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EX-21.1 - WLG INCv216633_ex21-1.htm
EX-31.1 - WLG INCv216633_ex31-1.htm
EX-31.2 - WLG INCv216633_ex31-2.htm
EX-23.1 - WLG INCv216633_ex23-1.htm
EX-32.1 - WLG INCv216633_ex32-1.htm
EX-10.22 - WLG INCv216633_ex10-22.htm
EX-10.21 - WLG INCv216633_ex10-21.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, 2010
 
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)
 
Delaware
 
20-0262555
(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 ¨
     
Non-accelerated filer ¨ (Do not check if a smaller reporting company)     
 
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: $177,911,000
 
The aggregate market value of the voting stock held by non-affiliates of the registrant on June 30, 2010 (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, 2010, at which the stock was sold, was $869,458 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 31, 2011, 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, 2010

Item Number in
Form 10-K
   
Page
PART I
     
1.
Business
 
1
1A.
Risk Factors
 
12
1B.
Unresolved Staff Comments
 
15
2.
Properties
 
16
3.
Legal Proceedings
 
17
4.
 (Removed and Reserved)
 
17
PART II
     
5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
17
6.
Selected Financial Data
 
19
7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
20
7A.
Quantitative and Qualitative Disclosures About Market Risk
 
27
8.
Financial Statements and Supplementary Data
 
27
9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
 
27
       
9A.
Controls and Procedures
 
27
9B.
Other Information
   
PART III
     
10.
Directors, Executive Officers and Corporate Governance
 
28
11.
Executive Compensation
 
29
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
31
13.
Certain Relationships and Related Transactions, and Director Independence
 
32
14.
Principal Accounting Fees and Services
 
34
15.
Exhibits, Financial Statement Schedules
 
34
 
i

 

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, 2010. 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.
 
 
ii

 

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

In May 2010, Mr. Wood sold a sufficient number of his shares of WLG common stock to Jumbo Glory Limited (“Jumbo”), a privately held Hong Kong incorporated company, so that Jumbo acquired 51% of WLG’s common stock and became WLG’s controlling shareholder.

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. Effective July 1, 2010, WLG (USA) LLC merged with World Commerce Services LLC (“WCS”),  a wholly owned subsidiary of WLG and WLG (USA) LLC ceased to exist as a business entity.

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.
 
 
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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. In December 2010, Asean’s wholesale business was disposed of so that the company could continue to focus on its core competencies.
 
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.  
 
 
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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. The Group has continued to concentrate on freight shipments originating in Asia, mainly Hong Kong and China, for shipment to Australia, the United States and to a lesser extent to Europe.

For the year ended December 31, 2010, approximately 69 % of WLG’s revenues were derived from our freight forwarding operations and the remaining 31% were attributable to our VAS and customs brokerage business. Considering only our freight forwarding business, approximately 60% and 40% 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.

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 warehousing 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:
 
 
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Our cargo agents:
 
 
·
Collect freight on our behalf for shipments routed to the designated location, which may be anywhere in the world;

 
·
Arrange local delivery of the goods;

 
·
Provide break-bulk services, (i.e. consolidation and deconsolidation) for various shipments, and also customs clearance; and

 
·
Provide sales and marketing support.
 
For our cargo agents, we;

 
·
Arrange for shipments of cargo from the point of origin to the point of destination;

 
·
Provide local pick-up and transshipment services from point of origin to the consignee;

 
·
Provide break-bulk services, (i.e. consolidation and deconsolidation) for some shipments, and also customs clearance and local delivery of goods; and

 
·
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 $25.0 million for calendar year 2010. 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 added additional warehouse space in to accommodate customer demands for VAS, and in 2010, we moved our warehouse facilities in Shenzhen to a location better equipped to accommodate increasing customer demands for VAS.
 
 
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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.  As previously mentioned, Asean’s wholesale business was disposed in December 2010 so the company could continue to focus on its core competencies.
 
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.
    
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.  Effective December 31, 2009, MSA and WCS completed a statutory merger by which WCS acquired all of the assets and liabilities of MSA and MSA ceased to exist as a business entity.  Effective July 1, 2010, WLG (USA) and WCS completed a statutory merger by which WCS acquired all of the assets and liabilities of WLG (USA) and WLG (USA) ceased to exist as a business entity.  The combined operations now conduct business under the assumed name WLG USA, LLC.
    
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.
 
 
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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.
 
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 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 2010, 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.
 
 
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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.
 
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 WCS 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, when including duty payments, 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.
  
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.
 
 
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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.

 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 customer relations
  
  
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More stable revenue stream
   
 
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Greater competitive advantage
  
 
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Improved customer retention
 
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 but not limited to garment manufacturers, fashion retailers,  textiles, electrical products, automotive, medical products, food products, office and residential furniture, industrial plant and machinery and major household appliances,. We believe that the diversity of cargo shipped enhances our ability to achieve economies of scale. In calendar year 2010, no customer accounted for more than 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.
 
 
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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.
 
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, 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. 
  
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. In 2010, there is an appreciation of AUD against USD and an exchange gain was recorded. 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.
 
 
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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 and we will continue to intensify our scrutiny of both credit terms and the financial strength of our customers.

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 in this changing economic environment. 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 and the significant growth in the GDP of China.
 
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 were granted a specific license in 2010 needed to conduct air-freight operations in China. We believe each of our Group companies has 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.
 
 
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WEHK and WCS 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.
    
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:
  
 
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International Air Transport Association

 
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Hong Kong Association of Freight Forwarding Agents Ltd.

 
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International Federation of Freight Forwarders Association
  
 
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British International  Freight Association

 
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National Customs Brokers and Forwarders Association of America

 
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National Motor Freight Transport Association

 
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Australian Quarantine Inspection Service

 
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Customs Brokers & Forwarders Council of Australia, Inc.

 
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Australian Federation of International Forwarders
 
In addition, our Group companies hold a number of certifications, approvals, and registrations that include the following:
 
 
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Joint OTI Registration

 
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Indirect Air Carrier (TSA)

 
 
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Ocean Freight Forwarder Registration
 
 
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US Food and Drug Administration (HACCP)

 
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Certified Licensed Customhouse Brokers

 
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U.S. Federal Maritime Commission

 
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U.S. Federal Aviation Act

 
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U.S. Transportation Security Administration

 
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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 2010, we employed 353 persons:

   
WLG
   
Hong
Kong
   
China
   
Australia
   
USA
   
UK
   
Total
 
                                           
Management
    3       4       1       3       7       1       19  
                                                         
Operations
            26       92       77       38       9       242  
                                                         
Sales
            13       11       6       2       1       33  
                                                         
Administration
            6       4       4       4       0       18  
                                                         
IT Department
            2       2       3       1       0       8  
                                                         
Accounts
            9       16       4       4       0       33  
                                                         
Total
    3       60       126       97       56       11       353  
 
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.
 
 
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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. 
    
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.
 
 
13

 

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.  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.
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 we depend on several airfreight carriers and shipping lines for our business, the loss of these carriers could reduce our revenues and operating profits.
  
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 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 worsened during 2009, our customers placed fewer orders with us and some discontinued business. There are signs that general economic conditions are starting to improve in 2010. However, any change in economic environment and possible global economic downturn may again 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.)
 
 
14

 

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.
 
 
15

 

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. 
  
As of December 31, 2010, the Group leased approximately 219,000 sq. ft. of space, inclusive of both office and warehouse facilities, at an aggregate, annual rental cost of about $2.23 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
 
$
14,087
 
Shanghai
 
Office
   
5,170
 
19-Oct-12
   
186,005
 
China – 2 staff apartments
 
Quarters
   
1,120
 
Various
   
16,018
 
Shanghai
 
Warehouses
   
15,000
 
15-Jan-11
   
108,409
 
Shanghai
 
Airport warehouse
   
700
 
31-Mar-11
   
5,455
 
Guangzhou
 
Office
   
1,430
 
10-May-11
   
20,618
 
Tianjin
 
Office
   
1,100
 
17-Apr-13
   
21,818
 
Qingdao
 
Office
   
650
 
06-July-11
   
10,803
 
Ningbo
 
Office
   
1,320
 
31-May-11
   
12,364
 
Dalian
 
Office
   
480
 
14-Sept-11
   
4,364
 
Shenzhen
 
Office
   
1,410
 
4-Dec-11
   
25,556
 
Shenzhen
 
Warehouse
   
8,000
 
30-Sep-11
   
39,273
 
Xiamen
 
Office
   
936
 
31-Jan-11
   
6,727
 
Total China
       
38,056
     
$
471,497
 
 
US premises:
 
WLG USA
 
Usage
 
Area (sq ft)
 
Lease expiration
 
Annual lease
rental
 
                     
Schaumburg, Illinois
 
Office
   
14,728
 
31-Mar-12
 
$
233,806
 
Taylor, Michigan
 
Office
   
4,800
 
31-Jul-12
   
33,600
 
Long Beach, California
 
Office
   
1,264
 
29-Feb-12
   
41,143
 
Rosedale, New York
 
Office
   
5,170
 
31-May-14
   
102,000
 
Federal Way, Washington
 
Office
   
1,775
 
31-Jul-15
   
25,296
 
Total USA
       
27,737
     
$
435,845
 
 
Australian premises:
 
Asean — Australia
 
Usage
 
Area (sq ft)
 
Lease expiration
 
Annual lease
rental
 
                       
Sydney
 
Office
   
5,400
 
30-Mar-13
  $
164,969
 
Melbourne
 
Office
   
6,700
 
31-Aug -12
   
100,692
 
Melbourne
 
Warehouse
   
87,720
 
18-Feb-15
   
595,124
 
Brisbane
 
Office
   
1,875
 
18-Nov-13
   
32,077
 
Total Australia 
       
101,695
     
$
892,862
 

(*Note that Asean sublets approximately 60% of the office space in Tullamarine to a third party.)
 
 
16

 

United Kingdom premises:

WLG (UK) — United Kingdom
 
Usage
 
Area (sq ft)
 
Lease expiration
 
Annual lease
rental
 
                   
Manchester
 
office/warehouse
   
41,970
 
03-Feb-18
 
$
271,749
 
Total United Kingdom
       
41,970
     
$
271,749
 
  
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, 2010, 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
  
In January 2011, ArrivalStar S.A. filed an amended claim for infringement of certain US patent, entitled “Advance notification system and method utilizing vehicle progress report generator.”  The original claim was dismissed during 2010 and management believes this amended claim will also be summarily dismissed based upon comments received from our attorneys.
   
ITEM 4.   (REMOVED AND RESERVED)
 
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,  2010  and  2009:
 
High
   
Low
 
Fourth quarter 2010
  $ 0.06     $ 0.06  
Third quarter 2010
  $ 0.17     $ 0.06  
Second quarter 2010
  $ 0.17     $ 0.16  
First quarter 2010
  $ 0.27     $ 0.15  
                 
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  

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 March 25, 2011, was $0.10 per share.
 
 
17

 

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, 2011, the number of shares reserved under the Plan is 6,176,019.

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, 2010.

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)(2)(3)
    630,000     $ 0.45       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. During 2010, two of these employees left the Company and the total shares that might be acquired became 5,000.

 
2.
As of August 2005, the Company committed to award 200,000 options to purchase common stock to a former officer, 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. In June 2010, the board approve to grant a further 400,000 option to this former officer.

 
3.
In January 2008, the Company granted an option to an employee to purchase 25,000 shares of WLG stock.
 
Holders
 
As of March 30, 2011, there were 30,880,094 shares of our common stock outstanding, held by approximately 340 stockholders of record.
 
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.
 
 
18

 

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 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 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. In June 2010, the dividend was reduced to 8% per annum. 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.
  
In June 2010, the Company approved the designation of a series of preferred stock consisting of 1.0 million authorized, but unissued, shares of preferred stock designated as Series C Convertible Redeemable Preferred Stock, par value $0.001 (the “Series C Preferred Stock”).   The Series C Preferred Stock has a stated value, redemption value and liquidation value of $1.00 per share. The Series C Preferred Stock is convertible into that number of shares of Common Stock determined by dividing the Stated Value by $0.25 per share, subject to adjustment.  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 C Preferred Stock, the Company has the right to redeem all or a portion of the then outstanding shares of Series C Preferred Stock at a price of $1.00 per share, subject to adjustment. 
     
As of December 31, 2010, there were 2.0 million shares of Series A Preferred Stock, 1.7 million shares of Series B Preferred Stock and 978,000 shares of Series C Preferred Stock 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.
 
 
19

 

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, 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 and 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 2010, 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, 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.
 
 
20

 

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 are aggressively marketing 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 2010, we continued to execute our business strategy, which called for the operational, financial and systems integration of the businesses acquired in prior years.  We did not make any acquisitions in 2010 and instead focused on organic internal growth.  During 2010, we merged WLG (USA) into WCS and now operate in the United States as WLG USA, LLC.  This is in line with our efforts to brand the WLG name and eliminate any disparate entities operating within the Group.
 
Our focus on internal growth, particularly in air freight, resulted in a 22% increase in gross profit in 2010 compared to the same period in 2009.  A portion of the growth could be attributable to fluctuations in freight rates but a majority percentage was due to volume increases and a focused effort to increase our air freight revenue.  Specifics of this revenue growth are detailed in the Results of Operations portion of this filing.

We are continuing to work towards realizing the synergistic benefits from prior acquisitions.  Offices outside of China have increased the percentage of shipments which make use of our own offices in China thus improving the overall Group performance.  WLG’s strategy always has, and will continue to be, to develop new business and transition existing business using the resources within the Group.

We have invested considerable time and resources integrating our IT platform into one central server for the entire WLG Group.  This integration allows for faster visibility for our customers while improving operational efficiency in the Group by eliminating the need for duplicate data-entry.  This investment is in-line with our strategy to use IT as a competitive advantage in both operational efficiencies and the services offered to our customers.

An integral part of our earlier business plan 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.

It is difficult to ascertain a clear direction of the global economy and therefore equally difficult to predict trade flows in 2011.  Fuel prices have increased dramatically due to political unrest and this will undoubtedly impact global trade and a quick recovery.  Because of this uncertainty, management continues to monitor operating costs very closely while ensuring that those costs associated with business development meet the required returns.  The US economy is a key factor in our continued growth and considerable efforts are being taken to ensure that existing business is retained and new business is actively pursued while the economy remains in a state of flux.
   
Results of Operations
   
YEAR ENDED DECEMBER 31, 2010 COMPARED WITH YEAR ENDED DECEMBER 31, 2009.
   
Results of Operations
  
Group revenues increased by about $34.07 million from approximately $143.84 million for the year ended December 31, 2009 to $177.91 million for the year 2010.  Our Hong Kong based-operations reported increased revenues of $15.23 million, while revenues from our China offices increased by $7.68 million.  Our US operations reported a combined increase in revenues of $7.45 million and Asean’s revenues grew by $6.49 million.  Revenues in our UK operations declined by $2.78 million.
    
Gross profit increased from $22.71 million in 2009 to $27.74 million in 2010, for an increase of $5.03 million, or about 22%. The increase is primarily due to higher volumes of freight shipped by our existing customers and the continued introduction of new customers.  Of this increase in gross profit, approximately $2.16 million is attributable to our Hong Kong and China operations, $1.27 million is from our US operations and $2.48 million is from Asean.  Gross profit in the UK fell by $0.88 million in 2010 when compared to 2009.
 
 
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The Group's gross margin declined from 15.8% in 2009 to 15.6% in 2010.
  
Total operating expenses was about $28.39 million in 2010, as compared to approximately $28.12 million in 2009.  Our selling and administrative expenses increased from $23.95 million in 2009 to $27.48 million in 2010. Offsetting this increase in selling and administrative expenses, there is no impairment charges on goodwill in 2010, compared to an impairment charge of $2.45 million in 2009 related to the goodwill arising on the acquisition of WCS.  Amortization, depreciation expense and impairment loss on customer list was $1.72 million in 2009, which compared to $0.91 million in 2010, for a decrease of $0.81 million.  The decrease was mainly attributable to the record of $0.72 million impairment charge to reflect a decline in the value of WCS’s customer list in 2009. No impairment charge was required in 2010.  See Other Operating Expenses below.

After the provision of income taxes, the Group recorded a net loss of $1.50 million in 2010, compared to a net loss of $6.25 million for the same period in 2009.  Hong Kong and China’s operations reported a combined net income of $2.08 million in 2010, compared to net income of $1.60 million for the same period in 2009, for an increase of $0.48 million.  Our US operations recorded a net loss of $0.32 million in 2010, compared to a net loss of $2.40 million in 2009.  Asean reported a net income of $0.39 million in 2010, compared to a net income of $0.21 million in 2009.  WLG (UK) reported a net loss of $0.54 million in 2010, compared to a net income of $0.15 million in 2009.  The parent company’s loss decreased to $3.13 million in 2010 (before allocation of expenses to the operating companies), compared to $5.60 million in 2009, mainly attributable to a decrease in impairment charge of goodwill and customer lists. 
 
Segment Information
 
Air freight operations:  Revenues from our air freight operations increased from $27.86 million in 2009 to about $48.86 million in 2010, for an increase of $21.00 million.  Our Hong Kong and China operations reported a combined increase in revenues of $17.49 million, increasing from $16.96 million in 2009, to $34.45 million in 2010.  In addition, our US air freight revenues increased by $2.99 million, compared to the same period in 2009. Our remaining subsidiaries reported a net increase in their air freight revenues of approximately $0.52 million in 2010 when compared to 2009.
 
Cost of sales for our air freight operations increased by $17.93 million from $22.54 million in 2009 to $40.47 million in 2010, mainly as a result of an increase in the volumes of cargo shipped and significant increases in rates charged by the airlines.
 
The Group’s gross profit margin for its air freight business decreased from 19.1% in 2009 to 17.2% in 2010.
    
Segment overhead for our air freight operations was $4.70 million in 2009, which compares to $6.93 million for the same period in 2010.  Our operating costs increased in order to handle the higher volumes of freight shipped in 2010 compared to 2009, and to the compensation costs for new personnel added to our offices in Hong Kong and China.
 
Net segment income for our air freight operations in 2010 is approximately $1.46 million, compared to net income of $0.63 million in 2009.  In 2010, our Hong Kong and China air freight operations reported a combined net income of approximately $1.60 million, compared to combined net income of approximately $0.90 million for the same period in 2009, for an increase of $0.70 million.  In addition, our UK and USA operations posted net losses of $0.13 million and $78,000, respectively in 2010, compared to net losses of $15,000 and $0.30 million for the same period in 2009.  Asean reported a net income of $73,000 in 2010, compared to a net income of $40,000 for the same period in 2009.
 
Sea freight operations:  Revenues from our sea freight operations increased from approximately $62.48 million in 2009 to $74.35 million in 2010, for an increase of $11.87 million.  Our China and Hong Kong operations reported combined increases in revenues of $5.43 million.  In addition, Asean posted an increase in revenues of $5.77 million. Our US operations reported an increase in their sea freight revenues of approximately $1.94 million, and revenues in our UK business declined by about $1.27 million.
 
Cost of sales for our sea freight operations increased from $49.10 million in 2009 to $59.89 million in 2010, due to an increase in the volumes of cargo shipped and significant increases in shipping rates and surcharges.
 
The Group’s gross profit margin decreased from 21.4% in 2009 to 19.5% in 2010.
  
Total segment overhead attributable to our sea freight business increased by $0.57 million, from approximately $13.68 million in 2009 to $14.25 million in 2010.
 
 
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Our sea freight operations posted a net income of approximately $0.21 million in 2010, compared to a net loss of $0.30 million in 2009.  In 2010, Hong Kong and China reported net incomes of $0.49 million, which compares to net incomes of $0.70 million, for the same period in 2009.  In addition, Asean posted a net income of $0.22 million in 2010, compared to a net income of $0.11 in 2009.  WLG (UK) and our US operation reported net losses of $0.34 million and $0.15 million, respectively, compared to a net income of $0.18 million and a net loss of $1.29 million in 2009.
 
Customs brokerage services:  Asean, WLG (UK) and our US operation each have a division that provides customs brokerage services.  In 2010, revenues from customs brokerage services totaled approximately $54.70 million, compared to $53.50 million in 2009, for an increase of about $1.20 million.  Direct and administrative costs for this segment totaled about $54.74 million, producing a net loss of $44,000 in 2010, compared to a net loss of $0.77 million in 2009.
 
Other Operating Expenses
 
Salaries and allowances
 
Salaries and related expenses increased by $1.90 million, from $16.48 million 2009 to $18.38 million in 2010.  Compensation expense increased in our Australian and Asian operating locations, including our parent company, and decreased in both the US and UK locations. Salary costs for our operations in Asia increased by about $1.18 million in 2010 when compared to 2009, while compensation costs for Asean increased by $1.55 million.  Salary costs in our US and UK operations have a combined decline of $1.41 million due to a reduction in headcount and a change in the mix of employees.  Parent company salary costs increased by about $0.58 million as a result of adding management personnel.  Total Group salary expenses increased by $0.59 million due to “one-off” severance costs and contractual obligations to continue payments to departing/retired management personnel.   
 
Rent
 
Rent expense for our facilities increased by approximately $0.25 million to about $2.10 million in 2010, compared to rent expense of $1.85 million in 2009.  The increase is mainly attributable to the new warehouse facilities of Asean.
 
Other selling and administrative expenses

Other SG&A expense totaled about $7.00 million in 2010, compared to $5.61 million in 2009, for an increase of $1.39 million. The increase in SG&A expenses was incurred to accommodate the growth in our business.  In addition to the salary costs previously mentioned, the Group incurred additional “one-off” expenses totaling $0.51 million for consulting fees, legal fees for employment matters and relocation of the central server and Asean warehouse/office.
 
Depreciation and Amortization
 
For the year ended December 31, 2010, depreciation expense for property, plant and equipment was $0.48 million, compared to $0.36 million in 2009, for an increase of about $0.12 million.  Asean acquired new office equipment and furniture and fixtures which increased its depreciation expense by about $88,000 in 2010.
  
Amortization expense is attributable to the customer lists acquired in the acquisitions of WLG (USA), Asean, WLG (UK) and WCS.  In connection with the acquisition of WLG (USA), we recorded a customer list asset of $0.51 million, which is now being amortized on a straight-line basis over 4 years.  Asean's customer list was valued at $1.56 million and is being amortized on a straight-line basis over 8 years.  WLG (UK)'s customer list was valued at $0.83 million and was being amortized over 5 years.  In 2009, WLG (UK)’s customer list became fully amortized due to prior amortization and a reduction in carrying value of $0.60 million resulting from the cancellation of an earn-out arrangement.  WCS’s customer list was valued at $2.84 million and is being amortized over 9 years.  In addition, the Group periodically reviews the book value and estimated useful lives of its intangible assets to ensure that the rate of amortization is consistent with the expected pattern of economic benefits to be received from its intangible assets.  This review for 2009 resulted in the Group recognizing an impairment charge of $0.72 million to WCS’s customer list.  In 2008, a similar review indicated that the remaining useful lives for the intangible assets of WLG (USA) and WLG (UK) were 4 years and 5 years, respectively.  Due to this review, the useful lives of the intangible assets of WLG (USA) and WLG (UK) were extended from 1.25 years to 4 years and from 3 years to 5 years, respectively, effective from January 1, 2009. For the year ended December 31, 2010, amortization expense totaled $0.43 million, and is attributable to WLG (USA), Asean and WCS in the approximate amounts of $32,000, $195,000 and $205,000, respectively.  Amortization expense for the year ended December 31, 2009 was $0.64 million and related to WLG (USA), Asean, WLG (UK) and WCS in the approximate amounts of $32,000, $195,000, $97,000 and $315,000, respectively.
 
 
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Interest Expense
 
Interest expense grew from $0.63 million in 2009 to $1.02 million in 2010, for an increase of about $0.39 million.  Asean’s interest expense was higher by $0.12 million, mainly as a result of increases in its bank borrowings and interest rates as well as a strengthening of Australia's currency against the US dollar.  WCS’s interest expense increased by $0.28 million, mainly attributable to a higher bank borrowing and higher interest rates and other charges attributable to the new loan facility it obtained at the end of February 2010.  WEHK and WAE obtained new bank loans at the beginning of 2010 and incurred interest expense of $28,000 for this debt.  In addition, WEHK incurred interest of $60,000 for a loan of $1 million from a shareholder and for a promissory note of $1 million.  Interest expense in the parent company is for the director’s loans and Series B Preferred Stock, which decreased from $0.29 million in 2009 to $0.19 million in 2010, as one of the loans was fully repaid in 2009 and there was a decrease in interest rate in 2010.  All director loans and the Series B Preferred Stock until June 1, 2010, carried an interest and dividend rate of 12% per annum.  Subsequent to that date, the interest rate on the director’s loan became nil, and the dividend rate on the Series B Preferred Stock was reduced to 8%.

Provision for Income Taxes
 
A provision for income taxes of $0.26 million was recorded in 2010, compared to income tax expenses of about $0.37 million in 2009.  Income tax of $0.28 million was provided on combined net incomes of our Hong Kong and China operations of $1.54 million, for an effective tax rate of 18%.  WLG (UK) reported a net loss of $0.81 million and recorded no tax benefit.  Asean reported a net loss of $0.39 million and recorded an income tax benefit of $40,000. WLG (USA) are included in a US consolidated federal income tax return with the Group's parent company, and, together, these companies reported a consolidated pre-tax loss of approximately $1.58 million, which included amortization expense of $0.39 million that is not deductible for income tax purposes.  No federal tax benefit was provided for the US losses, but the US companies did record an expense for state income tax of about $23,000.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Our operations used cash of approximately $2.22 million for the year ended December 31, 2010, compared to cash of $0.71 million used by operations in 2009. In 2010, cash was provided by the following sources: amortization and depreciation expense of $0.91 million; provision for bad debts of $0.22 million and other non-cash item of $21,000.  Major components that used cash for operations in 2010 include: net loss of $1.50 million; increase in trade receivables of $0.42 million; increases in deposits and prepayments of $0.44 million; decrease in trade payables of $0.60 million; decrease in other accrued liabilities of $0.20 million; decrease in due to director of $63,000 and a decrease in income tax payable of $0.15 million.

Net cash provided by financing activities totaled about $3.66 million in 2010, compared to net cash of $0.78 million provided by financing activities in 2009.  Cash provided by financing activities in 2009 included an increase in bank debt of $1.17 million and a decrease in restricted cash of $0.11 million.  Cash used by financing activities in 2009 included a repayment of capital lease obligation of $38,000; repayment to loan from director of $0.38 million and cash dividends of $90,000 paid on preferred stock.  Cash provided by financing activities in 2010, included increase in bank debts of $0.93 million, two loans of each of $1.0 million, the purchase of $0.98 million of the Company’s Series C Preferred stock by the Group’s new majority shareholder.  Cash used by financing activities in 2010 included an increase in restricted cash of $41,000, repayment of a loan from a director of $30,000; repayment of capital lease obligations of $80,000; and cash dividends of $90,000 paid on preferred stock. 
 
As of December 31, 2010, certain banks in Hong Kong and China had issued bank guarantees of $0.64 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 $0.64 million held in restricted bank accounts. 

An Australian bank has provided a guarantee of about $0.14 million in favor of the owner of the office premises occupied by Asean.  In addition, a UK bank has provided a guarantee of $0.47 million to the UK Customs and Excise Department for the benefit of WLG (UK).  In return for this guarantee, the UK Customs and Excise Department grants credit terms to WLG (UK).  A parent company guarantee has been given to the UK bank.  In addition, a parent company guarantee has been given as support for the rental obligations related to WLG (UK)’s office and warehouse facilities.  This latter guarantee is limited to an amount equal to three years rent plus rates at the date the guarantee is enforced.  As of December 31, 2010, our contingent obligation under this guarantee was about $0.90 million, plus assessed rates.
  
In January 2010, WEHK borrowed $0.32 million for use as general working capital, and this loan is repayable in equal installments over five years. As of December 31, 2010, the outstanding balance of this loan was $0.27 million.
 
In December 2009, WAE borrowed $0.26 million for use as general working capital, and this loan is repayable in equal installments over five years. As of December 31, 2010, the outstanding balance of this loan was $0.21 million.
 
During 2010, WEHK issued a promissory note in the aggregate principal amount of $1.0 million to a majority shareholder.  The promissory note carried an interest rate at 6% per annum. In addition, in August 2010, WEHK received a loan of $1.0 million from an individual. WEHK and the lender have agreed that the loan will bear interest at a rate of 6% per annum and be convertible into newly designated shares of WLG preferred stock at a conversion price of $0.25 per share.
 
 
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Asean has a revolving loan facility in the face amount of approximately $4.07 million, which is secured by, and based on, 100% and 80% of its eligible accounts receivable, respectively.  It also has an overdraft facility with a limit of about $0.69 million.  At December 31, 2010, Asean's bank debt under its revolving loan and overdraft facilities was $2.60 million and $0.62 million, respectively, with interest rates of approximately 10.4% for the receivables line and 10.0% 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.
 
In February 2010, WCS and WLG (USA) obtained a revolving banking facility of $3.0 million with a one-year term which was scheduled to expire in February 2011, but was extended to February 2012. This loan facility, which permits borrowings equal to 78% of eligible receivables and carries a minimum interest rate of 9.5% per annum, is secured by all of the assets of WCS and WLG (USA) and by a guarantee from the Group’s parent company.  In addition, an origination and commitment fee totaling 2% of the loan facility, a monthly collateral management fee of 0.35% per month of the outstanding loan balance and certain other charges are payable for this loan facility. Effective July 6, 2010, WCS’s bank amended the $3.0 million revolving loan facility to increase it by $1.0 million to a face amount of $4.0 million.  In exchange for the additional credit facility of $1.0 million, WCS paid an origination fee to the bank equal to 1% of $1.0 million, and paid all of the bank’s legal fees in connection with amending the loan agreement.  In February 2011, the facilities were renewed for another year with permitted borrowing equal to 85% of eligible receivables and a minimum interest rate of 8.5% per annum.  The origination fees totaled 1% for the renewal. As of December 31, 2010, our US company owed approximately $2.76 million to the bank.   
  
In 2010, the Group raised additional operating funds by selling a new Series C Preferred Stock and a 6% note to Jumbo Glory Ltd., its majority shareholder, in the amounts of $1.0 million and $1.0 million, respectively.  During the third quarter of 2010, the Group sold a 6% note to an individual investor in the amount of $1.0M.  The Group will continue to look for opportunities to raise additional funds to order to grow our existing business and improve our profitability.
 
Our approximate contractual cash obligations as of December 31, 2010, for the periods shown are set forth in the table below and are expected to equal approximately $0.40 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
  $ 7,203     $ 2,160     $ 2,904     $ 1,466     $ 673  
Cargo space commitments
  $ 2,007     $ 2,007                    
Redeemable preferred stock
  $ 1,700           $ 1,700              
Total contractual cash obligations
  $ 11,510     $ 4,767     $ 4,604     $ 1,466     $ 673  
 
During the years ended December 31, 2010 and 2009, we have not engaged in any:
  
 
·
material off-balance sheet activities, including the use of structured finance or special purpose entities;

 
·
trading activities in non-exchange traded contracts.
 
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.
 
 
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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.
  
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.
 
 
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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, 2010, and December 31, 2009, begins on page F-1 of this report.
 
ITEM 9. 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None
 
ITEM 9A.  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.
 
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, 2010. Based on such assessment, we believe that, as of December 31, 2010, the Company's internal control over financial reporting is effective.
 
This Annual Report on Form 10-K 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 SEC rules that do not require smaller reporting companies such as the Company to provide such an auditor attestation 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, 2010, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
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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 
         
Christopher Wood(1)
 
65
 
Chairman and WLG director
Andrew Jillings
 
48
 
Chief Executive Officer
Edmund Pawelko
 
48
 
Chief Financial Officer
Malcolm Wood
 
29
 
WLG director
Sebastian Tschackert
 
37
 
WLG director
Kelvin Tang
 
38
 
Secretary

(1) Mr. Wood resigned as our Chief Executive Officer effective March 1, 2010.
  
Officers and Directors:
  
Christopher Wood served as the Chief Executive Officer of the Group from its formation to March 1, 2010. Mr. Wood continues to serve as a 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. 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.
    
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 below)
   
Edmund Pawelko 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 Chief Executive Officer of WCS.  On September 1, 2010, Mr. Pawelko resigned as Chief Executive Officer of WCS to become the Chief Financial Officer of WLG.  He also holds Director Positions at WCS, WLG (UK) and Asean.  Prior to joining the Group, Mr. Pawelko held a senior finance position with Reilly International, a freight forwarding and logistics company headquartered in Chicago, Illinois.  Mr. Pawelko holds a Bachelor’s Degree from the University of Illinois and a MBA with a concentration in Accounting from Keller Graduate School in Chicago.
  
Malcolm Wood was appointed a director in August 2010.  He is currently the managing director of Steelhead Ventures Ltd, an independent investment company which he founded in 2007.  Steelhead Group is a boutique trading house focusing on the Asian mining industry.  Prior thereto, commencing in 2005, Mr. Wood worked on the trading floor of CLSA’s head office in Hong Kong where he was voted one of the top 20 sales traders in “Asia Money” polls for hedge fund and institutional categories.  Mr. Wood received his Masters in Finance and International Financial Law from the School of Oriental and African Studies in 2005 and his BA (Honors) from the University of Bristol in 2004.
   
Sebastian Tschackert was appointed a director in August 2010.  He began his employment with the Group when he joined WLG Hong Kong in January 2010 as President of Operations.  He later transferred to Chicago where he currently runs the US operations as President of Americas.  For the previous 7 years, Sebastian was based in Hong Kong and his last position before joining the Group was Director of Sales for China with DB Schenker, a multi-billion dollar international freight forwarding and logistics company.
   
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 the Hong Kong Polytechnic University.
 
 
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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 executive officers would qualify as an audit committee financial expert, however, the Board, using the criteria established by the American Stock Exchange, has determined that the executive officer is not independent. The Company has not yet adopted a code of ethics applicable to its chief executive officer and chief financial officer, or persons performing those functions, because of the small number of persons involved in the management of the Company.
   
Family Relationships
   
Malcolm Wood, a WLG Director, is the son of Christopher Wood, Chairman and a WLG Director.
 
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, 2010 and 2009.
 
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)
             
Principal Executive Officer and two highly compensated executive officer for 2010:
                               
Andrew Jillings (7)
                                                   
CEO
 
2010
    446,451       0       0       0       0       0       6,951       453,402  
                                                                     
Christopher Wood (8)
                                                                   
Chairman – WLG and director
 
2010
    247,742       0       0       0       0       0       125,206       372,948  
                                                                     
Paul Pomroy (9)
                                                                   
Director of Asean
 
2010
    252,294       0       0       0       0       0       78,535       330,829  
                                                                     
Principal Executive Officer and two highly compensated executive officer for 2009:
                                         
Christopher Wood (8)
                                                                   
President and Chief Executive Officer – WLG and director
 
2009
    247,742       0       0       0       0       0       144,936       392,678  
                                                                     
Paul Pomroy (9)
                                                                   
Managing of Asean and WLG director  (until January 12, 2009)
 
2009
    214,676       0       0       0       0       0       65,846       280,522  
                                                                     
Remo Picchietti (10)
                                                                   
WLG Executive. Vice President
                                                                   
WCS CEO (Until Dec. 2008)
                                                                   
WLG Director (until February 29, 2010)
 
2009
    261,059       0       0       0       0       0       23,929       284,988  
 
 
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(1) The salary amounts for each named individual include only that person’s base salary. Messrs. Wood, Pomroy (Resigned January 12, 2009) and Picchietti (Resigned February 19, 2010), 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, 2010 and 2009.

(7) Andrew Jillings’s monthly base salary was $31,613. An additional monthly compensation of $13,032 was accrued which will be paid at a date to be agreed between WLG and the officer. In addition, he received $1,290 for a government mandated retirement plan and payment of $5,368 as automobile allowance and $293 as medical benefit.

(8) Mr. Wood received a housing allowance of $108,387 for both 2010 and 2009. In addition, he received payments of $12,504 and $14,532 as automobile allowances, $1,548 and $1,548 for a government mandated retirement plan and $2,767 and $20,468 in medical plan premiums, respectively, for the years 2010 and 2009. 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 $55,829 and $43,124 for automobile allowances and reimbursements for the years 2010 and 2009, respectively.  Cash of $22,706 and $19,321 were contributed on his behalf to a government sponsored retirement plan and health premiums of $3,400 were paid to a medical plan in 2010 and 2009, respectively. All of Mr. Pomroy’s compensation is paid in Australian dollars and has been translated at the historical average rate of and 1.09 and 1.28 for the US dollar to the Australian dollar for 2010 and 2009, respectively.
   
(10) Mr. Picchietti received an auto allowance of $9,620 for 2009. In 2009, cash contribution of $14,309 was 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.
  
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 million 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.
 
 
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Either the Company or Mr. Jillings may terminate his employment agreement by giving three months 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.
   
Edmund Pawelko:  WLG entered into an employment agreement with Ed Pawelko on September 1, 2010.  Under the terms of the agreement, he is to be paid an annual salary of $200,400 and an annual car allowance of $9,000.  Mr. Pawelko shall also receive full reimbursement for all business expenses and medical insurance premiums for himself and his family.  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. Pawelko may terminate his employment agreement by giving six (6) months prior written notice to the other party.  Mr. Pawelko’s employment agreement expires on August 31, 2012 and may be renewed for additional successive one (1) year periods upon mutual agreement between the company and Mr. Pawelko.  The Company shall have the right to terminate Mr. Pawelko’s employment agreement for cause, as defined in the agreement.  The agreement also contains confidentiality, non-compete and non-solicitation provisions.
   
Sebastian Tschackert:  WLG entered into an employment agreement with Sebastian Tschackert on July 1, 2010.  Under the terms of the agreement, he is to be paid an annual salary of $216,000 and an annual car allowance of $12,000.  Mr. Tschackert shall also receive full reimbursement for all business expenses and medical insurance premiums for himself and his family.  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. Tschackert may terminate his employment agreement by giving three (3) months written notice to the other party until December 2011, after which date the notice period shall be nine (9) months. The Company shall have the right to terminate Mr. Tschackert’s employment agreement for cause, as defined in the agreement.  The agreement also contains confidentiality provisions.

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, 2010 and 2009.
   
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
   
As of March 31, 2011, we had 30,880,094 shares of common stock issued and outstanding.
 
 
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The following table sets forth information, as of March 31, 2011, 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 %
                     
Series C Preferred Stock
 
Jumbo Glory Limited
    978,000 (d)     100 %
                     
Common Stock
 
Chris Wood
    13,854,357 (b)     30.5 %
                     
   
Paul Pomroy
    586,000 (c)     1.9 %
                     
   
Jumbo Glory Limited
    18,235,380 (d)     51.0 %
                     
   
All directors and executive officers as a group (three persons)
    14,440,357       32.4 %
 
(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 31, 2011. The numbers and percentages shown for each shareholder include the shares of common stock actually owned as of March 31, 2011, and the shares of common stock that the person or group had the right to acquire within 60 days of March 31, 2011. 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 31, 2011, 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 9,425,786 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.
 
(c)
Mr. Pomroy holds 586,000 shares of the Company’s common stock in a trust that he controls.
 
(d)
Jumbo Glory Limited (“Jumbo”), a privately held company incorporated in Hong Kong, purchased a total of 15,748,848 shares of the Company’s common stock in a private transaction from Christopher Wood.  In addition, Jumbo owns 978,000 shares of the Company’s Series C Preferred Stock which are convertible into 2,486,532 shares of common stock. 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.
 
 
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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, 2010 and December 31, 2009, 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. 
 
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 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, 2010 and 2009, 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.    The loan was fully repaid in 2009..  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. The note was amended on June 1, 2011 to reflect an interest rate of 0% and repayable in 12 equal monthly installments of $50,000 commencing on December 31, 2011. WLG accrued interest expense of nil and $13,125 for the years 2010 and 2009, respectively, for the note owed to Mr. Koontz.  For the note and advances owed to Mr. Wood, WLG accrued interest expense of $194,000 and $276,000 for the years 2010 and 2009, respectively. The interest accrual for Mr. Wood includes $164,000 and $204,000 for 2010 and 2009, respectively, which relates to the $1.7 million of 12% Series B Preferred Stock owned by Mr. Wood.  Effective June 1, 2011 the Series B Preferred Stock interest rate was reduced to 8%.  The Series B Preferred Stock is shown as a liability on the Group’s 2010 and 2009 balance sheets and the dividends paid on the Series B Preferred Stock under US GAAP are described as interest.
 
 
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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, 2010, the Board determined that none of our directors was independent based upon such criteria.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
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, 2010 and 2009, and the review of the financial statements included in the Company's Forms 10-Q for 2010 and 2009.

Audit Fees
     
Year ended December 31, 2010:
  $ 110,322  
Year ended December 31, 2009:
  $ 103,226  
Audit-Related Fees
       
Year ended December 31, 2010:
  $ 0  
Year ended December 31, 2009:
  $ 0  
Tax Fees (1)
       
Year ended December 31, 2010:
  $ 2,632  
Year ended December 31, 2009:
  $ 2,632  

(1)
Tax fees are for the preparation of the Hong Kong profit's tax returns and related tax computations for the years 2009 and 2008, 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  
 
Second Restated Certificate of Incorporation of WLG Inc. (11)
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)
4.3  
Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock. (13)
4.4   
Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock. (14)
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)
 
 
34

 

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 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. (12)
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. (12)
10.18
 
Surety Agreement dated February 24, 2010, by WLG Inc. (12)
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. (12)
10.20
 
Employment Agreement between Andrew Jillings and WLG Inc., effective March 1, 2010. (12)
10.21
 
Employment Agreement between Edmund Pawelko and WLG Inc., effective [____] (13)
21.1
 
Subsidiaries of the Registrant. (15)
23.1
 
Consent of Auditors. (15)
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. (15)
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. (15)
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)). (15)
 
(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.
 
 
35

 

(11)
Incorporated by reference to our Form 10-Q filed on November 15, 2010.

(12)
Incorporated by reference to our Form 10-K filed on March 31, 2010.
 
(13)
Incorporated by referenced to our Form 8-K filed on July 3, 2008.

(14)
Incorporated by reference to our Form 8-K filed on June 29, 2010.
 
(15)
Filed herewith.
 
 
36

 

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, 2011
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 persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Date: March 31, 2011
 
/s/ Andrew Jillings
   
Andrew Jillings
   
Chief Executive Officer
   
(Principal Executive Officer)
     
Date: March 31, 2011
 
/s/ Edmund C Pawelko
   
Edmund C Pawelko
   
Chief Financial Officer
   
(Principal Financial Officer and Accounting Officer)
     
Date: March 31, 2011
 
/s/ Christopher Wood
   
Christopher Wood
   
Chairman and Director
     
Date: March 31, 2011
 
/s/ Malcolm Wood
   
Malcolm Wood
   
Director
     
Date: March 31, 2011
 
/s/ Sebastian Tschackert
   
Sebastian Tschackert
   
Director
 
 
37

 
 
EXHIBIT INDEX
 
Exhibit Number and Document Description
 
3.1
 
Second Restated Certificate of Incorporation of WLG Inc. (11)
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)
4.3        
Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock. (13)
4.4   
Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock. (14)  
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 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. (12)
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. (12)
10.18
 
Surety Agreement dated February 24, 2010 by WLG Inc. (12)
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. (12)
10.20
 
Employment Agreement between Andrew Jillings and WLG Inc., effective March 1, 2010. (12)
10.21
 
Employment Agreement between Edmund Pawelko and WLG Inc. dated September 1, 2010 (15)
10.22
 
Employment Agreement between Sebastian Tschackert and WLG Inc. dated July 1, 2010 (15)
21.1
 
Subsidiaries of the Registrant. (15)
23.1
 
Consent of Auditors. (15)
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. (15)
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. (15)
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)). (15)
 
(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.
 
 
38

 

(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)
Incorporated by reference to our Form 10-Q filed on November 15, 2010.

(12)
Incorporated by reference to our Form 10-K filed on March 31, 2010.
 
(13)
Incorporated by referenced to our Form 8-K filed on July 3, 2008.

(14)
Incorporated by reference to our Form 8-K filed on June 29, 2010.
 
(15)
Filed herewith.
 
 
 
 
 
39

 
 
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, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2010 and 2009.  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, 2010 and 2009 and the results of its operations and cash flows for the years ended December 31, 2010 and 2009 in conformity with U.S. generally accepted accounting principles.

/s/ Mazars CPA Limited

Mazars CPA Limited
Certified Public Accountants
Hong Kong, March 31, 2011
     
 
F-1

 

WLG Inc.
 
Consolidated Statements of Operations
Years ended December 31, 2010 and 2009
(Dollars in thousands except share data and per share amounts)

         
Year ended December 31,
 
         
2010
   
2009
 
   
Note
   
US$
   
US$
 
Revenues:
                 
Freight
          111,843       81,702  
Other services
          66,068       62,142  
                       
Total revenues
          177,911       143,844  
                       
Operating expenses
                     
Cost of forwarding/customs
          (150,173 )     (121,132 )
Selling and administrative expenses
          (27,475 )     (23,949 )
Impairment loss on goodwill
  7       -       (2,450 )
Depreciation, amortization and impairment loss
  6, 7       (914 )     (1,721 )
                       
Total operating expenses
          (178,562 )     (149,252 )
                       
Loss from operations
          (651 )     (5,408 )
                       
Other income (expense)
                     
Interest income
          4       3  
Interest expense
          (1,016 )     (626 )
Other income, net
          424       148  
                       
Loss before income taxes and extraordinary item
          (1,239 )     (5,883 )
                       
Provision for income taxes
  3       (261 )     (366 )
                       
Loss before extraordinary item
          (1,500 )     (6,249 )
                       
Extraordinary item:
                     
Gain on cancellation of earn-out liability (net of taxes: 2010-Nil, 2009-Nil)
  7       -       208  
                       
Net loss
          (1,500 )     (6,041 )
                       
Dividends on preferred stock
          (90 )     (90 )
                       
Loss applicable to common stock
          (1,590 )     (6,131 )
                       
Other comprehensive income, net of taxes:
                     
Foreign currency translation adjustment
          250       462  
                       
Total comprehensive loss
          (1,340 )     (5,669 )
 
The financial statements should be read in conjunction with the accompanying notes.

 
F-2

 

WLG Inc.
 
Consolidated Statements of Operations
Years ended December 31, 2010 and 2009
(Dollars in thousands except share data and per share amounts)

         
Year ended December 31,
 
         
2010
   
2009
 
   
Note
   
US$
   
US$
 
                   
Weighted average number of shares of common stock outstanding
                 
                   
Basic
          30,951,327       31,400,094  
                       
Diluted
          30,951,327       31,400,094  
                       
Net loss per share:                       
                       
Basic loss per share
  4       (0.05 )     (0.20 )
                       
Diluted loss per share
  4       (0.05 )     (0.20 )
 
The financial statements should be read in conjunction with the accompanying notes.
 
 
F-3

 

WLG Inc.
 
Consolidated Balance Sheets
At December 31, 2010 and 2009
(Dollars in thousands except share data and per share amounts)

         
At December 31,
 
         
2010
   
2009
 
   
Note
   
US$
   
US$
 
ASSETS
                 
Current assets
                 
Cash and cash equivalents
          2,565       1,899  
Restricted cash
  5       642       601  
Trade receivables, net of allowance (2010-$696, 2009-$570)
          17,440       16,906  
Deposits, prepayments and other current assets
          1,668       1,254  
Tax prepaid
          211       149  
                       
Total current assets
          22,526       20,809  
                       
Property, plant and equipment, net
  6       1,728       1,427  
Deposits and other non-current assets
          -       107  
Deferred tax assets
  3       373       288  
Intangible assets, net
  7       1,750       2,183  
Goodwill
  7       6,878       6,878  
                       
Total assets
          33,255       31,692  
                       
LIABILITIES AND STOCKHOLDERS' EQUITY
                     
Current liabilities
                     
Bank overdraft
  8