Attached files
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EXCEL - IDEA: XBRL DOCUMENT - ALCO, INC. | Financial_Report.xls |
EX-31 - ALCO, INC. | exhibit312.htm |
EX-31 - ALCO, INC. | exhibit311.htm |
EX-32 - ALCO, INC. | exhibit322.htm |
EX-32 - ALCO, INC. | exhibit321.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, 2011
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission file number 000-51105
ALCO, INC.
(Exact name of registrant as specified in its charter)
Nevada | 11-3644700 |
(State or other jurisdiction of incorporation) | (IRS Employer Identification Number) |
25th Floor, Fortis Bank Tower No. 77-79 Gloucester Road Wanchai, Hong Kong |
(Address of principal executive office) |
|
Registrants telephone number, including area code: 852-2521-0373 |
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which registered |
N/A | N/A |
Securities to be registered under Section 12(g) of the Act:
Common Stock
(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.
o Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
o Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports).
x Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants 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.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: 0
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of the latest practicable date. As of March 30, 2012, there were 10,348,000 shares of the registrants common stock, $0.001 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).
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INDEX
PRINCIPAL PRODUCTS AND SERVICES
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A(T). CONTROLS AND PROCEDURES
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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PART I
DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report, including statements in the following discussion, are what are known as forward-looking statements, which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as plans, intends, will, hopes, seeks, anticipates, expects, and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-K and in the Companys other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.
ITEM 1. BUSINESS
BACKGROUND
ALCO
ALCO, Inc. (ALCO, we, us, the Company) was incorporated under the laws of the State of Nevada on June 7, 1999 under the name Sea Horse, Inc. On September 20, 2004, we changed our name to Lotus Capital Corp. On February 13, 2006, we changed our name to ALCO, Inc.
ALCO was formed as a "blind pool" or "blank check" company whose business plan was to acquire one or more properties or businesses and to pursue other related activities intended to enhance shareholder value.
From the date of its incorporation until December 9, 2005, ALCOs only business activities were organizational activities directed at developing its business plan, raising its initial capital and registering under the Securities Exchange Act of 1934. On November 22, 2005, ALCO entered into an Agreement for Share Exchange with AL Marine Holdings (BVI) Ltd (AL Marine) and the individual shareholders of AL Marine pursuant to which it agreed to acquire all of the issued and outstanding stock of AL Marine in exchange for the issuance of 9,766,480 shares of ALCOs common stock. The closing under the Agreement for Share Exchange was completed on December 9, 2005, and upon completion of the closing, AL Marine became a wholly-owned subsidiary of ALCO.
AL Marine
AL Marine was incorporated under the laws of the British Virgin Islands on May 30, 2005 for the sole purpose of acting as a holding company for interests in several affiliated operating businesses. On July 15, 2005, AL Marine acquired 100% of the outstanding shares of Andrew Liu & Company Limited (ALC), a Hong Kong corporation, 85% of the outstanding shares of EduShip Asia, Ltd. (ESA), a Hong Kong corporation, and 60% of the outstanding shares of Chang An Consultants Limited (CAC), a Hong Kong corporation.
On July 28, 2010, AL Marine set up a Hong Kong corporation called AL Marine Holdings (Hong Kong) Limited (ALM HK). On December 16, 2010, ALM HK acquired 100% of the outstanding shares of Shanghai Heshili Broker Co. Ltd (SHB), a China corporation. In order to hold and run SHB effectively, ALM HK appoints a local Chinese through an agency agreement to hold SHB on behalf of ALM HK. In addition, ALM HK and SHB enter into an exclusive agreement on December 16, 2010. Under this agreement, ALM HK is entitled to receive all the profits earned from SHB.
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On July 19, 2011, a new entity named AL Marine Consulting Services (Shanghai) Ltd (ALM Shanghai) was legally established in China. AL Marine indirectly owns 100% of ALM Shanghai through ALM HK. ALM Shanghai is set up for holding all the interest of SHB. On July 20, 2011, the agency agreement between ALM HK and the local Chinese was replaced by another agency agreement between ALM Shanghai and the local Chinese. At the same date, the exclusive agreement between ALM HK and SHB was replaced by another exclusive agreement between ALM Shanghai and SHB.
The business of ALCO is now carried on through AL Marine and its subsidiaries.
PRINCIPAL PRODUCTS AND SERVICES
ALCO operates through its subsidiaries: ALC, CAC, ESA and SHB. These subsidiaries operate primarily in Hong Kong and China.
ALC
ALCO is principally engaged in the marine insurance brokerage business though its wholly owned subsidiary, ALC, which was incorporated in 1989 as an insurance brokerage firm specializing in marine hull protection and indemnity insurance. ALC began operations in Hong Kong and moved into China in 1991.
Under Hong Kong regulations, a person who acts as an insurance broker must have authorization from the Insurance Authority or be a member of a body of insurance brokers approved by the Insurance Authority. The Hong Kong Confederation of Insurance Brokers (HKCIB) is such a body that has been approved by the Insurance Authority. ALC became a member of the HKCIB in 1993. In order to be admitted to the Confederation, an insurance broker must meet minimum requirements in regard to qualifications and experience; capital and net assets; professional indemnity insurance; keeping of separate records; and the keeping of proper books and accounts. These requirements are determined by the Insurance Authority. If an insurance broker does not meet these standards, the Confederation can withdraw the insurance brokers membership.
Insurance brokers represent the insured in negotiating and placing insurance coverage with insurers, as well as handling claims when they occur. Insurance brokers generate revenue from commissions and fees on insurance premiums and earn interest on premiums held before remittance to the insurers. Brokers do not issue the policies themselves; they only find and place policies with insurance carriers on behalf of their clients and act as a liaison between the insurer and the client during the claims process.
ALC works in placing insurance coverage with both hull and machinery coverage (H&M) providers and protection and indemnity coverage (P&I) providers. H&M covers the physical loss of or damage to the vessel arising from accidents, while P&I covers liabilities, losses, expenses and costs incurred in relation to injury or death on board. Business from China-based clients accounts for 95% of the business of ALC.
While ALC deals directly with most of its clients, it also engages a sub-broker, Jiangsu Oriental Navigators Insurance Brokers, in China. The percentage of business of ALC generated by the sub-broker is approximately 0.9%. ALC does not have any written agreements with this sub-broker, and the relationship with them could be terminated at any time without cause. However, ALC could replace this sub-broker, if needed, so it would not suffer a material adverse effect if the relationship is terminated.
ALC places insurance coverages with approximately twenty different insurance providers. For P&I insurance, the Company places insurance with The West of England Ship Owners Insurance Association, American P&I Club, and The South of England Protection & Indemnity Association (Bermuda) Ltd., among others. For H&M coverage, ALC places coverages with Lloyds Underwriters, among others. ALC does not have any written agreements with these insurance providers.
ESA
AL Marine owns 85% of ESA. In 2004, ESA was appointed as an exclusive agent by the Institute of Chartered Shipbrokers (UK) ("ICS") to set up ICS's first distant learning center in Shanghai, China. ICS is an internationally recognized professional body representing shipbrokers, managers, and agents throughout the world. ICS has approximately 3,500 members in over 60 countries.
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We believe that many students in China will take advantage of the ICS training being offered in their country because they will not be required to travel overseas. As the exclusive agent of ICS in China, ALCO plans to provide delivery of courses in accordance with the syllabus of ICS, promotion of membership in ICS, and management of the examination center. ICS is the only internationally recognized professional and vocational qualification in the shipping industry. Pursuant to its contract with ICS, ESA is required to provide seminars, review sessions, revision workshops and other assistance to the students who enroll in the learning center. Students will be charged GBP280 (approximately US$440), of which GBP137.5 (approximately US$216) will be paid to ICS. The fees may be revised in the future upon the agreement of both parties. ESA is responsible for paying the set up and maintenance for the center.
ESA has limited assets and its operations to date have not been significant. As of December 31, 2011, ESA had net assets of $(71,318) with a cash balance of $44,219, accounts receivable of $7,380, due to related parties of $108,288 and accounts payable of $11,605.
During the 2011 fiscal year, ESA received $14,166 from enrollment fees from this arrangement. It spent approximately $34,340 setting up and maintaining the learning center.
CAC
AL Marine owns 60% of CAC which participates in a joint venture with a large state-owned shipping group in China, the China Chanjiang Shipping Corporation (the "CSC Group"). CAC, which was incorporated in Hong Kong in March 1999, acts as an in-house insurance brokerage firm and general consultant for the CSC Group. CAC looks for business opportunities for the CSC Group and uses the CSC Groups connections in China to create business opportunities for other foreign shipping interests.
The CSC Group owns a substantial and growing fleet of ships, advertising space, and seafarers schools in China. The CSC Group has a large share of the market in logistics, cruising, shipbuilding and other related businesses along the Changjang region in China and has expanded its businesses all over the country. The CSC Groups other business activities include shipbuilding, crane manufacturing, cruising, advertising, and seafarers training.
CAC has no formal agreement with the CSC Group. In 2011, about 7.0% of ALCOs revenue was generated from CAC.
SHB
AL Marine indirectly owns 100% of SHB through ALM Shanghai and a local Chinese. SHB, which was incorporated in China in July 2005, is an insurance brokerage firm engaging in general insurance such as property, motor vehicle, liability & indemnity, health and accident, etc. SHB primary operations are in China.
Under Chinese government regulations, a person who acts as an insurance broker must obtain a license from the China Insurance Regulatory Commission. SHB obtained the necessary license in June 2005. In order to maintain the license, an insurance broker must meet minimum requirements in regard to qualifications and experience; paid-up capital; professional indemnity insurance; and keeping of proper books and accounts. These requirements are determined by the Chinese government. If an insurance broker does not meet these standards, the Commission can withdraw the insurance brokers license.
SHB became ALCOs subsidiary on December 16, 2010. In 2011, approximately 6.3% of ALCOs revenue was generated from SHB.
DESCRIPTION OF INDUSTRY
Marine Insurance Brokerage
Marine insurance is a mature industry, which is diverse in terms of types of coverage and insurers. These different options are intended to suit the risk profile and requirements of different types of vessels, voyages, shipowners, and charterers. Within marine insurance, the two most common forms of insurance are hull and machinery (H&M) and protection and indemnity (P&I). H&M covers the physical loss of or damage to the vessel arising from accidents, while P&I covers liabilities, losses, expenses and costs incurred in relation to injury or death.
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Various insurers differ significantly in the coverages and options they provide. Most shipowners and charterers rely on professional insurance brokers for advice to make an informed decision on the choice of insurer and coverage that will suit their needs. Insurance brokers represent the insured in negotiating and placing insurances with the insurers. Brokers generate revenue primarily from commissions and fees on insurance calls and premiums. Revenue is also generated from interest on calls and premiums held before remittance to the insurers and on claims held before payment to the insured. Commission revenue varies based on the calls and premiums on the policies that are placed on behalf of clients. When call and premium rates in the market rise, revenue for brokers increases, and revenue declines when call and premium rates decline. The standard rate of commission for an insurance broker is approximately 10% on the call or premium of the insurance placed.
In addition, as part of the brokerage service, the brokers have a duty to make claims for their clients. In doing so, they appraise the merits of the claim, devise a strategy for the claim and submit it to the insurer at the right place and in the correct form.
GOVERNMENT REGULATION
ALCOs subsidiaries, ALC and CAC, as members of HKCIB, must comply with the minimum requirements specified by the Insurance Authority under Section 70(2) of the Insurance Companies Ordinance of Hong Kong. The minimum requirements specified by the Insurance Authority (IA) under Section 70(2) of the Insurance Companies Ordinance are:
(a)
To maintain paid up share capital or minimum net assets of HK$100,000
(b)
To maintain adequate accounting records to reflect the transactions of its business
(c)
To maintain client accounts in accordance with the minimum requirements specified by the IA under Section 70(2) of the Ordinance
(d)
To maintain a professional indemnity insurance policy in accordance with the minimum requirements specified by the IA under Section 70(2) of the ordinance.
These restrictions and other laws with which we must comply are subject to change. Any change in these laws may cause our cost of doing business to increase or cause a change in the demand for our services.
ALCOs subsidiary, SHB, must comply with the minimum requirements specified by the Chinese government under the Rules on Administration of Insurance Brokerage Institutions. The minimum requirements specified by the rules include:
(a)
To maintain adequate accounting books to record the revenue and expenditure of insurance brokerage business
(b)
To maintain a professional indemnity insurance policy
(c)
To submit auditors report to the Commission within three months after the year-end closing date.
These restrictions and other laws with which we must comply are subject to change. Any change in these laws may cause our cost of doing business to increase or cause a change in the demand for our services.
CUSTOMERS AND MARKETING
While members of the senior management regularly appear at industry-targeted functions and speak at seminars organized for the shipping industry, ALCO believes that the best marketing channel is by word-of-mouth and clients referrals based on quality of service and results in providing a solution to difficult claims. The very close-knit nature of the Chinese shipping community places ALCO in a good position. This strategy has so far proven to be effective.
Historically, ALCO has had a customer retention rate around 78% in 2011. We anticipate that we will maintain this retention rate in the future because we have been able to maintain this rate for the last three years. In 2011, ALCO had 300 customers, and its customers were mainly from China. ALCO obtains new clients through the channels of existing clients or sub-broker.
COMPETITION
ALCOs major competitors are large US insurance brokers such as Aon, Marsh and Willis, who provide a wide range of insurances and are not focused on marine insurance. These competitors are much larger than ALCO and have access to significantly more financial resources than ALCO. However, these competitors are international companies who focus on many
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different types of insurance. We believe that ALCO is one of the few insurance providers that specializes in the marine insurance business.
Competition for business is intense in all of ALCOs business lines and in every insurance market, and other providers of global risk management services have substantially greater market shares than ALCO does. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business. Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.
EMPLOYEES
At the time of this report, ALCO had 54 employees, including 38 in operations and 16 in supporting and administrative functions. All employees are full time.
REPORTS TO SECURITY HOLDERS
ALCO is subject to the reporting requirements of the Exchange Act and the rules and regulations promulgated thereunder, and, accordingly, files reports, information statements or other information with the Securities and Exchange Commission, including quarterly reports on Form 10-Q, annual reports on Form 10-K, reports of current events on Form 8-K, and proxy or information statements with respect to shareholder meetings. Although ALCO may not be obligated to deliver an annual report to its shareholders, we will voluntarily provide electronic or paper copies of the Companys filings free of charge upon request. The public may read and copy any materials ALCO files with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address is http://www.sec.gov.
ITEM 1A. RISK FACTORS
N/A
ITEM 1B. UNRESOLVED STAFF COMMENTS
N/A
ALCO rents a portion of its facilities from companies owned by the directors of ALCO and rents a portion of its facilities from third parties. As of December 31, 2011, ALCO leased approximately 6,084 square feet of office space for its operations. Its current leased properties are:
Location | Size | Description |
|
|
|
Central, Hong Kong | 4,060 sq. ft | Headquarters |
|
|
|
Shanghai, China | 3,251 sq. ft | Offices |
Fuzhou, China | 1,243 sq. ft | Office |
The Hong Kong office was leased from a third party since March 2010. Starting from December 2007, additional flats at the existing building of the Hong Kong Office were leased from third parties for office expansion. As the Company is continuing growth and the existing properties are no longer to meet the Companys need, the Hong Kong Office will move to a new property in March 2012. The new property is located in Wanchai, Hong Kong with 6,350 sq. ft and is leased from a third party. The leases for the existing office located in Central were not renewed.
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The Shanghai offices have been leasing from a third party since December 2007. For expansion purpose, another flat in the same building is leased from another third party starting in December 2010.
The Fuzhou office is leased from a third party staring from October 2010.
ALCOs current total monthly rental payment for the facilities mentioned as above is approximately US$30,884. We intend to renew these leases upon their expiration.
ITEM 3. LEGAL PROCEEDINGS
ALCO is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. None of ALCOs directors, officers or affiliates, and no owner of record or owner of more than five percent (5%) of its securities, or any associate of any such directors, officer or security holder is a party adverse to ALCO or has a material interest adverse to it in reference to pending litigation.
ITEM 4. MINE SAFETY DISCLOSURES
N/A
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our shares are approved for trading on the OTC Bulletin Board under the symbol ALCQ, but there has been no trading activity in the shares and no trading market has been established. There is no assurance as to when, or whether, an active trading market in our shares will be established.
None of ALCOs common equities are subject to any outstanding options, warrants to purchase, or securities convertible into, common stock. ALCO filed a registration statement on Form SB-2 to register a total of 500,000 shares for resale on behalf of certain selling shareholders. The registration statement was declared effective on November 13, 2006. Other than the 500,000 shares registered for resale on behalf of certain selling shareholders, there are no common equities of ALCO that are being, or have been proposed to be, publicly offered by ALCO, the offering of which could have a material effect on the market price of its common stock.
As of December 31, 2011, ALCO had 10,348,000 shares of common stock issued and outstanding. The shares are held by 37 stockholders of record.
On June 1, 2010, the Company issued 198,000 shares of restricted stock to certain key employees and directors of the Company under the 2010 Restricted Share Stock Compensation Plan. The plan was approved by the board of directors on June 1, 2010. The restricted shares were issued subject to certain terms and conditions such as that the shares may not be transferred during the applicable restriction period and that the shares will be forfeited if the employment is terminated by the holder or the Company. The shares were issued in reliance upon an exemption from registration provided by Regulation S under the Securities Act of 1933. The shares were issued at a strike price of approximately $1.57, which was equal to the fair value of the Companys stock on June 1, 2010, the date of grant. Therefore, the aggregate value of these shares as of the date of issuance was $310,860, of which $58,613 (6,000 shares with fair value of $9,420 was subsequently forfeited) and $89,294 (13,500 shares with fair value of $21,195 was subsequently forfeited) were recognized as stock-based compensation expense in salaries and compensation expenses during the years ended December 31, 2010 and 2011 respectively. The balance will be recognized as stock-based compensation expenses in the coming year.
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On June 1, 2011, the Company issued 25,500 shares of restricted stock to certain key employees of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above. The plan was approved by the board of directors on June 1, 2011. The shares were issued at a strike price of $2.79, which was equal to the fair value of the Companys stock on June 1, 2011, the date of grant. Therefore, the aggregate value of these shares as of the date of issuance was $71,145, of which $10,579 (6,000 shares with fair value of 16,740 was subsequently forfeited) was recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2011. The balance will be recognized as stock-based compensation expenses in the coming two years.
ALCO has never declared any cash dividends on its common stock and does not anticipate declaring dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
N/A
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PLAN OF OPERATIONS
According to the plan of operations last year, the Company would enhance the credit control and marketing functions. After reviewing the result of 2011, we can conclude that the plan is successful. Regarding credit control, our enhancements are operated effectively as the receivable turnover ratio for ALC and CAC was improved from 7.84 in the full year of 2010 to 9.79 in 2011. It means the average collection period for outstanding receivables dropped from 47 days in 2010 to 37 days in 2011. Regarding the marketing function, more resources, including both additional personnel and IT applications, were allocated during 2011. Consequently, positive results were noted as the number of customers increased 5% during 2011.
For the 2012 fiscal year, the Company will continue to seek to enhance its credit control and marketing functions in order to maintain competitiveness. In addition, in order to expand its insurance brokerage business, the Company has been looking for investment opportunities in Asia since 2009. In December 2010, the Company acquired a general insurance brokerage firm in China as the first step in an effort to grow its business through acquisition. Based upon the results of operation for the 2011 fiscal year, management believes the initial acquisition was successful and is continuing to seek additional suitable investment opportunities in 2012. Furthermore, in order to enhance the Companys operations and supporting function, we have a plan to upgrade our existing phone system and hire additional employees in the next twelve months.
The plans of investment, phone system upgrade and employee hiring will depend on the market situation, associated risk factors and our internal resources. There is no assurance that we will able to implement these plans within the foreseeable future.
We do not have any material off-balance sheet arrangements.
RESULTS OF OPERATIONS
Year ended December 31, 2011 compared with 2010
Revenue: Revenue for 2011 was $6,592,274 as compared to $6,197,680 for 2010. The increase of $412,594 or approximately 7% was mainly due to increases of commission income from existing clients, consulting income, and other revenues. This increase was partially offset by a decrease in enrollment fee income. Commission income is based on a percentage of the premiums paid by the insured, and increased by $388,571 or 6% when compared to last year. 99% of the increase was contributed by SHB while 1% was contributed by ALC and CAC. Total commission income contributed by SHB was $398,434 in 2011, which is approximately 6.2% of the total commission income of the group for 2011. If the contribution from SHB is excluded, commission income of the group for 2011 increased by $3,111 or 0.1% as compared to last year.
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Consulting income for 2011 increased to $96,714 from $69,500 in 2010. The increase of $27,214 or 39% was because demand for consulting services increased. On the other hand, enrollment fee for 2011 was $14,166 as compared to $17,357 for 2010. The decrease was mainly due to the decreases of customers demand and enrollment. In addition, website advertising for 2011 was $14,000. It was maintained at the same level with last year.
Net income before tax and noncontrolling interest: Income before tax and noncontrolling interest for 2011 was $1,758,135 compared to $1,988,339 for 2010. The decrease of $230,204, or approximately 12%, was mainly due to an increase in operating expenses and other expenses during the year. The reasons for increases in revenue from operations are discussed above, while the increases of operating expense are discussed in the section below. Other income and expense decreased to $73,826 in 2011 from $119,687 in 2010. The decrease was mainly due to the fact that a loss was incurred on the disposal of fixed assets for a branch of SHB which was closed, and the fact that an idle vehicle of SHB was sold during the year. Furthermore, other revenues increased to $88,232, which was an increase of $62,265 or 240% as compared to last year. The increase in other revenue was mainly the result of increased commissions from business referral and other business services we provided to clients.
Interest income decreased 95% in 2011 as compared to 2010 primarily because the secured loan to a third party was collected in full in 2010. Investment income increased 19% in 2011 as compared to 2010 mainly as a result of an increase in dividend income received from publicly traded equity securities owned by the Company.
Operating expenses: Total operating expenses were $4,907,965 for 2011, as compared to $4,311,028 for 2010. The increase of $596,937 or 14% was mainly due to increases in salaries, travel expenses, rents, depreciation and amortization and other general and administrative expenses during the year. The reasons for the increases in the major items are as follows:
·
Salaries increased by $447,130 or 20% from $2,181,906 in 2010 to $2,629,036 in 2011. The increase was mainly due to increases in headcounts and pay rates during the year of 2011. In addition, pursuant to the Restricted Share Stock Compensation Plan which was implemented in June 2010, $99,873 was recognized as stock-based compensation expense in salaries during the year ended December 31, 2011. The amount of stock based compensation increased by $41,260, or approximately 70.4%, in 2011 as compared to 2010.
·
Travel expenses increased by $141,012 or 36% from $396,948 in 2010 to $537,960 in 2011. The increase was mainly because of the growth of client base and general price inflation.
·
Rents increased $18,560 or 4% from $506,732 in 2010 to $525,292 in 2011. The increase was mainly due to an increase in rental rates during the year.
·
Bad debt expenses decreased by $288,917 or 62% from $466,265 in 2010 to $177,348 in 2011. The decrease was mainly due to a decrease in the provision of doubtful debts and certain bad debts written off in 2011.
·
Depreciation and amortization increased by $71,728 or 176% from $40,836 in 2010 to $112,564 in 2011. The increase was due to the addition of fixed assets during the whole year of 2011. In addition, because of plans to move the Hong Kong Office to a new location in March, 2012, beginning in November 2011, we began to amortize the net book value of the leasehold improvement of the existing location over their its remaining life. Consequently, additional depreciation of $24,464 was charged in 2011. Furthermore, in December, 2010, we began to amortize the acquired intangible assets in relation to SHB. More amortization charges were incurred in 2011 as compared to 2010. During the year ended December 31, 2011, depreciation for fixed assets was $91,271 while amortization charge for intangible asset was $21,293.
·
Other general & administrative expenses increased $207,424 or 29% for 2011 as compared to last year. In general, the increase was due to the general price inflation, increases in headcount which caused office administrative expenses and staff medicals expenses to increase, and the growth of our client base causing telecommunication and postage expenses to increase. Another reason is that additional consulting and legal expenses were incurred for the Companys consulting services and the daily operation of SHB during the period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow
For 2011, cash provided by operating activities totaled $2,150,508 compared to $1,974,738 for 2010. The receipt of funds was primarily due to net income for the year plus increases in commission receivable, enrollment fee receivable, deposit and
- 11 -
prepayment, fiduciary asset, accounts payable, claims payable, other payable and accrued expenses as well as decreases in other receivables, accrued expenses and income tax payable.
For 2011, cash used in investing activities amounted to $1,923,170 compared to $439,921 for 2010. The use of funds was for the loan made to third parties, and purchase of fixed assets which was partially offset by the sale proceeds from disposal of fixed assets.
Cash used by financing activities in 2011 amounted to $96,531, compared to $86,301 for 2010. The use of funds was for the repayment of amount due to minority shareholders and director.
Assets and liabilities
As of December 31, 2011, the Companys balance sheet reflects total current assets of $11,632,415, which increased by $2,383,272 (or 26%) as compared to $9,249,143 as of December 31, 2010. Total current liabilities as of December 31, 2011 were $1,882,227, which increased by $472,933 or 34% as compared to $1,409,294 as of December 31, 2010. The increase of total current assets was mainly due to increases of cash and cash equivalents, commission receivable, fiduciary asset and loan receivable which were partially offset by a decrease of amount due from related party. The increase of total current liabilities was mainly due to increases of trade accounts payable, claims payable, other payables, and amounts due to directors, partially offset by a decrease of accrued expenses and income tax payable.
As of December 31, 2011, commission receivable was $399,942 as compared to $208,843 for the same period in 2010, while trade accounts payable and other payable were $1,054,919 and $663,450 respectively, as compared to December 31, 2010 balances of $879,087 and $240,370. Each of these changes was due to the timing of commissions received from customers and making payments to insurers at the year end. In addition, because insurance premium rates paid by customers to insurers was raised, cash and cash equivalents and fiduciary assets increased during the year ended December 31, 2011. Furthermore, because certain expenses accrued in 2010 were no longer to be paid in 2011, accrued expenses for 2011 decreased by $64,739 or 39% as compared to last year. As of December 31, 2011, there was $1,917 deferred revenue included in the liabilities. This item is in relation to the income received in advance for the website advertising.
Because the interest rate is maintained at a very low level in the recent years, since 2008, the Company has purchased publicly traded equity securities with high dividend yields for long term investment purpose. As of December 31, 2011, the market value of the equity securities was $261,854, which represents a decrease of $78,547 or approximately 23% as compared to the market value of $340,401 for the last year. The decrease was mainly because the market value of such equity securities dropped at the year-end date of December 2011 when compared to the year-end date of December 2010.
Due to the fact that the Company acquired a subsidiary in 2010, certain assets such as customer list and goodwill were recognized in the same year. As of December 31, 2011, carrying values of customer lists was $43,153 and carrying value of goodwill was $208,306.
The Company has bank and cash equivalents of approximately $8,203,957 as at December 31, 2011. The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months. As of December 31, 2011, the Company had $6,867 of commitments for capital expenditures and off-balance sheet arrangements as well as lease commitments of $1,220,596.
CRITICAL ACCOUNTING POLICIES
Estimates And Assumptions
In preparing financial statements that conform to generally accepted accounting principles, management makes estimates and assumptions that may affect the reported amount of assets and liabilities. Actual results could differ from these estimates. Particularly, the areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.
Consolidation policy
- 12 -
The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries and other entity which require consolidation. Inter-company transactions have been eliminated in consolidation.
In accordance with ASC 810 (SFAS No.167 Amendments to FASB Interpretation No. 46(R)), the Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
VIEs are generally entities that lack sufficient equity to operate without additional subordinated financial support from other parties or are entities whose equity holders do not have adequate decision making authority. The primary beneficiary of a VIE is the party that (a) has the power to direct the activities of a VIE that significantly impacts its economic performance and (b) has the obligation to absorb the losses or the rights to receive the benefits that could be significant to the VIE.
According to the requirements of ASC 810, we have evaluated our relationships with SHB. We have concluded that SHB is a VIE, and the Company is the primary beneficiary of the VIE. Accordingly, we adopted the provisions of ASC 810 and consolidated SHB into our financial statements as of and for the year ended December 31, 2011.
Earnings Per Share
The Earnings per share is determined by dividing the net earnings by the weighted average number of outstanding shares during that period.
Currency
ALCOs main subsidiaries, ALC, CAC and ESA use the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during the period between 2002 and 2011. Thus, the consistent exchange rate used has been 7.80 HK$ per each US dollar. Since there have been no greater fluctuations in the exchange rate, there is no gain or loss from foreign currency translation and no resulting other comprehensive income or loss. There were no material gains or losses recognized as a result of translating foreign currencies to the U.S. or Hong Kong dollar. No assurance can be given as to the future value of foreign currency and how fluctuations in such value could affect ALCOs earnings.
The balance sheets of ALC, CAC and ESA were translated at year-end exchange rates. Income and expenses were translated at exchange rates in effect during the year, substantially the same as the year-end rates.
The functional currency of SHB and ALM Shanghai is the Chinese Yuan (CNY). The financial statements of SHB and ALM Shanghai are translated into United States dollars in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification TM (ASC) No. 830, " Foreign Currency Matters, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At December 31, 2011, the cumulative translation adjustment of $24,965 was classified as an item of other comprehensive income in the shareholders equity section of the consolidated balance sheet. For the year ended December 31, 2011, accumulated other comprehensive income was $37,379.
The exchange rates used to translate amounts in CNY into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:
Balance sheet items, as of year-end date:
US$0.15649:CNY1 (for both SHB and ALM Shanghai)
Amounts included in the statements of operations, statements of changes in shareholders equity and statements of cash flows for the year: US$0.15443:CNY1 (for SHB) and US$0.15638:CNY1 (for ALM Shanghai)
Revenue Recognition
Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later. At that date, the earnings process has been completed, and the Company can reliably estimate the impact of policy cancellations based upon historical cancellation experience adjusted by known circumstances. The Company keeps a
- 13 -
policy cancellation reserve fund to use if policies are cancelled. Subsequent commission adjustments are recognized upon notification from the insurance companies. Fee income is recognized as services are rendered.
Income Taxes
Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with FASB Accounting Standards Codification TM (ASC) No. 740, " Income Taxes, these deferred taxes are measured by applying currently enacted tax laws.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
N/A
ITEM 8. FINANCIAL STATEMENTS
- 14 -
ALCO, INC.
FINANCIAL STATEMENTS
AT DECEMBER 31, 2011
INDEX
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011 AND 2010
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 15 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
ALCO, Inc.
Hong Kong
We have audited the accompanying consolidated balance sheets of ALCO, Inc. and its subsidiaries (collectively, the Company) as of December 31, 2011 and 2010 and the related statements of operations and comprehensive income, changes in stockholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys 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 financial statements referred to above present fairly, in all material respects, the financial position of ALCO, Inc. and its subsidiaries as of December 31, 2011 and 2010 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ MALONEBAILEY, LLP
www.malone-bailey.com
Houston, Texas
March 30, 2012
- 16 -
ALCO, INC
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010
ASSETS |
| December 31, 2011 |
| December 31, 2010 |
Current assets: |
|
|
|
|
Cash and cash equivalents | $ | 8,203,957 | $ | 8,051,872 |
Commissions receivable, net |
| 399,942 |
| 208,843 |
Enrollment fee receivable |
| 7,380 |
| 809 |
Fiduciary asset |
| 1,075,578 |
| 964,542 |
Due from related party |
| - |
| 23,077 |
Loan receivable |
| 1,912,000 |
| - |
Tax receivable |
| 33,558 |
| - |
Total current assets |
| 11,632,415 |
| 9,249,143 |
|
|
|
|
|
Property, plant and equipment, net |
| 186,501 |
| 296,313 |
Goodwill |
| 208,306 |
| 249,034 |
Intangible asset |
| 43,153 |
| 62,418 |
|
|
|
|
|
Other non-current assets: |
|
|
|
|
Deposits and prepayment |
| 219,482 |
| 144,017 |
Marketable securities |
| 261,854 |
| 340,401 |
Other receivable |
| 119,984 |
| 542,026 |
Total other non-assets |
| 601,320 |
| 1,026,444 |
|
|
|
|
|
Total Assets | $ | 12,671,695 | $ | 10,883,352 |
LIABILITIES |
|
|
|
|
Current Liabilities: |
|
|
|
|
Trade accounts payable | $ | 1,054,919 | $ | 879,087 |
Claim payable |
| 20,744 |
| 19,645 |
Other payable |
| 663,450 |
| 240,370 |
Accrued expenses |
| 100,013 |
| 164,752 |
Income tax payable |
| - |
| 94,527 |
Due to directors |
| 41,184 |
| 8,996 |
Deferred revenue |
| 1,917 |
| 1,917 |
Total Current Liabilities | $ | 1,882,227 | $ | 1,409,294 |
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
STOCKHOLDERS EQUITY |
|
|
|
|
ALCO, Inc. shareholders' equity: |
|
|
|
|
Preferred stock, par value $0.01, 5,000,000 shares authorized; |
|
|
|
|
no shares issued and outstanding | $ | - | $ | - |
Common stock, par value $0.001, 50,000,000 shares authorized; |
|
|
|
|
10,348,000 shares issued and outstanding at December 31, 2011 and 10,342,000 shares issued and outstanding at December 31, 2010 |
| 10,348 |
| 10,342 |
Additional Paid-in capital |
| 218,651 |
| 118,784 |
Accumulated other comprehensive income |
| 37,379 |
| 103,784 |
Retained earnings |
| 10,398,787 |
| 9,110,581 |
Total ALCO, Inc. shareholders' equity |
| 10,665,165 |
| 9,343,491 |
Noncontrolling interest |
| 124,303 |
| 130,567 |
Total equity |
| 10,789,468 |
| 9,474,058 |
Total Liabilities and Stockholders Equity | $ | 12,671,695 | $ | 10,883,352 |
|
|
|
|
|
See Notes to Consolidated Financial Statements |
- 17 -
ALCO, INC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
|
| Year ended December 31, | ||
Revenues |
| 2011 |
| 2010 |
Commission income | $ | 6,467,394 | $ | 6,078,823 |
Consulting income |
| 96,714 |
| 69,500 |
Website advertising |
| 14,000 |
| 14,000 |
Enrollment fee income |
| 14,166 |
| 17,357 |
Total revenues |
| 6,592,274 |
| 6,179,680 |
|
|
|
|
|
Operating Expenses |
|
|
|
|
Salaries |
| 2,629,036 |
| 2,181,906 |
Travel expenses |
| 537,960 |
| 396,948 |
Rents |
| 525,292 |
| 506,732 |
Bad debt expenses |
| 177,348 |
| 466,265 |
Depreciation and amortization |
| 112,564 |
| 40,836 |
Other general and administrative |
| 925,765 |
| 718,341 |
Total operating expenses |
| 4,907,965 |
| 4,311,028 |
|
|
|
|
|
Income from Operations |
| 1,684,309 |
| 1,868,652 |
|
|
|
|
|
Other Income (Expense) |
|
|
|
|
Interest income |
| 4,121 |
| 90,067 |
Investment income |
| 13,240 |
| 11,084 |
Other revenues |
| 88,232 |
| 25,967 |
Loss on disposal of fixed asset |
| (31,767) |
| (7,431) |
Total other income |
| 73,826 |
| 119,687 |
|
|
|
|
|
Income Before Provision for Income Taxes |
| 1,758,135 |
| 1,988,339 |
Provision for income taxes |
| 347,475 |
| 399,272 |
Net Income |
| 1,410,660 |
| 1,589,067 |
Less: Net income attributable to the noncontrolling interest |
| (122,454) |
| (102,341) |
Net Income attributable to ALCO, Inc. | $ | 1,288,206 | $ | 1,486,726 |
|
|
|
|
|
Comprehensive Income: |
|
|
|
|
Net income |
| 1,410,660 |
| 1,589,067 |
Other Comprehensive Income (loss) |
|
|
|
|
Marketable securities |
| (91,370) |
| (40,029) |
Foreign currency translation adjustments |
| 24,965 |
| 23,600 |
Comprehensive Income | $ | 1,344,255 | $ | 1,572,638 |
Less: comprehensive income attributable to non-controlling interest |
| (122,454) |
| (102,341) |
Comprehensive Income attributable to ALCO. Inc. |
| 1,221,801 |
| 1,470,297 |
|
|
|
|
|
Basic and Fully Diluted Earnings per Share |
|
|
|
|
Net income attributable to ALCO, Inc |
|
|
|
|
common shareholders | $ | 0.12 | $ | 0.14 |
|
|
|
|
|
Weighted average shares outstanding |
| 10,345,995 |
| 10,263,047 |
|
|
|
|
|
See Notes to Consolidated Financial Statements |
- 18 -
ALCO, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2011 AND 2010
|
|
| Year ended December 31, | ||
|
|
| 2011 |
| 2010 |
Operating Activities |
|
|
|
|
|
Net income |
| $ | 1,410,660 | $ | 1,589,067 |
Adjustments to reconcile net income to net cash: |
|
|
|
|
|
Bad debt |
|
| 177,348 |
| 466,265 |
Depreciation expense |
|
| 91,271 |
| 40,836 |
Amortization expense |
|
| 21,293 |
| - |
Stock-based compensation |
|
| 99,873 |
| 58,613 |
Loss on disposal of fixed asset |
|
| 31,767 |
| 10,051 |
Changes in operating assets and liabilities: |
|
|
|
|
|
(Increase)/Decrease in commission receivable |
|
| (171,584) |
| 22,109 |
(Increase)/Decrease in enrolment fee receivable |
|
| (6,571) |
| (37) |
(Increase)/Decrease in deposit and prepayment |
|
| (75,196) |
| (60,669) |
(Increase)/Decrease in fiduciary asset |
|
| (111,024) |
| (459,743) |
(Increase)/Decrease in other receivable |
|
| 253,943 |
| (76,087) |
Increase/(Decrease) in accounts payable |
|
| 175,833 |
| 253,701 |
Increase/(Decrease) in claims payable |
|
| 1,098 |
| (28,859) |
Increase/(Decrease) in other payable |
|
| 421,814 |
| (29,043) |
Increase/(Decrease) in accrued expenses |
|
| (64,779) |
| 81,977 |
Increase/(Decrease) in due from related party |
|
| 23,077 |
| - |
Increase/(Decrease) in income tax payable / receivable |
|
| (128,315) |
| 106,557 |
Net cash provided by operating activities |
|
| 2,150,508 |
| 1,974,738 |
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
Loan made to third parties |
|
| (1,912,000) |
| - |
Cash paid for acquisition of SHB |
|
| - |
| (287,236) |
Cash paid for purchase of fixed assets |
|
| (26,613) |
| (152,685) |
Sale proceed from disposal of fixed assets |
|
| 15,443 |
| - |
Net cash (used) by investing activities |
|
| (1,923,170) |
| (439,921) |
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
Dividend paid to minority shareholders |
|
| (128,718) |
| (76,923) |
Repayment of obligations under finance leases |
|
| - |
| (3,284) |
Borrowings on related party debt |
|
| 106,820 |
| 24,687 |
Principal payments on related party debt |
|
| (74,633) |
| (30,781) |
Net cash (used) by financing activities |
|
| (96,531) |
| (86,301) |
|
|
|
|
|
|
(Decrease) / increase in cash |
|
| 130,807 |
| 1,448,516 |
Effect of exchange rate changes on cash |
|
| 21,278 |
| 15,480 |
Cash at beginning of period |
|
| 8,051,872 |
| 6,587,876 |
Cash at end of period |
| $ | 8,203,957 | $ | 8,051,872 |
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
Cash paid / (receive) during year for: |
|
|
|
|
|
Interest |
| $ | - | $ | - |
Income taxes |
| $ | (475,560) | $ | (292,492) |
|
|
|
|
|
|
Non-Cash Transactions |
|
|
|
|
|
- 19 -
Reclassification from Deposit to Due from Related Parties |
| $ | - | $ | 23,077 |
Restricted shares issued |
| $ | 6 | $ | 192 |
Dividend received |
| $ | 12,823 | $ | 11,070 |
Purchase price allocation adjustment |
|
| 40,728 |
| - |
Change in fair value for Available-for-sales securities |
| $ | 91,370 | $ | 40,029 |
|
|
|
|
|
|
See Notes to Consolidated Financial Statements |
- 20 -
ALCO, INC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
|
|
|
|
|
|
| ALCO, Inc Shareholders |
|
|
|
|
|
| ||
|
|
|
|
|
|
| Accumulated Other Comprehensive Income (loss) |
|
|
|
|
|
|
|
|
| Common Stock |
| Additional Paid-in Capital |
|
| Retained Earnings |
| Total Stockholders' Equity |
| Non-controlling Interest |
| Total Equity | |||
| Shares |
| Par Value |
|
|
|
|
|
| ||||||
Balance, January 1, 2010 | 10,150,000 | $ | 10,150 | $ | 60,363 | $ | 120,213 | $ | 7,623,855 | $ | 7,814,581 | $ | 105,149 | $ | 7,919,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares issued to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued | 198,000 |
| 198 |
| (198) |
|
|
|
|
| - |
|
|
| - |
Stock forfeited | (6,000) |
| (6) |
| 6 |
|
|
|
|
| - |
|
|
| - |
Stock based compensation |
|
|
|
| 58,613 |
|
|
|
|
| 58,613 |
|
|
| 58,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
|
|
|
|
|
| (40,029) |
|
|
| (40,029) |
|
|
| (40,029) |
Foreign currency translation adjustments |
|
|
|
|
|
| 23,600 |
|
|
| 23,600 |
|
|
| 23,600 |
Net Income |
|
|
|
|
|
|
|
| 1,486,726 |
| 1,486,726 |
| 102,341 |
| 1,589,067 |
Dividend paid |
|
|
|
|
|
|
|
|
|
|
|
| (76,923) |
| (76,923) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 | 10,342,000 |
| 10,342 |
| 118,784 |
| 103,784 |
| 9,110,581 |
| 9,343,491 |
| 130,567 |
| 9,474,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Shares issued to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued | 25,500 |
| 26 |
| (26) |
|
|
|
|
| - |
|
|
| - |
Stock forfeited | (19,500) |
| (20) |
| 20 |
|
|
|
|
| - |
|
|
| - |
Stock based compensation |
|
|
|
| 99,873 |
|
|
|
|
| 99,873 |
|
|
| 99,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on marketable securities |
|
|
|
|
|
| (91,370) |
|
|
| (91,370) |
|
|
| (91,370) |
Foreign currency translation adjustments |
|
|
|
|
|
| 24,965 |
|
|
| 24,965 |
|
|
| 24,965 |
Net Income |
|
|
|
|
|
|
|
| 1,288,206 |
| 1,288,206 |
| 122,454 |
| 1,410,660 |
Dividend paid |
|
|
|
|
|
|
|
|
|
|
|
| (128,718) |
| (128,718) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011 | 10,348,000 |
| 10,348 |
| 218,651 |
| 37,379 |
| 10,398,787 |
| 10,665,165 |
| 124,303 |
| 10,789,468 |
See Notes to Consolidated Financial Statements |
- 21 -
ALCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011
Note 1 Organization and Operations
Description of Business
ALCO, Inc. (ALCO, we, us, the Company) was incorporated in Nevada on June 7, 1999 as Seahorse, Inc. and changed its name to Lotus Capital Corp. on September 20, 2004. The Company changed its name to ALCO, Inc. on February 13, 2006.
The Company is principally engaged in the marine insurance brokerage business in the Asia Pacific region, through its wholly owned subsidiary, AL Marine Holdings (BVI), Ltd., a British Virgin Islands corporation ("AL Marine").
AL Marine is the 100% owner of Andrew Liu and Co., Ltd., a corporation principally engaged in the business of marine insurance brokerage in Asia. AL Marine owns 60% of Chang An Consultants Ltd., a joint venture with China Changjiang National Shipping Corporation (CSC Group) that serves as a vehicle for the provision of marine insurance brokerage and other marine business services by AL Marine. AL Marine owns 85% of EdushipAsia Ltd. In 2005 and 2004, EdushipAsia Ltd was appointed as an exclusive agent by the Institute of Chartered Shipbrokers (UK) (ICS) to set up ICSs first distant learning centre in Shanghai, PRC. AL Marine owns 100% of AL Marine Holdings (Hong Kong) Limited (ALM HK), a corporation principally engaged in the investment holding. ALM HK owns 100% of AL Marine Consulting Services (Shanghai) Ltd (ALM Shanghai), a corporation principally engaged in the investment holding. ALM Shanghai, through an agency arrangement, owns 100% of Shanghai Heshili Broker Co. Limited (SHB), a corporation principally engaged in the business of general insurance brokerage in China.
ALCO, Inc. and AL Marine are hereafter referred to as the Company.
Under the current Chinese regulations, there are restrictions on the percentage interest foreign or foreign-invested companies may have in Chinese companies providing insurance brokerage services in China. In addition, the operation by foreign or foreign-invested companies of insurance brokerage business in China is subject to government approval. In order to comply with these restrictions and other Chinese rules and regulations, ALM Shanghai entered into an exclusive agreement with SHB. Under the agreement, the Company provides all management and administration services and financial support to SHB for its operations. SHB is prohibited from entering into any exclusive agreement without the Companys prior approval.
SHB is 100% beneficially owned by a Chinese party. An agency agreement is entered into between the Chinese party and ALM Shanghai. Under this agreement, the Chinese party is holding the shares of SHB on behalf of ALM Shanghai. The company does not have any direct ownership interest in SHB.
As a result of our contractual arrangements with SHB above, we bear the risks of, and enjoy the rewards associated with, and therefore are the primary beneficiary of our investments in SHB, and we have begun to consolidate its results of operations in our consolidated financial statements commencing in the fiscal year 2011.
Control by Principal Stockholders
The directors, executive officers, their affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding share capital of the Company. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.
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Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation.
Note 2 Significant Accounting Policies
Economic and Political Risks
The Company faces a number of risks and challenges since its assets are located in Hong Kong, a Special Administrative Region of the People's Republic of China ("PRC"), and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.
Basis of Presentation
The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries and other entity which require consolidation. Inter-company transactions have been eliminated in consolidation.
In accordance with ASC 810 (SFAS No.167 Amendments to FASB Interpretation No. 46(R)), the Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
VIEs are generally entities that lack sufficient equity to operate without additional subordinated financial support from other parties or are entities whose equity holders do not have adequate decision making authority. The primary beneficiary of a VIE is the party that (a) has the power to direct the activities of a VIE that significantly impacts its economic performance and (b) has the obligation to absorb the losses or the rights to receive the benefits that could be significant to the VIE.
According to the requirements of ASC 810, we have evaluated our relationships with SHB. We have concluded that SHB is a VIE, and the Company is the primary beneficiary of the VIE. Accordingly, we adopted the provisions of ASC 810 and consolidated SHB into our financial statements as of and for the year ended December 31, 2011.
The companys VIE consolidated net assets were US$847,174 at December 31, 2011.
The consolidated financial statements have been prepared in accordance with US GAAP and the instructions to Form 10-K and Regulation S-K. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows at December 31, 2011 and 2010 for all periods presented have been made.
Certain accounting principles, which are stipulated by US GAAP, are not applicable in the HKAS. The difference between HKAS accounts of the Company and its US GAAP financial statements is immaterial.
The Company maintains its books and accounting records in Hong Kong dollar ("HK$"), which is determined as the functional currency. Assets and liabilities of the Company are translated at the prevailing exchange rate at each year end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income statement accounts are translated at the average rate of exchange during the year. Translation adjustments arising from the use of different exchange rates from period to period are included in the cumulative translation adjustment account in shareholders' equity. Gain and losses resulting from foreign currency transactions are included in operations.
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Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of credit risk consist principally of accounts receivable and cash. Exposure to losses on receivables is dependent on each customer's financial condition. The Company controls its exposure to credit risk through a process of credit approvals, credit limits and monitoring procedures, establishing allowances for anticipated losses.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results, when ultimately realized could differ from those estimates.
Significant Estimates
Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.
Revenue Recognition
Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later. At that date, the earnings process has been completed and the Company can reliably estimate the impact of policy cancellations based upon historical cancellation experience adjusted by known circumstances. The policy cancellation reserve is periodically evaluated and adjusted as necessary. Subsequent commission adjustments are recognized upon notification from the insurance companies. Commission revenues are reported net of commissions paid to sub-brokers. Fee income is recognized as services are rendered.
Cash and Cash Equivalents
The Company invests idle cash primarily in money market accounts, certificates of deposit and short-term commercial paper. Money market funds and all highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents.
Commissions and Other Receivables
Commissions and other receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable.
We made allowance for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We analyze the aging of receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness or weakening in economics trends could have a significant impact on the collectability of receivables and the allowance. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances will be made.
Allowances are applied to commissions and other receivables where events or changes in circumstance indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgment and estimates as mentioned above. Where the expectation on or the actual recoverability of commissions and other receivables is different from the original estimate,
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such difference will impact the carrying value of commissions and other receivables and doubtful debts expenses in the periods in which such estimate is changed or the receivable are collected.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the income statement in the year of disposition.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual percentages applied are:
Motor vehicles
20%
Furniture and fixtures
15%
Office equipment
15%
Leasehold improvements
20%
Marketable Securities
All marketable securities are classified as available-for-sale securities. Available-for-sale securities are carried at fair value with resulting unrealized gains and losses, reported as a component of accumulated other comprehensive loss. Long-term marketable securities have remaining maturities at the balance sheet date of one year or greater.
Accounts Payable and Claims Payable
In its capacity as an insurance agent or broker, the Company collects premiums from customers and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers on behalf of customers. Unremitted insurance premiums and claims are held in a fiduciary capacity. The obligation to remit premiums is recorded as accounts payable and the obligation to remit claims and refunds is recorded as claims payable on the balance sheet.
Pension Costs
Mandatory contributions are made to the Hong Kong's Mandatory Provident Fund (MPF), based on a percentage of the employees' basic salaries. The cost of these payments are charged to the profit and loss accounts as they become payable in accordance with the rule of the MPF Scheme. The employer contributions vest fully with the employees when contributed into the MPF Scheme.
Income Taxes
Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with FASB Accounting Standards Codification TM No. 740, " Income Taxes, these deferred taxes are measured by applying currently enacted tax laws. The Company's effective tax rate for December 31, 2011 and 2010 was 19.76% and 20.08%, respectively. The Company did not provide any current or deferred income tax provision or benefit for any period presented to date because book income is substantially equal to taxable income, with only minor timing differences with regard to the depreciation of fixed assets. Management has determined that any deferred tax asset or liability is inconsequential, and not material to the financial statements.
Fair Value of Measurements
The Company adopted Statement of ASC No. 820, Fair Value Measurements and Disclosures, effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.
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ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost. ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:
Level 1:
Unadjusted quoted prices in active markets for identical assets or liabilities
Level 2:
Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
Level 3:
Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.
An asset or liabilitys level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.
Valuation of Goodwill and Other Intangible Assets
The Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. Current authoritative guidance requires goodwill to be tested for impairment annually as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Companys individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition. If such cash flows are not sufficient to support the assets recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value. The determination of future cash flows, as well as the estimated fair value of long-lived assets, involves significant estimates on the part of management. In order to estimate the fair value of a long-lived asset, the Company may engage a third-party to assist with the valuation. If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future.
Related Party Transactions
The Company rented an office space in Hong Kong and rents an quarter in Shanghai from a company owned by directors of the Company.
Foreign Currency and Other Comprehensive Income
The accompanying financial statements are presented in United States (US) dollars. The functional currency of ALC, CAC and ESA is the Hong Kong dollar (HK$). The financial statements are translated into US dollars from HK$ at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
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The Hong Kong Monetary Authority (HKMA), Hong Kong's central bank, maintains a Linked Exchange Rate System since 1983. The HKMA operates Convertibility Undertakings on both the strong side and the weak side of the Linked Rate of US$1: HK$7.8. In fact, the exchange rate for HK$ to US dollars has varied by only 100ths during 2011 and 2010. Thus, the consistent exchange rate used has been 7.80 HK$ per each US dollar. Since there have been no greater fluctuations in the exchange rate, there is no gain or loss from foreign currency translation and no resulting other comprehensive income or loss.
Foreign currency transactions are those that required settlement in a currency other than HK$. Gain or loss from foreign currency transactions, or exchange loss, are recognized in income in the period they occur.
The functional currency of SHB and ALM Shanghai is the Chinese Yuan (CNY). The financial statements of SHB and ALM Shanghai are translated into United States dollars in accordance with FASB Accounting Standards Codification TM (ASC) No. 830, " Foreign Currency Matters, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.
The exchange rates used to translate amounts in CNY into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:
Balance sheet items, as of year-end date:
US$0.15649:CNY1
Amounts included in the statements of operations, statements of changes in shareholders equity and statements of cash flows for the year:
US$0.15443:CNY1 (for SHB from January to December 2011)
US$0.15638:CNY1 (for ALM Shanghai from August (company set up date) to December 2011)
Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Recent Accounting Pronouncements
The Company has evaluated all the recent accounting pronouncements through the filing date and believes that none of them will have a material effect on the Company.
Note 3 Cash
|
| December 31, |
| December 31, |
Cash consist of the following: |
| 2011 |
| 2010 |
|
|
|
|
|
Cash in hand | $ | 6,163 | $ | 4,755 |
Cash in bank - Saving & Checking |
|
|
|
|
China Construction Bank (Asia) (formerly known as Bank of America (Asia)) |
| 7,552,133 |
| 7,487,205 |
United Overseas Bank |
| 5,915 |
| 5,773 |
Bank of China |
| 55,034 |
| 4,176 |
Sun Hung Kei Financial |
| 42 |
| 106 |
Bank of Shanghai |
| 581,130 |
| 538,400 |
Industrial and Commercial Bank of China |
| 4 |
| 516 |
Hui Shang Bank |
| 3,536 |
| 10,941 |
| $ | 8,203,957 | $ | 8,051,872 |
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Cash balances are held principally at one financial institution and are not insured. The Company believes it mitigates its risk by investing in or through major financial institutions. Recoverability is dependent upon the performance of the institution.
Although the cash balances are not insured, however, starting in September 2006, cash balances (except accounts with overdraft facilities) are protected by the Deposit Protection Scheme which is maintaining by the Hong Kong Deposit Protection Board, an independent statutory body established under the Deposit Protection Scheme Ordinance (Cap. 581).
Under the scheme, compensation up to a limit of HK$100,000 (US$12,821) per depositor would be paid from the scheme to depositor if the bank with which the depositor holds his/her eligible deposits fails. On October 14, 2008, the Hong Kong Government announced that they would use the Exchange Fund to guarantee the repayment of all customer deposits held in authorized institutions in Hong Kong, following the principles of the Deposit Protection Scheme. This action began on October 14, 2008 and expired at the end of 2010. Following the enactment of the Deposit Protection Scheme (Amendment) Ordinance 2010 in June 2010, the protection limit of the Deposit Protection Scheme is increased from HK$100,000 per depositor to HK$500,000 (approximately US$64,103) per depositor with effect from January 1, 2011.
Note 4 Commissions Receivable
|
| December 31, |
| December 31, |
Commissions receivable consist of the following: |
| 2011 |
| 2010 |
|
|
|
|
|
Commissions receivable | $ | 620,353 | $ | 773,391 |
Less: allowances for doubtful accounts |
| 220,411 |
| 564,548 |
| $ | 399,942 | $ | 208,843 |
Note 5 Fiduciary Assets
Fiduciary assets are cash balances held by a bank, mainly consisting of premiums collected from customers and payable to insurers, and claims received from insurers and payable to policyholders.
When the Company receives a premium from a customer, it debits the lump sum amount into one bank account and establishes a schedule to keep track of the amount of premium payable to the insurer. At the monthly closing, the Company reclassifies the amount of premium payable to insurers as fiduciary assets. Also, when the Company receives a claim on behalf of a policyholder, it debits fiduciary assets and credits claims payable and other payables, if necessary. The fiduciary assets balance for December 31, 2011 and 2010 are as follows:
|
| December 31, |
| December 31, |
|
| 2011 |
| 2010 |
|
|
|
|
|
Fiduciary asset | $ | 1,075,578 | $ | 964,542 |
Note 6 Due From Related Party
In February 2010, Fortune Ocean Ltd, a corporation owned by directors of the Company, sold the properties of Room 501, 502A and 502B of the Hong Kong Office to a third party. In this connection, the Company ceased to rent the properties from Fortune Ocean Ltd starting in March 2010. The amount of US$23,077 due from Fortune Ocean Ltd is the rental deposit and had been returned to the Company during the year of 2011.
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Note 7 Property, Plant and Equipment
|
| December 31, |
| December 31, |
Property, Plant and Equipment consists of the following: |
| 2011 |
| 2010 |
|
|
|
|
|
Furniture and fixtures | $ | 186,792 | $ | 181,912 |
Office equipment |
| 178,230 |
| 171,960 |
Leasehold improvements |
| 203,831 |
| 196,221 |
Motor Vehicle |
| 61,899 |
| 109,559 |
|
| 630,752 |
| 659,652 |
Less: Accumulated depreciation |
| 444,251 |
| 363,339 |
| $ | 186,501 | $ | 296,313 |
Depreciation expense for 2011 and 2010 was $91,271 and $40,836 respectively. Loss on disposal of fixed assets for the year ended December 31, 2011 and 2010 were $31,767 and $10,051 respectively.
Note 8 Goodwill and Other Intangible Assets
On December 16, 2010 (the Acquisition Date), the Company acquired all of the outstanding stock of Shanghai Heshili Broker Co. Limited (SHB). The total amount of cash paid for the acquisition was $852,223, in which $249,034 and $62,418 were allocated to goodwill and identifiable intangible assets respectively. The allocation was carried out in accordance with the purchase acquisition accounting and based on the estimated fair values of such assets as of the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.
An impairment analysis on the goodwill was completed at December 31st of each year with no impairment at December 31, 2011 and 2010. None of the goodwill is expected to be deductible for income tax purposes. During the year ended December 31, 2011, certain assets and liabilities of SHB amounting to $40,728 were identified. Thus, fair values of the assets, liabilities, and goodwill have been adjusted as follows:
| December 16, 2010 (As initially reported) |
| Measurement Period Adjustments |
| December 16, 2010 (As adjusted) | |
Property, plant and equipment | $ | 76,717 | $ | - | $ | 76,717 |
Intangible asset |
| 62,418 |
| - |
| 62,418 |
Cash in banks |
| 557,645 |
| - |
| 557,645 |
Accounts receivable |
| 38,619 |
| 36,851 |
| 75,470 |
Other receivable |
| - |
| 12,661 |
| 12,661 |
Total identifiable assets |
| 735,399 |
| 49,512 |
| 784,911 |
|
|
|
|
|
|
|
Current liabilities |
| 132,210 |
| 8,784 |
| 140,994 |
Total liabilities assumed |
| 132,210 |
| 8,784 |
| 140,994 |
|
|
|
|
|
|
|
Net identifiable assets acquired |
| 603,189 |
| 40,728 |
| 643,917 |
Goodwill |
| 249,034 |
| (40,728) |
| 208,306 |
Net assets acquired |
| 852,223 |
| - |
| 852,223 |
The above estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available as of the Acquisition Date. Measurement period adjustments reflect new information obtained about facts and circumstances that existed as of the Acquisition Date. The Company considers that information gathered to date provides a
- 29 -
reasonable basis for estimating the fair values of assets acquired and liabilities assumed. The Company has finalize the valuation and complete the purchase price allocation.
Intangible asset is in relation to the acquired customer list with a useful life of 3 years. Amortization expense for the year ended December 31, 2011 of the intangible asset is $21,293. An impairment analysis on the customer list was completed at December 31st of each year with no impairment at December 31, 2011 and 2010.
The unaudited pro forma information of the Company set forth below gives effect to the acquisition of SHB as if it had been consummated as of the beginning of the applicable period. The unaudited pro forma information has been derived from the historical consolidated financial statement of the Company and of SHB. The unaudited pro forma information is for illustrative purposes only.
|
| Year Ended December 31, | ||
|
| 2011 |
| 2010 |
Net Revenue | $ | 6,592,274 | $ | 6,901,584 |
|
|
|
|
|
Net Income | $ | 1,410,660 | $ | 1,574,388 |
Note 9 Fair Value of Marketable Securities Investment and Investment Income
The following are the Companys investments owned and securities sold short by level within the fair value hierarchy at December 31, 2011 and 2010 are as follows:
Assets |
| Fair value |
| Fair value Hierarchy | ||
|
| December 31, 2011 |
| December 31, 2010 |
|
|
|
|
|
|
|
|
|
Stocks | $ | 261,854 | $ | 340,401 |
| Level 1 |
|
|
|
|
|
|
|
Unrealized loss of $91,370 and $40,029 for the investments were recognized in the other comprehensive income for 2011 and 2010, respectively. All these gain and loss are related to the investments listed in the Hong Kong Stock Exchange.
|
| December 31, |
| December 31, |
Investment Income |
| 2011 |
| 2010 |
|
|
|
|
|
Dividend from the publicly traded equity securities | $ | 13,240 | $ | 11,084 |
Note 10 Loan Receivable
On August 4, 2011, the Company subsidiary Andrew Liu & Company Limited (ALC) entered into a loan agreement with its clients, Jian Mao International Shipping Co Ltd (JMISCL) and Jian Xing Intl Shipping Co Ltd (JXISCL). Under the loan agreement, ALC will make available to JMISCL and JXISCL an on demand loan facility in the principal amount of up to US$3,000,000. The loan is interest free and secured by the claim proceeds under a claim filed by JMISCL and JXISCL under the terms an existing Hull & Machinery insurance policy insuring a vessel owned and managed by JMISCL and JXISCL respectively. The loan is payable upon demand at any time following settlement of the claim if the claim proceeds are not adequate to cover the loan in full, and in any event is due and payable in full on or before August 4, 2012.
As at December 2011, the outstanding balance of the loan is as follows:
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|
|
|
|
|
| December 31, |
|
|
|
|
|
| 2011 |
|
|
|
|
|
|
|
Loan amount |
|
| $ | 3,000,000 | ||
Less: Repayment |
|
|
| (1,088,000) | ||
Balance |
|
| $ | 1,912,000 |
Note 11 Due to Directors
|
| December 31, |
| December 31, |
Due to directors consist of the following: |
| 2011 |
| 2010 |
|
|
|
|
|
Andrew Liu Fu Kang | $ | 40,487 | $ | 8,851 |
John Liu Shou Kang |
| 697 |
| 145 |
| $ | 41,184 | $ | 8,996 |
Due to director represents loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand.
Note 12 Stock-based Compensation
2010 restricted stock plan
On June 1, 2010, the board of directors approved and the Company granted an award of 198,000 shares of restricted stock to certain key employees and directors of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan as approved by the Companys Board of Directors. Under the plan, a maximum of 500,000 common shares may be delivered in satisfaction of awards. Key employees and directors are eligible to participate in the plan. Each grant of restricted shares under the Plan is subject to certain terms and conditions such as the shares cannot be transferred during the restriction period and the shares will be forfeited if the employment is terminated by the holder or the Company. Restricted stocks are granted at a strike price that is equal to the fair value of the Companys stock on the date of grant.
The aggregate value of this award was $310,860, as determined by multiplying the number of shares times the fair value of the Companys stock on June 1, 2010, the date of the grant award. The fair value is based on discounted free cash flow analyses, which involve managements best estimate of future revenue, operation expenses, investing activities, and financing activities. In the valuation, the free cash flow is projected for five years and is determined by using the Companys historical figures such as revenue and operation expenses which are compounded annually with 5% growth rate. Free cash flow occurring beyond the five-year projection period is assumed to be in perpetuity and determined by using the Perpetuity Growth Model in which the project net cash flow is divided by the risk-free rate. The sums of the five-year free cash flow together with the perpetual free cash flow are then discounted by the risk free rate. As a result, the fair value of the Companys stock on the date of the grant award is $1.57 per share. When determining the risk-free rate, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.
2011 restricted stock plan
On June 1, 2011, the board of directors approved and the Company granted an award of 25,500 shares of restricted stock to certain key employees of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above. The aggregate value of this award was $71,145, as determined by multiplying the number of shares times the fair value of the Companys stock on June 1, 2011, the date of the grant award. The fair value is calculated based on the same approach
- 31 -
mentioned above and the fair value of the Companys stock on the date of the grant award is $2.79 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.
During the year ended December 31, 2011 and 2010, the Company recognized $99,873 and $58,613 respectively, of stock-based compensation expense.
Note 13 Related Party Transaction
The Company rents quarters for directors in Hong Kong and Shanghai from companies owned by directors of the Company. The relevant rent expenses consist of following:
|
|
|
| December 31, |
| December 31, |
|
|
|
| 2011 |
| 2010 |
Location |
| Landlord |
|
|
|
|
|
|
|
|
|
|
|
HK Office Room 501 & 502A |
| Fortune Ocean Ltd | $ | - | $ | 23,846 |
HK Office Room 502B |
| Fortune Ocean Ltd |
| - |
| 7,692 |
Shanghai Quarter |
| Fortune Ocean and Andrew Liu Fu Kang |
| 30,769 |
| 30,769 |
Director (Andrew) Quarter |
| First Pacific Development Ltd |
| 20,000 |
| 20,000 |
|
|
| $ | 50,769 | $ | 82,307 |
Note 14 Income Taxes
The Company's effective tax rate for 2011 and 2010 was 19.76% and 20.08%, respectively. The provisions for income taxes for 2011 and 2010 are summarized as follows:
Hong Kong only: |
| 2011 |
| 2010 |
|
|
|
|
|
Current | $ | 347,475 | $ | 399,272 |
Deferred |
| - |
| - |
| $ | 347,475 | $ | 399,272 |
A reconciliation between the income tax computed at the U.S. statutory rate and the Companys provision for income tax is as follows:
|
| 2011 |
| 2010 |
|
|
|
|
|
U.S. statutory rate |
| 34.00% |
| 34.00% |
|
|
|
|
|
Foreign income not recognized in the U.S. |
| -34.00% |
| -34.00% |
Miscellaneous permanent differences |
| 3.26% |
| 3.58% |
Hong Kong income tax rate |
| 16.50% |
| 16.50% |
Provision for income tax |
| 19.76% |
| 20.08% |
There were no significant permanent or temporary differences.
Accounting for Uncertainty in Income Taxes
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The Company adopted the provisions of Accounting for Uncertainty in Income Taxes on January 1, 2007. The provisions clarify the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with the standard Accounting for Income Taxes, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of Accounting for Uncertainty in Income Taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Based on the Companys evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.
Note 15 Operating Leases
Future minimum lease payments for operating leases for the succeeding years consists of following:
|
| 2012 |
| 2013 |
| 2014 and thereafter |
| Total |
|
|
|
|
|
|
|
|
|
Carmel Hill, Hong Kong (Director Quarter) | $ | 63,846 | $ | - | $ | - | $ | 63,846 |
Room 501 and 502, Bank of America Tower, Hong Kong (Hong Kong Office) |
| 25,856 |
| - |
| - |
| 25,856 |
Room 505, Bank of America Tower, Hong Kong (Hong Kong Office) |
| 21,200 |
| - |
| - |
| 21,200 |
25th Floor, Fortis Tower, Hong Kong (New Hong Kong Office) |
| 245,386 |
| 312,615 |
| 468,923 |
| 1,026,924 |
Union Building, Shanghai, China (Shanghai Office) |
| 16,675 |
| - |
| - |
| 16,675 |
Union Building, Shanghai, China (ALM Shanghai Office) |
| 25,689 |
| - |
| - |
| 25,689 |
Union Building, Shanghai, China (SHB Office) |
| 28,258 |
| - |
| - |
| 28,258 |
Sino Plaza, Fuzhou (Fuzhou Office) |
| 12,148 |
| - |
| - |
| 12,148 |
| $ | 439,058 | $ | 312,615 | $ | 468,923 | $ | 1,220,596 |
The Company has eight material operating lease commitments for its facilities. The initial term of the lease arrangement for Director Quarter is two years beginning July 19, 2010 with a minimum lease commitment of $63,846.
For the Hong Kong Office of Room 501 and 502, Bank of America Tower, Central, the initial term of the lease is two years beginning March 1, 2010 with a minimum lease commitment of $25,856. This lease arrangement has no rent holiday but have a renewal option that, when the lease is ended in February 2012, the Company can renew the lease for two years (from March 1, 2012 to February 28, 2014) at the prevailing market rent. For the Hong Kong Office of Room 505, Bank of America Tower, the initial term of the lease is two years beginning November 15, 2009 with a minimum lease commitment of $0. This lease arrangement has a three-month rent free period from November 15, 2009 to February 14, 2010. The lease was ended in 2011 and the Company had renewed the lease for two and half months with a minimum lease commitment of $21,200. Because the Company is continuing growth and the existing properties are no longer to meet the Companys need, the Hong Kong Office will move to a new property in March 2012. The new property is located in Wanchai, Hong Kong with 6,350 sq. ft. The leasess for the existing office located in Central mentioned as above were not renewed.
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For the new property in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012 with a minimum lease commitment of $1,026,924. This lease arrangement has a 50 days rent free period from January 30, 2012 to March 19, 2012. When the lease is ended in June 2015, the Company can renew the lease for two years (from July 1, 2015 to June 30, 2017) at the prevailing market rent.
For the Shanghai Office, the initial term of the lease is one year beginning January 1, 2012 with a minimum lease commitment of $16,675. For the Office of ALM Shanghai, the initial term of the lease is one year beginning January 1, 2012 with a minimum lease commitment of $25,689. For the SHB Office, the initial term of the lease is one year beginning January 1, 2012 with a minimum lease commitment of $28,258. All the lease arrangements mentioned above have no renewal option and rent holiday.
For the Fuzhou Office, the initial term of the lease is two years beginning August 1, 2010 with a minimum lease commitment of $12,148. This lease arrangement has a one-month rent free period from August 1 to August 31, 2010. In addition, the lease arrangement has no renewal option.
Note 16 Noncontrolling Interest
On February 1, 2012, the Company subsidiary Chang An Consultants Ltd., declared dividends of approximately $321,795. The company has paid $128,718 to the noncontrolling shareholders.
Note 17 Commitments and Contingencies
The Company's business operations exist solely in the PRC and are subject to significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency limitations.
The Company's results may thus be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies, laws, regulations, anti-inflationary measures, currency conversion and remittance limitation, and rates and methods of taxation, among other things.
Note 18 Subsequent Event
On February 1, 2012, the Company subsidiary Chang An Consultants Ltd., declared dividends of $314,103. The company has paid $125,641 to the noncontrolling shareholders in February 2012.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
Management's Annual Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Companys internal control over financial reporting is designed to provide reasonable assurance for the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations (further discussed in next paragraphs below), internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2011. In this assessment, the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework were used. Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2011.
Inherent Limitations in Control Systems
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As a result, our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal control over financial reporting, will prevent all error and all fraud.
Evaluation of Disclosure on Controls and Procedures
The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company's "disclosure, controls and procedures" (as defined in the Exchange Act Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date"). Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving the
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objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified. Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of December 31, 2011 to provide reasonable assurance of the achievement of these objectives.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) or any other factors during the quarter of the fiscal year ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND OFFICERS
The directors and executive officers currently serving ALCO are as follows:
Name | Age | Position | Director/Officer Since |
Andrew Liu Fu Kang | 50 | President and Chairman of the Board | 2005 |
John Liu Shou Kang | 51 | Director | 2005 |
Colman Au Kwok Wai | 46 | Chief Financial Officer, Secretary | 2008 |
BIOGRAPHICAL INFORMATION
Mr. Andrew Liu Fu Kang, is the founder and Chairman of AL Marine and has been the Chairman and Chief Executive Officer of the Company since December 9, 2005. He is responsible for the overall management, development, and strategic planning of AL Marine. He also oversees certain key client accounts and is frequently consulted on insurance claims of a more complex nature. Before establishing AL Marine, he worked for Richard Hogg International Adjusters in London and Stevens Elmslie & Co. in Hong Kong for a total of 6 years handling all aspects of shipowners rights under the hull policy and vis-a-vis third parties, such as general average and salvage, legal defense work and arbitrations. He was awarded an honors degree in Naval Architecture & Shipbuilding from the University of Newcastle Upon Tyne, U.K, a Masters degree in Marine Law from Cardiff
- 36 -
University, U.K and a Diploma in International Trade Law from the City of London Polytechnic. He passed the Common Professional Exams in Law from Manchester Polytechnic. He is a member of the Chartered Insurance Institute and the Chartered Institute of Shipbrokers. He is the brother of John Liu Shou Kang.
Mr. John Liu Shou Kang is a Director of AL Marine and has been a Director and Vice President of the Company since December 9, 2005. He is responsible for the overall management of AL Marine, in particular, human resources and operational activities. Prior to joining AL Marine in 1990, he worked in Sembawang Shipyard, Singapore for 2 years and was in charge of the supervision of all aspects of ship repairs including, design, conversion and costing. He later worked in Sembawang Shipping Co., Singapore for another 4 years as manager in charge of operations including charter parties, litigation and Hull and P&I claims. He was awarded an honors degree in Naval Architecture & Shipbuilding from the University of Newcastle Upon Tyne, U.K and a Masters degree in International Shipping from Plymouth University, U.K. He is the brother of Andrew Liu Fu Kang.
Mr. Colman Au Kwok Wai is the Financial Controller of AL Marine and has been the Chief Financial Officer and Secretary of the Company since January 7, 2008. He has worked for an accounting firm and a number of listed companies and multi-national corporations in Hong Kong and China and has over 15 years' experience in internal auditing, statutory auditing and accounting. From September 2002 to November 2004, he was the Internal Audit Manager of Huawei Technology Co., Ltd, a China based multi-national corporation specializing in development, production and sales of communication equipment and solutions for telecom carriers, where he was responsible for performing risk assessments, preparing audit plans and conducing audit reviews on the operations of Huawei in China, Hong Kong and overseas. From November 2004 to January 2008, he was the Senior Internal Audit Manager of Esquel Enterprises Limited, a Hong Kong based multi-national corporation with production facilities in China, Hong Kong and overseas producing premium cotton shirts for high-end brand names, where he was responsible for overseeing the internal audit function of the operations of Esquel in China and Hong Kong. He obtained a Bachelor of Commerce degree in Accounting from the Curtin University of Technology in 1999 and a Master degree in Professional Accounting from the Hong Kong Polytechnic University in 2002. He is a fellow member of the Association of Chartered Certified Accountants, a member of Hong Kong Institute of Certified Public Accountants, a certified information system auditor (CISA) of the Information Systems Audit and Control Association and a certified internal auditor (CIA) of the Institute of Internal Auditors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership. Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file. Based solely on our review of the copies of such forms received by us with respect to fiscal year 2011, or written representations from certain reporting persons, we believe all of our directors and executive officers met all applicable filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides summary information concerning compensation awarded to, earned by, or paid to any of ALCOs officers and directors for all services rendered to ALCO and its consolidated subsidiaries, in all capacities for the fiscal years ended December 31, 2009, 2010 and 2011.
- 37 -
(1)
The figures reflect the shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan. The amounts represent the proportionate amount of the total fair value of restricted stock recognized by the Company as an expense in fiscal year 2010 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The fair values of these awards and the amounts expensed in fiscal year 2010 and 2011 were determined in accordance with Statement of ASC No. 820 Fair Value Measurements and Disclosures (ASC820).
(2)
Includes expense reimbursement of $78,517 and Mandatory Provident Fund contributions of $1,538.
(3)
Includes expense reimbursement of $73,339 and Mandatory Provident Fund contributions of $1,538.
(4)
Includes expense reimbursement of $75,889 and Mandatory Provident Fund contributions of $1,538.
(5)
Being Mandatory Provident Fund contributions of $1,538.
The Mandatory Provident Fund is a compulsory savings/retirement scheme for the residents of Hong Kong. Most employees and employers are required to contribute monthly to schemes provided by government approved private organizations. Contributions are based on a percentage of an employees salaries. The contribution vests fully with the employee immediately upon payment into the scheme.
Director Compensation
The following table provides summary information concerning compensation awarded to, earned by, or paid to any of our directors for all services rendered to the Company in all capacities for the fiscal year ended December 31, 2011.
Name | Salary/Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total Compensation |
|
|
|
|
|
|
|
|
Andrew Liu | $330,802 | 25,905 | -- | -- | -- | $77,427 | $434,134 |
John Liu | $219,868 | 25,905 | -- | -- | -- | $42,081 (1) | $287,854 |
(1)
Includes expense reimbursement of $40,543 and Mandatory Provident Fund contributions of $1,538.
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Our subsidiary, Andrew Liu & Company, has entered into written employment agreements with Andrew Liu and John Liu. The agreements remain in effect until terminated by either party with three (3) months notice. The agreement sets out the duties of the officers, their compensation (as stated above), and their benefits (20 days of vacation time, health insurance, 2 days of sick time per month, etc.). Pursuant to the agreement, the officers cannot conduct marine insurance brokering or any other business conducted by the Company in the Hong Kong area for a period of two years after the termination of the employment agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of the date of this report, the stock ownership of each executive officer of ALCO, of all the executive officers and directors of ALCO as a group, and of each person known by ALCO to be a beneficial owner of 5% or more of its Common Stock. Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power as to such shares. No person listed below has any options, warrant or other right to acquire additional securities of ALCO, except as may be otherwise noted.
Name | No. of shares | Percent of Class |
Andrew Liu, President and Chairman (1) Flat 3, 24/F., Blk A, Viking Garden 42 Hing Fat Street, Hong Kong | 6,253,168 (2) | 60.54% |
John Liu, Director (1) House No. 12, Carmel Hill, Stanley, Hong Kong | 2,603,435 (3) | 25.21% |
Colman Au, Chief Financial Officer, Secretary (1) 25th Floor, Fortis Bank Tower, No. 77-79 Gloucester Road, Wanchai, Hong Kong | 13,500 (4) | 0.13% |
All Officers and Directors as a group (3 in number) | 8,870,103 | 85.88% |
(1)
The person named is an officer, director, or both.
(2)
49,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan are included.
(3)
49,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan are included.
(4)
It represents 13,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Other than the related transactions mentioned in the Note 11 of the Notes to Consolidated Financial Statements, no officer, director, promoter, or affiliate of ALCO has, or proposes to have, any transactions and any direct or indirect material interest in any asset proposed to be acquired by ALCO through security holdings, contracts, options, or otherwise.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit-Related Fees
(1) The aggregate fee billed by MaloneBailey, LLP for audit of the Companys annual financial statements was $57,200 for the fiscal year ended December 31, 2011 and $51,000 for the fiscal year ended December 31, 2010. The aggregate fees billed by MaloneBailey, LLP for the reviews of the Companys financial statements included in its quarterly reports on Form 10-Q during 2011 were $12,600.
(2) MaloneBailey, LLP did not bill the Company any amounts for assurance and related services that were related to its audit or review of the Companys financial statements during the fiscal years ending 2011.
Tax Fees
(3) The aggregate fees billed by MaloneBailey, LLP for tax compliance, tax advice and tax planning were $2,500 for the fiscal year ended December 31, 2010. The aggregate fees for the fiscal year ended December 31, 2011 with $2,500 are accrued.
All Other Fees
(4) MaloneBailey, LLP did not bill the Company for any products and services other than the foregoing during the fiscal year ended December 31, 2011.
Audit Committees Pre-approval policies and procedures
(5) ALCO, which is not yet publicly traded, does not have an audit committee. The current board of directors functions as the audit committee.
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PART IV
ITEM 15. EXHIBITS
The Exhibits listed below are filed as part of this Annual Report.
2.1
Agreement for Share Exchange dated November 22, 2005, by and among LOTUS CAPITAL CORP., a Nevada corporation, AL MARINE HOLDINGS LTD., a British Virgin Islands corporation, and the Shareholders of AL MARINE (herein incorporated by reference from report on Form 8-K for report dated November 22, 2005 and filed with the Securities and Exchange Commission on December 9, 2005).
3.1
Articles of Incorporation (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).
3.2
Bylaws (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).
10.1
Exclusive representative agreement between ALC and The Strike Club (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).
10.2
Agreement between EduShipAsia Ltd. and the Institute of Chartered Shipbrokers appointing EduShipAsia Ltd. as ICSs exclusive agent in China (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).
10.3
Employment Agreement between Andrew Liu & Company, Ltd. and Andrew Liu. (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)
10.4
Employment Agreement between Andrew Liu & Company, Ltd. and John Liu. (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)
31.1
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31.2
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
INS XBRL Instance Document.*
101
SCH XBRL Schema Document.*
101
CAL XBRL Taxonomy Extension Calculation Linkbase Document.*
101
LAB XBRL Taxonomy Extension Label Linkbase Document.*
- 41 -
101
PRE XBRL Taxonomy Extension Presentation Linkbase Document.*
101
DEF XBRL Taxonomy Extension Definition Linkbase Document.*
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.
ALCO, INC.
(Registrant)
By: /s/ Andrew Liu, CEO and Chairman
Date: March 30, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Andrew Liu, CEO and Chairman
Date: March 30, 2012
By: /s/ John Liu, Director
Date: March 30, 2012
By: /s/ Colman Au, Chief Financial Officer
Date: March 30, 2012
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