease
rental
|
|||||||
|
Sydney
|
Office
|
7,193 |
30-Nov-10
|
153,852 | |||||||
|
Melbourne
|
Office and warehouse
|
46,000 |
30-Apr
-10
|
241,428 | |||||||
|
Melbourne
|
Office
|
7,211 |
31-Aug.-12
|
85,714 | |||||||
|
Brisbane
|
Office
|
1,875 |
18-Nov-10
|
23,438 | |||||||
|
Total
Australia
|
62.279 | $ | 504,432 | ||||||||
(*Note
that Asean sublets approximately 60% of the office space in Tullamarine to a
third party.)
19
United
Kingdom premises:
|
WLG (UK) — United Kingdom
|
Usage
|
Area (sq ft)
|
Lease expiration
|
Annual lease
rental
|
|||||||
|
Manchester
|
office/warehouse
|
41,970 |
03-Feb.-18
|
260,935 | |||||||
|
Total
United Kingdom
|
41,970 | $ | 260,935 | ||||||||
ITEM 3. LEGAL
PROCEEDINGS
At any
one time, we normally have a number of claims outstanding, mostly relating to
lost or damaged cargo occurring in the normal course of our business or to cargo
improperly released. Many of these claims are settled by the carriers we engage
to ship goods on behalf of our customers. In the event that we become liable to
our customers for any of these claims, we believe such claims are sufficiently
insured under the insurance policies we maintain to cover such losses. As of
December 31, 2009, and through the date of filing of this Report, we are not
aware of any one uninsured claim or all claims in the aggregate that would have
a materially adverse economic effect on our business.
During
the first quarter of 2010, a former employee of WCS threatened to file a lawsuit
against WCS for wrongful termination, and is asking for a severance payment of
$75,000, and, if a lawsuit is filed, would seek payment for attorney’s
fees. The Company believes this potential lawsuit is without merit
and that settlement of this claim would not have a materially adverse economic
effect on our business.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did
not submit any matters to the vote of security holders during the fourth quarter
of the fiscal year covered by this Report.
PART
II
|
ITEM 5.
|
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF
EQUITY SECURITIES
|
Our
common stock is traded on the Over-The-Counter Bulletin Board ("OTCBB") under
the symbol "WLGI" and has been since December 31, 2007. From July 27, 2005, to
December 30, 2007, our common stock was traded on the OTCBB under the symbol
WKOL. The closing high and low bid price quotations for our common stock, as
reported by the OTCBB, are as follows for the periods indicated:
|
Years Ended December 31,
2009 and 2008:
|
High
|
Low
|
||||||
|
Fourth
quarter 2009
|
$ | 0.27 | $ | 0.27 | ||||
|
Third
quarter 2009
|
$ | 0.27 | $ | 0.27 | ||||
|
Second
quarter 2009
|
$ | 0.40 | $ | 0.26 | ||||
|
First
quarter 2009
|
$ | 0.40 | $ | 0.40 | ||||
|
Fourth
quarter 2008
|
$ | 0.60 | $ | 0.35 | ||||
|
Third
quarter 2008
|
$ | 0.68 | $ | 0.68 | ||||
|
Second
quarter 2008
|
$ | 0.68 | $ | 0.68 | ||||
|
First
quarter
2008
|
$ | 1.25 | $ | 0.65 | ||||
The
quotations set forth above for our common stock reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The last
sale price for our common stock on December 30, 2009, was $0.27 per
share.
Adoption
of 2005 Stock Incentive Plan
In April
2005, our board adopted, and our stockholders approved, by the written consent
of Christopher Wood, our majority stockholder at that date, 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 for any of our subsidiaries or other affiliates. The Plan is
currently administered by our board, provided that the board in the future may
appoint a committee to administer the Plan. At the inception of the Plan, we
reserved 4,000,000 shares of our common stock for the issuance of awards under
the Plan, which amount shall be automatically increased (but not decreased) to
20% of the total number of our shares of common stock issued and outstanding on
January 1st of each year beginning on January 1, 2006. Based on shares
outstanding as of January 1, 2010, the number of shares reserved under the Plan
is 6,280,019.
20
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information about the Company's common stock that may
be issued upon the exercise of stock options under all of our equity
compensation plans and the exercise of warrants that are outstanding as of
December 31, 2009.
Equity
Compensation Plan Information
|
Plan Category
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
Weighted average
exercise price of
outstanding
options, warrants
and rights
|
Number of
securities
remaining
available for
future issuance
under equity
plans
(excluding
securities
reflected in
column (a))
|
|||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||
|
Equity
compensation plans approved by security holders (1)(3)(4)
|
395,000 | $ | 0.92 | 5,885,019 | ||||||||
|
Equity
compensation plans not approved by security holders (2)
|
100,000 | $ | 2.00 | 0 | ||||||||
|
Total
|
495,000 | 5,885,019 | ||||||||||
Notes:
|
|
1.
|
For
the year ended December 31, 2007, we granted options to three employees
under the Plan to acquire 20,000 shares of our common
stock.
|
|
|
2.
|
On
August 1, 2005, a third party consultant was given a warrant in exchange
for services to purchase 100,000 shares of our common stock at an exercise
price of $2.00 per share.
|
|
|
3.
|
As
of August 2005, the Company committed to award 200,000 options to purchase
common stock to one of its officers, and, as of that date, all substantial
terms and conditions for the option were communicated to, and agreed with,
the officer. The board has formally approved the
award.
|
|
|
4.
|
In
January 2008, the Company granted an option to an employee to
purchase 25,000 shares of WLG
stock.
|
|
|
5.
|
Effective
December 1, 2008, we entered into an employment agreement with the
newly-hired CEO of our US operations by which the Company is obligated to
grant an option under the Plan to acquire 150,000 shares of our common
stock at the fair market value as of the effective date of the employment
agreement.
|
Holders
As of
March 30, 2010, there were 30,880,094 shares of our common stock outstanding,
held by approximately 339 stockholders of record.
21
Dividends
Subject
to the rights that have been designated to the holders of our Series A and
Series B Convertible Redeemable Preferred Stock and any other holders of
preferred stock that may be authorized by our Board of Directors (“Board”),
holders of our common stock are entitled to receive dividends when and if
declared by our Board out of funds legally available therefore. We have not paid
any dividends on our common stock. The payment of dividends, if any, in the
future is within the discretion of the Board. The payment of
dividends, if any, in the future will depend upon our earnings, capital
requirements, financial condition and other relevant factors. Our Board does not
presently intend to declare any dividends on our common stock in the foreseeable
future, but instead, intends to retain all earnings, if any, for use in our
business operations.
Pursuant
to our Restated Certificate of Incorporation, our Board is authorized, subject
to any limitations prescribed by law, to provide for the issuance of up to
5,000,000 shares of preferred stock from time to time in one or more series and
to establish the number of shares to be included in each such series and to fix
the designation, powers, preferences and relative, participating, optional and
other special rights of the shares of each such series and any qualifications,
limitations or restrictions thereof. Because the Board has such power to
establish the powers, preferences and rights of each series, it may afford the
holders of preferred stock preferences, powers and rights (including voting
rights and rights to receive dividends) senior to the rights of the holders of
common stock. The issuance of shares of preferred stock, or the issuance of
rights to purchase such shares, could be used to discourage an unsolicited
acquisition proposal.
In
September 2005, WLG approved the designation of a new series of preferred stock,
consisting of 2.0 million shares of preferred stock designated as
Series A Convertible Redeemable Preferred Stock, par value $0.001 (the
“Series A Preferred Stock”). Certain conforming amendments were made to
the Series A Preferred Stock in November 2006 to correct the original
certificate of Series A Preferred Stock. The Series A Preferred has a
stated, liquidation and redemption value of $0.75 per share, and pays a 6%
annual cumulative dividend, determined on its stated value of $0.75 per
share. Series A Preferred is convertible into a maximum of 2.0 million
common shares, and the conversion ratio shall be the stated value of $0.75
divided by conversion price of $0.50 per share.
In June
2008, the Company approved the designation of a new series of preferred
stock consisting of 1.7 million authorized, but unissued, shares of
preferred stock designated as Series B Convertible Redeemable Preferred Stock,
par value $0.001 (the “Series B Preferred Stock”). The Series B
Preferred Stock has a stated value, redemption value 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. The holder of the
Series B Preferred Stock may, at any time after 24 months of the issuance to the
Series B Preferred Stock, require the Company to redeem the then outstanding
shares of Series B Preferred Stock at a price of $1.00 per share, subject to
adjustment.
As of
December 31, 2009, there were 2.0 million shares of Series A Preferred Stock and
1.7 million shares of Series B Preferred Stock authorized, issued and
outstanding.
Recent
Sales of Unregistered Securities.
None
Penny Stock Considerations
Our
securities may be subject to the “penny stock rules” adopted pursuant to Section
15(g) of the Securities Exchange Act of the 1934, as amended, or “Exchange Act”.
The Securities and Exchange Commission has adopted regulations which generally
define a "penny stock" to be any equity security that has a price of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. Penny stocks are subject to certain additional oversight and
regulatory requirements. Brokers and dealers affecting transactions in our
common stock in many circumstances must obtain the written consent of a customer
prior to purchasing our common stock, must obtain information from the customer
and must provide disclosures to the customer. These requirements may restrict
the ability of broker-dealers to sell our common stock and may affect your
ability to sell your shares of our common stock in the secondary market.
Further, for companies whose securities are traded on the “pink sheets” or
on the OTC Bulletin Board, it is more difficult: (1) to obtain accurate
quotations, (ii) obtain coverage for significant new events because major wire
services, such as the Dow Jones News Service, generally do not publish press
releases about such companies, and (iii) to obtain needed capital.
ITEM
6. SELECTED FINANCIAL DATA
This item
is not applicable because the Company is a smaller reporting
company.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. The Company
would like to caution readers regarding certain forward-looking statements in
this document and in all of its communications to shareholders and others, press
releases, securities filings, and all other communications. Statements that are
based on management's projections, estimates and assumptions are forward-looking
statements. The words "believe," "expect," "anticipate," "intend," "will," and
similar expressions generally identify forward-looking statements. While we
believe in the veracity of all statements made herein, forward-looking
statements are necessarily based upon a number of estimates and assumptions
that, while considered reasonable by us, are inherently subject to significant
business, economic and competitive uncertainties and contingencies and known and
unknown risks, including, but not limited to the risks described in Item 1A and
elsewhere in this report. Many of the uncertainties and contingencies may affect
events and could cause our actual results to differ materially from those
expressed in any forward-looking statements made by, or on our
behalf.
Overview
WLG is an
international, non-asset based logistics company that provides air and ocean
freight forwarding, contract logistics, customs clearances and other supply
chain management services throughout the world, from its offices in Hong Kong,
the PRC, Australia, the United Kingdom and the United States. We serve our
customers through our offices and through a worldwide network of independent
cargo agents. All of our business is conducted by our operating
subsidiaries.
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/or operate
commercial aircraft, ships, trucks, river barges and railroads and arrange with
these companies to provide transportation services for the forwarding of freight
on behalf of our customers. Our revenues are generated from the freight
forwarding and related services that we arrange, customs brokerage and ancillary
services and from valued added services performed by us. Our customers benefit
from the extensive experience we have in performing the above-named services.
For our freight forwarding business, we focus on large cargo shipments as these
types of shipments usually require sophisticated logistical networks in many
countries, as well as access to almost all modes of transportation.
Freight-Forwarding
and Related Services
Due to
the volume of shipments we arrange, we are generally able to negotiate rates
that are better than the rates our customers could negotiate directly with
transportation providers. As a result, our customers, by placing their freight
shipments through us, benefit from lower rates, and we, in turn, benefit by
increasing our revenues.
A
significant portion of our freight forwarding expenses are variable and relate
directly to the amount of business we book. Direct transportation costs are our
largest variable expense; staff costs represent the second largest expense for
our freight operations. Due to the nature of our business, we have acquired the
necessary experience to be able to staff our operations based on the number of
customer orders we fulfill. Nonetheless, staff costs are less flexible than some
of our other variable costs, and, in the near term, we may not be able to alter
our staff levels to adjust for unexpected peaks and downturns in our
business.
We also
derive a significant portion of our revenues from the consolidation of cargo,
particularly for air shipments. In this part of our business, we always seek to
combine a mix of light and heavy cargo in order to maximize the weight and cubic
capacity for all of our shipments by air. In general, this improves the
profitability of these shipments.
A
substantial portion of our costs for air freight and, to a much lesser degree,
costs for our sea freight are incurred pursuant to contracts for the advance
purchase of cargo space for which we guarantee a minimum volume of shipments.
Under these contracts, we are required to pay for the minimum amount of space we
guarantee, even if we do not use the amount of space that we guarantee. In the
past, we have been able to minimize our risk of loss by carefully gauging
customer demand, and by entering into arrangements with other freight forwarders
whereby they pay to use the excess cargo space that we are unable to fill.
However, we are not to require our customers to ship minimum amounts, and, as
such, we are not able to pass this risk on to our customers. In 2009,
we were able to use all of the space under our contracts or we were able to
arrange with other freight forwarders to use the available capacity, so that we
did not incur a liability to any air carrier for space that could not be
utilized. As an industry practice these contracts are enforced by the air
carriers, which do require payment for unused space. However, very few shipping
lines choose to enforce these contracts and do not normally require payment if
space is not used.
With the
acquisition of WLG (UK) and the expansion of our warehousing capabilities in the
UK, the PRC and Australia, the performance of warehousing and other VAS has
become more significant to the Group. In 2009, the overall revenues for our VAS
business accounted for about 2% of our total revenues, but this was an increase
over 2008 VAS revenues and we expect more growth in this part of our business in
the future. Our billings for VAS are generally based on the
nature of the services performed as well as the time and warehouse space devoted
to a particular customer. In general, we bill customers on a per piece basis for
inventory that we pick, pack and distribute. In other cases, we may bill for the
space allocated to a customer, or for special work such as deconsolidating and
consolidating inventory for shipments to a customer’s distribution
centers.
23
Customs
Brokerage Operations
We now
have customs brokerage practices in our offices in Sydney, Australia,
Manchester, England, Seattle, Washington, Long Beach, California, and
Schaumburg, Illinois. In each case, we acquired a business with an existing
customs practice. These practices tend to be stable businesses and the revenue
and expense streams for each are generally more predictable than those of our
freight-forwarding operations. Pricing in each of these locations is very
competitive and margins are often small. In some cases, we accept some low
margin business as a strategic decision to allow us to obtain additional
freight-forwarding customers or to retain the ones we have. Also, due to
competitive factors, we often advance funds on behalf of our customers to pay
the duty on their freight imports, and, as a result, we do incur credit risk,
which may be substantial. Because the return on an individual account may be
small and the credit risk large, we exercise a heightened degree of oversight in
accepting and retaining customs brokerage clients. Most
jurisdictions have regulations that permit and/or require companies to make
payments electronically to the customs authorities. Using this procedure in the
US allows customers to obtain credit terms depending on the date goods are
cleared. We have an active program to help our customers remit funds
directly to the authorities. As a result, we have reduced our cash needs,
lowered our credit exposure and have assisted our customers to obtain credit
terms.
Generally,
billings for customs services are based on the number of freight clearances for
a particular customer and may include the costs of ancillary services such as
arranging for the local delivery of goods and the preparation and pick-up
of documentation for the shipments. The charges are normally similar to what
other brokerage companies charge in a specific geographical area. Because the
revenue from this type of business tends to be stable, we are able to
estimate, with a fair degree of certainty, what our personnel needs are, which
is important because personnel costs are the largest expense for this segment of
our business.
Business
Plan
For
calendar year 2009, we continued to execute our business plan, which called for
the integration of the businesses acquired in prior years and an emphasis on
internal growth. We did not make any acquisitions in 2009. Because
of the acquisitions made in prior years and the changes in freight rates, it is
difficult to compare our results for the year ended December 31, 2009, to our
results for the year ended December 31, 2008, and to prior years. As background,
in 2004, we changed the Group's year-end from April 30 to December 31, effective
December 31, 2004. During 2005, we acquired three companies, one in the second
quarter and two in the fourth quarter of 2005. As noted earlier, we acquired two
businesses in 2006, and in 2007, we acquired WCS, which is now our largest
operating company in the US market. In May 2009, we added about 10
staff and management personnel to our New York office. These
individuals did bring some new customers to Group and the full effect of this
new business is not expected to be realized until calendar year 2010. Lastly we
commenced business in China in 2005 through a newly created subsidiary, and this
business has added substantial new revenues to the Group. During
2009, our operating companies continued to pay lower freight rates than in prior
years. Lower rates had the effect of substantially reducing our top-line
revenues. Lastly, our customers reduced the volume of goods shipped in 2009,
compared to prior years, and these reductions did adversely affect our gross
profit.
While we
have gained significant amounts of revenues and shipping volumes from the
acquired companies, we have not yet realized all of the synergistic benefits of
these acquisitions. To date, we continue to spend considerable management time
and Group resources to integrate all of the acquired businesses with our core
operations. As part of these on-going efforts, we merged MSA into WCS
at the end of 2009, and this should allow us to better utilize our facilities
and personnel by reducing duplicate costs and functions. This process is
fundamental to our internal growth. In addition, we are continuing to
take steps so as to leverage the benefits of our acquisitions by
arranging for the acquired companies to use the services of our 9 offices in
China. From the outset, our plan has been to not only use our China operations
as a means to gain additional business for our offices in other countries, but
to increase our business in China from the new opportunities that arise from
having a sizable presence in the PRC. Integration of the acquired entities is
on-going, and the costs incurred in this effort, to the extent not charged to
capital accounts, are reflected in our general and administrative expenses in
the periods incurred. In 2010, we hope to take further steps to complete the
consolidation of all of our companies in the US into one business
unit. Much along these lines has been accomplished, and more was
done in 2009. In accomplishing one important milestone, we finished
the project of placing all of our US operations onto one accounting and
operations IT platform. This was not only important to provide
greater efficiencies in operating our business, but it has allowed our clients
to better utilize our IT capabilities.
An
integral part of our business plan also included filing a registration statement
with the Securities and Exchange Commission, that became effective in mid-2005,
and having our common stock quoted on the OTCBB. Since 2005, we have incurred
substantial monetary costs and management time to comply with the regulations to
maintain our status as a public company.
As part
of our business plan, in 2010, we will focus on internal growth. To support this
growth, we may need to raise outside capital, and we will look at the
opportunities to do so. But we remain mindful of the economic conditions and
uncertainties that are present in the global marketplace. Our
business has been affected by the downturn in trade, and while we expect that
our 2010 revenues and operating profits to be greater than those reported for
2009, we are also very sensitive to the poor economic conditions that are
impacting us and our customers. Trade flows were down in 2009 in all of the
markets that we serve. Fuel prices moderated late in 2008 and have
stayed at relatively low levels during 2009. But with the downturn
in business, we have seen that some shipping lines and air carriers have reduced
the amount of capacity in the market and this, on occasion, has made it
difficult for us to secure space on a timely basis to meet the demands of our
customers. During 2009, we did reduce our operating costs and did reduce our
headcount in certain of our operating companies, mostly in the
US. Political events in Asia and the Middle East and
other trade related concerns such as rising protectionism, pressure on currency
rates and trade tariffs, particularly between China and the US, could also
negatively impact our revenues and operating profits for 2010. But
of most concern is the weakness of the US economy. A healthy and
robust US economy is a key factor for us to grow our business and have sustained
profitability Lastly, with credit markets still not stabilized, reductions
in available credit and banks being more risk adverse, we have seen these issues
take a toll not only on our business but on that of our
customers. These factors could also adversely affect our operations
and profitability in 2010. In summary, all of the above forces are
still present as we start 2010, with the result that we see 2010 as a very
challenging year. As noted in the past, we do not as of yet provide guidance as
to the Group’s financial performance.
24
The
following is a recap of some significant developments in our business during the
year ended December 31, 2009.
|
(i)
|
Completed
the process to place all Group companies on a central information system
to allow more efficient and effective tracking of customers’ shipments
worldwide;
|
|
(ii)
|
Continued
to reduce operating costs in our US
operations;
|
|
(iii)
|
Completed
the work to place all of our US offices on our Group-wide IT
platform;
|
|
(iv)
|
We
added new air freight customers and air-freight expertise to our offices
in New York, Hong Kong and China.
|
Results
of Operations
YEAR
ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008.
Results
of Operations
Our
revenues in 2009 were adversely affected by the economic downturn that began in
2008 and which continued throughout 2009. Falling demand for all
types of goods, both by consumers and manufacturers, and declining shipping
rates in the markets that we serve have resulted in us booking less business and
posting lower revenues in 2009, compared to last year. Falling rates did
not necessarily impact our profitability, but the declining volumes of cargos
shipped by our customers did have a large and negative impact on our
earnings.
Total
revenues in 2009 decreased by about $70.21 million, or 33%, when compared with
2008, from approximately $214.05 million to $143.84 million. Our
Hong Kong operations reported decreased revenues of $10.48
million. Revenues from our China offices fell by $3.37
million. Our US operations reported a combined decrease in revenues
of $47.42 million. Of this total decrease, about $3.41 million is
from WLG (USA), $6.83 million from MSA and $37.18 million from
WCS. Lastly, Asean’s revenues declined by $1.20 million, and WLG
(UK)’s revenues fell by $7.74 million.
Gross
profit decreased from $27.37 million in 2008, to $22.71 million in 2009, for a
decrease of $4.66 million, or about 17%, primarily due to a decline in the
volume of freight shipped by our customers. Of this decline,
approximately 41% of the total decrease is attributable to our US operations and
59% relates to our business outside the US.
The
Group's gross margin increased from 12.8% in 2008 to 15.8% for 2009 for an
increase of about 23.5%, which compares to an overall decline in revenues of
33%. The increase in our gross margin is due to several factors,
including reductions in fuel surcharges levied by the various air and shipping
lines and lower rates for cargo space. Falling shipping rates have
the effect of reducing our gross revenues and increasing our gross
margin. This occurs because the direct shipping charges, which are
passed on to the customer, result in lower gross revenues, which are then
measured against our fees. This effect which began in 2008 continued
through 2009.
Total
operating expenses, excluding an impariment loss on goodwill and intangible
assets, decreased to about $24.95 million in 2009, as compared to approximately
$25.69 million incurred in 2008, for a decrease of $0.74 million. In
the face of reduced volumes and falling demand, we adopted a number of measures
to reduce our overhead costs, including freezing salaries and making reductions
in force throughout the Group. However, this reduction in costs was
partially offset by the additional salaries and related costs of our new
airfreight operations in New York, which commenced in April 2009, and which
added total operating costs of $0.77 million to the Group. A new Asia
Pacific team in Hong Kong joined the Group near the end of 2009 and increased
our operating costs by about $0.1 million. Even with the increased salary
expense of $0.78 million from our new operations, salaries and related personnel
costs decreased by about $0.01 million, from $16.49 million to $16.48
million. Other selling and administrative costs decreased by
approximately 6% from $7.94 million to $7.47 million, which, when combined with
the decrease in personnel costs, resulted in a total reduction of approximately
$0.48 million in operating costs, not including impairment loss,
amortization and depreciation. The reduction in costs on a year to year
basis would have been even greater except for additional costs of $0.87 million
attributable to our new operations, for higher professional
fees of approximately $0.13 million we incurred for services performed in
connection with the Sarbanes Oxley Act. Amortization and depreciation
expense increased from $1.26 million to $1.72 million, or about
37%. Most of this increase relates to an impairment loss for WCS’s customer
list. No amortization expense was recorded for MSA in 2009 because
the net carrying value of MSA’s intangible assets was written down to zero
at the end of 2008. In addition, the amortization expense recorded by
WLG (USA) and WLG (UK) decreased because of an extension in the useful lives of
the intangible assets of each company effective from January 1,
2009. However, we recorded a $0.72 million impairment charge to
reflect a decline in the value of WCS’s
customer list. See Other
Operating Expenses below.
25
After the
provision for income taxes, the Group recorded a net loss of $6.04 million in
2009, compared to net income of $0.49 million in 2008. Hong Kong and
China’s operations reported a combined net income of $1.60 million in 2009,
compared with net income of $1.99 million in 2008, for a decrease of
approximately $0.39 million. Our US operations recorded a combined
net loss of $2.40 million in 2009, compared to a net loss of $0.59 million in
2008. In 2009, WLG (USA), MSA and WCS reported net income of $0.29
million, net loss of $27,000 and net loss of $2.67 million,
respectively, compared to a net loss of $0.32 million, net income of
$0.20 million and net loss of $0.51 million, respectively, in 2008. WCS's
net loss of $2.67 million in 2009, includes a loss of $0.34 million attributable
to the commencement in April 2009 of air freight operations in New York.
Asean reported a net income of $0.21 million in 2009, compared to net income of
$0.86 million in 2008. The decrease in net income in Asean is
partially attributable to provisions for doubtful debts of approximately $0.19
million and $0.06 million for certain cargo claims it paid in
2009. WLG (UK) reported a net income of $0.15 million in 2009,
compared to a net loss of $9,000 in 2008. In 2009, the parent
company’s loss increased by about $3.84 million when compared to last
year. Beginning in 2009, because of a realignment of
responsibilities, the salaries and related costs for two officers, which totaled
about $0.70 million, were charged to Group overhead. In 2008, all costs for
these two officers were charged to operations. In addition, the parent company
incurred professional fees of approximately $0.13 million in connection with the
Sarbanes Oxley Act. Lastly, Impairment charges for goodwill and intangibles
assets of WCS were recorded in the amounts of $2.45 million and $0.72 million,
respectively. In addition, an extraordinary gain of $0.20 million was recognized
by WLG (UK) for an earn-out accrual that was cancelled.
Segment
Information
Air freight
operations: Revenues from our air freight operations decreased
from $36.30 million in 2008 to about $27.86 million in 2009, for a decrease of
$8.44 million. Most of the decrease is attributable to our China and
Hong Kong operations, which experienced declines in revenues of $2.83 million
and $6.72 million, respectively. Revenues fell because of a lack of
demand for products at destination and a reluctance of customers to incur the
higher per unit costs to ship goods by air. Our remaining subsidiaries reported
a net increase in their air freight revenues of approximately $1.11
million.
Cost of
sales for our air freight operations decreased by $8.07 million from $30.61
million in 2008 to $22.54 million in 2009, mainly as a result of a decline in
the volumes of cargo shipped and a reduction in shipping rates for air
freight.
The
Group’s gross profit margin for its air freight business increased from 15.7% in
2008 to 19.1% in 2009. Most of this increase is due to lower fuel
surcharges and to a decline in cargo rates charged by the airlines during 2009,
when compared to 2008.
Segment
overhead for our air freight operations was, $4.69 million in 2008, which
compares to $4.70 million in 2009. This comparison is after incurring
about $0.77 million for a new operation that commenced in April 2009 in New York
to improve and expand our air freight capabilities in the US market,
and additional costs of approximately $88,000 incurred by our new Asia Pacific
team..
Net
segment income for our air freight operations is approximately $0.63 million in
2009, compared to net income of $0.99 million in 2008, for a decrease of $0.36
million. Our Hong Kong and China air freight operations reported net
incomes of approximately $0.69 million and $0.21 million, respectively, in 2009,
compared to net incomes of approximately $0.67 million and $0.22 million,
respectively, in 2008, for a combined decrease of just $5,000. In
addition, WLG (UK), MSA and WCS reported net losses of $15,000, $1,000 and $0.35
million, respectively, in 2009, compared to a net income of $2,000 and $200 and
a net loss of $23,000 in 2008. Asean and WLG (USA) posted a net
income of $40,000 and $51,000, respectively, in 2009, compared to a net income
of $0.15 million and a net loss of $35,000 in 2008.
Sea freight
operations: Revenues from our sea freight operations decreased
from approximately $111.41 million in 2008 to $62.48 million in 2009, for a
decrease of $48.93 million, or a decline of 44%. All of our
operating subsidiaries reported declines in their sea freight
revenues. In 2009, WEHK, WE China, WLG (USA), MSA, WCS, Asean and WLG
(UK) reported lower revenues of $3.77 million, $0.54 million, $3.83 million,
$7.39 million, $25.73 million, $4.44 million and $3.23 million, respectively,
compared to 2008. In all cases, the declines in revenue resulted from
less cargo shipped and falling shipping rates.
Cost of
sales for our sea freight operations decreased from $94.25 million in 2008 to
$49.10 million in 2009, as a result of the decline in the volumes in
cargo shipped and falling shipping rates.
The
Group’s gross profit margin increased from approximately 15.4% in 2008 to 21.4%
in 2009. Gross profit margins tend to rise in periods of falling
shipping rates because the amount we earn per shipment is compared to a
lower gross revenue amount.
Total
segment overhead attributable to our sea freight business decreased by $2.05
million, or about 13%, from approximately $15.73 million in 2008, to $13.68
million in 2009. Most of this reduction is due to decreases in
personnel costs and for reductions in legal and professional fees and travel and
entertainment expenses. The drop in personnel costs is partially due
to the reallocation of certain payroll costs from this business segment to the
Group’s parent company, and to a reduction in force throughout most of the
Group.
26
Net
segment loss for our sea freight operations is approximately $0.30 million in
2009, compared to net income of $1.43 million for the same period in
2008. In 2009, WEHK and WE China reported net incomes of $0.26
million and $0.44 million, respectively, which compares to $0.75 million and
$0.35 million, respectively, for the year of 2008. MSA and WCS
reported net losses of $19,000 and $1.51 million, respectively, in 2009,
compared to a net income of $0.20 million and a net loss of $0.32 million,
respectively, in 2008. WLG (USA), WLG (UK) and Asean reported net
incomes of $0.24 million, $0.18 million and $0.11 million respectively, in 2009,
compared to a net loss of $0.29 million, net incomes of $0.27 million and $0.47
million, respectively, in 2008.
Customs brokerage
services: Asean, MSA, WLG (UK) and WCS each have a division
that provides customs brokerage services. Revenues from customs
brokerage services totaled approximately $53.50 million in 2009, compared to
$66.34 million in 2008, for a decrease of about $12.84 million. Some
of the decline in revenues is due to our US companies advancing less duty on
behalf of their customers and assisting them to use certain procedures that
allow importers to make direct payment of customs duties to the
government on credit terms. Direct and administrative costs for this
segment totaled about $54.27 million, producing a net loss of $0.77 million in
2009, compared to a net loss of $0.21 million in 2008. Most of the
loss is attributable to WCS, which reported net losses of $0.81 million,
compared to a net loss of $0.16 million for last year. Asean
reported net income of $62,000 in 2009, compared to net income of $0.23 million
in 2008. MSA posted a net loss in this segment of approximately $7,000, which
compares to a net income of about $3,000 in 2008. In 2009, WLG (UK)
reported a net loss in this segment of $18,000, which compared to a loss of
$0.28 million in 2008.
Other
Operating Expenses
Salaries
and allowances
Salaries
and related expenses decreased by $0.01 million, from $16.49 for the year ended
December 31, 2008 to $16.48 million in 2009. We reduced staff in our
Hong Kong, US and UK operations, but these reductions were offset by new hires
for our operations in New York and Hong Kong, which added salary costs in 2009
of about $0.78 million. Without these new operations, our personnel
salary costs would have declined by approximately $0.79 million for
2009.
Rent
Rent
expense for our facilities decreased by 6% from $1.97 million in 2008 to $1.85
million for the same period in 2009, for an overall decrease of $0.12
million. Rent expense of WLG (USA) decreased by $47,000 because the
lease for its Chicago office expired at the end of September 2008, and was
not renewed. Shortly after the acquisition of WCS, all of WLG (USA)’s
Chicago-based operations were moved to WCS’s Chicago office. In
addition, Asean and WLG (UK) reported a decrease in rental expense of $85,000
and $77,000, respectively, because of a weakening in their local currencies, and
because WLG (UK) paid duplicate rent in the first quarter of 2008 in connection
with its move to new office and warehouse facilities. WE China’s rent
expense increased by $84,000 in 2009 following its move to a larger warehouse
facility in Shanghai at the beginning of the year.
Other
selling and administrative expenses
Other
SG&A expense totaled about $5.61 million in 2009, compared to $5.97 million
in 2008, for a decrease of $0.36 million. This decline is
attributable to cost control measures taken by the Group towards the end of
2008. Late in 2008, we took action to reduce and/or limit our
general overhead costs and these measures included cutting back on certain
of our discretionary costs. However, we did incur about $0.13 million
in additional professional costs in 2009 for Sarbanes-Oxley Act compliance
services.
Depreciation
and Amortization
Depreciation
expense for property, plant and equipment decreased to $0.36 million in 2009,
compared to $0.40 million in 2008, for a decrease of $40,000.
Amortization
expense is attributable to the customer lists acquired in the acquisitions of
WLG (USA), Asean, WLG (UK), the MSA Group and WCS. In connection with
the acquisition of WLG (USA), we recorded a customer list asset of $0.51
million, which is now being amortized on a straight-line basis over 4
years. Asean's customer list was valued at $1.56 million and is being
amortized on a straight-line basis over 8 years. WLG (UK)'s customer
list was valued at $0.83 million and is being amortized over 5
years. A cost of $1.55 million was assigned to the MSA Group customer
list, which was being amortized over 10 years. In 2007 and 2008, the
carrying cost of MSA’s customer list was reduced by $0.60 million and $0.80
million, respectively due to MSA not achieving certain earnings targets, and
pursuant to an agreement with MSA’s former shareholders by which they gave up
their rights to receive additional proceeds for the sale of their
shares. As of the end of 2008, MSA's customer list was fully
amortized due to prior amortization and the reductions of $0.60 million and
$0.80 million described above. WCS’s customer list was valued at
$2.84 million and is being amortized over 9 years. In 2009, WLG (UK)
customer list became fully amortized due to prior amortization and a reduction
in carrying value of $0.60 million due to the cancellation of an earn-out
arrangement. In additional, 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, this 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. In
2009, amortization expense totaled $1.36 million, including an impairment charge
of $0.72 million, and is attributable to WLG (USA), Asean, WLG (UK) and WCS in
the approximate amounts of $32,000, $196,000, $97,000 and $1.04 million,
respectively. Amortization expense in 2008, was $0.85 million and
related to WLG (USA), Asean, WLG (UK), the MSA Group and WCS in the approximate
amounts of $102,000, $195,000, $167,000, $74,000 and $320,000,
respectively.
27
Interest
Expense
Interest
expense declined from $0.90 million in 2008 to $0.63 million in 2009, for a
decrease of $0.27 million. WLG (USA) incurred no interest expense in
2009, compared to interest expense of $13,000 in 2008, due to the repayment in
full of its bank debt in 2008. Asean and WCS’s interest
expense fell by $0.11 million and $0.12 million, respectively, mainly as a
result of a decrease in their bank borrowings. In addition, the Group
incurred aggregate interest expense of about $0.28 million for a director’s loan
of $0.60 million and $1.7 million of Series B Preferred Stock. Under
US GAAP rules, the dividends paid on the Series B Preferred Stock are reported
as interest expense. In addition, interest expense of $13,000 relates
to a loan from another director, which was fully repaid as of June 30,
2009. All director loans and the Series B Preferred Stock carry an
interest and dividend rate of 12% per annum.
Other
income / expense
Other
income for the year ended December 31, 2009 totaled $0.15 million, compared to
other income of $0.27 million last year, for a decrease of $0.12
million. The decrease for 2009 over 2008 is primarily due to
decreases in exchange gains.
Impairment
loss / Goodwill
For the
year ended December 31, 2009, the Group recorded a charge of $2.45 million to
recognize a decline in the carrying value of goodwill booked as part
of the acquisition of WCS. No impairment charge was recognized for
calendar year 2008.
Extraodinary
gain
In 2009,
a gain of $0.21 million was recognized in connection with the cancellation of an
earn-out liability that had been recorded at the time the Group acquired its UK
operating unit in Manchester, UK.
Provision
for Income Taxes
The
provision for income taxes decreased from $0.62 million in 2008 to about $0.37
million in 2009. Income tax of $0.33 million was provided on the
combined net income of $1.51 million attributable to our Hong Kong and China
operations, for an effective tax rate of 22%. Our Australian and UK
companies reported losses of $0.31 million and $0.04 million, respectively, and
recorded income tax benefits of $0.06 million against their losses The US
operations of WLG (USA), MSA and WCS are included in a US consolidated federal
income tax return with the Group's parent company, and, together, these
companies reported a consolidated pre-tax loss of approximately $6.80 million,
which includes expenses of about $3.84 million that are not deductible for
income tax purposes, with the largest items being amortization expense of $0.60
million and impairment charges for goodwill and intangible assets totaling $3.17
million. State income taxes of about $96,000 were provided for our US
operations. No federal tax benefit was provided for the US
losses.
LIQUIDITY
AND CAPITAL RESOURCES
Our
operations used cash of approximately $0.71 million in 2009, compared to cash of
$3.63 million provided by operations in 2008. In 2009, cash was
provided by the following sources: amortization and depreciation expense of
$1.72 million; provision for bad debts of $0.50 million; other non-cash items of
$14,000; impairment of goodwill of 2.45 million; an increase in trade
payables of $2.35 million and an increase in other accrued liabilities of $0.94
million. Major components that used cash for operations in 2009
include: net loss of $6.04 million; gain on cancellation of earn-out liabilities
of $0.21 million; increases in trade receivables of $1.79 million, increases in
deposits and prepayments of $0.32 million; decrease in due to director of $0.12
million and a decrease in income tax payable of $0.20 million.
Net cash
provided by financing activities totaled about $0.78 million in 2009, compared
to net cash of $2.58 million used by financing activities in
2008. Cash used by financing activities in 2008, included an increase
in restricted cash of $64,000; a decrease in bank debt of $3.96 million;
repayment of capital leases of $0.10 million and cash dividends of $90,000 paid
on preferred stock. Cash provided by financing activities in 2008
included loans from directors of $1.64 million. Cash used by financing
activities in 2009 included repayment of a loan from a director of $0.38
million; repayment of capital lease obligations of $38,000; and cash dividends
of $90,000 paid on our preferred stock. Cash provided by financing
activities in 2009, included an increase in bank debt totaling $1.17 million and
a decrease in restricted cash of $0.11 million.
28
As of
December 31, 2009, certain banks in Hong Kong and China had issued bank
guarantees of $0.54 million to several airlines on behalf of WAE and WE
China. With these guarantees, the airlines, in turn, grant credit
terms to WAE and WE China. In general, payments for air freight
shipments must be made to the airlines prior to the time we receive payments
from our customers. These guarantees are secured by cash of
approximately $0.54 million held in restricted bank
accounts.
An
Australian bank has provided a guarantee of about $0.12 million in favor of the
owner of the office premises occupied by Asean. In addition, a UK
bank has provided a guarantee of $0.48 million to the UK Customs and Excise
Department for the benefit of WLG (UK). In return for this guarantee,
the UK Customs and Excise Department grants credit terms to WLG
(UK). A parent company guarantee has been given to the UK
bank. A parent company guarantee has also been given as support for
the rental obligations related to WLG (UK)’s office and warehouse
facilities. This latter guarantee is limited to an amount equal to
three years rent at the date the guarantee is enforced. As of
December 31, 2009, our contingent obligation under this guarantee was about
$0.88 million.
In
October 2007, WEHK borrowed $0.28 million to pay income taxes, and this loan,
which was repayable in equal installments over twelve months, was repaid by
November 2008. As of December 31, 2009, WEHK had no bank
debt.
In
December 2009, WAE borrowed $0.26 million for use as general working capital,
and this loan is repayable in equal installments over next five years. As of
December 31, 2009, the outstanding balance of this loan was $0.26
million.
In
November 2006, WLG (USA) obtained a $1.0 million revolving line of credit and a
five year, $1.0 million term loan from a US bank. The term loan was
to be repaid ratably over 60 months. Both loans were secured by all
of the assets of WLG (USA) and MSA and by a guarantee given by the Group’s
parent company. Under these two loan facilities, WLG (USA) had to
maintain certain financial ratios, including minimum cash flow coverage and
maximum funded debt to earnings before taxes, interest and non-cash items, each
of which was to be measured on a rolling basis at the end of each calendar
quarter. The term loan of approximately $0.75 million was fully
repaid in the first half of 2008. The line of credit had a balance of
$0.13 million at the time it was repaid, which was April 15,
2008. These loans were repaid from the Group’s working capital and
from a loan provided by a director.
Asean has
a revolving loan facility in the face amount of approximately $3.57 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
$0.60 million. At December 31, 2009, Asean's bank debt under its
revolving loan and overdraft facilities was $2.85 million and $0.60 million,
respectively, with interest rates of approximately 9.68% for the receivables
line and 8.78% for the overdraft facility. Asean's bank, in addition
to having a charge over all of its accounts receivable, holds a first registered
mortgage over all of its remaining assets. Asean’s overdraft
facility is guaranteed by the Group’s parent company.
During
2008, WCS had a revolving loan facility from a bank in the face amount of $3.0
million. This facility, which is secured in part by all of the trade
receivables of WCS, MSA and WLG (USA), allows borrowings equal to 80% of the
eligible receivables of all three companies. 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. As of December
31, 2009, WCS owed approximately $1.82 million to the bank. This loan
facility, which carried an interest rate of 5.25% per annum, was secured by all
of the assets of WCS, WLG (USA), and MSA and by a guarantee from the Group’s
parent company. The loan facility expired on February 28, 2010. In
February 2010, WCS and WLG (USA) obtained a revolving banking facility of
$3.0 million from another lender which shall expire in February
2011.
In our
past reports, we have expressed a strong intent to continue executing our
business plan, which, among other things, calls for us to make strategic
acquisitions to supplement our internal growth. In 2005, we completed
the acquisitions of three freight forwarding and logistics companies, one of
which had a customs brokerage business. We followed this in 2006 by
acquiring two freight forwarding and customs brokerage companies. In
July of 2007, we acquired WCS, which operates both a freight forwarding business
and customs brokerage practice. 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. Finding and hiring
capable and experienced personnel in this industry is a means to expand our
services and increase our revenues and is a practice that we will continue
as opportunities arise. As an example, we also added about nine
individuals to our operations in Hong Kong and China without incurring any
outlay of funds. All of these individuals were previously with a
large multi-national freight forwarding and logistics company and have strong
backgrounds in sales, air-freight forwarding and logistics. Our long-term
strategy to acquire companies offering strong growth opportunities and to pursue
aggressive internal growth has not changed. However, due to the
global downturn in business that began in 2008 and which is continuing in our
industry, we have delayed any acquisition plans until there is greater
visibility and certainty in the global markets that we serve. For the
coming year, we intend to focus on growing our existing businesses, and this may
require us to raise new capital.
29
Our
approximate contractual cash obligations as of December 31, 2009, are set forth
in the table below and are expected to equal approximately $0.37 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
years
|
|||||||||||||||
|
Short-term debt
|
$ | 600 | $ | 600 | $ | — | — | — | ||||||||||||
|
Facilities
rental and equipment leases
|
$ | 5,168 | $ | 1,539 | $ | 1,769 | $ | 876 | $ | 984 | ||||||||||
|
Cargo
space commitments
|
$ | 2,249 | $ | 2,249 | — | — | — | |||||||||||||
|
Redeemable
preferred stock
|
$ | 1,700 | — | $ | 1,700 | — | — | |||||||||||||
|
Total
contractual cash obligations
|
$ | 9,717 | $ | 4,388 | $ | 3,469 | $ | 876 | $ | 984 | ||||||||||
During
the years ended December 31, 2009 and 2008, we have not engaged in
any:
|
|
·
|
material
off-balance sheet activities, including the use of structured finance or
special purpose entities;
|
|
|
·
|
trading
activities in non-exchange traded
contracts.
|
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management's
discussion and its analyses of financial condition and results of operations are
based upon our consolidated financial statements. These statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America. All intercompany balances and transactions have been
eliminated.
Use
of estimates in preparation of financial statements
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates, judgments
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, based on
historical experience, and various other assumptions that we believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The following critical
accounting policies rely upon assumptions, judgments and estimates and were used
in the preparation of our consolidated financial statements.
Revenue
Recognition Policy
Because
of the way we conduct our business, we recognize revenue gross as a principal
rather than net as an agent. We recognize revenue in this manner because, as a
freight forwarder, as distinguished from other logistics forwarders who may
recognize revenues net of certain expenses as an agent, we are subject to
credit, inventory and cargo risks.
As a
non-asset based carrier, we do not own transportation assets. Rather, we
generate the major portion of our air and ocean freight revenues by purchasing
transportation services from direct (asset-based) carriers and reselling those
services to our customers. The sell rate is the rate we bill to customers and
the buy rate is the rate we pay to the carriers.
Air
freight revenues reflect income for shipments when we act as a freight
consolidator. Ocean freight revenues reflect income for arranging shipments when
we act as a Non-Vessel Operating Common Carrier. In each case we are acting as
an indirect carrier. In the case of import freight forwarding transactions,
revenues and associated expenses are recognized when the shipment arrives at its
contracted destination and possession of the shipment is transferred from the
overseas carrier. For export freight forwarding transactions, revenues and
associated expenses are recognized when the carrier takes possession of the
shipment at the point of origin. In each case, the Company has completed
its obligations for which the customer had contracted, and it has the right to
bill and receive payment. Under the Company’s revenue recognition policies, it
does not account for freight in transit by either air or sea. WLG has
tested the revenue recognized under its policy and has compared this to amounts
it would have recognized if it were to apply the revenue and expense recognition
policies set forth in Method 3 of EITF No. 91-9, and it believes the results of
operations and financial position at the end of any quarter or year-end would
not be materially different than reported.
Revenues
for customs clearances are recognized when goods are cleared by customs, and
revenues for ancillary services performed by each customs practice, such as the
delivery of goods, are recognized when the services are completed. Other
services include fees earned for the provision of terminal and document handling
services. These revenues are recognized upon completion of the
services.
Revenues
realized in other capacities, for instance, when we act as an agent for the
shipper, include only the commissions and fees earned for the services
performed. These revenues are recognized upon completion of the services. In
addition, revenues for our VAS such as warehousing services, which may also
include distribution, pick and pack activities and other services in connection
with a customer’s inventory are recognized when the services are
completed.
30
Recognition
of Cost of Forwarding
The
receipt of invoices for freight forwarding costs are often delayed, usually
until after a shipment is completed. As a result, we must estimate the cost of
purchased transportation and services, and accrue an amount on a shipment by
shipment basis in a manner that is consistent with revenue recognition. Such
estimates are based on past trends and on the judgment of management.
Historically, upon completion of the payment cycle (receipt and payment of
transportation bills), the actual, aggregate transportation costs are not
materially different than the amounts accrued. Any differences which arise
because the actual costs vary from the amounts accrued are adjusted at the time
the actual amounts are known, but historically the differences between accrued
and actual costs have not been significant.
Accounting
for Income Taxes
In
preparing our consolidated financial statements, we are required to estimate our
income taxes in each of the jurisdictions where we operate. This process
involves estimating actual current tax expense, together with identifying
permanent differences between financial income and taxable income, assessing
temporary differences resulting from the differing treatment of items for income
tax and accounting purposes. Temporary timing differences result in deferred tax
assets and liabilities, which are included in our consolidated balance sheet. We
must then assess the likelihood that our deferred tax assets will be recovered
from future taxable income, and, to the extent that we believe that recovery is
not likely, we must establish a valuation allowance. To the extent we establish
a valuation allowance, we must include an expense within the tax provision of
the statement of income in each period in which the allowance is
increased.
Significant
judgments are required in determining the provision for income taxes, deferred
tax assets and liabilities, and the valuation allowances for deferred tax
assets. In the event that actual results differ from these estimates or the
estimates are adjusted in future periods, we may then need to establish an
additional valuation allowance, which could materially impact our financial
position and results of operations.
Off-balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item
is not applicable because the Company is a smaller reporting
company.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The full
text of our audited consolidated financial statements, including the years ended
December 31, 2009, and December 31, 2008, begins on page F-1 of this
report.
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None
ITEM 9A(T). CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
The
Company's management, with the participation of the Company's Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the
Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as Amended
(the “Exchange Act”)) as of the end of the period covered by this Annual Report
on Form 10-K. Based on such evaluation, the Company's Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period,
the Company's disclosure controls and procedures are effective, as of the end of
the period covered by this Annual Report on Form 10-K, 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.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. The Company's internal control over
financial reporting is designed to provide reasonable assurance to the Company's
management and board of directors regarding the preparation and fair
presentation of published financial statements and the reliability of financial
reporting.
31
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management
reviewed the Securities and Exchange Commission’s Interpretive Guidance
regarding management’s report on internal control over financial reporting
(Release No. 34-55929) and assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2009. Based on such
assessment, we believe that, as of December 31, 2009, the Company's internal
control over financial reporting is effective.
This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company's internal control over financial reporting in
the quarter ended December 31, 2009, that materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Set forth
below are the names, ages, and positions of each of our executive officers and
directors, together with such person's business experience during the past five
years. Their business experience is based on information provided by each of
them to us. Directors are to be elected annually at our annual meeting of
stockholders and serve in that capacity until the earlier of their resignation,
removal or the election and qualification of their successor. Executive officers
serve for the terms set forth in their employment agreements or are elected
annually by our Board of Directors to hold office until the earlier of their
death, resignation, or removal.
|
NAME
|
AGE
|
POSITIONS HELD AND TENURE
|
||
|
Christopher
Wood(1)
|
64
|
WLG
director
|
||
|
Andrew
Jillings
|
47
|
Chief
Executive Officer and WLG director
|
||
|
Remo
Picchietti
|
47
|
Executive
Vice-President and WLG director (Resigned February 17,
2010)
|
||
|
Paul
Pomroy
|
54
|
Asean
Managing Director and WLG director (Resigned as WLG Director January 12,
2009)
|
||
|
David
Koontz
|
67
|
Chief
Financial Officer and WLG director
|
||
|
Kelvin
Tang
|
37
|
Secretary
|
(1) Mr.
Wood resigned as our Chief Executive Officer effective March 1,
2010.
Officers
and Directors:
Christopher
Wood has been our Chief Executive Officer since the formation of the
Group and until March 1, 2010. Mr. Wood continues as director and the
Chairman of the Board. In addition, he served as WLG’s Chief Financial Officer
until August 2005. Prior to the formation of WLG, Mr. Wood was a director and
the Chief Executive Officer of WEHK from July 1982, and also served as a
director and Chief Executive Officer of WAE from February 1989. Mr. Wood has
been a director of WE China since its formation in July 2004. Following the
acquisition of Asean, Mr. Wood serves as a director of that company as well as a
director of our Australian holding company, WLG (Australia) PTY LTD. Mr. Wood also serves as
a director of our two UK subsidiaries and of WCS and WLG (USA). Mr. Wood
received a First Class Honours Bachelor of Science in Physics from Imperial
College in June 1966, and a Doctor of Philosophy in Theoretical Physics from
Balliol College, Oxford in July 1969. Except as set forth below in the narrative
for Mr. Picchietti, there are no special arrangements or understandings between
Mr. Wood and any other person(s) pursuant to which he was or is to be selected
as a director or nominee.
32
Andrew
Jillings became the Group’s Chief Executive Officer on March 1,
2010. Mr. Jillings most recently served as the Chief Executive Officer of DB
Schenker for its operations in Hong Kong and China and held this position from
2006 to early 2010. DB Schenker is a multi-billion dollar
international freight forwarding and logistics company. From 1997 to
2006, Mr. Jillings was an executive with Bax Global Ltd., which was
acquired by DB Schenker in 2006. Prior to that acquisition, Mr.
Jillings was Bax Global’s Vice-President for North-East Asia with responsibility
for Bax’s operations in Hong Kong, China, Taiwan and the Philippines. Mr.
Jillings began his career in the logistics industry working for UTI in South
Africa. (See
also Legal Proceedings under Item 10 in this Report)
Remo
Picchietti,
following the acquisition of WCS, was elected to be a director and to serve
as an Executive-Vice President of WLG, effective August 1, 2007. He
continued as the President and Chief Executive Officer of WCS until December 1,
2008. Prior to the acquisition of WCS, Mr. Picchietti was its President and
Chief Executive Officer beginning in January 2004, when he acquired the
business. In 1998, Mr. Picchietti founded and was the Principal of Mayflower
Associates, which provided business development advice, strategies, and capital
to assist enterprise growth via global trade specializing in the areas of
logistics and supply chain management. Mr. Picchietti teaches graduate-level
International Management and International Marketing classes at Chicago-area
business schools. He specializes in marketing and logistics management and
earned his B.S. degree from Drake University in 1984, studied at Ealing College
in London, England, and earned his MBA from Northwestern University’s Kellogg
Graduate School of Management in 1989. Mr. Picchietti resigned as an
officer and director of the Company, effective February 19, 2010.
Pursuant
to a Letter Agreement executed in connection with the acquisition of WCS, Mr.
Wood agreed to take all necessary or appropriate action at any meeting of WLG’s
stockholders at which directors are to be elected and with respect to any
consent of stockholders in lieu of a meeting to elect directors to cause all of
the outstanding shares of WLG’s voting stock owned by Mr. Wood or any of his
affiliates to be voted, or consent to be executed in such a manner, as to elect
Remo Picchietti as a member of WLG’s board of directors. In addition, Remo
Picchietti agreed to take all necessary or appropriate action at any meeting of
WLG’s stockholders at which directors are to be elected and with respect to any
consent of stockholders in lieu of a meeting to elect directors to cause all of
the outstanding shares of WLG’s voting stock owned by Remo Picchietti or any of
his affiliates to be voted, or consent to be executed in such a manner, as to
elect Mr. Wood as a member of WLG’s board of directors. The Letter Agreement
shall terminate on the earlier of (i) Remo Picchietti’s written request that Mr.
Wood cease voting for him as a member of WLG’s board of directors (ii) the date
on which Remo Picchietti beneficially owns less than 5% of WLG’s common stock
(or securities convertible into or exercisable for shares of WLG’s common
stock), (iii) the date on which Remo Picchietti’s non-competition obligations
under his Employment Agreement expire and are no longer in effect or (iv) the
date on which Remo Picchietti becomes employed by a competitor of WLG or WCS and
such employment constitutes a breach of the non-compete obligations under the
Employment Agreement, or would have constituted a breach of his non-compete
obligations if such obligations were it still in effect. The Letter
Agreement described in this paragraph was terminated effective February 19,
2010.
Paul
Pomroy, is the Managing Director and a director of Asean and has
worked with Asean since its inception in 1984. Paul has extensive experience in
all facets of the freight forwarding and logistics industry,
including air and sea freight forwarding, customs brokerage and
related logistics services. He has considerable experience in working with China
and is familiar with doing business throughout Asia. Mr. Pomroy
was elected to serve as a director of WLG, effective January 28, 2008, and
resigned as of January 12, 2009. In April 2009, he also resigned as a director
of Asean. There were no special arrangements or understandings between Mr.
Pomroy and any other person(s) pursuant to which he was selected as a
director.
David
Koontz joined WLG in August 2005 as its Chief Financial Officer and was
elected to serve as a director effective August 1, 2007. Following the
acquisition of Asean, Mr. Koontz serves as a director of Asean and as a director
of our Australian holding company, WLG (Aust). Immediately before joining
WLG, he served for over three years as the Chief Financial Officer and director
of a U.S. public company in the alternative energy sector. Mr. Koontz holds a
Bachelors Degree in Business from California State University at Northridge,
California, and is a CPA. There are no special arrangements or understandings
between Mr. Koontz and any other person(s) pursuant to which he was selected as
a director.
Kelvin
Tang has been our Company Secretary since March 2005. From June 2004, Mr.
Tang also served as the Finance and Accounts Manager for WEHK and WAE. Prior to
joining the Group, he worked as an auditor for two public accounting firms
for more than five years. Mr. Tang is a member of the Hong Kong Institute of
Certified Public Accountants and Association of Chartered Certified Accountants.
He has a Masters Degree in Corporate Finance from Hong Kong Polytechnics
University.
Significant
Employees
Danny Chan,
age 41, joined WLG in November 2009 to assume the newly created position
of President of Asia Pacific. Prior to joining WLG, Danny served as
the managing director for South China from January 2006 to April 2009 for a
large multinational freight forwarding and logistics company. He held
a similar position with another large freight forwarding company prior to
January 2006. Mr. Chan holds a bachelor’s degree in International
Economics from the University of California in Los Angeles.
33
Robert
Wong, age 52, serves as the Chief Executive Officer of our Hong Kong and
China operations. Prior to assuming this position in January 2008, Robert, in
February 2004, became the Vice President of WEHK. Before joining WEHK, Mr. Wong,
from 1993 to 2002, was a group vice president of Jardine Logistics Services (HK)
Ltd, a logistics service provider. Following that, he then acted as a logistics
consultant for ANL Container Line Pty. Ltd. in Melbourne, Australia. He holds an
MBA and also has a full membership in The Chartered Institute of Shipbrokers
(MCIS), The Chartered Institute of Logistics and Transport (MILT) and The
Chartered Institute of Marketing (MCIM).
Edward
Pawelko, age 47, began his employment with the Group when he joined WCS
as its Chief Financial Officer in March 2008. He served in that
position until December 1, 2009, when he was promoted to be the Chief Executive
Officer of WCS. Prior to joining WCS, Mr. Pawelko held a senior
finance position with Reilly International, a large freight forwarding and
logistics company headquartered in Chicago, Illinois. Ed holds a
Bachelor’s Degree in business from the University of Illinois and a MBA from
Keller Graduate School in Chicago.
Gordon
Dean, age 38, worked for the UK company that was acquired by WLG (UK)
when it commenced doing business in the UK in September 2006. Until October 17,
2008, Gordon was responsible for sales and marketing, and effective October
17, 2008, Gordon assumed the position of Managing Director of WLG (UK). Gordon
has over 20 years working in all facets of the freight forwarding and logistics
industry. He gained his experience working in the UK, but has significant
expertise in serving the Far East and Indian Sub-Continent markets, focusing
mainly on the Hong Kong, China and the India trade lanes to the
UK.
Directors
serve for a one-year term. Our Bylaws provide for a minimum of one director and
a maximum of four directors. Our Board of Directors does not have a
nominating committee since all of the members of our Board of Directors
participate in the consideration of director nominees.
Audit
Committee and Code of Ethics.
We have
not formally appointed an audit committee, and our Board of Directors serves the
function of an audit committee. The Board has determined that one of its
directors would qualify as an audit committee financial expert, however, the
Board, using the criteria established by the American Stock Exchange, has
determined that the director is not independent. The Company has not yet adopted
a code of ethics applicable to its chief executive officer and chief accounting
officer, or persons performing those functions, because of the small number of
persons involved in the management of the Company.
Family
Relationships
There are
no family relationships among our officers or directors.
Legal
Proceedings
Based on
our inquiries of all of our officers and directors we are not aware of any
pending or threatened legal proceedings involving any of our officers or
directors that would be material to an evaluation of our management, except that
Mr. Andrew Jillings is a subject in an investigation being conducted by the
anti-trust division of the US Department of Justice relating to certain conduct
and practices by companies in the freight forwarding industry.
Section 16(a)
Beneficial Ownership Reporting Compliance
Our
officers, directors and holders of greater than 10% of our outstanding shares of
common stock are not subject to the reporting requirements of Section 16(a) of
the Securities Exchange Act.
ITEM 11. EXECUTIVE
COMPENSATION
The
following summary compensation table sets forth the aggregate compensation paid
or accrued by the Company to the Principal Executive Officer and each of the two
most highly compensated executive officers, other than the Principal Executive
Officer (collectively, the “Named Executive Officers”) for
the fiscal years ended December 31, 2009 and 2008.
34
SUMMARY
COMPENSATION TABLE
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|||||||||||||||||||||||||
|
Non-Equity
Incentive
|
Nonqualified
|
|||||||||||||||||||||||||||||||||
|
Name &
|
Option
|
Plan
|
Deferred
|
All Other
|
||||||||||||||||||||||||||||||
|
Principal
|
Salary
|
Bonus
|
Stock
|
Awards
|
Compensation
|
Compensation
|
Compensation
|
Total
|
||||||||||||||||||||||||||
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
Earnings
|
($)
|
($)
|
|||||||||||||||||||||||||
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
(6)
|
(7)
|
||||||||||||||||||||||||||||
|
Christopher
Wood (8)
|
|
|
|
|
||||||||||||||||||||||||||||||
|
President
and Chief Executive Officer – WLG and director
|
2009
|
247,742 | 144,936 | 392,678 | ||||||||||||||||||||||||||||||
|
2008
|
247,742 | 0 | 0 | 0 | 0 | 0 | 128,284 | 376,026 | ||||||||||||||||||||||||||
|
Paul
Pomroy (9)
|
||||||||||||||||||||||||||||||||||
|
Managing
Director –Asean and WLG director (until January 12,
2009)
|
2009
|
214,676 | 0 | 0 | 0 | 0 | 65,846 | 280,522 | ||||||||||||||||||||||||||
|
2008
|
224,172 | 20,886 | 0 | 0 | 0 | 0 | 65,026 | 310,084 | ||||||||||||||||||||||||||
|
Remo
Picchietti (10)
|
||||||||||||||||||||||||||||||||||
|
WLG
Executive. Vice President
|
||||||||||||||||||||||||||||||||||
|
WCS
CEO (Until Dec. 2008)
|
||||||||||||||||||||||||||||||||||
|
WLG
Director
|
2009
|
261,059 | 23,929 | 284,988 | ||||||||||||||||||||||||||||||
|
2008
|
250,000 | 0 | 0 | 0 | 0 | 0 | 22,400 | 272,400 | ||||||||||||||||||||||||||
(1) The salary amounts for
each named individual include only that person’s base salary. Messrs. Wood,
Pomroy (Resigned January 12, 2009) and Picchietti served as directors of the
Group, but none of them receive any compensation for their service as a
director.
(3) (4) (5) (6) No payments,
accruals or other forms of compensation described in columns (e), (f), (g) and
(h) were made to Mr. Wood or any of the other Named Executives for the years
ended December 31, 2009 and 2008.
(8) Mr.
Wood received a housing allowance of $108,387 for both 2009 and 2008. In
addition, he received payments of $14,532 and $16,964 as automobile allowances,
$1,548 and $1,548 for a government mandated retirement plan and $20,468 and
$1,385 in medical plan premiums, respectively, for the years 2009 and 2008. Mr.
Wood’s compensation is paid in Hong Kong dollars and has been translated at the
rate of 7.75:1.
(9) Mr.
Pomroy received $43,124 and $39,539 for automobile allowances and reimbursements
for the years 2009 and 2008, respectively. Cash of $19,321 and
$22,055 was contributed on his behalf to a government sponsored retirement plan
and health premiums of $3,400 and $3,432 were paid to a medical plan,
respectively, for the years 2009 and 2008. Mr. Pomroy’s bonus for 2008 was paid
in cash and was awarded on a discretionary basis in recognition of the financial
results of Asean. All of Mr. Pomroy’s compensation is paid in Australian dollars
and has been translated at the historical average rate of 1.28 for the US dollar
to the Australian dollar for 2009.
(10) Mr.
Picchietti received an auto allowance of $9,620 for both 2009 and 2008. In
2009 and 2008, cash contributions of $14,309 and $12,780, respectively, were
paid on his behalf for medical insurance premiums.
Employment
Agreements.
Chris
Wood: WLG entered into an employment agreement effective January 1,
2009, with Christopher Wood, the Company’s Chief Executive Officer and
director. Pursuant to the Employment Agreement, Mr. Wood was
to serve as the Company’s Chief Executive Officer for an initial term of five
years, and such term was to be automatically extended for successive one year
terms, unless earlier terminated pursuant to the terms of his Employment
Agreement. Under the Employment Agreement, Mr. Wood is to
receive (i) an annual base salary of HKD 1,920,000, (ii) a monthly housing
allowance of HKD 70,000, (iii) reimbursement for business expenses, (iv) health
insurance coverage for himself and his immediate family, and (iv) the use of a
company car and reimbursement for operating costs. Mr. Wood is also
eligible to receive an annual cash bonus of up to 100% of his base salary, and
he may receive stock awards under the Company’s 2005 Stock Incentive Plan, or
any other plan adopted by the Company. The Employment Agreement also
contains standard indemnification and confidentiality
provisions. Effective March 1, 2010, Mr. Wood relinquished his
position as CEO in favor of Mr. Andrew Jillings. Mr. Wood continues
as a director and Chairman of the board. Other than for the change of
position, Mr. Wood’s employment agreement continues in effect with no other
material changes.
The
Employment Agreement may be terminated at any time by (i) unanimous vote of the
Board for cause, (ii) by Mr. Wood upon one month’s prior written notice, or
(iii) by mutual agreement of the Company and Mr. Wood. If Mr. Wood
terminates the Employment Agreement for Good Reason (as defined in the
Agreement), or the Employment Agreement is terminated by mutual agreement, then
Mr. Wood shall be entitled to certain severance payments as described in the
Employment Agreement. In addition, if the Employment Agreement
is terminated by reason of Mr. Wood’s death or Disability (as defined in the
Agreement), Mr. Wood, his estate or beneficiaries, as the case may be, shall be
entitled to certain payments from the Company as described in the Employment
Agreement.
35
Andrew
Jillings: Andrew
joined the Group on March 1, 2010, to serve as the Chief Executive Officer of
WLG and its subsidiaries. Under the terms of his
employment agreement, he is to be paid an annual amount of HK$2.94
million. Mr. Jillings is entitled to receive an additional amount per annum of
HK$1.21 miillion which shall be deferred and paid at a later date to be
agreed between Mr. Jillings and the Board of Directors. Mr. Jillings shall also
receive full reimbursement for business expenses, premiums for himself and his
family for a private medical plan and for all automobile costs. In addition, he
is eligible to receive an annual bonus and to participate in the Company’s 2005
Stock Incentive Plan, with the award of any bonus and share options to be
at the discretion of the Board of Directors.
Either
the Company or Mr. Jillings may terminate his employment agreement by
giving three month’s written notice to the other party until December
2011, and, after that date, the notice period shall be nine months. The
Company shall have the right to terminate Mr. Jillings employment agreement for
cause, as defined in the agreement. The agreement also contains
confidentiality provisions. Upon a termination of his employment, Mr. Jillings
may not disclose or make use of any confidential that he obtained during
the course of his employment, and this prohibition against disclosing
confidential information is unlimited and continues after termination of
employment.
Paul
Pomroy: Asean entered into an employment agreement with Paul Pomroy in
July 2005 and this agreement has remained in effect following the acquisition of
Asean. Under his employment agreement, Mr. Pomroy serves as Asean's Managing
Director for an indefinite term. Prior to April 2008, Mr. Pomroy received an
annual salary of approximately $169,000, an annual car allowance of $22,300 and
reimbursement of all operating costs, an annual contribution equal to the
statutory rate in Australia for a pension fund of his choice, a bonus and
stock options, which shall be awarded at the sole discretion of Asean's board of
directors. The agreement may be terminated by either party upon six months
written notice, or in lieu thereof, upon the payment of six month’s salary.
Effective April 1, 2008, Mr. Pomroy’s salary was increased from Australian
$225,000 to Australian $265,000 per annum. Translating Mr. Pomroy’s current
salary to US dollars at the historical exchange rates prevailing for calendar
year 2009 yields an annual salary of approximately US$214,000. (All of the
compensation elements in Mr. Pomroy’s employment agreement are denominated in
Australian dollars.)
The
agreement also contains confidentiality, non-solicitation and non-competition
provisions. Under these provisions, Mr. Pomroy may not solicit customers or
employees of Asean or work in a competing business for a period of twelve months
following termination of his employment. The prohibition against disclosing
confidential information is unlimited and continues after termination of
employment.
David
Koontz: In November 2005, the Company entered into an
Employment Agreement with David Koontz to serve as its Chief Financial Officer.
Pursuant to the Employment Agreement, Mr. Koontz is entitled to an annual salary
of $185,000 and is eligible to receive an annual bonus, at the discretion of the
Board, of up to 100% of his base salary. He is also entitled to reimbursements
for health insurance premiums and to a car allowance of $750 per month. Pursuant
to the Agreement, the Company granted an option to Mr. Koontz to purchase
200,000 shares of the Company’s common stock at an exercise price of $1.00 per
share, which shall be granted pursuant to the Company's 2005 Stock Incentive
Plan. Effective August 2007, Mr. Koontz’s salary was increased to $200,000 per
annum.
The
Agreement is for a term of three years and may be renewed for successive one
year terms, may be terminated by WLG for cause and by both parties by written
notice or upon the death or disability (as defined in the agreement) of Mr.
Koontz. If the Agreement is terminated by disability, Mr. Koontz is entitled to
receive his salary and other benefits until he begins to receive disability
benefits, to receive a prorated portion of any bonus he would otherwise have
been entitled to and to be paid for any accrued but unused vacation. If the
Agreement is terminated by the Company without cause (as defined in the
Agreement), Mr. Koontz is entitled to receive his base salary and reimbursement
for health and insurance premiums for the initial period of the agreement if
termination occurs after 12 months of employment. In addition, Mr. Koontz shall
be paid for any unused vacation time, and any bonus that had been approved by
the Board, and any unvested options shall vest immediately.
Upon a
change of control, as defined in the Agreement, all of Mr. Koontz's outstanding
options will vest immediately. The Agreement also contains confidentiality,
non-solicitation and non-competition provisions. The non-solicitation and
non-competition provisions do not apply if the termination is without cause, or
if Mr. Koontz terminates the Agreement for good reason.
Remo
Picchietti: Mr. Picchietti entered into an Employment
Agreement with WLG and WCS, pursuant to which he was appointed the Chief
Executive Officer of WCS and an Executive Vice President of WLG. Mr. Picchietti
receives an annual base salary of $250,000 as the Chief Executive Officer of
WCS. Mr. Picchietti is entitled to participate in WCS’s bonus program on a
discretionary basis and is eligible to participate in WLG’s stock option plan.
No stock option awards have been made to Mr. Picchietti. He is entitled to
receive other employment benefits consistent with his position, including
medical coverage, a car allowance and annual paid
leave. In December 2008, Mr. Picchietti relinquished his
position as the Chief Executive Officer of WCS, but continued to receive his
salary of $250,000 per year. Mr. Picchietti resigned from WLG and
from the board of directors, effective February 19, 2010.
If the
Agreement is terminated by the Group without cause or by Mr. Picchietti for Good
Reason, (as defined in the Agreement), Mr. Picchietti is entitled to receive his
base salary and reimbursement for health and insurance premiums for a period of
twelve months if termination occurs after 12 months of employment. In addition,
Mr. Picchietti shall be paid for any unused vacation time and any bonus that had
been approved by the Board, and any unvested options shall vest immediately.
Except for a termination without cause or by Mr. Picchietti for Good Reason, Mr.
Picchietti shall be subject to non-solicitation and non-competition provisions,
which shall continue for 18 months following the date the Agreement is
terminated. The agreement also contains confidentiality provisions and these
shall continue until such confidential information becomes publicly
available.
36
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
There are
no outstanding equity awards for any of the Named Executive
Officers.
DIRECTOR
COMPENSATION
No
amounts were paid or accrued to the Group’s directors in connection with their
service as directors for the fiscal years ended December 31, 2009 and
2008.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
As of
March 30, 2010, we had 30,880,094 shares of common stock issued and
outstanding.
The
following table sets forth information, as of March 30, 2010, with respect to
the beneficial ownership of our preferred and common stock by: (i) all
directors; (ii) the Named Executive Officers; (iii) all current executive
officers and directors as a group; and (iv) each stockholder known by us to be
the beneficial owner of more than 5% of our common stock.
|
Title of Class
|
Name of Beneficial Owner
|
Amount and Nature
of Beneficial
Ownership (a)
|
Percent of
Class
|
|||||||
|
Series
A and B Preferred Stock
|
Chris
Wood
|
3,700,000 | (b) | 100 | % | |||||
|
Common
Stock
|
Chris
Wood
|
21,603,205 | (b) | 61.2 | % | |||||
|
Remo
Picchietti
|
0 | (c) | 0 | % | ||||||
|
David
Koontz
|
600,000 | (d) | 1.9 | % | ||||||
|
Paul
Pomroy
|
586,000 | (e) | 1.9 | % | ||||||
|
Jumbo
Glory Limited
|
16,000,000 | (f) | 51.8 | % | ||||||
|
All
directors and executive officers as a group (four persons)
|
22,798,205 | 63.5 | % | |||||||
|
(a)
|
Beneficial
ownership information is based on information provided to the Company.
Except as indicated, and subject to community property laws when
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The percentages shown are calculated based
upon 31,880,094 shares of common stock outstanding on March 30, 2010. The
numbers and percentages shown for each shareholder include the shares of
common stock actually owned as of March 30, 2010, and the shares of common
stock that the person or group had the right to acquire within 60 days of
March 30, 2010. In calculating the percentage of ownership, all shares of
common stock that the identified person or group had the right to acquire
within 60 days of March 30, 2010, upon the exercise of options, warrants
or conversion privilege are deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by such
person or group, but are not deemed to be outstanding for the purpose of
computing the percentage of the shares of common stock owned by any other
person.
|
|
(b)
|
Mr.
Wood owns 17,174,634 shares of common stock directly and no shares
indirectly. In addition, he owns 2.0 million and 1.7 million shares of the
Company’s Series A and Series B Preferred Stock, respectively, which are
convertible at any time into 4,428,571 shares of common stock. For the
purpose of determining Mr. Wood’s ownership of common stock, it has been
assumed that he exercised the conversion privilege to convert the Series A
and B Preferred Stock into 4,428,571 shares of common stock. (See Note
(f))
|
|
(c)
|
Mr.
Picchietti sold all of his holdings in WLG shares on February 19, 2010,
and does not own directly or beneficially any WLG shares, either common or
preferred.
|
37
|
(d)
|
Mr.
Koontz holds options to acquire 600,000 shares of the Company’s common
stock. One option for 200,000 shares became fully vested in August
2007. Mr. Koontz is to be granted a second option for 400,000
shares and not all terms for this option have been
finalized.
|
|
(e)
|
Mr.
Pomroy holds 586,000 shares of the Company’s common stock in a trust that
he controls.
|
|
(f)
|
Jumbo
Glory Limited (“Jumbo”), a privately held company incorporated in Hong
Kong, purchased 8.0 million shares of the Company’s common stock on
February 8, 2010, in a private transaction from Christopher
Wood. In addition, Jumbo may purchase an additional 8.0 shares
of the Company’s common stock from Mr. Wood for a period of days beginning
on February 8, 2010. If Jumbo completes the purchase of an
additional 8.0 million shares of the Company’s common stock as described
in point (f) above, Jumbo will hold more than 50% of the Company’s common
stock and a change in control of the Company shall have occurred. Jumbo
Glory’s
address is 3/fl, Queens Road Centre, 152 Queens Road Central, Hong
Kong.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In the
normal course of business, our subsidiaries enter into agency agreements with
various overseas agents, pursuant to which these overseas agents provide
services relating to our freight forwarding operations at both the ports of
loading and the ports of destination for the shipments we arrange.
Under
these agency agreements, we and our overseas agents perform our respective
services at our own places of business and, for these services, earn fees from
each other, as well as from either the shipper or the consignee, as the case may
be.
In
addition, under the agency agreements, sometimes either we or the overseas agent
is required to act as a "collection agent" to collect the freight revenue from
customers (either the shipper or the consignee). Since the decision as to which
party pays the freight cost is determined by the shipper and the consignee, we
and our overseas agents act in accordance with the customers' instructions for
the collection of freight charges. In the event that the collecting party is not
the party who is responsible for the payment of the freight cost to the carrier,
then the collecting party must reimburse the other party to settle the freight
cost.
In either
case, we, or our overseas agents, are responsible for invoicing the other party,
as between us, for fees owed. These amounts include the services fees earned and
may also include the freight cost collected by the other party.
During
the years ended December 31, 2009 and December 31, 2008, we conducted no trade
transactions through an agent that is deemed to be a related
party.
Details
for related party transactions are as follows:
Transactions
with the Company
Effective
as of September 30, 2005, Mr. Wood, WLG's controlling shareholder and Chief
Executive Officer subscribed to all 2.0 million of the authorized shares of the
Series A Preferred Stock in exchange for $1.5 million in debt represented
by a Promissory Note in the face amount of $1.0 million and other debt of
$0.5 million owed to Mr. Wood by the Company.
38
On June
30, 2008, the Company executed a conversion agreement with Mr. Wood pursuant to
which Mr. Wood and the Company agreed to convert $1.7 million in loans owed by
the Company to Mr. Wood into 1.7 million shares of the Company’s Series B
Convertible Redeemable Preferred Stock. The Series B Preferred Stock may be
converted by Mr. Wood at any time into shares of the Company’s common stock at a
conversion price of $0.70 per share. In addition, commencing on the earlier to
occur of 24 months after the issuance date, or Mr. Wood’s retirement or his
holding being 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.
Transactions
with Wako Logistics (Thailand) Co. Ltd. ("WLT")
Mr. Wood
was a director and owned 50% of the outstanding equity interests of WLT. During
2008, Mr. Wood resigned as a director and disposed of his 50% interest in
WLT.
For the
years ended December 31, 2009 and 2008 no sales were make through WLT and no
amounts were due to or from WLT as of December 31, 2008 and
2007.
Transactions
with Join Wing Properties Limited ("JWP")
Mr. Wood
is a director and owns all of the outstanding equity interests of
JWP.
JWP owns
a residential property which is occupied by Christopher Wood. During the years
ended December 31, 2009 and 2008, rental expense of approximately $108,000 for
each year, was paid or was payable by us to JWP. These amounts have been treated
as a housing allowance to Mr. Wood in the disclosures under the section for Executive
Compensation .
Loans
made by WLG Officers to WLG.
At the
time WLG acquired WCS, WCS, under the terms of a financing agreement with
certain of its lenders (the “Debt Holders”), was obligated to repay the balance
of certain debt (the “Mezzanine Debt”) and the value of warrants (the
“Warrants”) held by the Debt Holders. The total amount owed to the Debt Holders,
which included interest ($29,600), principal ($2,700,000) and the Warrants
($262,500) was $2,992,100. Of this amount, WLG provided cash of $2,550,000 to
WCS, and WCS used $442,100 of its cash to repay the Debt Holders in full for all
of their security interests. Of the funds provided by WLG, $1,050,000 was from
its working capital and the remaining amount of $1,500,000 was provided to
WLG from loans made to it by two of its officers. Mr. Koontz and Mr. Wood, the
Chief Financial Officer and Chief Executive Officer, who each loaned the Company
$750,000, respectively. Each loan carried an interest rate of 12%.
The loan from Mr. Koontz was repayable in 12 equal installments of $62,500
beginning on August 1, 2008. As of December 31, 2009, and 2008, the
balance of the loan was nil and $375,000, respectively. In addition
to Mr. Wood’s loan of $750,000, Mr. Wood made further loans to the Group of
$950,000 in April 2008 and $600,000 in June 2008. At June 30, 2008, the Group
owed Mr. Wood $2.3 million. Pursuant to a conversion agreement, Mr.
Wood converted $1.7 million of his loans to Series B Preferred Stock and
retained a note in the amount of $600,000. Mr. Wood’s $600,000 note
carries an interest rate of 12% and is repayable in 12 equal monthly
installments of $50,000, beginning on January 31, 2009. WLG accrued interest
expense of $13,125 and $80,625 for the years 2009 and 2008, respectively, for
the note owed to Mr. Koontz. For the note and advances owed to Mr.
Wood, WLG accrued interest expense of $276,000 and $220,110 for the years 2009
and 2008, respectively. The interest accrual for Mr. Wood includes $204,000
and $102,000 for 2009 and 2008, respectively, which relates to the $1.7 million
of 12% Series B Preferred Stock owned by Mr. Wood. The Series B
Preferred Stock is shown as a liability on the Group’s 2009 and 2008 balance
sheets and the dividends paid on the Series B Preferred Stock under US GAAP are
described as interest.
Other
than the above transactions, we have not entered into any material transactions
with any director, executive officer, nominee for director, beneficial owner of
five percent or more of our common stock, or family members of such persons.
Also, we have not had any transactions with any promoter. We are not a
subsidiary of any company.
Director
Independence
The
Company’s board of directors reviewed the independence of the directors using
the criteria established by the American Stock Exchange. As of December 31,
2009, the Board determined that none of our directors was independent based upon
such criteria.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Our
independent accountant is Mazars CPA Limited. As reported in our Form 8-K filed
on July 24, 2007, the Group appointed Mazars CPA Limited as its independent
accountant effective as of July 20, 2007. Our previous independent accountant
was Moores Rowland Mazars, and this firm underwent a re-organization in 2007 and
did not continue as Moores Rowland Mazars. Certain members of Moores Rowland
Mazars formed Mazars CPA Limited, and we hired that firm to be our independent
accountant. Set forth below are the aggregate fees billed by Mazars CPA Limited
for professional services rendered for the audit of the Company's annual
financial statements for the years ended December 31, 2009 and 2008, and the
review of the financial statements included in the Company's Forms 10-Q for 2009
and 2008. (See also Part II, Item 9.)
39
|
Audit
Fees
|
||||
|
Year
ended December 31, 2009:
|
$ | 103,226 | ||
|
Year
ended December 31, 2008:
|
$ | 110,710 | ||
|
Audit-Related
Fees
|
||||
|
Year
ended December 31, 2009:
|
$ | 0 | ||
|
Year
ended December 31, 2008:
|
$ | 0 | ||
|
Tax
Fees (1)
|
||||
|
Year
ended December 31, 2009:
|
$ | 2,632 | ||
|
Year
ended December 31, 2008:
|
$ | 2,632 | ||
|
(1)
|
Tax
fees are for the preparation of the Hong Kong profit's tax returns and
related tax computations for the years 2008 and 2007,
respectively.
|
ITEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
|
(a)
|
(1)
Financial Statements.
|
The
financial statements listed in the Index to Consolidated Financial Statements
appearing on page F-1 of this Form 10-K are filed as a part of
this report.
|
(2)
|
Financial
Statement Schedules
|
There are
no financial statement schedules included in this annual report.
|
(3)
|
The
exhibits listed below are filed as part of this annual
report.
|
Exhibit Number
and Document Description
|
3.1
|
Composite
Certificate of Incorporation of WLG Inc., as amended.
(10)
|
|
3.2
|
Bylaws
of Wako Logistics Group, Inc. (1)
|
|
4.1
|
Convertible
Promissory Note, dated April 1, 2005, issued by Wako Logistics, Inc. to
Christopher Wood. (2)
|
|
4.2
|
Certificate
of Designations, Preferences and Rights of Series A Convertible Preferred
Stock. (3)
|
|
10.1
|
Membership
Interest Purchase Agreement dated as of March 22, 2005, among Kay O'Neill
(USA Holdings) Limited, Kay O'Neill (USA) LLC and Wako Logistics Group,
Inc. (2)
|
|
10.2
|
Subscription
Agreement made as of the 1st day of April, 2005 between Wako Logistics
Group, Inc. and Christopher Wood (2)
|
|
10.3
|
Registration
Rights Agreement made as of the 1st day of April, 2005 between Wako
Logistics Group, Inc. and Christopher Wood. (2)
|
|
10.4
|
Employment
Agreement dated as of November 22, 2004, by and between Wako Logistics
Group, Inc. and Phillip Forsyth. (4)
|
|
10.5
|
Wako
Logistics Group, Inc. 2005 Stock Incentive Plan. (4)
|
|
10.6
|
Agreement
for the Purchase and Sale of Stock dated as of October 1, 2005, between
Wako Logistics Group, Inc. and Mr. Henrik Melgaard Christensen.
(5)
|
|
10.7
|
Deed
Between Vendor and Wako Logistics Group, Inc. For the Purchase and Sale of
Stock dated as of October 18, 2005. (6)
|
|
10.8
|
Employment
Agreement between David L. Koontz and Wako Logistics Group, Inc. dated
November, 2005. (7)
|
|
10.9
|
Membership
Interest Purchase Agreement, dated as of July 31, 2007 by and among Wako
Logistics Group, Inc., World Commerce Services, LLC, Remo Picchietti and
Mary Picchietti (nonmaterial schedules and exhibits identified in the
agreement have been omitted pursuant to Item 601b.2 of Regulation S-K.
Wako Logistics Group, Inc. agrees to furnish supplementally to the
Commission upon request by the Commission a copy of any omitted schedule
or exhibit.). (8)
|
|
10.10
|
Registration
Rights Agreement, dated as of July 31, 2007, by and among Wako Logistics
Group, Inc., Remo Picchietti and Mary Picchietti. (8)
|
|
10.11
|
Letter
Agreement between Christopher Wood and Remo Picchietti.
(8)
|
40
|
10.12
|
Escrow
Agreement, dated as of July 31, 2007, by and among Wako Logistics Group,
Inc., Remo
Picchietti, Mary Picchietti and LaSalle Bank.
(8)
|
|
10.13
|
Employment
Agreement between Remo Picchietti and Wako Logistics Group, Inc., and
World Commerce Services, LLC, dated July 31, 2007. (8)
|
|
10.14
|
Lease
Agreement between Bredbury Limited, WLG (UK) Limited and WLG Inc. dated
February 8, 2008 (10)
|
|
10.15
|
Employment
Agreement dated January 1, 2009, between WLG Inc. and Christopher Wood
(10)
|
|
10.16
|
Loan
and Security Agreement dated February 24, 2010, by and between WLG (USA)
LLC and World Commerce Services, LLC and NOVA Business Credit, a division
of NOVA Bank. (11)
|
|
10.17
|
Revolving Note dated February 24, 2010, by WLG (USA) LLC and World Commerce Services LLC in favor of NOVA business Credit, a division of NOVA Bank. (11) |
|
10.18
|
Surety Agreement dated February 24, 2010, by WLG Inc. (11) |
|
10.19
|
Agreement of Subordination and Standstill dated February 24, 2010, by and among WLG (USA) LLC, World Commerce Services, LLC, NOVA Business Credit, a division of NOVA Bank and WLG Inc. (11) |
|
10.20
|
Employment Agreement between Andrew Jillings and WLG Inc., effective March 1, 2010. (11) |
|
21.1
|
Subsidiaries
of the Registrant. (11)
|
|
23.1
|
Consent
of Auditors. (11)
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (11)
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (11)
|
|
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 13a-14(b)).
(11)
|
|
(1)
|
Incorporated
by reference to our registration statement on Form SB-2/A filed on June
14, 2004.
|
|
(2)
|
Incorporated
by reference to our Form 8-K filed on April 7,
2005.
|
|
(3)
|
Incorporated
by reference to our Form 8-K filed on November 17,
2005.
|
|
(4)
|
Incorporated
by reference to our transition report on Form 10-KSB filed on June 1,
2005.
|
|
(5)
|
Incorporated
by reference to our Form 8-K dated October 6,
2005.
|
|
(6)
|
Incorporated
by reference to our Form 8-K dated October 21,
2005.
|
|
(7)
|
Incorporated
by reference to our report on Form 10-KSB on March 30,
2006.
|
|
(8)
|
Incorporated
by reference to our Form 8-K filed on August 3,
2007.
|
|
(9)
|
Incorporated
by referenced to our Form 8-K filed on February 14,
2008.
|
|
(10)
|
Incorporated
by reference to our Form 8-K filed on February 6,
2009.
|
|
(11)
|
Filed
herewith.
|
41
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
WLG
INC.
|
||
|
Date: March
31, 2010
|
By:
|
/s/ Andrew Jillings
|
|
Andrew
Jillings
|
||
|
Chief
Executive Officer and Director
|
||
|
(Principal
Executive Officer)
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report on Form
10-K has been signed by the following person on behalf of the registrant and in
the capacities and on the dates indicated.
|
Date:
March 31, 2010
|
|
/s/ Andrew Jillings
|
|
Andrew
Jillings
|
||
|
Chief
Executive Officer and Director
|
||
|
(Principal
Executive Officer)
|
||
|
/s/ David Koontz
|
||
|
David
Koontz
|
||
|
Chief
Financial Officer and Director
|
||
|
(Principal
Financial Officer and Accounting
Officer)
|
|
/s/ Christopher Wood
|
||
|
Christopher
Wood
|
||
|
Director
|
42
EXHIBIT
INDEX
Exhibit Number
and Document Description
|
3.1
|
Composite
Certificate of Incorporation of WLG Inc., as amended.
(10)
|
|
|
3.2
|
Bylaws
of Wako Logistics Group, Inc. (1)
|
|
|
4.1
|
Convertible
Promissory Note, dated April 1, 2005, issued by Wako Logistics, Inc. to
Christopher Wood. (2)
|
|
|
4.2
|
Certificate
of Designations, Preferences and Rights of Series A Convertible Preferred
Stock. (3)
|
|
|
10.1
|
Membership
Interest Purchase Agreement dated as of March 22, 2005, among Kay O'Neill
(USA Holdings) Limited, Kay O'Neill (USA) LLC and Wako Logistics Group,
Inc. (2)
|
|
|
10.2
|
Subscription
Agreement made as of the 1st day of April, 2005 between Wako Logistics
Group, Inc. and Christopher Wood (2)
|
|
|
10.3
|
Registration
Rights Agreement made as of the 1st day of April, 2005 between Wako
Logistics Group, Inc. and Christopher Wood. (2)
|
|
|
10.4
|
Employment
Agreement dated as of November 22, 2004, by and between Wako Logistics
Group, Inc. and Phillip Forsyth. (4)
|
|
|
10.5
|
Wako
Logistics Group, Inc. 2005 Stock Incentive Plan. (4)
|
|
|
10.6
|
Agreement
for the Purchase and Sale of Stock dated as of October 1, 2005, between
Wako Logistics Group, Inc. and Mr. Henrik Melgaard Christensen.
(5)
|
|
|
10.7
|
Deed
Between Vendor and Wako Logistics Group, Inc. For the Purchase and Sale of
Stock dated as of October 18, 2005. (6)
|
|
|
10.8
|
Employment
Agreement between David L. Koontz and Wako Logistics Group, Inc. dated
November, 2005. (7)
|
|
|
10.9
|
Membership
Interest Purchase Agreement, dated as of July 31, 2007 by and among Wako
Logistics Group, Inc., World Commerce Services, LLC, Remo Picchietti and
Mary Picchietti (nonmaterial schedules and exhibits identified in the
agreement have been omitted pursuant to Item 601b.2 of Regulation S-K.
Wako Logistics Group, Inc. agrees to furnish supplementally to the
Commission upon request by the Commission a copy of any omitted schedule
or exhibit.). (8)
|
|
|
10.10
|
Registration
Rights Agreement, dated as of July 31, 2007, by and among Wako Logistics
Group, Inc., Remo Picchietti and Mary Picchietti. (8)
|
|
|
10.11
|
Letter
Agreement between Christopher Wood and Remo Picchietti.
(8)
|
|
|
10.12
|
Escrow
Agreement, dated as of July 31, 2007, by and among Wako Logistics Group,
Inc., Remo
Picchietti, Mary Picchietti and LaSalle Bank.
(8)
|
|
|
10.13
|
Employment
Agreement between Remo Picchietti and Wako Logistics Group, Inc., and
World Commerce Services, LLC, dated July 31, 2007. (8)
|
|
|
10.14
|
Lease
Agreement between Bredbury Limited, WLG (UK) Limited and WLG Inc. dated
February 8, 2008 (10)
|
|
|
10.15
|
Employment
Agreement (10)
|
|
|
10.16
|
Loan
and Security Agreement dated February 24, 2010 by and between WLG (USA)
LLC and World Commerce Services, LLC and NOVA Business Credit, a division
of NOVA Bank. (11)
|
|
|
10.17
|
Revolving Note dated February 24, 2010 by WLG (USA) LLC and World Commerce Services LLC in favor of NOVA business Credit, a division of NOVA Bank. (11) | |
|
10.18
|
Surety Agreement dated February 24, 2010 by WLG Inc. (11) | |
|
10.19
|
Agreement of Subordination and Standstill dated February 24, 2010 by and among WLG (USA) LLC, World Commerce Services, LLC, NOVA Business Credit, a division of NOVA Bank and WLG Inc. (11) | |
| 10.20 | Employment Agreement between Andrew Jillings and WLG Inc., effective March 1, 2010. (11) | |
|
21.1
|
Subsidiaries
of the Registrant. (11)
|
|
|
23.1
|
Consent
of Auditors. (11)
|
|
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (11)
|
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (11)
|
|
|
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 13a-14(b)).
(11)
|
|
(1)
|
Incorporated
by reference to our registration statement on Form SB-2/A filed on June
14, 2004.
|
|
(2)
|
Incorporated
by reference to our Form 8-K filed on April 7,
2005.
|
|
(3)
|
Incorporated
by reference to our Form 8-K filed on November 17,
2005.
|
|
(4)
|
Incorporated
by reference to our transition report on Form 10-KSB filed on June 1,
2005
|
|
(5)
|
Incorporated
by reference to our Form 8-K dated October 6,
2005.
|
|
(6)
|
Incorporated
by reference to our Form 8-K dated October 21,
2005.
|
|
(7)
|
Incorporated
by reference to our report on Form 10-KSB on March 30,
2006.
|
43
|
(8)
|
Incorporated
by reference to our Form 8-K filed on August 3,
2007.
|
|
(9)
|
Incorporated
by referenced to our Form 8-K filed on February 14,
2008.
|
|
(10)
|
Incorporated
by reference to our Form 8-K filed on February 6,
2009.
|
|
(11)
|
Filed
herewith.
|
44
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
WLG
Inc.
(A
company incorporated in Delaware)
We have
audited the accompanying consolidated balance sheets of WLG Inc. and its
subsidiaries (collectively, “WLG”, the “Company”, or the “Group”) as of December
31, 2009 and 2008, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years ended December 31, 2009 and
2008. These financial statements are the responsibility of WLG’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. WLG is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing auditing procedures
that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of WLG’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Group as of December 31,
2009 and 2008 and the results of its operations and cash flows for the years
ended December 31, 2009 and 2008 in conformity with U.S. generally accepted
accounting principles.
/s/
Mazars CPA Limited
Mazars
CPA Limited
Certified
Public Accountants
Hong
Kong, March 31, 2010
Page 1 of
41
WLG
Inc.
Consolidated
Statements of Operations
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
|||||||||||
|
Note
|
US$
|
US$
|
||||||||||
|
Revenues:
|
||||||||||||
|
Freight
|
81,702 | 131,286 | ||||||||||
|
Other
services
|
62,142 | 82,760 | ||||||||||
|
Total
revenues
|
143,844 | 214,046 | ||||||||||
|
Operating
expenses
|
||||||||||||
|
Cost
of forwarding/customs
|
(121,132 | ) | (186,677 | ) | ||||||||
|
Selling
and administrative expenses
|
(23,949 | ) | (24,427 | ) | ||||||||
|
Impairment
loss on goodwill
|
7 | (2,450 | ) | - | ||||||||
|
Depreciation,
amortization and impairment loss
|
6, 7 | (1,721 | ) | (1,258 | ) | |||||||
|
Total
operating expenses
|
(149,252 | ) | (212,362 | ) | ||||||||
|
(Loss)
Income from operations
|
(5,408 | ) | 1,684 | |||||||||
|
Other
(expense) income
|
||||||||||||
|
Interest
income
|
3 | 8 | ||||||||||
|
Interest
expense
|
(626 | ) | (899 | ) | ||||||||
|
Other
income, net
|
148 | 265 | ||||||||||
|
(Loss)
Income before income taxes and extraordinary item
|
(5,883 | ) | 1,058 | |||||||||
|
Provision
for income taxes
|
3 | (366 | ) | (599 | ) | |||||||
|
(Loss)
Income before extraordinary item
|
(6,249 | ) | 459 | |||||||||
|
Extraordinary
item:
Gain
on cancellation of earn-out liability (net of taxes: 2009-Nil,
2008-$22)
|
7 | 208 | 34 | |||||||||
|
Net
(loss) income
|
(6,041 | ) | 493 | |||||||||
|
Dividends
on preferred stock
|
(90 | ) | (90 | ) | ||||||||
|
(Loss)
Income applicable to common stock
|
(6,131 | ) | 403 | |||||||||
|
Other
comprehensive income (loss), net of taxes:
|
||||||||||||
|
Foreign
currency translation adjustment
|
462 | (443 | ) | |||||||||
|
Total
comprehensive loss
|
(5,669 | ) | (40 | ) | ||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 2 of
41
WLG
Inc.
Consolidated
Statements of Operations
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
Year
ended December 31,
|
||||||||||||
|
2009
|
2008
|
|||||||||||
|
Note
|
US$
|
US$
|
||||||||||
| Net (loss) earnings per share: | ||||||||||||
|
Basic
(loss) earnings per share
|
4 | (0.20 | ) | 0.01 | ||||||||
|
Diluted
(loss) earnings per share
|
4 | (0.20 | ) | 0.01 | ||||||||
|
Weighted
average number of shares of common stock outstanding
|
||||||||||||
|
Basic
|
31,400,094 | 31,400,094 | ||||||||||
|
Diluted
|
31,400,094 | 32,025,668 | ||||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 3 of
41
WLG
Inc.
Consolidated
Balance Sheets
At
December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
At
December 31,
|
||||||||||||
|
2009
|
2008
|
|||||||||||
|
Note
|
US$
|
US$
|
||||||||||
|
ASSETS
|
||||||||||||
|
Current
assets
|
||||||||||||
|
Cash
and cash equivalents
|
1,899 | 2,402 | ||||||||||
|
Restricted
cash
|
5 | 601 | 713 | |||||||||
|
Trade
receivables, net of allowance (2009-$570, 2008-$499)
|
16,906 | 15,246 | ||||||||||
|
Deposits,
prepayments and other current assets
|
1,254 | 903 | ||||||||||
|
Tax
prepaid
|
149 | 50 | ||||||||||
|
Total
current assets
|
20,809 | 19,314 | ||||||||||
|
Property,
plant and equipment, net
|
6 | 1,427 | 1,115 | |||||||||
|
Deposits
and other non-current assets
|
107 | 142 | ||||||||||
|
Deferred
tax assets
|
3 | 288 | 248 | |||||||||
|
Intangible
assets, net
|
7 | 2,183 | 3,931 | |||||||||
|
Goodwill
|
7 | 6,878 | 9,328 | |||||||||
|
Total
assets
|
31,692 | 34,078 | ||||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||||
|
Current
liabilities
|
||||||||||||
|
Bank
overdrafts
|
8 | 603 | 466 | |||||||||
|
Trade
payables
|
10,447 | 8,092 | ||||||||||
|
Other
accrued liabilities
|
2,897 | 2,702 | ||||||||||
|
Bank
loans - maturing within one year
|
8 | 4,725 | 3,896 | |||||||||
|
Current
portion of capital lease obligations
|
9 | 90 | 72 | |||||||||
|
Due
to directors
|
11 | 670 | 990 | |||||||||
|
Income
tax payable
|
117 | 183 | ||||||||||
|
Total
current liabilities
|
19,549 | 16,401 | ||||||||||
|
Non-current
liabilities
|
||||||||||||
|
Non-current
portion of capital lease obligations
|
9 | 35 | 91 | |||||||||
|
Other
non-current liabilities
|
187 | 216 | ||||||||||
|
Deferred
tax liabilities
|
3 | - | - | |||||||||
|
Bank
loans – maturing after one year
|
8 | 206 | - | |||||||||
|
Total
non-current liabilities
|
428 | 307 | ||||||||||
|
Commitments
and contingencies
|
10 | - | - | |||||||||
|
Series
B convertible redeemable preferred stock, $0.001 par
value,
1.7 million shares authorized, issued and outstanding
(Redemption
and liquidation value of $1,700)
|
12 | 1,700 | 1,700 | |||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 4 of
41
WLG
Inc.
Consolidated
Balance Sheets
At
December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
At
December 31,
|
||||||||||||
|
2009
|
2008
|
|||||||||||
|
Note
|
US$
|
US$
|
||||||||||
|
Stockholders'
equity
|
||||||||||||
|
Preferred
stock, $0.001 par value, 5.0 million shares
authorized
and none issued
|
- | - | ||||||||||
|
Series
A convertible redeemable preferred stock, $0.001 par
value,
2.0 million shares authorized, issued and outstanding
(Redemption
and liquidation value of $1,500)
|
13 | 2 | 2 | |||||||||
|
Common
stock, $0.001 par value, 55.0 million shares
authorized,
31,400,094 (2008:
31,400,094) shares issued
and
outstanding
|
13 | 31 | 31 | |||||||||
|
Additional
paid-in capital
|
12,784 | 12,770 | ||||||||||
|
Statutory
reserve
|
14 | 167 | 124 | |||||||||
|
Accumulated
other comprehensive income (losses)
-
Foreign currency translation adjustments
|
239 | (223 | ) | |||||||||
|
(Accumulated
losses) Retained earnings
|
(3,208 | ) | 2,966 | |||||||||
|
Total
stockholders' equity
|
10,015 | 15,670 | ||||||||||
|
Total
liabilities and stockholders' equity
|
31,692 | 34,078 | ||||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 5 of
41
WLG
Inc.
Consolidated
Statements of Stockholders’ Equity
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share
amounts)
|
Series
A convertible redeemable preferred stock
|
Common
stock
|
Additional
paid-in
capital
|
Statutory
reserve
|
Accumulated
other
comprehensive
income
(losses)
|
(Accumulated
losses) Retained
earnings
|
Total
|
||||||||||||||||||||||||||||||
|
Number
|
US$
|
Number
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||||||||||||||||
|
Balance
as of January 1, 2008
|
2,000,000 | 2 | 31,400,094 | 31 | 12,760 | - | 220 | 2,687 | 15,700 | |||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | - | - | 493 | 493 | |||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | - | - | (443 | ) | - | (443 | ) | |||||||||||||||||||||||||
|
Transfer
to statutory reserve (Note
14)
|
- | - | - | - | - | 124 | - | (124 | ) | - | ||||||||||||||||||||||||||
|
Dividends
on preferred stock
|
- | - | - | - | - | - | - | (90 | ) | (90 | ) | |||||||||||||||||||||||||
|
Employee
compensation – stock options
|
- | - | - | - | 10 | - | - | - | 10 | |||||||||||||||||||||||||||
|
Balance
as of December 31, 2008
|
2,000,000 | 2 | 31,400,094 | 31 | 12,770 | 124 | (223 | ) | 2,966 | 15,670 | ||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | (6,041 | ) | (6,041 | ) | |||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
- | - | - | - | - | - | 462 | - | 462 | |||||||||||||||||||||||||||
|
Transfer
to statutory reserve (Note
14)
|
- | - | - | - | - | 43 | - | (43 | ) | - | ||||||||||||||||||||||||||
|
Dividends
on preferred stock
|
- | - | - | - | - | - | - | (90 | ) | (90 | ) | |||||||||||||||||||||||||
|
Employee
compensation – stock options
|
- | - | - | - | 14 | - | - | - | 14 | |||||||||||||||||||||||||||
|
Balance
as of December 31, 2009
|
2,000,000 | 2 | 31,400,094 | 31 | 12,784 | 167 | 239 | (3,208 | ) | 10,015 | ||||||||||||||||||||||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 6 of
41
WLG
Inc.
Consolidated
Statements of Cash Flows
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
(loss) income
|
(6,041 | ) | 493 | |||||
|
Adjustments
to reconcile net (loss) income to net cash (used in)
provided
by operating activities
|
||||||||
|
Depreciation
|
361 | 405 | ||||||
|
Amortization
and impairment loss on intangible assets
|
1,360 | 853 | ||||||
|
Allowance
for bad debts
|
495 | 815 | ||||||
|
Impairment
of goodwill
|
2,450 | - | ||||||
|
Share-based
amortization
|
14 | 10 | ||||||
|
Gain
on cancellation of earn-out liability
|
(208 | ) | (34 | ) | ||||
|
Changes
in working capital:
|
||||||||
|
Trade
receivables
|
(1,789 | ) | 5,825 | |||||
|
Deposits,
prepayments and other current assets
|
(316 | ) | 57 | |||||
|
Trade
payables
|
2,355 | (3,558 | ) | |||||
|
Other
accrued liabilities
|
937 | (382 | ) | |||||
|
Due
to directors
|
(120 | ) | (657 | ) | ||||
|
Income
tax payable
|
(205 | ) | (195 | ) | ||||
|
Net
cash (used in) provided by operating activities
|
(707 | ) | 3,632 | |||||
|
Cash
flows from investing activities:
|
||||||||
|
Acquisitions
of property, plant and equipment
|
(577 | ) | (279 | ) | ||||
|
Net
cash used in investing activities
|
(577 | ) | (279 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Restricted
cash
|
112 | (64 | ) | |||||
|
Bank
overdrafts
|
137 | (5 | ) | |||||
|
Net
increase (decrease) in bank loans
|
1,035 | (3,958 | ) | |||||
|
Capital
lease obligations paid
|
(38 | ) | (102 | ) | ||||
|
Dividend
paid on preferred stock
|
(90 | ) | (90 | ) | ||||
|
(Repayment
to) Loans from directors
|
(375 | ) | 1,637 | |||||
|
Net
cash provided by (used in) financing activities
|
781 | (2,582 | ) | |||||
|
Net
(decrease) increase in cash and cash equivalents
|
(503 | ) | 771 | |||||
|
Cash
and cash equivalents at beginning of year
|
2,402 | 1,631 | ||||||
|
Cash
and cash equivalents at end of year
|
1,899 | 2,402 | ||||||
The
financial statements should be read in conjunction with the accompanying
notes.
Page 7 of
41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
|
WLG Inc.
(“WLG”, the “Company”, or the “Group”) (formerly known as Wako Logistics Group,
Inc.) was incorporated on December 2, 2003, pursuant to the laws of Delaware in
the United States of America, with authorized and outstanding share capital of
100 million shares of common stock, par value of $0.001 per
share. All outstanding common stock was issued to Mr. Christopher
Wood (“Mr. Wood”).
On
January 8, 2004, WLG changed its name to Wako Logistics Group,
Inc. On the same date, its authorized number of shares was reduced to
60 million shares, of which 55 million shares were common stock, and 5 million
shares were preferred stock.
Pursuant
to the Share Exchange Agreements entered into between WLG and Mr. Wood (and his
nominee) on January 18, 2004, WLG consummated a combination with Wako Express
(H.K.) Company Limited (“WEHK”) and Wako Air Express (H.K.) Company Limited
(“WAE”) (collectively, “Operating Subsidiaries”) by the issuance of 20,000,900
shares of WLG common stock to Mr. Wood in exchange for 100% of the outstanding
stock of WEHK and WAE.
After the
share exchanges, WLG became the parent and controlling company of the Operating
Subsidiaries, and Mr. Wood became the controlling shareholder of
WLG.
The
transfer of Mr. Wood’s interests in the Operating Subsidiaries to WLG was a
reorganization of companies under common control and has been accounted for
effectively as a pooling of interests, and the consolidated financial statements
of the Group have been presented as if the Operating Subsidiaries had been owned
by WLG since the earliest date covered by these financial
statements.
WEHK was
incorporated in Hong Kong on June 4, 1982. Since its inception,
WEHK’s principal activity has been the provision of sea freight forwarding
services.
WAE was
incorporated in Hong Kong on February 24, 1989, and since that date, WAE’s
principal activity has been the provision of air freight forwarding
services.
In July
and November 2004, the Group established two 100% owned subsidiaries, Wako
Express (China) Co. Ltd. (“WE China”) in the People’s Republic of China (“PRC”)
and Wako Express (China) Co. Limited (“WECCL”) in Hong Kong. WE China
began business in China in February 2005 as a full-service freight forwarding
company. WECCL had not commenced business as of December 31,
2009.
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 has 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.
Page 8 of
41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
(CONTINUED)
|
Effective
October 1, 2005, WLG acquired all of the issued and outstanding shares of common
stock of Asean Logistics, Inc. (“ALI”), a California corporation, in exchange
for 250,000 restricted shares of WLG’s common stock. Concurrent with
the acquisition, WLG, by way of a contribution to capital, transferred all of
the ALI shares to WLG (USA).
ALI was a
non-asset based freight forwarding company and provided freight forwarding
services to its customers, which shipped products primarily between Asia and the
United States. As of December 31, 2007, all of ALI’s administrative and
accounting functions had been assumed by WLG (USA), and by June 30, 2008, all of
the remaining operations of ALI 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 of the issued and
outstanding common stock of Asean Cargo Services Pty Limited (“Asean”) in
exchange for 3.5 million restricted shares of WLG’s common stock. An
additional 1.3 million shares of WLG’s restricted common stock were issued
to the sellers of Asean in 2007 in recognition of Asean achieving certain
financial goals during the fifteen-month period ended December 31, 2006.
Founded
in 1984 and based in Sydney, Australia, Asean also has offices in Melbourne and
Brisbane and maintains relationships with cargo agents in all of Australia’s
mainland states. Asean provides freight forwarding and logistics
services, as well as customs brokerage services, to its customers, most of whom
ship products primarily between Asia and Australia.
In
February 2006, WLG formed two United Kingdom (“UK”) subsidiaries, WLG
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. This UK
Division, which operated in Manchester, UK, provided sea and air freight
forwarding, customs clearance and warehouse logistics services, mostly to UK
based customers. These activities are now carried on by WLG
(UK).
On
December 1, 2006, WLG (USA) acquired for cash all of the voting shares of
Mares-Shreve & Associates, Inc. (“MSA”) and its wholly owned subsidiary, Sea
Systems Ocean Line, Inc., (“Sea Systems”) (collectively, the “MSA
Group”). MSA, which was incorporated on May 15, 1979, in Washington,
provides freight forwarding and customs brokerage services to its
customers. Sea Systems, incorporated on February 26, 1991, in
Washington, is a non-asset based freight forwarder and provided air and sea
freight forwarding and related logistics services to its customers. As of 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 and into World
Commerce Services LLC (“WCS”).
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, and with an emphasis on imports from China.
Page 9 of
41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
1.
|
ORGANIZATION
AND PRINCIPAL ACTIVITIES
(CONTINUED)
|
On
December 7, 2007, the Company filed an amendment to the Company’s Restated
Certificate of Incorporation to change the Company’s name from Wako Logistics
Group, Inc. to WLG Inc., which became effective December 21, 2007.
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Accounting
principles
The
consolidated financial statements and accompanying notes are prepared in
accordance with U.S. generally accepted accounting principles
(“US GAAP”).
Basis
of consolidation
The
consolidated financial statements include the financial information of WLG and
its subsidiaries. The financial information of each of the companies
is included in the Group’s audited consolidated financial statements beginning
with the effective date that each company was formed or joined the Group. As of
December 31, 2009, all subsidiaries are wholly owned, and all material
intercompany balances and transactions have been eliminated on
consolidation.
Comprehensive
income
The Group
adopted FASB ASC 220, Comprehensive Income which establishes standards for
reporting and disclosure of comprehensive income and its components in a full
set of general purpose financial statements. During the year ended December 31,
2009, the Group recorded other comprehensive income of $462, being the
translation difference arising from the consolidation of its non-US
subsidiaries’ financial statements.
Property,
plant and equipment and depreciation
Property,
plant and equipment are stated at cost less accumulated depreciation and
accumulated impairment losses. The cost of an item of property, plant
and equipment includes its purchase price and any directly attributable costs of
bringing the asset to its working condition and location for its intended
use. Repairs and maintenance are recorded as an expense during the
year in which they are incurred.
Depreciation
is provided to write off the cost, less accumulated impairment losses, of
property, plant and equipment over their estimated useful lives from the date on
which the assets become fully operational and after taking into account their
estimated residual values, using the straight-line method. Where
parts of an item of property, plant and equipment have different useful lives,
the cost or valuation of the item is allocated on a reasonableness basis and
depreciated separately.
| Computer equipment | 3 years | |
| Office equipment | 5 years | |
| Furniture and fixtures | 5 years | |
| Motor vehicles | 3 years | |
| Leasehold improvements | over the shorter of estimated useful lives or leased period |
Assets
under capital leases are depreciated over the shorter of their expected useful
lives or the term of the leases.
Page 10
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Business
combinations
The
Company accounts for business combinations by applying the acquisition method of
accounting. At the acquisition date, assets acquired and liabilities assumed are
recognized based on their fair values. Accounting for business combinations
requires significant assumptions and estimates to measure fair value and may
include the use of appraisals, market quotes for similar transactions,
discounted cash flow techniques or other information if relevant. Any excess of
the cost of a business acquisition over the fair values of the assets acquired
and liabilities assumed is recorded as goodwill. Should the acquisition result
in a bargain purchase, where the fair value of assets and liabilities exceed the
amount of consideration transferred, the resulting gain will be recorded into
earnings on the acquisition date. All acquisition-related costs, other than the
costs to issue debt or equity securities, are accounted for as expense in the
period in which they are incurred. All assets and liabilities arising from
contractual contingencies are recognized as of the acquisition date if the
acquisition date fair value of that asset or liability can be determined during
the measurement period.
If the
initial accounting for the business combination has not been completed by the
end of the reporting period in which the business combination occurs,
provisional amounts will be reported for which the accounting is incomplete,
with retrospective adjustments made to such provisional amounts during the
measurement period to present new information about facts and circumstances that
existed as of the acquisition date. Once the measurement period ends, and in no
case beyond one year from the acquisition date, subsequent revisions of the
accounting for the business combination will only be accounted for as correction
of an error.
Goodwill
and other intangible assets
Goodwill
is the difference between the purchase price of a company and the fair market
value of the acquired company’s net assets. Intangible assets with definite
lives, such as customer relationships, are amortized using the straight-line
method over their estimated lives.
Intangible
assets with indefinite lives, including goodwill are assessed at least annually
for impairment in accordance with FASB ASC 350, Intangibles - Goodwill and
Other. We complete the required impairment tests annually at the year-end, or
when certain events occur or circumstances change. Estimated remaining lives of
other intangible assets ranged from three to seven years as of December 31,
2009.
Accounting
for the impairment of long-lived assets
Long-lived
assets held and used by the Group are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. It is reasonably possible that these assets could become
impaired as a result of technology or other industry changes. Determination of
recoverability of assets held and used is accomplished by comparing the carrying
amount of an asset to future net undiscounted cash flows to be generated by the
assets. Impairment losses, if any, are measured as the excess of the carrying
amounts of the assets over their estimated fair values. Assets to be disposed of
are reported at the lower of the carrying amount or the fair value less the
costs to dispose of such assets.
Leasing
Leases
are classified as capital leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Assets
held under capital leases are recognised as assets of the Group at the lower of
the fair value of the leased assets and the present value of the minimum lease
payments. The corresponding liability to the lessor is included in the balance
sheet as a capital lease obligation. Finance charges implicit in the lease
payment are charged to the statement of operations over the term of the relevant
lease so as to produce a charge at a constant periodic rate on the remaining
balance of the obligations for each accounting period.
Rentals
payable under operating leases are charged to income on a straight-line basis
over the term of the relevant lease.
Page 11
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Revenue
recognition
The Group
derives its revenues from three principal sources: air freight, ocean freight
and customs brokerage.
As a
non-vessel operating common carrier, the Group does not own transportation
assets. Rather, the Group generates the major portion of its air and ocean
freight revenues by purchasing transportation services from direct (asset-based)
carriers and reselling those services to its customers. The sell rate is the
rate the Group bills to customers and the buy rate is the rate the Group pays to
the carriers. By consolidating shipments from multiple customers and
concentrating its buying power, the Group may be able to negotiate favorable buy
rates from the direct carriers, while at the same time offering lower sell rates
to its customers than they may otherwise be able to negotiate for
themselves.
Air
freight revenues include income earned by the Group when it acts as a freight
consolidator. Ocean freight revenues include income earned when the Group acts
as a non-vessel operating common carrier. In each case, the Group acts as an
indirect carrier. When acting as an indirect carrier, revenues related to
shipments are recognized when freight is received from the shipper (for import
freight) or when freight leaves the carrier’s terminal (for export freight) with
accrual of the estimated direct costs to complete delivery of the
freight.
The Group
recognizes revenue gross as a principal rather than net as an
agent. Revenues are recognized in this manner because the Group is
subject to credit, inventory and cargo risks.
Revenues
realized in other capacities, such as when the Group acts as an agent for the
shipper, include only the commissions earned for the services performed. These
revenues are recognized upon completion of the services.
Other
services offered by the Group include customs brokerage, arranging local
delivery of goods, warehousing and distribution services and preparing and
transmitting terminal and shipping documents. Revenues are recognized
upon completion of the respective services, and upon the clearance of goods for
customs brokerage.
Recognition
of cost of forwarding
The
billing for the cost of forwarding is usually delayed until after a shipment is
completed. As a result, the Group has to estimate the cost of
purchased transportation and services and accrue an amount on a
shipment-by-shipment basis in a manner that is consistent with revenue
recognition. Such estimates are based on past trends and on the
judgment of management. Historically, upon completion of the payment
cycle (receipt and payment of transportation bills), the actual, aggregate
transportation costs are not materially different than the amounts
accrued. However, if the actual costs vary from the amount accrued, a
revision to the accrual is recorded.
Page 12
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Income
taxes
Provision
for income and other related taxes has been provided in accordance with the tax
rates in effect on the income arising in each of the jurisdictions where the
Group carries on business.
The Group
provides for deferred income taxes using the liability method, by which deferred
income taxes are recognized for all significant temporary differences between
the tax and financial statement bases of assets and liabilities. The
tax consequences of those differences are classified as current or non-current
based upon the classification of the related assets or liabilities in the
financial statements.
The Group
adopted FASB ASC 740, Accounting for Uncertainty in Income Taxes—an
interpretation of SFAS No. 109, as of January 1, 2007. A tax position is
recognized as a benefit only if it is “more likely than not” that the tax
position would be sustained in a tax examination, with a tax examination being
presumed to occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% of being realized on examination. For tax positions not
meeting the “more likely than not” test, no tax benefit is recorded. The
adoption of ASC 740 did not have a material impact on the Group’s financial
statements.
Uses
of estimates
The
preparation of the Group’s consolidated financial statements in conformity with
US GAAP requires WLG’s management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the report periods. Actual
amounts could differ from those estimates. Estimates are used for,
but not limited to, the accounting for certain items such as allowance for
doubtful accounts, depreciation and amortization, taxes and
contingencies.
Foreign
currency translation
Transactions
involving currencies other than the US dollar are translated at the approximate
rates of exchange existing at the transaction dates. Translation
differences are included in the consolidated statement of
operations.
The
reporting currency of the Group is the US dollar. The consolidated financial
statements consolidate the financial statements of all foreign subsidiaries.
These foreign subsidiaries use their local currencies as the functional
currency. For Group consolidation purposes, assets and liabilities of
subsidiaries whose functional currency is not the US dollar are translated into
US dollars at the rate in effect at the balance sheet date. Revenue and expenses
are translated at the average exchange rates during the year. The effects of
translation adjustments are recorded in accumulated other comprehensive
income.
Related
parties
Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operating decisions. Parties
are also considered to be related if they are subject to common control or
common significant influence. Collectability of amounts receivable from such
parties is evaluated in accordance with the policy for "allowance for doubtful
accounts and concentration of credit risk" below.
Page 13
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Allowance
for doubtful accounts and concentration of credit risk
The Group
reviews its allowance for doubtful accounts throughout the year and provides an
allowance equal to the estimated uncollectible amounts. The Group’s estimate is
based on historical collection experience, existing economic conditions and a
review of the current status of trade accounts receivable. It is
reasonably possible that the Group’s estimate of the allowance for doubtful
accounts will change. Accounts receivable is presented net of an allowance for
doubtful accounts of $570 as of December 31, 2009, and $499 as of December 31,
2008.
Cash
and cash equivalents
Cash
equivalents include all highly liquid investments, generally with original
maturities of three months or less, which are readily convertible to a
determinable amount of cash and are so near maturity that the risk of loss in
value will be insignificant because of changes in interest rates.
Net
income per share
According
to the requirements of FASB ASC 260, Earnings per Share, basic earnings per
share are computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding. The computation
of diluted earnings per share is similar to the computation of basic earnings
per share, except that the weighted-average number of shares outstanding is
adjusted to include estimates of additional shares that would be issued if
potentially dilutive common shares had been issued. In addition,
income available to common stockholders is adjusted to include any changes in
income or loss that would result from the assumed issuance of the dilutive
common shares.
Segment
reporting
The Group
adopted FASB ASC 280, Segments Reporting. The Group’s results of
operations and financial position were affected by the implementation of ASC 280
as it operates in more than one line of business. Segment information is
disclosed in Note 22 to the consolidated financial statements.
Consolidation
of variable interest entities
In
December 2003, the FASB issued a FASB ASC 810-10, Consolidation of Variable
Interest Entities to clarify some of the provisions of FASB Interpretation No.
46 issued in January 2003 and to exempt certain entities from its requirements.
Under the new guidance, the effective dates vary depending on the type of
reporting company and the type of entity with which that company is involved. A
Variable Interest Entity ("VIE") does not share economic risks and rewards
through typical equity ownership arrangements; instead, contractual or other
relationships re-distribute economic risks and rewards among equity holders and
other parties. Once an entity is determined to be a VIE, the party
with the controlling financial interest, the primary beneficiary, is required to
consolidate it. ASC 810-10 also requires disclosures about VIEs that the Company
is not required to consolidate, but in which it has a significant variable
interest.
Page 14
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Consolidation
of variable interest entities (Continued)
A major
shareholder of the Group has an interest in one company with which the Group has
agency agreements for the performance of freight forwarding services. These
agreements and the transactions thereunder are based on normal commercial terms.
Transactions with this entity are regarded as “related party transactions” which
have been fully disclosed in Note 11 to the consolidated financial statements.
Under the terms of ASC 810-10, this entity is considered as a
“business”. ASC 810-10 stipulates that an entity that is a business
is not required to be evaluated by a reporting enterprise to determine if the
entity is a VIE. Accordingly, the adoption of ASC 810-10 did not have an impact
on the Group’s consolidated financial statements.
|
|
Share-based
payment
|
Effective
April 1, 2007, the Company accounts for stock-based compensation in accordance
with FASB ASC 718, Compensation – Stock Compensation. Under the fair value
recognition provisions of this statement, stock-based compensation cost is
measured at the grant date based on the value of the award granted and
recognized over the vesting period. Stock-based compensation expense
is included in selling, general and administrative expenses.
On April
19, 2005, the Company adopted the Wako Logistics Group 2005 Stock Incentive Plan
(the "Incentive Plan"). During the year ended December 31, 2008, WLG’s board
approved the award of stock options to certain employees to allow them to
purchase an aggregate of 175,000 shares of WLG’s common stock. WLG’s
board awarded no stock options during the year ended December 31,
2009.
Recent
accounting pronouncements
In
December 2007, the FASB issued FASB ASC 805, Business Combinations. ASC 805 improves
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any non-controlling interest in the acquiree at the
acquisition date, measured at their fair values as of that date. ASC
805 applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. The adoption of ASC 805 did not have a
material impact on the Group’s financial position or results of
operations. The Group is required to expense costs related to
acquisitions after December 31, 2008, if any.
In
December 2007, the FASB issued FASB ASC 810, Non-controlling Interests. ASC 810
amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary and clarifies that a non-controlling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. ASC 810 is effective for
fiscal years beginning on or after December 15, 2008. The adoption of
ASC 810 did not have a material impact on the Group’s financial position or
results of operations.
Page 15
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent
accounting pronouncements (Continued)
In March
2008, the FASB issued FASB ASC 815, Derivative
and Hedging, an Amendment of FASB Statement No. 133 (“SFAS
No.133”). ASC 815 amends SFAS No. 133 and requires entities to
enhance their disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. ASC 815 is effective
for fiscal years beginning on or after November 15, 2008. The
adoption of ASC 815 did not have a material impact on the Group’s financial
position or results of operations.
In
February 2008, the FASB issued FSAB ASC 820-10-65, Transition and Open Effective Date
Information, which delays the effective date of ASC 820 for all
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until 2009. The Group is currently
evaluating the inputs and techniques used in these measurements, including items
such as impairment assessments of goodwill and impairment testing of intangible
assets. The Group adopted ASC 820 for non-financial assets and
non-financial liabilities effective January 1, 2009. The adoption of
ASC 820-10-65 did not have a material impact on the Group’s results of
operations, financial position, and cash flows.
In June
2008, the FASB issued FSAB ASC 470-20, Debt
with Conversion and Other Option. The objective of ASC 470-20
is to provide transition guidance for conforming changes made to ASC 470-20-05,
Convertible Securities and Beneficial Conversion Features and ASC 470-20-35
Contingently Adjustable Conversion Ratios, that result from ASC 470-20-30
Application Specific Instruments, and ASC 480, Distinguishing liabilities from
Equity. This Issue is effective for financial statements issued for
fiscal years ending after December 15, 2008, with early application permitted.
The adoption of ASC 470-20 did not have a material impact on the Group’s
financial position or results of operations.
In June
2008, the FASB issued FSAB ASC 815, Derivatives
and Hedging. ASC 815 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. Early application is not
permitted. ASC 815 specifies that a contract that would otherwise
meet the definition of a derivative but is both (a) indexed to the Company's own
stock and (b) classified in stockholders' equity in the statement of financial
position would not be considered a derivative financial
instrument. ASC 815 provides a new two-step model to be applied in
determining whether a financial instrument or an embedded feature is indexed to
an issuer's own stock. The adoption of ASC 815 did not have a
material impact on the Group’s results of operations or financial
position.
Page 16
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent
accounting pronouncements (Continued)
In April
2009, the FASB issued three related FASB Staff Positions (“FSP”): (i) FASB ASC
320, Other-Than-Temporary
Impairments, (ii) FASB ASC 825, Financial Instruments, and
(iii) FASB ASC 820, Fair Value
When Markets Are Not Active, which are effective for interim and annual
reporting periods ending after June 15, 2009. ASC 320 amends the
other-than-temporary impairment guidance in GAAP for debt securities to modify
the requirement for recognizing other-than-temporary impairments, change the
existing impairment model, and modify the presentation and frequency of related
disclosures. ASC 825 requires disclosures about fair value of financial
instruments for interim reporting periods as well as in annual financial
statements. ASC 820 provides additional guidance for estimating fair value in
accordance with ASC 820, Fair Value Measurements and Disclosures. The impact on
the adoption of the three related FSPs related only to the disclosures of the
Company’s financial instruments and has no material impact on the consolidated
financial position or results of operations. The disclosure requirements of ASC
820 are presented in Note 20 to the consolidated financial
statements.
In May
2009, the FASB issued FASB ASC 855, Subsequent Events, which
provides guidance on events that occur after the balance sheet date but prior to
the issuance of the financial statements. The provisions distinguish events
requiring recognition in the financial statements and those that may require
disclosure in the financial statements and requires disclosure of the date
through which subsequent events were evaluated. The Company adopted ASC 855
since the second quarter of 2009. In February 2010, the FASB issued ASU 2010-9,
Subsequent Events, Amendments
to Certain Recognition and Disclosure Requirements, which amends FASB ASC
855, to require SEC filers to evaluate subsequent events through the date that
the financial statements are issued. However, non–SEC filers are required to
evaluate subsequent events through the date that the financial statements are
available to be issued. In addition, ASU 2010-9 exempts SEC filers from
disclosing the date through which subsequent events were evaluated. ASU 2010-9
is effective upon issuance. The adoption of the provisions did not have a
material impact on the Company’s consolidated financial
statements.
In
August 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-04, Accounting
for Redeemable Equity Instruments — Amendment to Section 480-10-S99.
This ASU represents an update to Section 480-10-S99, Distinguishing
Liabilities from Equity, per Emerging Issues Task Force Topic D-98,
“Classification and Measurement of Redeemable Securities.” The adoption of ASU
2009-04 did not have a material impact on the consolidated financial position or
results of operations.
In
August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) — Measuring Liabilities at Fair Value. This ASU
amends Subtopic 820-10, Fair Value Measurements and Disclosures-Overall, for the
fair value measurement of liabilities. The adoption of ASU 2009-05 did not have
a material impact on the consolidated financial position or results of
operations.
Page 17
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent
accounting pronouncements (Continued)
In
September 2009, the FASB issued ASU No. 2009-06, Implementation Guidance on Accounting for Uncertainty
in Income Taxes and Disclosure Amendments for Nonpublic Entities. This
ASU provides additional implementation guidance on accounting for uncertainty in
income taxes and eliminates the disclosures required by paragraph
740-10-50-15(a) through (b) for nonpublic entities. The adoption of this
ASU did not have a material impact on consolidated financial position or results
of operations.
In
September 2009, the FASB issued ASU No. 2009-08, Earnings per Share Amendments to
Section 260-10-S99. This ASU represents technical corrections to
Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of
Earnings per Share for a Period that Includes a Redemption or an Induced
Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The
Effect of the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock. The adoption of this ASU did not have a material
impact on the consolidated financial position or results of
operations.
In
October 2009, the FASB issued ASU 2009-13, Revenue Recognition (“Topic 605”): Multiple
Deliverable Revenue Arrangements — A Consensus of the FASB Emerging Issues Task
Force. This ASU provides application guidance on whether multiple
deliverables exist, how the deliverables should be separated and how the
consideration should be allocated to one or more units of accounting. This ASU
establishes a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. The Company
will be required to apply this guidance prospectively for revenue arrangements
entered into or materially modified after January 1, 2011; however, earlier
application is permitted, as early as interim periods ended September 30, 2009.
The Company expects the adoption of this ASU will not have a material impact on
its financial statements.
In
December 2009, the FASB issued ASU 2009-16, Transfers and Servicing
(Topic 860) – Accounting
for Transfers of Financial Assets, which formally codifies FASB Statement
No. 166, Accounting for
Transfers of Financial Assets. ASU 2009-16 is a revision to SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, and
requires more information about transfers of financial assets, including
securitization transactions, and where entities have continuing exposure to the
risks related to transfer of financial assets. It eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets and requires additional disclosures. The provisions are
effective January 1, 2010, for a calendar year-end entity, with early
application not permitted. Adoption of these provisions is not expected to
have a material impact on the Group’s consolidated financial
statements.
Page 18
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recent
accounting pronouncements (Continued)
In
December 2009, the FASB issued ASU 2009-17, Improvements to Financial Reporting
Involved with Variable Interest Entities, which codifies SFAS
No. 167, Amendments to
FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17
requires a qualitative approach to identifying a controlling financial interest
in a variable interest entity ("VIE"), and requires ongoing assessment of
whether an entity is a VIE and whether an interest in a VIE makes the holder the
primary beneficiary of the VIE. The provisions are effective Janaury 1, 2010,
for a calendar year-end entity, with early application not permitted. The
adoption of ASU 2009-17 is not expected to have a material impact on the Group’s
results of operations or financial position.
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.
Page 19
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
3.
|
INCOME
TAXES
|
|
(a)
|
The
Group is subject to income taxes on an entity basis on income arising in
or derived from multiple jurisdictions in which it does
business.
|
|
|
Income
tax expense (benefit) is comprised of the
following:
|
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Current
tax
|
||||||||
|
United States
|
96 | (32 | ) | |||||
|
Hong Kong
|
156 | 237 | ||||||
|
PRC
|
177 | 114 | ||||||
|
Australia
|
(92 | ) | 316 | |||||
|
United Kingdom
|
(1 | ) | (34 | ) | ||||
|
Deferred
tax
|
||||||||
|
Australia
|
30 | (2 | ) | |||||
| 366 | 599 | |||||||
|
(b)
|
A
reconciliation of the effective tax rate computed using the principal
income tax rates during the following respective periods is summarized
below:
|
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
%
|
|
%
|
||||||
|
Statutory
tax rate
|
(38.8 | ) | 38.8 | |||||
|
Effect
of permanent differences
|
23.9 | 15.4 | ||||||
|
Effect
of foreign tax rate
|
(4.3 | ) | (48.3 | ) | ||||
|
Increase
in valuation allowance
|
25.3 | 53.7 | ||||||
|
Others
|
0.1 | (2.9 | ) | |||||
|
Effective
rate
|
6.2 | 56.7 | ||||||
|
|
The
statutory rate for the years ended December 31, 2009 and 2008, refers to
the US statutory tax rate, including state
taxes.
|
Page 20
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
3.
|
INCOME
TAXES (CONTINUED)
|
|
(c)
|
As
of December 31, 2009, the parent company, WLG, had U.S. federal and state
consolidated income tax loss carryforwards of approximately $4,083 that
may be used to reduce future taxable income. These carryforwards expire
for U.S. federal tax purposes in various years beginning in 2024 and
ending in 2028. In addition, the Group has a foreign tax credit
carryforward of $562, which will expire in
2012.
|
|
(d)
|
The
temporary differences that give rise to a significant portion of the
deferred income tax assets and liabilities as of December 31, 2009 and
2008 are as follows:
|
|
Assets
|
Liabilities
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||
|
Tax
loss carried forward
|
106 | - | - | - | ||||||||||||
|
Others
|
182 | 248 | - | - | ||||||||||||
|
Net
deferred tax
|
288 | 248 | - | - | ||||||||||||
Page 21
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
4.
|
(LOSS)
EARNINGS PER SHARE
|
|
|
(Loss)
Earnings per share were computed as
follows:
|
|
Year
ended December 31, 2009
|
||||||||||||
|
Loss
|
Weighted
average number of shares outstanding
|
Per
share
amount
|
||||||||||
|
US$
|
US$
|
|||||||||||
|
Loss
before extraordinary item
|
(6,249 | ) | ||||||||||
|
Less:
Dividends on Series A convertible redeemable
preferred
stock
|
(90 | ) | 2,000,000 | (0.05 | ) | |||||||
|
Basic
loss per share
|
||||||||||||
|
Loss before extraordinary item
available to
common
stockholders
|
(6,339 | ) | 31,400,094 | (0.20 | ) | |||||||
|
Extraordinary
item
|
208 | 31,400,094 | 0.00 | |||||||||
|
Net
loss available to common stockholders
|
(6,131 | ) | 31,400,094 | (0.20 | ) | |||||||
|
Effect
of dilutive securities
|
||||||||||||
|
Loss
before extraordinary item available to
common
stockholders
|
(6,339 | ) | 31,400,094 | (0.20 | ) | |||||||
|
Employee stock options (Note
#)
|
- | - | ||||||||||
|
Warrants (Note
#)
|
- | - | ||||||||||
|
Series A convertible
redeemable preferred
stock
(Note #)
|
- | - | ||||||||||
|
Series B convertible
redeemable preferred
stock
(Note #)
|
- | - | ||||||||||
|
Diluted
loss per share
|
||||||||||||
|
Loss before extraordinary item
available to
common
stockholders
|
(6,339 | ) | 31,400,094 | (0.20 | ) | |||||||
|
Extraordinary
item
|
208 | 31,400,094 | 0.00 | |||||||||
|
Net
loss available to common stockholders
|
(6,131 | ) | 31,400,094 | (0.20 | ) | |||||||
Page 22
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
4.
|
(LOSS)
EARNINGS PER SHARE (CONTINUED)
|
|
Year
ended December 31, 2008
|
||||||||||||
|
Income
|
Weighted
average number of shares outstanding
|
Per
share amount
|
||||||||||
|
US$
|
US$
|
|||||||||||
|
Income
before extraordinary item
|
459 | |||||||||||
|
Less:
Dividends on Series A convertible redeemable preferred
stock
|
(90 | ) | 2,000,000 | (0.05 | ) | |||||||
|
Basic
earnings per share
|
||||||||||||
|
Income before extraordinary
item available to
common
stockholders
|
369 | 31,400,094 | 0.01 | |||||||||
|
Extraordinary
item
|
34 | 31,400,094 | 0.00 | |||||||||
|
Net
income available to common stockholders
|
403 | 31,400,094 | 0.01 | |||||||||
|
Effect
of dilutive securities
|
||||||||||||
|
Income
before extraordinary item available to
common
stockholders
|
369 | 31,400,094 | 0.01 | |||||||||
|
Employee stock options (Note
#)
|
- | 574 | ||||||||||
|
Warrants (Note
#)
|
- | - | ||||||||||
|
Series A convertible
redeemable preferred
stock
|
6 | 625,000 | ||||||||||
|
Series B convertible
redeemable preferred
stock
(Note #)
|
- | - | ||||||||||
|
Diluted
earnings per share
|
||||||||||||
|
Income before extraordinary
item available to
common
stockholders
|
375 | 32,025,668 | 0.01 | |||||||||
|
Extraordinary
item
|
34 | 32,025,668 | 0.00 | |||||||||
|
Net
income available to common stockholders
|
409 | 32,025,668 | 0.01 | |||||||||
|
|
#
:
|
For
the year ended December 31, 2008, common stock was not increased by the
exercise of the 100,000 outstanding warrants granted to a consultant in
exchange for services rendered, the exercise of 245,000 outstanding
options, and 2,428,571 shares related to the Series B convertible
redeemable preferred stock. The effect of these conversions would be
anti-dilutive.
|
For the
year ended December 31, 2009, common stock was not increased by the exercise of
the 100,000 outstanding warrants granted to a consultant in exchange for
services rendered, the exercise of 245,000 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. Under an
agreement with the sellers of WCS, the Company is potentially obligated to issue
up to 1,962,506 shares of its common stock to them if certain earnings targets
are achieved. None of the earnings targets were achieved as of December 31, 2009
and 2008. The effect of these conversions would be anti-dilutive.
Page 23
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
5.
|
PLEDGE
OF ASSETS
|
As of the
balance sheet dates, the Group had pledged the following assets for loan and
guarantee facilities granted by banks:
|
|
(i)
|
Restricted
cash
|
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Restricted
cash
|
601 | 713 | ||||||
|
|
(ii)
|
Accounts
receivable and all other assets of Asean, which as of December 31, 2009
and 2008, were approximately $10,135 and $6,834
respectively.
|
|
|
(iii)
|
Accounts
receivable and all other assets of WLG (USA) and MSA Group, and WCS, which
as of December 31, 2009 and 2008, were approximately $6,859 and $7,194
respectively.
|
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT, NET
|
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Computer
equipment
|
1,354 | 1,011 | ||||||
|
Office
equipment
|
1,157 | 844 | ||||||
|
Furniture
and fixtures
|
314 | 301 | ||||||
|
Motor
vehicles
|
94 | 81 | ||||||
|
Leasehold
improvements
|
559 | 395 | ||||||
| 3,478 | 2,632 | |||||||
|
Less:
Accumulated depreciation
|
(2,051 | ) | (1,517 | ) | ||||
|
Net
book value
|
1,427 | 1,115 | ||||||
Capital leased assets included above
are as follows:
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Cost
|
686 | 572 | ||||||
|
Accumulated
depreciation
|
(316 | ) | (210 | ) | ||||
|
Net
book value
|
370 | 362 | ||||||
Page 24
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
7.
|
ACQUIRED
INTANGIBLE ASSETS AND GOODWILL
|
|
|
The
carrying amount and accumulated amortization of intangible assets at
December 31, 2009 and 2008, were:
|
|
At
December 31,
|
||||||||||||||||||||||||
|
2009
|
2009
|
|||||||||||||||||||||||
|
Gross
carrying
amount
|
Accumulated
amortization
|
Net
carrying
value
|
Gross
carrying
amount
|
Accumulated
amortization
|
Net
carrying
value
|
|||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||
|
Amortizable
intangible assets
|
||||||||||||||||||||||||
|
Non-contractual
customer lists
|
5,461 | 3,278 | 2,183 | 6,057 | 2,126 | 3,931 | ||||||||||||||||||
|
|
Amortization
expense for the year ended December 31, 2009, was $1,360, which includes
an impairment loss of $720 for WCS's customer list because of its
declining earning potential. For the year ended December 31, 2008,
amortization expense was $853 and no impairment losses were recognized for
the intangible assets.
|
During
the year ended December 31, 2008, the Group entered into agreements with the
former shareholders of MSA pursuant to which they gave up their rights to any
remaining contingent consideration. The Group recorded a purchase price
adjustment to reflect the terms of the agreement, resulting in the pro-rata
reduction of the net carrying value of the customer list and the accrued
earn-out liabilities in the accounts of MSA, reducing the value of each to
zero. In accordance with SFAS No. 141, “Business Combinations”, the
Group recorded an extraordinary gain for the difference between the remaining
value of the accrued earn-out liability and net book value of the customer list
and property and equipment as of the date the liability was
canceled.
As of
December 31, 2009, the earn-out arrangement with certain former executives of UK
Division was canceled by mutal consent and the accrued liability was no longer
payable. In accordance with SFAS No. 141, a purchase price adjustment was
recognized to reduce the net carrying value of WLG
(UK)'s customer list to zero and to eliminate the accrued earn-out
liability of approximately $597.
|
|
Estimated
amortization expense for each of the following five years
is:
|
|
US$
|
||||
| 2010 | 433 | |||
| 2011 | 433 | |||
| 2012 | 433 | |||
| 2013 | 352 | |||
| 2014 | 206 | |||
Page 25
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
7.
|
ACQUIRED
INTANGIBLE ASSETS AND GOODWILL
(CONTINUED)
|
Based on
the results of an annual test for the impairment of goodwill, an impairment
charge of $2,450 was recognized for the goodwill associated with WCS for the
year ended December 31, 2009 because of the deterioration in WCS’s business due to
the impact of the economic recession. The impairment recognized for WCS’s goodwill is
equal to the difference between the carrying value of $5,440 and the fair value
of approximately $3,000. The fair value of goodwill was calculated using a
present value model based on discounted estimated future cash flows. The change
in the carrying amount of goodwill is as follows:
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Balance
as of January 1,
|
9,328 | 9,328 | ||||||
|
Impairment
|
(2,450 | ) | - | |||||
|
Balance
as of December 31,
|
6,878 | 9,328 | ||||||
|
8.
|
BANKING
FACILITIES
|
|
|
The
Group has bank facilities from creditworthy commercial banks as
follows:
|
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Facilities
granted
|
||||||||
|
-
bank guarantees
|
1,145 | 1,074 | ||||||
|
-
overdraft facilities
|
603 | 466 | ||||||
|
-
bank loans and revolving credit lines
|
5,909 | 7,261 | ||||||
|
-
foreign exchange facilities
|
223 | 173 | ||||||
|
-
lease facilities
|
223 | 173 | ||||||
|
Total
bank facilities
|
8,103 | 9,147 | ||||||
Page 26
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
8.
|
BANKING
FACILITIES (CONTINUED)
|
The terms
of the loan facilities, including the amounts and maturity dates, are agreed
between the banks and the Group from time to time.
Bank
guarantees of $545 will expire within one year from December 31, 2009, but may
be renewed, provided the Group makes available the cash required by the banks to
collateralize each guarantee. A bank guarantee of $123 and the overdraft
facilities have no expiry dates, but the bank or WLG may terminate either
facility by giving 30 days notice to the other party. The remaining
bank guarantee of $477 has no fixed expiration date and is cancelable and/or
renewable at the option of the bank.
The bank
loan facilities mature on various dates as follows: (i) $2,080 revolving credit
facility on February 28, 2010, (ii) loan facility of $3,571 is an on-going loan
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)
loan facility of $258 which is repayable by 60 monthly installments ending in
December 2014.
The bank
loans and revolving credit facilities of $5,909 are secured as follows: (i)
$2,080 is secured by all assets of WCS, WLG (USA) and MSA, including their
accounts receivables as well as a guarantee provided by the Group’s parent
company, (ii) $3,571 is secured by Asean’s accounts receivable and a registered
mortgage charge over the assets of Asean and (iii) $258 is secured by a
guarantee provided by the Group’s parent company and a loan guarantee given by
the Hong Kong Special Administrative Region Government.
|
|
WCS’s
revolving credit facility in the face amount of $2,080 requires WCS to
comply with certain covenants, one of which is that WCS must at all times
have excess availability of at least $750. This loan facility expired in
February 2010 and was not renewed. On February 24, 2010, WCS and WLG (USA)
obtained a new revolving banking facility of $3,000 from another lender
which shall expire in February
2011.
|
Page 27
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
8.
|
BANKING
FACILITIES (CONTINUED)
|
The total
bank guarantees of $1,145 contain guarantees collateralized by cash of
$545. Another bank guarantee of $123 is secured by (i) a letter of
support from the Group’s parent company, and (ii) a registered mortgage
debenture over all of Asean’s assets. The remaining bank guarantee of
$477 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 $603 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 $223 and a leasing facility of $223, which as of
December 31, 2009, had not been utilized. In addition, both the
foreign exchange and leasing facility are secured by a comfort letter from the
Group’s parent company. As of December 31, 2009 and 2008, the
weighted average interest rates of the Group’s short-term bank borrowings were
7.27% and 7.27% per annum, respectively.
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Utilized
|
||||||||
|
Committed
lines
|
||||||||
|
-
bank guarantees
|
1,145 | 1,074 | ||||||
|
-
overdraft facilities
|
603 | 466 | ||||||
|
-
bank loans and revolving credit lines
|
4,931 | 3,896 | ||||||
|
-
lease facilities
|
- | 2 | ||||||
|
Total
bank facilities utilized
|
6,679 | 5,438 | ||||||
|
9.
|
CAPITAL
LEASE OBLIGATIONS
|
The
following is a schedule, by year, of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
December 31, 2009 and 2008:
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Within
one year
|
97 | 86 | ||||||
|
Over
one year but not exceeding two years
|
29 | 83 | ||||||
|
Over
two years but not exceeding three years
|
10 | 15 | ||||||
| 136 | 184 | |||||||
|
Less
amount representing interest
|
(11 | ) | (21 | ) | ||||
|
Present
value of future minimum lease payments
|
125 | 163 | ||||||
|
Less:
current liabilities
|
(90 | ) | (72 | ) | ||||
|
Non-current
portion
|
35 | 91 | ||||||
Page 28
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
10.
|
COMMITMENTS
AND CONTINGENCIES
|
Commitments under operating
leases
|
|
The
Group rents office and warehouse space, staff quarters and certain office
equipment under non-cancelable operating leases. The following table
summarizes the approximate future minimum lease payments for operating
leases in effect as of December 31, 2009 and
2008:
|
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Within
one year
|
1,539 | 1,365 | ||||||
|
Over
one year but not exceeding two years
|
1,038 | 966 | ||||||
|
Over
two years but not exceeding three years
|
731 | 567 | ||||||
|
Over
three years but not exceeding four years
|
472 | 351 | ||||||
|
Over
four years but not exceeding five years
|
404 | 290 | ||||||
|
Over
five years
|
984 | 1,184 | ||||||
|
Total
operating lease commitments
|
5,168 | 4,723 | ||||||
The Group
has obligations under various operating lease agreements ranging from 3 months
to 8 years. Rent expense under operating leases for the years ended December 31,
2009 and 2008, was $1,737 and $1,844, 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 is committed to
utilize a minimum amount of cargo space each year. As of
December 31, 2009 and 2008, the obligations for the minimum amount of such
cargo space to be utilized in the coming 12 months were $2,249 and $2,420,
respectively.
|
Contingencies
– outstanding claims
|
|
The
Group is subject to claims that arise primarily in the ordinary course of
business. In general, such claims are covered by insurance policies issued
for the Group’s businesses.
|
As of
December 31, 2009, and subject to the legal proceedings as described below, the
aggregate, outstanding amount of claims was approximately $40. The Group
believes that the ultimate liability, if any, for all of these claims, both
filed and potential, will not have a material adverse effect on its financial
position.
WCS was
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 equaled 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 $5 each. The cost of this settlement is to be reimbursed by the
return of WLG’s common stock by a former shareholder of WCS to the
Group.
Page 29
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
11.
|
RELATED
PARTY TRANSACTIONS
|
|
Name
and relationship of related parties
|
|
|
Name
|
Relationship with the
Group
|
|
Christopher
Wood (“CW”)
|
Shareholder,
director and officer of WLG
|
|
David
Koontz (“DK”)
|
Director
and officer of WLG and a director of Asean and WLG
(Aust)
|
|
Paul
Pomroy (“PP”)
|
PP
is a director and officer of Asean and a director of WLG (Aust), and
became a director of WLG on January 28, 2008. During 2009, PP resigned as
a director of Asean, WLG (Aust) and WLG
|
|
Join
Wing Properties Limited (“JWP”)
|
CW
is a shareholder and director of JWP
|
|
Asean
Cargo Services (Qld) Pty Limited (“ACSQ”)
|
PP
is a director of ACSQ
|
|
Details
of related parties
|
||||||
|
Name
|
Principal
activities
|
Ownership
|
||||
|
Name
of owner
|
%
held
|
|||||
|
JWP
|
Leases
property to CW
|
CW
|
100%
|
|||
The
following is a summary of the amounts included in the accompanying balance
sheets:
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Due
to directors (Notes)
|
||||||||
|
CW
|
670 | 615 | ||||||
|
DK
|
- | 375 | ||||||
| 670 | 990 | |||||||
Notes:
|
|
(i)
|
Amounts
due to directors are unsecured and interest-free, except for the director
loans of $600 (see note (ii) below) and $375 due to CW and DK,
respectively, which were used as part of the consideration to acquire the
membership interests of WCS, repayment of bank loans and working capital.
These director loans carry an interest rate of 12% per annum. The director
loan of $375 from DK was fully repaid in 2009. The director loan of $600
from CW was scheduled to be repaid by 12 equal installments beginning on
January 31, 2009, but the repayment schedule was
deferred.
|
Page 30
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
11.
|
RELATED
PARTY TRANSACTIONS (CONTINUED)
|
|
|
(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. CW has agreed that payments due under the Note may be
deferred on a month-to-month basis. No principal payments had been made to
CW as of December 31, 2009. The Note is secured by the Group’s assets and
will become immediately due and payable upon the earlier to occur of (i)
an event of default as defined in the Note, (ii) a change in control as
defined in the Note, (iii) raising not less than $3,000 in new capital,
and/ or (iv) the termination of CW’s
employment.
|
Additional
details of transactions:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Rental
paid/payable
|
||||||||
|
JWP
|
108 | 108 | ||||||
Summary
of transactions for the years ended December 31, 2009 and 2008, with directors /
stockholders:
|
CW
|
DK
|
Total
|
||||||||||
|
US$
|
US$
|
US$
|
||||||||||
|
At
January 1, 2008
|
960 | 750 | 1,710 | |||||||||
|
Loans
from directors
|
1,637 | - | 1,637 | |||||||||
|
Interest
accrued
|
220 | 81 | 301 | |||||||||
|
Interest
paid
|
(160 | ) | (81 | ) | (241 | ) | ||||||
|
Dividends
accrued
|
90 | - | 90 | |||||||||
|
Dividends
paid
|
(90 | ) | - | (90 | ) | |||||||
|
Repayment
of loan
|
- | (375 | ) | (375 | ) | |||||||
|
Repayment
of advances
|
(342 | ) | - | (342 | ) | |||||||
|
Converted
to Series B Convertible Redeemable Preferred Stock
|
(1,700 | ) | - | (1,700 | ) | |||||||
|
At
December 31, 2008
|
615 | 375 | 990 | |||||||||
|
Reclassification
from accrued liabilities
|
60 | - | 60 | |||||||||
|
Interest
accrued
|
276 | 13 | 289 | |||||||||
|
Interest
paid
|
(184 | ) | (13 | ) | (197 | ) | ||||||
|
Dividends
accrued
|
90 | - | 90 | |||||||||
|
Dividends
paid
|
(67 | ) | - | (67 | ) | |||||||
|
Repayment
of loan
|
- | (375 | ) | (375 | ) | |||||||
|
Repayment
of advances
|
(120 | ) | - | (120 | ) | |||||||
|
At
December 31, 2009
|
670 | - | 670 | |||||||||
Page 31
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
12.
|
SERIES
B CONVERTIBLE REDEEMABLE PREFERRED
STOCK
|
On June
30, 2008, the Company entered into a conversion agreement with Christopher Wood,
the Company’s Chief Executive Officer, director and controlling shareholder,
pursuant to which Mr. Wood and the Company agreed to convert $1,700 of
outstanding loans that Mr. Wood had made to the Company into 1.7 million shares
of the Company’s Series B Convertible Redeemable Preferred Stock (“Series B
Preferred Stock”). In connection therewith, in June 2008, the Company’s Board of
Directors approved the designation of a new series of preferred stock consisting
of 1.7 million shares of authorized, but unissued, shares of preferred stock
designated as Series B Preferred Stock, par value $0.001. The Series B Preferred
Stock was issued on June 30, 2008. The Series B Preferred Stock may be converted
by the holder at any time into shares of the Company’s common stock at a
conversion price of $0.70 per share. The Series B Preferred Stock has a stated,
redemption and liquidation value of $1.00 per share, and shall pay an annual
cumulative dividend equal to 12% of the stated value per share.
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
outstanding shares of the 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 the Series B
Preferred Stock, at a price of $1.00 per share, subject to
adjustment.
For the
years ended December 31, 2009 and 2008, the dividends on the Series B Preferred
Stock were included in interest expense in the amounts of $204 and $102,
respectively.
|
13.
|
STOCKHOLDERS’
EQUITY
|
Issuance
of Common Stock:
During
September and October 2005, WLG, through a private transaction received
subscriptions for the sale of 928,080 shares of its common stock at a price of
$1.00 per share, and received the full proceeds of $928 for all of the
subscribed shares as of December 31, 2005.
WLG,
pursuant to various agreements and/or understandings with certain of its
employees, issued 63,000 shares of its common stock to such employees as
compensation for services during the year ended December 31, 2005. The fair
market value of the shares has been recorded as an addition to paid-in-capital
and common stock as of December 31, 2005, and the employee benefit is
recorded in the stockholders’ equity section of the accompanying consolidated
financial statements. Compensation expense is amortized and recorded in each
period the services are rendered, and the related employee benefit is reduced by
a like amount. All amounts of compensation expense for these shares were fully
amortized to expense as of December 31, 2006.
In
addition, a consultant was issued 10,000 shares of WLG’s common stock as payment
for services in the year ended December 31, 2005. The issuance of these
shares was recorded as an expense and as an addition to common stock and
additional paid-in capital.
Page 32
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
13.
|
STOCKHOLDERS’
EQUITY (CONTINUED)
|
Issuance
of Common Stock (Continued):
As of
December 31, 2006, the terms of an earn-out provision measured by the earnings
before interest and taxes of Asean for the 15 months ended December 31, 2006,
obligated the Company to issue an additional 1.3 million shares of the Company’s
common stock to Asean’s former shareholders. At December 31,
2006, goodwill and additional paid-in capital were increased by $1,300 to record
the fair value, as determined by the Board of Directors, of the 1.3 million
shares, which were issued to Asean’s former shareholders in
2007.
During
2007, the Company issued 4,710,014 shares of its common stock as part of the
consideration for the acquisition of WCS. Under the terms of the
Purchase Agreement with the Sellers of WCS, the Company is obligated to issue up
to 1,962,506 shares of its common stock to the Sellers if certain financial
results are achieved by WCS over the 24 months ended July 31,
2009.
In
addition, the Company is obligated to issue, on a pro-rata basis, up to 500,000
shares of its common stock to the Sellers in the event that the holder of WLG’s
Series A convertible preferred stock, outstanding as of the Closing Date of WCS,
converts the Series A convertible preferred stock into WLG’s common
stock.
None of
the financial targets for WCS were achieved as of December 31, 2009 and 2008,
and the Company is no longer obligated to issue any shares of its common stock
to the former owners of WCS pursuant to the terms of the Purchase
Agreement.
Issuance
of Series A Preferred Stock:
In
September 2005, WLG approved the designation of a new series of preferred stock,
which consists of 2.0 million shares of preferred stock designated as Series A
Convertible Redeemable Preferred Stock, par value $0.001 (the “Series A
Preferred Stock”). Effective as of September 30, 2005, WLG’s controlling
shareholder (the “Holder”) subscribed to all of the Series A Preferred Stock in
exchange for $1,500 in debt represented by a Promissory Note in the face amount
of $1,000 and other debt of $500 owed to the Holder by the
Company. At the option of the Holder, the Note was convertible into
shares of WLG’s common stock at a price per share equal to the lesser of (i) the
fair market value of the common stock, or (ii) $0.50. Thus, the minimum number
of shares of common stock the Holder could have received on conversion of the
Note would have been 2.0 million shares.
The
Series A Preferred Stock has a stated, liquidation and redemption value of $0.75
per share. The Series A Preferred Stock shall pay a 6% annual cumulative
dividend, and for purposes of determining the amount of the 6% dividend, the
Series A Preferred Stock shall be deemed to have a stated value of $0.75 per
share. The Series A Preferred Stock has a conversion price of $0.50 per share
and may be converted, at any time at the option of the Holder into a maximum
number of 2.0 million shares of common stock.
The
Series A Preferred Stock may be redeemed solely by and in the sole discretion of
WLG at any time or from time to time commencing on the date twenty four (24)
months from the date of issuance of the Series A Preferred Stock, provided, at
the time of redemption, WLG has at least three (3) Directors on its Board of
Directors, of which the majority of such Directors are “independent” (as such
term is defined in Section 121(a) of the American Stock Exchange Company Guide).
In addition, WLG has the right to require the Holder to convert all of the
Series A Preferred Stock to common stock in the event of certain change of
control transactions. As of December 31, 2009, a majority of the directors were
not independent and the conditions for a redemption had not been met. No
Series A Preferred Stock has been converted or redeemed.
Page 33
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
14.
|
STATUTORY
RESERVE
|
WE China
(“the PRC subsidiary”) is a wholly-owned foreign investment enterprise (“WOFIE”)
registered in the PRC. Under the laws and regulations applicable to a WOFIE,
such enterprises are required to maintain certain statutory reserves for
specific purposes, which include a general reserve, an enterprise development
fund and a staff welfare and bonus fund. The board of directors of the PRC
subsidiary shall determine on an annual basis the amount to be transferred to
statutory reserves.
Minimum
annual transfers to statutory reserves shall be at least 10% of a WOFIE’s after
tax profit which shall be determined in accordance with the 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.
For the
years ended December 31, 2009 and 2008, 10% of WE China’s after tax profit in
its statutory financial statements has been appropriated to the general reserve,
respectively, and such amount is shown as a component of stockholders’
equity.
|
15.
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
INFORMATION
|
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
US$
|
US$
|
|||||||
|
Cash
paid for:
|
||||||||
|
Interest
expense
|
534 | 839 | ||||||
|
Income
taxes
|
571 | 773 | ||||||
Other
non-cash transaction:
|
|
(i)
|
On
June 30, 2008, Mr. Wood converted $1,700 of outstanding loans that he had
made to the Company into 1.7 million shares of the Company’s Series B
Convertible Redeemable Preferred
Stock.
|
Page 34
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
16.
|
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 its 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 the board, provided, that the board in the future may appoint a
committee to administer the Plan. At the inception of the Plan, 4,000,000 shares
of common stock were approved for the issuance of awards under the Plan, which
amount shall be automatically increased (but not decreased) to 20% of the total
number of the Company’s shares of common stock issued and outstanding on January
1st of each year beginning on January 1, 2006. Based on shares of common stock
outstanding as of January 1, 2009, the number of shares reserved under the Plan
was 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.
As of
August 2005, the Company had committed to award 200,000 options to purchase
common stock to one of its officers, and, as of that date, all substantial terms
and conditions for the option were communicated to, and agreed with, the
officer. As such, the Company established August 2005 as the grant date for this
option. The board has formally approved the award and this option is fully
vested.
Effective
January 15, 2007, the board awarded stock options to three employees permitting
them to purchase an aggregate of 20,000 shares of the Company’s common stock.
The vesting period for the January 2007 options is 3 years.
Effective
January 8, 2008, the board awarded stock options to an employee for the purchase
of 25,000 shares of the Company’s common stock. The vesting period for the
January 2008 options is 3 years.
Effective
December 1, 2008, the board awarded stock options to an employee for the
purchase of 150,000 shares of the Company’s common stock. The vesting period for
the December 2008 options is 2 years. The options lapsed when the employee left
the Company during 2009.
The
Company accounts for stock-based compensation in accordance with FASB ASC 718,
Compensation – Stock Compensation. Under ASC 718, the compensation expense
related to the fair value of stock options charged to the consolidated statement
of operations for the years ended December 31, 2009 and 2008, was $14 and $10,
respectively. As of December 31, 2009 and 2008, the compensation expense related
to non-vested options totaled $2 and $20 and was expected to be recognized over
12 and 24 months, respectively. The total intrinsic values of the options
outstanding and options exercisable as of December 31, 2009 and 2008, were zero.
No tax benefit was recognized for the stock option expense recorded for the
years ended December 31, 2009 and 2008.
Page 35
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
16.
|
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
on
|
||||||||||||||||
|
August
1,
2005
|
January
15,
2007
|
January
8,
2008
|
December
1,
2008
|
|||||||||||||
|
Risk-free
interest rate per annum
|
4.60 | % | 4.60 | % | 3.59 | % | 0.63 | % | ||||||||
|
Expected
life
|
2
years
|
3
years
|
3
years
|
2
years
|
||||||||||||
|
Expected
volatility (Note #)
|
45.00 | % | 57.79 | % | 46.00 | % | 5.03 | % | ||||||||
|
Expected
dividend yield
|
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
|
Post
vesting terminations
|
No
|
No
|
No
|
No
|
||||||||||||
|
Weighted
average grant-date fair
value
(per share)
|
$ | 0.28 | $ | 1.22 | $ | 0.23 | $ | 0.06 | ||||||||
|
|
#:
|
The
expected volatility is based on the underlying share price of WLG’s shares
and a comparison to the volatility of the share price of peer
companies.
|
The
following table sets 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 | 1.00 | ||||||||||
|
Outstanding
at December 31, 2005
|
200,000 | 1.00 | 9.58 | |||||||||
|
Granted
in 2007
|
20,000 | 2.85 | ||||||||||
|
Outstanding
at December 31, 2007
|
220,000 | 1.17 | 7.71 | |||||||||
|
Granted
in 2008
|
175,000 | 0.61 | ||||||||||
|
Outstanding
at December 31, 2008
|
395,000 | 0.92 | 8.07 | |||||||||
|
Forfeited
in 2009
|
(150,000 | ) | 0.60 | |||||||||
|
Outstanding
at December 31, 2009
|
245,000 | 1.12 | 5.95 | |||||||||
|
Exercisable
at December 31, 2009
|
232,500 | 1.14 | 5.84 | |||||||||
Page 36
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
17.
|
RETIREMENT
PLAN
|
The Group
participates in a number of Mandatory Provident, Retirement and Pension Schemes
in each of the jurisdictions that it does business. With the
exception of the US, all Schemes are mandatory and contributions are based on
the statutory requirements of each jurisdiction. The assets for each of these
Schemes are held and managed by either the government or separate trustees
unrelated to the Company. The contributions by the Company to each
Scheme are charged to expense as incurred.
The
expense for all Mandatory Provident, Retirement and Pension Schemes for the
years ended December 31, 2009 and 2008, was $1,001 and $964,
respectively.
WCS
operates a 401(k) plan for its employees and for the employees of WLG (USA) and
MSA. All eligible employees are allowed to make elective tax-deferred
contributions to the plan, subject to IRS limitations.
|
18.
|
OPERATING
RISKS
|
|
a)
|
Credit
risk and its concentration
|
The Group
provides freight forwarding, customs brokerage and other services to its
customers, and it is required to set forth the detail of individual customers
accounting for more than 10% of the Group’s sales. As of December 31, 2009, one
customer accounted for 11.7% of the Group’s trade receivables. No customer
accounted for more than 10% of the Group’s trade receivables as of December 31,
2008.
Certain
aspects of the freight forwarding industry and customs brokerage business
involve significant credit risks. It is standard practice for exporters and
importers to expect freight forwarders to offer 30 days or more credit for
payment of their invoices from the time cargo has been delivered for
shipment. Competitive conditions require that the Group offer 30 days
or more credit to many of its customers. In the customs brokerage business,
normal credit terms are from 7 to 15 days. In order to avoid cash
flow problems and bad debts, the Group attempts to maintain tight credit
controls through the use of credit checks, credit limits and periodic account
reviews. However, the Group may not be able to avoid periodic cash flow problems
or be able to avoid losses in the event customers to whom the Group has extended
credit either delay their payments or fail to pay their invoices after the Group
has completed shipment of their goods, cleared the goods through customs or
performed other services on their behalf.
Credit
risk represents the accounting loss that would be recognized at the reporting
date if counter parties failed to perform as
contracted. Concentration of credit risk (whether on or off balance
sheet) arises from the Group’s major customers, but the management, in its
opinion, considers that the risk of recoverability of the unreserved receivables
is minimal.
Page 37
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
18.
|
OPERATING
RISKS (CONTINUED)
|
|
b)
|
Concentration
of suppliers
|
The Group
obtained services from a number of suppliers, and is required to set forth the
details of individual suppliers accounting for more than 10% of the Group’s
costs. Details of individual suppliers accounting for more than 10%
of the Group’s costs appear in Note 19(b) to the consolidated financial
statements.
As of
December 31, 2009 and 2008, no supplier accounted for more than 10% of the
Group’s trade payables.
|
c)
|
Geographical
concentrations
|
The
Group's customers ship freight to and from many countries including Australia,
China, the UK, the US and several European countries. It is possible that in the
near term, customers in these geographical areas could experience disruptions in
their operations, as a result of events such as changes in the economy or
political events. As a result, there is a possibility that such
events may have a severe impact on the Group’s revenues and receivables derived
from activities in these and other countries. Approximate percentages
of revenues and receivables in the respective geographic areas are as
follows:
|
Year
ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
%
|
%
|
|||||||
|
Revenues
|
||||||||
|
Americas
|
34 | 45 | ||||||
|
Asia
and others
|
22 | 21 | ||||||
|
Australia
|
36 | 25 | ||||||
|
Europe
|
8 | 9 | ||||||
| 100 | 100 | |||||||
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
%
|
%
|
|||||||
|
Trade
Receivables
|
||||||||
|
Americas
|
29 | 34 | ||||||
|
Asia
and others
|
16 | 15 | ||||||
|
Australia
|
46 | 37 | ||||||
|
Europe
|
9 | 14 | ||||||
| 100 | 100 | |||||||
Page 38
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
19.
|
MAJOR
CUSTOMERS AND SUPPLIERS
|
|
(a)
|
No
individual customer accounted for more than 10% of the Group's
revenues.
|
(b)
No individual supplier accounted for more than 10% of the Group's costs of
forwarding.
|
20.
|
FAIR
VALUE DISCLOSURES
|
Effective
January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements
and Disclosures, which requires disclosures about assets and liabilities that
are measured at fair value. Further information about such assets and
liabilities is presented below. The Company began to apply the provisions of ASC
820 to non-financial assets and liabilities beginning January 1,
2009.
The
Company’s assets and liabilities recorded at fair value have been categorized
based upon a fair value hierarchy in accordance with ASC 820. Level 1 inputs
utilize quoted prices in active markets for identical assets or liabilities.
Level 2 inputs are based on other observable market data, such as quoted prices
for similar assets and liabilities, and inputs other than quoted prices that are
observable, such as interest rates and yield curves. Level 3 inputs are
developed from unobservable data reflecting the Company’s assumptions, and
include situations where there is little or no market activity for the asset or
liability.
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.
The
following table sets forth by level within the fair value hierarchy the
Company’s assets and liabilities that were accounted for at fair value on a
nonrecurring basis as of December 31, 2009.
|
Fair value measurement using
|
||||||||||||||||||||
|
Description
|
Fair value as
of
December
31,
2009
|
Level 1
|
Level 2
|
Level 3
|
Total loss for the
year ended
December 31,
2009
|
|||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
||||||||||||||||
|
Intangible
assets
|
2,183 | - | - | 2,183 | 720 | |||||||||||||||
|
Goodwill
|
6,878 | - | - | 6,878 | 2,450 | |||||||||||||||
|
Total
|
9,061 | - | - | 9,061 | 3,170 | |||||||||||||||
During
the year ended December 31, 2009, goodwill was written down to its implied fair
value of $6,878 by an impairment charge of $2,450 to WCS’s goodwill. An
impairment charge of $720 was recorded for WCS's intangible assets. The inputs
used to determine the fair values and the corresponding impairment charges were
based on discounted cash flow models, which were based primarily on the
Company’s assumptions.
|
21
|
SUBSEQUENT
EVENTS
|
On
February 8, 2010, Mr. Christopher Wood, the former Chief Executive Officer,
controlling shareholder and a director of WLG sold 8,000,000 shares of WLG’s common stock
owned by him to Jumbo Glory Limited (“Jumbo Glory”), at a price of $0.25 per
share in a private transaction (the “Initial Sale”), pursuant to the terms of a
Stock Purchase Agreement dated February 8, 2010, between Mr. Wood and Jumbo
Glory (the “Stock Purchase Agreement”). The Stock Purchase Agreement also
provides that at any time within 90 days of the closing date of the Initial
Sale, Mr. Wood will sell an additional 8,000,000 shares of WLG’s common stock
owned by him to Jumbo Glory at a price of $0.25 per share if requested to do so
by Jumbo Glory.
Effective February 19, 2010, Remo Picchietti resiged as Executive
Vice President, and as a member of WLG’s Board of
Directors. Mr. Picchietti served as Executive Vice President and as a director
of the Company since July 2007, but did not serve on any committees of the Board
of Directors.
On
February 24, 2010, WCS and WLG (USA) (collectively, the “Borrowers”)
entered into a loan and security agreement with NOVA Business Credit, a division
of NOVA Bank (“Lender”), pursuant to which Lender agreed to
provide a revolving loan facility to the Borrowers in the maximum
amount of $3,000. The revolving facility shall mature one
year from the effective date of the revolving loan facility, which is February
24, 2010.
Effective March 1, 2010, WLG’s Board of
Directors appointed Mr. Andrew Jillings to become the Chief Executive Officer of
WLG. Mr. Wood, WLG’s former Chief
Executive Officer, has been appointed as an executive officer of
WLG and will continue as a director and Chairman of WLG’s Board of
Directors.
Page 39
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
21.
|
SEGMENTS
OF THE BUSINESS
|
Business
segments
The Group
operates mainly in three business segments, being the provision of (i) air
forwarding (ii) sea forwarding and (iii) customs brokerage services. The Group’s
operations by air, sea and customs brokerage services are summarized in the
following table:
|
(i)
|
During
the years ended December 31, 2009 and
2008
|
|
Air
forwarding
|
Sea
forwarding
|
Customs
brokerage
|
Total
|
|||||||||||||||||||||||||||||
|
Year
ended December 31,
|
Year
ended December 31,
|
Year
ended December 31,
|
Year
ended December 31,
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||||||||
|
Revenues
|
27,859 | 36,296 | 62,484 | 111,408 | 53,501 | 66,342 | 143,844 | 214,046 | ||||||||||||||||||||||||
|
Costs
of forwarding/customs
|
(22,536 | ) | (30,612 | ) | (49,104 | ) | (94,246 | ) | (49,492 | ) | (61,819 | ) | (121,132 | ) | (186,677 | ) | ||||||||||||||||
|
Depreciation
|
(61 | ) | (59 | ) | (217 | ) | (264 | ) | (83 | ) | (82 | ) | (361 | ) | (405 | ) | ||||||||||||||||
|
Interest
income
|
1 | 1 | 1 | 6 | 1 | 1 | 3 | 8 | ||||||||||||||||||||||||
|
Interest
expense
|
(59 | ) | (75 | ) | (176 | ) | (339 | ) | (101 | ) | (169 | ) | (336 | ) | (583 | ) | ||||||||||||||||
|
Other
segment income
|
59 | 62 | 84 | 159 | 5 | 44 | 148 | 265 | ||||||||||||||||||||||||
|
Other
segment expenses
|
(4,531 | ) | (4,478 | ) | (13,096 | ) | (14,905 | ) | (4,617 | ) | (4,460 | ) | (22,244 | ) | (23,843 | ) | ||||||||||||||||
|
Tax
(expense) benefit
|
(106 | ) | (142 | ) | (273 | ) | (389 | ) | 13 | (68 | ) | (366 | ) | (599 | ) | |||||||||||||||||
|
Segment
(loss) income
|
626 | 993 | (297 | ) | 1,430 | (773 | ) | (211 | ) | (444 | ) | 2,212 | ||||||||||||||||||||
|
Unallocated parent
company expenses and extraordinary gain
|
(3,147 | ) | (1,719 | ) | ||||||||||||||||||||||||||||
|
Impairment
of goodwill
|
(2,450 | ) | - | |||||||||||||||||||||||||||||
|
Net
(loss) income
|
(6,041 | ) | 493 | |||||||||||||||||||||||||||||
|
Property,
plant and equipment – additions
|
97 | 56 | 319 | 143 | 161 | 80 | 577 | 279 | ||||||||||||||||||||||||
Page 40
of 41
WLG
Inc.
Notes
to the Consolidated Financial Statements
Years
ended December 31, 2009 and 2008
(Dollars
in thousands except share data and per share amounts)
|
21.
|
SEGMENTS
OF THE BUSINESS (CONTINUED)
|
|
(ii)
|
As
of December 31, 2009 and 2008
|
|
Air
forwarding
|
Sea
forwarding
|
Customs
brokerage
|
Total
|
|||||||||||||||||||||||||||||
|
At
December 31,
|
At
December 31,
|
At
December 31,
|
At
December 31,
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||||||||
|
Segment
assets
|
5,150 | 4,965 | 10,122 | 10,530 | 7,340 | 5,240 | 22,612 | 20,735 | ||||||||||||||||||||||||
|
Unallocated
assets
|
9,080 | 13,343 | ||||||||||||||||||||||||||||||
|
Total
assets
|
31,692 | 34,078 | ||||||||||||||||||||||||||||||
Page 41
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