UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

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: 0-51105

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

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

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.

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  

Yes o  No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of November 14, 2013, there were 10,336,000 shares of the registrant’s common stock, $0.001 par value, outstanding

TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

The consolidated financial statements of ALCO, Inc. and subsidiaries (collectively, the "Company"), included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission.  Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of the Company as included in the Company's Form 10-K for the year ended December 31, 2012.

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ALCO, INC

CONSOLIDATED BALANCE SHEETS

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ALCO, INC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

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ALCO, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

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ALCO, INC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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ALCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 (UNAUDITED)

Note 1 – Organization and Operations

Description of Business and Basis of Presentation

ALCO, Inc. (“ALCO,” “we,” “us,” the “Company”) was incorporated under the laws of the State of Nevada on June 7, 1999 as Seahorse, Inc. and changed its name to Lotus Capital Corp. (“Lotus”) on September 20, 2004.  The Company changed its name to ALCO, Inc. on February 13, 2006.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the SEC instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of only normal recurring adjustments) considered necessary for a fair presentation have been included.  Results for the nine-month period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. For further information, refer to the consolidated financial statements and footnotes thereto included in ALCO’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation.  Inter-company transactions have been eliminated in consolidation.

Certain accounting principles, which are stipulated by General Accepted Accounting Principles in the United States (“US GAAP”), are not applicable in the Hong Kong Accounting Standards (“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.

On March 27, 2013, the Company changed the name of Kim Insurance Brokers Pte Limited, a subsidiary that was acquired in October 2012, to ALCO Insurance Brokers Pte Limited (ALCO Insurance).

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Note 2 – Significant Accounting Policies

For significant accounting policies, see notes to the consolidated financial statements included in the Company’s annual report of Form 10-K for the year ended December 31, 2012 filed with the SEC.

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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.

Foreign Currency and Other Comprehensive Income

The accompanying financial statements are presented in United States (US) dollars.  The functional currency of Andrew Liu & Co Ltd (“ALC”), Chang An Consultants Ltd (“CAC”) and Edushipasia Limited (“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.

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 2012 and 2013.  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 Shanghai Heshili Broker Co. Limited (“SHB”) and AL Marine Consulting Services (Shanghai) Ltd (“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 Code (ASC) No. 830, " Foreign Currency Matters”, using quarter-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 period-end date: US$0.16160:CNY1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the period: US$0.16003:CNY1

The functional currency of ALCO Insurance is the Singapore Dollar (“SGD”).  The financial statements of ALCO Insurance are translated into United States dollars in accordance with ASC 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 SGD into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:  

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Balance sheet items, as of period-end date: US$0.79070:SGD1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the period: US$0.79358:SGD1

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. There were no dilutive shares for the nine-month period ended September 30, 2013.

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

The Company established a bank guarantee of HK$45,000 (approximately US$5,770) credit line with the China Construction Bank (Asia).  The interest rate and charges are subject to change from time to time.  The bank guarantee credit line is pledged of $6,410 fixed deposit included in Cash in bank – Fixed deposit as shown as above.  On September 30, 2013, a bank guarantee of $5,540.81 was provided.

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

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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

Note 5 – Fiduciary Asset

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 asset had a balance of $1,757,517 and $1,750,712 at September 30, 2013 and December 31, 2012, respectively.

Note 6 – Fair Value of Investments and Investment Income

The following are the Company’s investments owned and securities sold by level within the fair value hierarchy at September 30, 2013 and December 31, 2012:

The Company’s short-term investment represents the certificate of deposit with the maturity of one year with the financial institution.

Unrealized gain of $14,322 and $63,285 for the investments were recognized in the other comprehensive income for the nine months ended September 30, 2013 and 2012, respectively.  All these gains and losses are related to the investments listed in the Hong Kong Stock Exchange.

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Note 7 – Due to Directors

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 8 – Stock-based Compensation

During the nine months ended September 30, 2013 and 2012, the Company recognized $34,348 and $62,071 respectively, of stock-based compensation expense.

Note 9 – 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:

Note 10 – Income Taxes

The Company's effective tax rate for the nine months ended September 30, 2013 and 2012 was 25.89% and 20.64%, respectively.  The provisions for income taxes for the periods ended September 30, 2013 and 2012 are summarized as follows:

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A reconciliation between the income tax computed at the U.S. statutory rate and the Company’s provision for income tax is as follows:

Note 11 – Noncontrolling Interest

On March 18, 2013, the Company subsidiary Chang An Consultants Ltd., declared dividends of HK$2,870,000, or $367,949.  The Company has paid 40% of the dividends or $147,179 to the noncontrolling shareholders.

Note 12 – Purchase of Property in UK

On April 30, 2013, the Company’ CEO, Andrew Liu, entered into an agreement for the purchase of real property located in Holly Mount, London, United Kingdom. Mr. Liu was authorized by the board of directors to execute the contract in his own name acting as the agent or nominee of the company. The property is an 83 square meter house for which the gross purchase price is GBP 1.25 million (approximately US$1.91 million), exclusive of closing cost. The purchase of the property is to provide an accommodation in UK for the Company’s directors for business purpose. The transaction was completed on July 29, 2013 with the full payment made and the title of the property transferred to AL Marine Holdings (BVI) Ltd.  

Note 13 – Capital Injection

On July 25, 2013, the Company injected additional capital of SGD759,320 (approximately $598,097) into ALCO Insurance, which is requested by the Monetary Authority of Singapore when the Company acquired it in 2012. After the capital injection, the current shareholding percentage between the Company and the non-controlling interest party has been retained. After the injection, share capital of ALCO Insurance increased to SGD1,230,000 (approximately $968,840) from SGD304,000 (approximately $239,453). The new capital injected by the Company was funded internally and paid in two ways. Firstly, the Company lent SGD451,000 (approximately $355,241) to ALCO Insurance in December 2012, which was converted into part of the new capital on July 25, 2013. The remaining portion of SGD308,320 (approximately $242,856) was paid by cash on July 25, 2013.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Company’s 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.

PLAN OF OPERATIONS

There are three major tasks in the plan of operations for 2012. The first one is enhancing the credit control and marketing functions, the second one is expanding the company’s insurance brokerage business, and the third one is enhancing the operations and supporting functions.  After reviewing the operation performance of last year, we can conclude that the plan is completed and successful.  

For the credit control, management believes that the enhancements are operated effectively because the receivable turnover ratio for ALC and CAC was improved from 9.79 in the full year of 2011 to 20.53 in 2012, which means that the average collection period for outstanding receivables dropped from 37 days in 2011 to 18 days in 2012. Regarding the marketing function, more resources, including both additional personnel and IT applications, were allocated during 2012.  For the business expansion, the Company acquired an insurance brokerage firm in Singapore in October 2012, which will help the Company to enhance its customer base.  For the Company’s operations and supporting functions, we have upgraded our telephone system since March 2012.  The new system facilitates our customers to contact us in a more convenient way.

For the 2013 fiscal year, management believes it will be a difficult year because the shipping market is still poor.  Therefore, the Company plans to continue to enhance its marketing function, such as setting up a new liaison office and hiring more marketing representatives in this field.  In addition, for the newly acquired Singapore firm, we will intend to take steps designed to streamline its existing policies and procedures to increase its efficiency.  Furthermore, we intend to set up a marine insurance brokerage business and establish a new customer base in Singapore through this firm.  Furthermore, in order to cope with the difficult shipping market, the Company intends to continue to tighten control measures, such as budget controls, in order to monitor and reduce operating expenses.

Implementation of the plans of enhancing marketing function, employee hiring and setting up new business 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.  

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We do not have any material off-balance sheet arrangements.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2012 AND THREE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2012

Revenue

Nine-month end:

Revenue for the nine months ended September 30, 2013 was $4,295,941, as compared to $4,473,635 for the same period of 2012.  The decrease of $177,694 or approximately 4% was mainly due to decreases of commission income, website advertising and enrollment fee income which are partially offset with an increase of consulting income.  Commission income, which is based on a percentage of the premiums paid by the insured, decreased by $175,151, or 4%, when compared to the comparable period of 2012.  Most of the decrease was contributed by ALC and CAC while commission income of SHB and ALCO Insurance for the nine months ended September 30, 2013 increased by $70,650 and $252,827 respectively, comparing to the same period in 2012.  If the contribution from SHB and ALCO Insurance are excluded, commission income of the group for the same period of 2013 decreased by $498,628 or 12% as compared to the same period of 2012.  The decrease of commission income was mainly due to average commission earned per client decreased by 8% and the number of clients decreased by 2% during the period.

Main reason for the decrease of number of clients was that the shipping market was still difficult during the period. Certain clients sold their vessels as scrap because of the poor shipping market, giving rise to lowered demand for insurance.  In addition, average commission earned per client decreased because a decrease in the commission percentage was seen during the period. In 2013, total commission income contributed by ALC, CAC, SHB and ALCO Insurance was 78%, 9%, 8% and 6% respectively.  

Consulting income for the nine months ended September 30, 2013 was $44,194 as compared to $36,450 for the comparable period of 2012.  The increase of $7,744 or approximately 21% was mainly due to increased demand of the services.  Website advertising income for the nine months ended September 30, 2013 was $4,250 as compared to $10,500 for the same period of 2012.  The decrease of $6,250 or approximately 60% was mainly because demand for the advertising services decreased.  Enrollment fee for the nine months ended September 30, 2013 were $3,913 as compared to $7,950 for the same period of 2012.  The decrease was mainly due to the decrease of enrollment during the period.  

Three-month end:

Revenues for the three months period ended September 30, 2013 were $1,603,240, as compared to revenues of $1,590,427 for the three months period ended September 30, 2012.  The increase of $12,813 or approximately 1% was mainly due to increases of commission income which is partially offset with a decrease of consulting income, website advertising and enrollment fee income.  Commission income for the three months period ended September 30, 2013 was $1,579,380 as compared to $1,560,559 for the same period of 2012.  The increase of $18,821 or approximately 1% was mainly contributed by SHB and ALCO Insurance, which was newly acquired in October 2012.  During the three-month period ended September 30, 2013, commission income earned from SHB increased $61,386 or 83% as compared to the same period of 2012.  In addition, commission income earned from ALCO Insurance was $114,497.  The increase is partially offset by the decreases of $157,062 or 11% in ALC and CAC.  

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Consulting income for the three months period ended September 30, 2013 was $21,129 compared to $22,517 for the comparable period of 2012.  The decrease of $1,388 or 6% was mainly because demand of the services decreased during the period.  In addition, website advertising income and enrollment fee income for the three months period ended September 30, 2013 were $1,000 and $1,731, a decrease of $2,500, or 71%, and $2,120, or 55%, respectively as compared to the same period in 2012.  Causes for the decreases are same as the causes stated in the nine-month end paragraph above.

Income before tax and noncontrolling interest

Nine-month end:

Income before tax and noncontrolling interest for the nine months ended September 30, 2013 was $240,961 as compared to $864,606 for the nine months ended September 30, 2012.  The decrease of $623,645, or approximately 72%, was mainly because the revenue decreased by 4% and the operating expenses increased by 14% at the same time.  Causes for the revenue decrease were discussed in the section of Revenue above while causes for the operating expense increase will be discussed in the section of operating expenses below.  

Other income increased to $87,599 for the nine months ended September 30, 2013 from $30,060 for the same period of 2012.  The increase of $57,539 was mainly due to the reduction in loss on disposal of fixed asset and the increase in investment income and other revenue.  Investment income increased by 24% to $13,998 for the nine months ending September 30, 2013 as compared to $11,272 in the comparable period of 2012.  It was mainly a result of an increase in dividend income received from publicly traded equity securities owned by the Company.  

Other revenue for the nine months ended September 30, 2013 was $70,562 as compared to $21,417 for the comparable period of 2012.  The increase of $49,145 or approximately 229% mainly came from ALCO Insurance, which was newly acquired by the Company in October 2012.  

Three-month end:

Income before tax and noncontrolling interest for the three months ending September 30, 2013 was $209,529 as compared to $518,643 for the three months period ended September 30, 2012.  The decrease of $309,114 or approximately 60%, was mainly due to the 32% increase in operating expenses. The decrease is partially offset by the 1% increase in revenue.  Causes for the changes are same as the causes stated in the nine months end paragraph above.

Operating expenses

Operating expenses for the nine months ending September 30, 2013 were $4,142,579, as compared to $3,639,089 for the same period of 2012.  The increase of $503,490 or approximately 14% was mainly from ALCO Insurance, which was newly acquired in October 2012.  As a result, salary and other general and administrative expenses increased.  If Operating expenses of ALCO Insurance were excluded, operating expenses of the group for the same period of 2013 would have increased by $240,610 or 7% as compared to the same period of 2012.  

Operating expenses for the three months ending September 30, 2013 were $1,424,533, as compared to $1,079,514 for the same period of 2012.  The increase of $345,019 or approximately 32% was mainly from ALCO Insurance which was newly acquired in last year.  As a result, salary and other general and administrative expenses increased. If Operating expenses of ALCO Insurance were excluded, operating expenses of the group for the three months period ended September 30 2013 would have increased by $241,272 or 22% as compared to the same period of 2012.  

The reasons for the increases and decreases in the major items of operating expense in 2013, as compared to the same

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period of 2012, are as follows:

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Salaries – increased $334,389 or 17% for the nine months ended and $143,646 or 23% for the three months ended September 30, 2013 as compared to the same period of 2012.  About 34% of the increase of the Salary expenses for the nine months ended September 30, 2013 came from ALCO Insurance. The remaining 66% increase was mainly due to increases in pay rates and headcounts.

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Travel Expenses – decreased $29,708 or 9% for the nine months ended and increased $15,250 or 13% for the three months ended September 30, 2013 as compared to the same period of last year.  The decrease in nine months period was because of the effort of expense control during the first quarter of 2013.  On the other hand, the increase in the three months period in 2013 was because more business trips were taken during the third quarter of 2013 to establish relationship with new clients.

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Rent – increased $414 or 0% for the nine months ended and $48,069 or 37% for the three months ended September 30, 2013 as compared to the same period of last year.  The increase was mainly due to the fact that the Company leases a new office space with higher rate during the period.

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Bad debt expenses – increased $72,975 or 547% for the nine months ended and $18,319 or 1218% for the three months ended September 30, 2013 as compared to the same period of last year.  The increase was mainly due to the fact that the provision of doubtful debts increased during the periods.

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Depreciation and amortization – decreased $42,816 or 32% for the nine months ended and increased $21,032 or 111% for the three months ended September 30, 2013 as compared to the comparable period of 2012.  Because the Hong Kong Office was moved 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 old location over their shortened remaining life.  Consequently, additional depreciation was charged for the nine months ended September 30, 2012.  During the nine months ended September 30, 2013, depreciation for fixed assets was $64,397, a decrease of $52,148, or 45%, from $116,545 in the comparable period of 2012, which was caused by the reason stated as above.  Regarding the amortization charged for intangible asset, it was $25,601 for the nine months ended September 30, 2013, an increase of $9,332 or 57% as compared to the same period of 2012.  The increase is primary due to the additional charge produced from ALCO Insurance’s intangible asset acquired in last year.   For the three months ended September 30, 2013, depreciation increased is mainly because of depreciation was charged for the newly acquired property in UK.

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Other general & administrative expenses – increased $168,236 or 25% for the nine months ended and $98,703 or 54% for three months ended September 30, 2013 as compared to the same period of 2012.  For the nine months period, about 30% of the increase came from ALCO Insurance.  For the rest of 70%, the increase was primarily related to a liaison office that was set up in Dalian, and general price inflation for the liaison offices in China.  Another reason is that additional telecommunication expense was incurred for the Company’s new telephone system.  For the three months period, about 20% of the increase came from ALCO Insurance.  For the rest of 80%, the increase was caused by the reason stated as above.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow

For the nine months ended September 30, 2013, cash provided by the operating activities totaled $365,629.  This was primarily due to net income during the period plus an increase in commission receivable, enrollment fee receivable, fiduciary asset, other receivable, account payable, claim payable, and other payable which was partially offset by a decrease in deposit and prepayment, tax receivable, accrued expenses and deferred tax liability.  

Net income after adjustments of non-cash activities for the nine months ended September 30, 2013 decreased by $513,483, or 58% as compared to the same period of 2012.  The changes in operating assets and liabilities for the nine months ending September 30, 2013 increased $39,984 or 81% as compared to the same period of 2012.  As a

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result, net cash provided by operating activities for the nine months ended September 30, 2013 decreased by $473,499 or approximately 56% as compared to the same period of last year.  

For the nine months ended September 30, 2013 and 2012, cash used in investing activities amounted to $2,120,171 and $169,608, respectively.  For 2013, the fund was mainly used for purchase of fixed assets including a real property located in Holly Mount, London, United Kingdom.For 2012, the fund was used for the purchase of fixed assets including the furniture & fixtures for the new office and the upgraded phone system.  

For the nine months ended September 30, 2013, cash used in finance activities totaled $7,267.  It consists of capital injection of $132,044 from minority shareholders of ALCO Insurance, and borrowings of $14,591 on related party debt.  The cash inflow was offset by the dividend payment of $147,179 to minority shareholders of CAC, and principal payments of $6,723 on related party debt.

Assets and liabilities

As at September 30, 2013, the Group’s balance sheet reflects total assets of $13,859,487 and total liabilities of $2,190,739.  Total assets and liabilities increased $416,198 or approximately 3% and $210,481 or approximately 11% respectively when compared to the year ended December 31, 2012.  The increase of total assets was mainly due to an increase of commission receivable, enrolment fee receivable, fiduciary asset, property, plant and equipment, marketable securities, and other receivable which was partially offset by a decrease of cash and cash equivalents, tax receivable, goodwill, intangible asset, and deposits and prepayment.  In addition, the increase of total liabilities was mainly due to an increase of trade accounts payable, claim payable, other payable, and due to director which was partially offset by a decrease of accrued expenses, and deferred revenue.

As at September 30, 2013, commission receivable was $242,950 as compared to $207,094 as at December 31, 2012, while trade accounts payable was $1,804,258 as compared to December 31, 2012 balance of $1,577,668.  Each of these changes was due to the timing of commissions received from customers and the timing of making payments to insurers in relation to the period end.  In addition, because certain payment advances made on behalf of customers were made, other receivable increased by $261,643 or 298% as compared to the year end of 2012.  Furthermore, because certain fund was received on behalf of customers during the period, the other payable increased $83,036 or 63% as compared to the year end of 2012.  On the other hand, certain claim proceeds were received on behalf of customers but have not been paid yet, the claim payable increased by $50,424 or 123% as compared to the year end of 2012.

Accrued expenses were $50,431 as at September 30, 2013, reduced by $157,188 or approximately 76% from $207,619 as at December 31, 2012.  The reduction was mainly due to repayment of the accrued expenses which were provided for the year of 2012.  In addition, tax receivable as at September 30, 2013 was $20,337.  The decrease in tax receivable is in relation to the provision of income tax for the nine months ended September 30, 2013.

Because the interest rate is maintained at a very low level in the recent years, the Company purchased publicly traded equity securities with high dividend yield since 2008 for long term investment purpose.  The market value of the equity securities was $406,751 and $382,110 as at September 30, 2013 and December 31, 2012 respectively.  The increase of $24,641 or approximately 6% was mainly due to the stock dividends received during the period and the change of fair values between September 30, 2013 and December 31, 2012.

In August 2011, the Company made a secured loan of $3,000,000 to clients.  During 2011, $1,088,000 or about 36% was repaid. As at September 30, 2013, the balance of such loan was $1,912,000.

As at September 30, 2013, property, plant and equipment were $2,280,732 as compared to $224,685 as at December 31, 2012.  The increase of $2,056,047 or approximately 915% was mainly due to the newly acquired property.  In

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April 2013, the Company purchased a real property located in Holly Mount, London, United Kingdom.  The property is an 83 square meter house for which the gross purchase price is GBP1.25 million (approximately US$1.91 million), exclusive of closing costs.  The acquisition was completed in July 2013.

The Company has bank and cash equivalents of approximately $6,229,356 and certificate of deposit of approximately $110,509 with the maturity of one year as at September 30, 2013.  The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months.  During the period end of September 30, 2013, the Company had $0 of commitments for capital expenditures and off-balance sheet arrangements as well as operating lease commitments of $970,699.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any material off-balance sheet arrangements.

RECENT ACCOUNTING PRONOUNCEMENTS

For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 2 of the Notes to Consolidated Financial Statements in this Form 10-Q and Note 2 of the Notes to Consolidated Financial Statements in our 2012 Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company's controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC's rules and forms and that information required to be disclosed is accumulated and communicated to principal executive and principal financial officers to allow timely decisions regarding disclosure.

As of the end of the period covered by this report, 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 on that evalua

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tion, 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 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 with the time periods specified.  Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of September 30, 2013 to provide reasonable assurance of the achievement of these objectives.

Changes in Internal Controls 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 nine months ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

The following exhibits are filed herewith:

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer 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

101

PRE XBRL Taxonomy Extension Presentation Linkbase Document

101

DEF XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements 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:  November 14, 2013

By: /s/ John Liu, Director

Date:  November 14, 2013

By: /s/ Colman Au, Chief Financial Officer

Date:  November 14, 2013

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