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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 June 30, 2014


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


ALCO, INC.

(Exact name of registrant as specified in its charter)


Nevada

11-3644700

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


25th Floor, Fortis Bank Tower

No. 77-79 Gloucester Road

Wanchai, Hong Kong

(Address of principal executive offices)


852-2521-0373

(Registrant’s telephone number, including area code)


None

(Former name, former address and former fiscal year, if changed since last report)


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.


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 Exchange Act).

Yes o  No x




1






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 August 14, 2014, there were 10,336,000 shares of the registrant’s common stock, $0.001 par value, outstanding



TABLE OF CONTENTS


PART 1- FINANCIAL INFORMATION

3

 

ITEM 1. FINANCIAL STATEMENTS

3

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

4

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

6

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

8

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

10

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11

 

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

17

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

22

 

ITEM 4(T). CONTROLS AND PROCEDURES

22

PART II – OTHER INFORMATION

23

 

ITEM 1. LEGAL PROCEEDINGS

23

 

ITEM 1A. RISK FACTORS

23

 

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

23

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

23

 

ITEM 4. MINE SAFETY DISCLOSURES

23

 

ITEM 5. OTHER INFORMATION

24

 

ITEM 6. EXHIBITS

24






2






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, 2013.




3






ALCO, INC

CONSOLIDATED BALANCE SHEETS

ASSETS

 

June 30, 2014

 

December 31, 2013

Current assets:

 

(unaudited)

 

 

Cash and cash equivalents

$

5,271,463

$

5,183,870

Short-term investment

 

111,691

 

109,785

Commissions receivable, net

 

163,884

 

142,739

Enrollment fee receivable

 

8,909

 

8,593

Fiduciary asset

 

2,398,928

 

1,936,194

Loans receivable

 

2,212,000

 

3,012,000

Tax receivable

 

56,140

 

88,153

Total current assets

 

10,223,015

 

10,481,334

 

 

 

 

 

Property, plant and equipment, net

 

2,233,222

 

2,248,611

Goodwill

 

78,184

 

301,498

Intangible asset

 

15,118

 

20,855

 

 

 

 

 

Other non-current assets:

 

 

 

 

Deposits and prepayment

 

485,049

 

240,430

Marketable securities

 

393,453

 

413,328

Other receivable

 

164,465

 

234,768

Deferred tax assets

 

13,948

 

13,948

Total other non-current assets

 

1,056,915

 

902,474

 

 

 

 

 

Total Assets

$

13,606,454

$

13,954,772

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Current Liabilities:

 

 

 

 

Trade accounts payable

$

2,425,239

$

2,090,472

Claim payable

 

185,152

 

91,397

Other payable

 

164,189

 

159,451

Accrued expenses

 

60,810

 

166,511

Due to directors

 

851

 

988

Deferred revenue

 

-

 

667

Current portion of obligation from Hire purchase lease

 

6,890

 

-

Total Current Liabilities

$

2,843,131

$

2,509,486

 

 

 

 

 

Non-current Liabilities:

 

 

 

 

Long term portion of obligation from Hire purchase lease

 

22,138

 

-

Total Non-current Liabilities

$

22,138

$

-

 

 

 

 

 

Total Liabilities

$

2,865,269

$

2,509,486


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;

 

 

 

 

10,336,000 shares issued and outstanding at June 30, 2014 and  December 31, 2013

 

10,336

 

10,336

Additional paid-in capital

 

346,470

 

342,758

Accumulated other comprehensive income

 

145,372

 

169,177

Retained earnings

 

9,989,692

 

10,593,963



4









Total ALCO, Inc. shareholders' equity

 

10,491,870

 

11,116,234

Non-controlling interest

 

249,315

 

329,052

Total equity

 

10,741,185

 

11,445,286

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

$

13,606,454

$

13,954,772

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements



5






ALCO, INC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)


 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2014

 

2013

 

 

2014

 

2013

Revenues

 

 

 

 

 

 

 

 

 

Commission income

$

1,206,502

$

1,466,355

 

$

2,355,336

$

2,664,204

Consulting income

 

6,000

 

7,570

 

 

12,000

 

23,065

Website advertising

 

-

 

1,333

 

 

667

 

3,250

Enrollment fee income

 

543

 

504

 

 

1,934

 

2,182

Total Revenues

 

1,213,045

 

1,475,762

 

 

2,369,937

 

2,692,701

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

Salaries

 

875,865

 

734,506

 

 

1,651,899

 

1,553,944

Travel expenses

 

110,504

 

99,046

 

 

167,278

 

166,332

Rents

 

173,819

 

157,649

 

 

347,412

 

314,851

Bad debt expenses

 

29,752

 

39,230

 

 

39,402

 

69,498

Depreciation and amortization

 

39,174

 

27,412

 

 

78,690

 

50,054

Other general and administrative

 

248,306

 

312,282

 

 

450,488

 

563,367

Impairment of goodwill

 

222,110

 

-

 

 

222,110

 

-

Total Operating Expenses

 

1,699,530

 

1,370,125

 

 

2,957,279

 

2,718,046

 

 

 

 

 

 

 

 

 

 

Income (loss) from Operations

 

(486,485)

 

105,637

 

 

(587,342)

 

(25,345)

 

 

 

 

 

 

 

 

 

 

Other Income

 

 

 

 

 

 

 

 

 

Interest income

 

4,658

 

1,030

 

 

16,334

 

2,022

Investment income

 

3,879

 

3,704

 

 

11,112

 

10,261

Interest expense

 

(634)

 

-

 

 

(634)

 

-

Other revenues

 

28,333

 

31,985

 

 

42,192

 

44,494

Gain (loss) on disposal of fixed assets

 

9,070

 

-

 

 

5,166

 

-

Total Other Income

 

45,306

 

36,719

 

 

74,170

 

56,777

 

 

 

 

 

 

 

 

 

 

Income (loss) before provision for Income Taxes

 

(441,179)

 

142,356

 

 

(513,172)

 

31,432

Provision for Income Taxes

 

15,951

 

14,728

 

 

30,890

 

32,689

Net Income (Loss)

 

(457,130)

 

127,628

 

 

(544,062)

 

(1,257)

Less: Net income (loss) attributable to the non-controlling interest

 

(35,122)

 

(28,475)

 

 

(60,209)

 

(65,631)

Net income (loss) attributable to ALCO, Inc.

$

(492,252)

$

99,153

 

$

(604,271)

$

(66,888)

 

 

 

 

 

 

 

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(457,130)

 

127,628

 

 

(544,062)

 

(1,257)

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

Marketable securities

 

367

 

(3,676)

 

 

(27,139)

 

(386)

Foreign currency translation adjustments

 

3,685

 

(7,536)

 

 

6,465

 

(14,217)

Comprehensive Income (Loss)

$

(453,078)

$

116,416

 

$

(564,736)

$

(15,860)

Less: comprehensive income (loss) attributable to non-controlling interest

 

(35,122)

 

(28,475)

 

 

(63,340)

 

(65,631)

Comprehensive Income (Loss) attributable to ALCO. Inc.

 

(488,200)

 

87,941

 

 

(628,076)

 

(81,491)

 

 

 

 

 

 

 

 

 

 

Basic and Fully Diluted Earnings per Share

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to ALCO, Inc

 

 

 

 

 

 

 

 

 



6









common shareholders

$

(0.05)

$

0.01

 

$

(0.06)

$

(0.01)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

10,336,000

 

10,336,000

 

 

10,336,000

 

10,336,033

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements



7






ALCO, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


 

 

 

Six months ended June 30,

 

 

 

2014

 

2013

Operating Activities

 

 

 

 

 

Net loss

 

$

(544,062)

$

(1,257)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Bad debt

 

 

39,402

 

69,498

Depreciation expense

 

 

72,689

 

32,995

Amortization expense

 

 

6,001

 

17,059

Stock-based compensation

 

 

3,712

 

32,492

Gain on disposal of fixed assets (net)

 

 

(5,166)

 

-

Stock dividend received

 

 

(11,112)

 

(10,261)

Impairment of goodwill

 

 

222,110

 

-

Changes in operating assets and liabilities:

 

 

 

 

 

(Increase)/Decrease in commission receivable

 

 

63,162

 

(61,386)

(Increase)/Decrease in enrolment fee receivable

 

 

(316)

 

(1,624)

(Increase)/Decrease in deposit and prepayment

 

 

(59,426)

 

43,507

(Increase)/Decrease in fiduciary asset

 

 

(458,089)

 

(594,062)

(Increase)/Decrease in other receivable

 

 

74,111

 

(192,220)

(Increase)/Decrease in tax receivable

 

 

31,875

 

33,067

Increase/(Decrease) in accounts payable

 

 

211,150

 

180,570

Increase/(Decrease) in claims payable

 

 

93,755

 

436,229

Increase/(Decrease) in other payable

 

 

5,281

 

40,388

Increase/(Decrease) in accrued expenses

 

 

(105,907)

 

(141,532)

Increase/(Decrease) in deferred revenue

 

 

(667)

 

750

Net cash used in operating activities

 

 

(361,497)

 

(115,787)

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Prepayment for asset acquisition

 

 

(184,650)

 

(190,925)

Short-term investment

 

 

(275)

 

 -

Loan made to third parties

 

 

(1,580,000)

 

 -

Loan repayment from third parties

 

 

2,380,000

 

 -

Cash paid for purchase of fixed assets

 

 

(36,354)

 

(78,146)

Sale proceeds from disposal of fixed assets

 

 

16,367

 

 -

Net cash provided by (used in) investing activities

 

 

595,088

 

(269,071)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Dividend paid to minority shareholders

 

 

(143,077)

 

(147,179)

Repayment of obligations under hire purchase

 

 

(3,008)

 

-

Borrowings on related party debt

 

 

18,086

 

-

Principal payments on related party debt

 

 

(18,224)

 

(381)

Net cash used in financing activities

 

 

(146,223)

 

(147,560)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

87,368

 

(532,418)

Effect of exchange rate changes on cash  and cash equivalents

 

 

225

 

(4,399)

Cash and cash equivalent at beginning of period

 

 

5,183,870

 

8,101,875

Cash and cash equivalent at end of period

 

$

5,271,463

$

7,565,058

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Interest paid

 

$

(634)

$

-

Income taxes paid

 

$

1,123

$

373

 

 

 

 

 

 



8









Non-Cash Transactions

 

 

 

 

 

Restricted shares issued/(forfeited)

 

$

 -

$

(6)

Acquisition of assets by hire purchase

 

$

(32,036)

$

-

Change in fair value for Available-for-sales securities

 

$

(27,139)

$

(386)

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements



9






ALCO, INC

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


 

 

 

 

 

 

 

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, December 31, 2013

10,336,000

 

10,336

 

342,758

 

169,177

 

10,593,963

 

11,116,234

 

329,052

 

11,445,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

-

 

-

 

3,712

 

-

 

-

 

3,712

 

 

 

3,712

Unrealized loss on marketable securities

-

 

-

 

-

 

(27,139)

 

-

 

(27,139)

 

 

 

(27,139)

Foreign currency translation adjustments

-

 

-

 

-

 

3,334

 

-

 

3,334

 

3,131

 

6,465

Net income (loss)

-

 

-

 

-

 

-

 

(604,271)

 

(604,271)

 

60,209

 

(544,062)

Dividend paid

-

 

-

 

-

 

-

 

-

 

 

 

(143,077)

 

(143,077)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2014 (Unaudited)

10,336,000

 

10,336

 

346,470

 

145,372

 

9,989,692

 

10,491,870

 

249,315

 

10,741,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Consolidated Financial Statements


 



10






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 three-month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. 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, 2013.


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.


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, 2013 filed with the SEC.


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



11






US$1: HK$7.8.  In fact, the exchange rate for HK$ to US dollars has varied by only 100ths during 2014 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 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 period-end date:

 US$0.16006:CNY1


Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the period: US$0.16090:CNY1


The functional currency of ALCO Insurance Brokers Pte Limited (“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:  


Balance sheet items, as of period-end date:

 US$0.79518:SGD1


Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the period: US$0.78915: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 three-month period ended June 30, 2014.


Recent Accounting Pronouncements


In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with



12






calendar year ends. Early adoption is permitted. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.


In May 2014, the FASB issued ASU 2014-09, “Revenue from contracts with Customers (Topic 606)”. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchanged for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.


Note 3 – Cash

 

 

June 30,

 

December 31,

Cash consist of the following:

 

2014

 

2013

 

 

 

 

 

Cash in hand

$

18,691

$

22,653

Cash in bank - Saving & Checking

 

 

 

 

China Construction Bank (Asia) (formerly known as Bank of America (Asia))

 

3,908,351

 

3,763,362

United Overseas Bank

 

607,502

 

568,362

Bank of China

 

148,412

 

225,199

Sun Hung Kei Financial

 

239

 

284

Bank of Shanghai

 

581,666

 

597,407

Industrial and Commercial Bank of China

 

186

 

189

Cash in bank – Fixed deposit

 

6,416

 

6,414

 

$

5,271,463

$

5,183,870


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 as shown as above.  On June 30, 2014, 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 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

 

 

June 31,

 

December 31,

Commissions receivable consist of the following:

 

2014

 

2013

 

 

 

 

 

Commissions receivable

$

368,536

$

336,299

Less: allowances for doubtful accounts

 

204,652

 

193,560

 

$

163,884

$

142,739



13










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 $2,398,928 and $1,936,194 at June 30, 2014 and December 31, 2013, 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 June 30, 2014 and December 31, 2013:


Assets

 

Fair value

 

Fair value Hierarchy

 

 

June 30, 2014

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Stocks

$

393,453

$

413,328

 

Level 1

Short-term investment

$

111,691

$

109,785

 

Level 1

 

 

 

 

 

 

 


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


Unrealized loss of $27,139 and $386 for the investments in stock were recognized in the other comprehensive income for the six months ended June 30, 2014 and 2013, respectively.  All these gain and loss are related to the investments listed in the Hong Kong Stock Exchange.


 

 

Six Months Ended June 30,

Investment Income

 

2014

 

2013

 

 

 

 

 

Dividend from the publicly traded equity securities

$

11,112

$

10,261



Note 7 – Due to Directors

 

 

June 30,

 

December 31,

Due to directors consist of the following:

 

2014

 

2013

 

 

 

 

 

Andrew Liu Fu Kang

$

146

$

283

John Liu Shou Kang

 

705

 

705

 

$

851

$

988


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 six months ended June 30, 2014 and 2013, the Company recognized $3,712 and $32,492 respectively, of



14






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:


 

 

 

 

Period ended June 30,

Location

 

Landlord

 

2014

 

2013

 

 

 

 

 

 

 

Shanghai Quarter

 

Fortune Ocean and Andrew Liu Fu Kang

$

15,385

$

15,385

 

 

 

$

15,385

$

15,385



Note 10 – Income Taxes


The Company's effective tax rate for the six months ended June 30, 2014 and 2013 was -6.02% and 104%, respectively.  The provisions for income taxes for the periods ended June 30, 2014 and 2013 are summarized as follows:


 

 

Six Months Ended June 30,

Hong Kong only:

 

2014

 

2013

 

 

 

 

 

Current

$

30,890

$

32,689

Deferred

 

-   

 

-   

 

$

30,890

$

32,689


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

 

 

Six Months Ended June 30,

 

 

2014

 

2013

 

 

 

 

 

U.S. statutory rate

 

34.00%

 

34.00%

 

 

 

 

 

Foreign income not recognized in the U.S.

 

-34.00%

 

-34.00%

Miscellaneous permanent differences

 

-22.52%

 

87.50%

Hong Kong income tax rate

 

16.50%

 

16.50%

Provision for income tax

 

-6.02%

 

104.00%



Note 11 – Loans Receivable


On August 4, 2011, the Company’s 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.  


On August 4, 2012, 2013 and 2014, ALC entered into a loan extension agreement with JMISCL and JXISCL, respectively.  Under the three extension agreements, the payable due date is extended to August 4, 2015.  All terms and conditions of the loan agreement remain unchanged.




15






On December 27, 2013, ALC entered into a loan agreement with its client, Zhenghe Shipping S.A. (“ZSSA”).  Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of up to US$1,100,000.  The loan bears interest at the rate of 5.25% per annum and is unsecured.  The loan term is two months and is payable in full at any time upon demand.  On February 26, 2014, the loan was fully repaid.


On March 4, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of up to US$500,000.  The loan bears interest at the rate of 5.25% per annum and is unsecured.  The loan term is 25 days and is payable in full at any time upon demand.  On March 25, 2014, the loan was fully repaid.


On March 26, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of up to US$480,000.  The loan bears interest at the rate of 5.25% per annum and is unsecured.  The loan term is 30 days and is payable in full at any time upon demand.  On April 24, 2014, the loan was fully repaid.


On April 30, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of up to US$300,000.  The loan bears interest at the rate of 5.25% per annum and is unsecured.  The loan term is 30 days and is payable in full at any time upon demand.  On May 29, 2014, the loan was fully repaid.


On June 12, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of up to US$300,000.  The loan bears interest at the rate of 5.25% per annum and is unsecured.  The loan term is 29 days and is payable in full at any time upon demand.  On July 10, 2014, ALC entered into a loan extension agreement with ZSSA.  Under the extension agreement, the loan term was extended for further twelve days.  All terms and conditions of the loan agreement remain unchanged.  On July 23, 2014, the loan was fully repaid.



Note 12 – Goodwill


Changes to the carrying amount of goodwill during the six months period ended June 30, 2014 were as follows:


 

 

Gross amount

 

Accumulated impairment losses

 

Net amount

Balance as at January 1, 2014

$

301,498

$

-

$

301,498

Goodwill impairment charge

 

-

 

(222,110)

 

(222,110)

Exchange different

 

(1,204)

 

-

 

(1,204)

Balance as at June 30, 2014

$

300,294

$

(222,110)

$

78,184


As the operation of SHB has been changed and its revenue significantly declined during the six months period ended June 30, 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was required.  In the first step of the goodwill impairment test, the estimated fair value of SHB was determined utilizing discounted cash flow method.  The present value of the future estimated cash flows during a defined projection period and the present value of the terminal value which represents the fair value of all cash flows beyond the projection period were discounted.  The result of this test concluded that the carrying value of the Company exceeded its estimated fair value, and as such, the second step of the goodwill impairment test was performed.


In the second step of the impairment test, the impairment loss was measured by estimating the implied fair value of the Company’s goodwill and comparing it with its carrying value. Using the Company’s fair value determined in the first step of the goodwill impairment test as the acquisition price in a hypothetical acquisition of the Company, the implied fair value of goodwill was determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. Based on the results of the second step of the goodwill impairment test, it was concluded that the carrying value of goodwill was impaired.  Consequently, the Company recorded a goodwill impairment charge of $222,110 during the six months period ended June 30, 2014 to write off the entire carrying value of SHB’s goodwill, and reported this amount as a separate line item in the consolidated statements of operations.



16








Note 13 – Capital Lease


On June 12, 2014, the Company entered into a lease agreement with Hitachi Credit (HK) Ltd in relation to the acquisition of a motor vehicle.  The term of the lease is 48 months with $728 as its monthly payment.  The Company’s director, John Liu, provided a guarantee for the lease.  The leased property was capitalized as motor vehicle by the amount of the total principal, $32,036 and the related depreciation expense is $1,068 during the six months period ended June 30, 2014.  The principal due within one year is the current portion of long term debt and classified as current liability.



Note 14 – Non-controlling Interest


On April 7, 2014, the Company subsidiary Chang An Consultants Ltd., declared dividends of HK$2,790,000, or $357,692.  The Company has paid 40% of the dividends or $143,077 to the non-controlling shareholders.



Note 15 – Subsequent Events


On May 28, 2014, ALC entered into an agreement for the purchase of real property located in 52 East End Avenue, New York, United States for a gross purchase price of $1.665 million, exclusive of closing costs.  A non-refundable deposit of $166,500 was paid in conjunction with execution of the Contract, and the balance of the purchase price of $1,498,500 was paid on July 16, 2014, the completion date.  The non-refundable deposit paid at the time of execution of the Contract as well as the balance of the purchase price paid at the completion date were funded with internal funds of the Company.  As of the reporting date, the title deed of the property is being registered and the registration process is expected to be taken in a few weeks.




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 were three major tasks in the management’s plan of operations for 2013. The first was enhancing the marketing function, the second was streamlining the policies and procedures of our Singapore subsidiary, and the third was tightening control measures to monitor and reduce operating expenses.  After reviewing the operation performance of last year, management believes that each of the tasks was successfully completed.  




17






For purposes of enhancing the company’s marketing function, we set up a new liaison office in Dalian and hired a new marketing representative.  In addition, we arranged several marketing activities with our business partners to promote the Company to new clients and to strengthen our relationship with our existing clients.  We believe the enhancements were successful because we acquired 66 new clients during 2013.  In addition, our client retention rate increased by 5 points during the year, to approximately 77%.  Regarding streamlining the policies and procedures of our Singapore subsidiary, we conducted an internal review and established a control manual for financial management, which we believe will help to increase work efficiency.  Management believes its efforts to tighten control measures in order to monitor and reduce operating expenses, were successful because some operating expenses decreased during the year.  For example, travel expenses at the group level decreased 11% in 2013 when compared to 2012.  Other general and administrative expenses for Hong Kong office decreased approximately 4% in 2013 as compared to 2012.


Management believes that the 2014 fiscal year will still be a difficult year because the shipping market hasn’t fully recovered yet.  Therefore, the Company plans to continue to tighten control measures in order to monitor and reduce operating expenses.  In addition, because of market conditions, we will further enhance our credit controls to improve the average collection period for outstanding receivables.  For our Singapore subsidiary, we plan to appoint an independent consultant to carry out an audit review.  The main objective of this audit is to ensure the control measures we established are implemented and working efficiently.  Further, because we have received substantial positive feedback on the marketing activities we initiated in 2013, we will continue to organize similar activities with our business partners in 2014.  In addition, we will put more effort into acquiring new clients.


We believe the plans mentioned above will help to turn the Company back into profitability.  However, implementation of the plans will depend on the market situation, associated risk factors and our internal resources.  There is no assurance that we will be able to implement these plans within the foreseeable future.  


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



RESULTS OF OPERATIONS


SIX MONTHS ENDED JUNE 30, 2014 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2013 AND THREE MONTHS ENDED JUNE 30, 2014 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2013


Revenue


Six-month end:


Revenue for the six months ending June 30, 2014 was $2,369,937, as compared to $2,692,701 for the same period of 2013. The decrease of $322,764 or approximately 12% was mainly due to decreases of commission income, consulting income, website advertising and enrollment fee income.


Commission income is based on a percentage of the premiums paid by the insured, and decreased by $308,868 or 12% when compared to the same period in last year.  The decrease was mainly contributed by SHB and ALC which was partially offset by an increase of ALCO Insurance.  If the contributions from SHB and ALCO Insurance are excluded, commission income of the group for the same period of 2014 decreased by $199,572 or 9% as compared to the same period of 2013.  The factors which resulted in the decrease of commission income attributable to ALC were a decrease of 14% in average commission earned per client, partially offset by an increase of 10% in number of clients.


Some clients sold their vessels as scrap during the period because of the poor shipping market.  Such sales result in lowered demand for insurance.  However, the Company’s number of clients still increased during the period because of our marketing activities and acquisition of new clients.  Average commission earned per client decreased during the period because of decreases in the commission percentage.  During the period of 2014, total commission income contributed by ALC, CAC, SHB and ALCO Insurance was 79%, 10%, 1% and 10% respectively.


For the SHB, it revenue for the six months ending June 30, 2014 decreased 72% as compared to the same period of 2013.



18






The decrease was mainly because SHB temporarily exited the general insurance business and now focuses on the marine insurance business.  


Consulting income for the six months period ended June 30, 2014 was $12,000 as compared to $23,065 for the comparable period of 2013.  The decrease of $11,065 or approximately 48% was mainly due to the fact that demand for the services decreased.  Enrollment fee for the six months period ended June 30, 2014 were $1,934 as compared to $2,182 for the same period of 2013.  The decrease was mainly due to the decrease of enrollment during the period.  


Three-month end:


Revenue for the three months ending June 30, 2014 was $1,213,045, as compared to $1,475,762 for the same period of 2013. The decrease of $262,717 or approximately 18% was mainly due to decreases of commission income, consulting income, and website advertising.  


Commission income for the three months period ended June 30, 2014 was $1,206,502 as compared to $1,466,355 for the same period of 2013. The decrease of $259,853 or approximately 18% was mainly due to the reasons stated in the Six-month end paragraph above.  Consulting income for the three months period ended June 30, 2014 was $6,000 compared to $7,570 for the comparable period of 2013.  Same as the causes stated in the Six-month end paragraph above, the decrease of $1,570 was mainly because demand of the services increased.  In addition, website advertising income for the three months period ended June 30, 2014 were $0, a decrease of $1,333, or 100% as compared to the same period in 2013.  Causes for the decrease was same as the causes stated in the Six-month end paragraph above.


Net loss before tax and noncontrolling interest


Six-month end:


Net loss before tax and noncontrolling interest for the six months ending June 30, 2014 was $513,172 compared to net income before tax and noncontrolling interest of $31,432 for the six months period ended June 30, 2013.  The decrease of $544,604 was mainly because the 12% decrease in revenues and 9% increase in operating expenses during the period.  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.    


In addition, the increase in operating expenses was mainly because the goodwill impairment charge of $222,110 was made during the six months period ended June 30, 2014.  If the impairment charge is excluded, the operating expenses increased 1% only.


Other income increased to $74,170 for the six months ending June 30, 2014 from $56,777 for the same period of 2013.  The increase of $17,393 or approximately 31% was mainly due to the increase in interest income, investment income and gain on disposal of fixed assets which was partially offset by the interest expense and other revenues.  Interest income increased by 708% to $14,312 during the period.  The increase is due to the loans made to third party.  Investment income increased by 8% to $851 for the six months ending June 30, 2014 as compared to $10,261 in the comparable period of 2013.  It was mainly as a result of an increase in dividend income received from publicly traded equity securities owned by the Company.  


Other revenue for the six months period ended June 30, 2014 was $42,192 compared to $44,494 for the comparable period of 2013.  The decrease of $2,302 or approximately 5%, was mainly due to decreased commissions from business referral and other business services we provided to clients.  


Three-month end:


Net loss before tax and noncontrolling interest for the three months ending June 30, 2014 was $441,179 as compared to the net income before tax and noncontrolling interest of $142,356 for the three months period ended June 30, 2013.  The decrease of $583,535 was mainly due to the causes stated in the Six months end paragraph above.





19






Operating expenses


Operating expenses for the six months ending June 30, 2014 were $2,957,279, as compared to $2,718,046 for the same period of 2013.  The increase of $239,233 or approximately 9% was mainly due to the goodwill impairment charge of $222,110 and increases in salary, travel, rent, depreciation and amortization expense which were partially offset by decreases in bad debts expenses and other general and administrative.  If the impairment charge is excluded, the operating expenses increased 1% only.


Operating expenses for the three months ending June 30, 2014 were $1,699,530, as compared to $1,370,125 for the same period of 2013.  The increase of $329,405 or approximately 24% was mainly due to the goodwill impairment charge of $222,110 and increases in salary, travel, rent, depreciation and amortization expense which were partially offset by decreases in bad debts expenses and other general and administrative.  If the impairment charge is excluded, the operating expenses increased 8% only.


The reasons for the increases and decreases in the major items of operating expense in 2014, as compared to the same period of 2013, are as follows:


n

Salaries – increased $97,955 or 6% for the six months ended and $141,359 for the three months ended June 30, 2014 as compared to the same period of 2013.  The increase is mainly due to increases in pay rates and headcounts.  

n

Travel Expenses – increased $946 or 1% for the six months ended and $11,458 or 12% for the three months ended June 30, 2014 as compared to the same period of 2013.  The increase was because more business trips were taken during the second quarter of 2014 to establish relationship with new clients.

n

Rent – increased $32,561 or 10% for the six months ended and $16,170 or 10% the three months ended June 30, 2014 as compared to the same period of last year.  The increase was mainly due to the new office space rent for Dalian office and rental rates increased.

n

Bad debt expenses – decreased $30,096 or 43% for the six months ended and $9,478 for the three months ended June 30, 2014 as compared to the same period of last year.  The decrease was mainly due to the provision of doubtful debts decreased during the period.

n

Depreciation and amortization – increased $28,636 or 57% for the six months ended and $11,762 for the three months ended June 30, 2014 as compared to the same period of last year.  Because the real property located in United Kingdom purchased in July 2013, depreciation of the buildings started to charge at that time.  During the six months ended June 30, 2014, depreciation for fixed assets was $72,689, an increase of $39,694, or 120%, from $32,995 in the comparable period of 2013, which was caused by the reason stated as above.  Regarding the amortization charged for intangible asset, it was $6,001 for the six months ended June 30, 2014, a decrease of $11,058 or 65% as compared to the same period of 2013.

n

Other general & administrative expenses – decreased $112,879 or 20% for the six months ended and $63,976 the three months ended June 30, 2014 as compared to the same period of last year.  The decrease was due to SHB in which the employee related expenses decreased and the effort of expense control.

n

Impairment of goodwill – due to the fact that the operation of SHB has been changed to discontinue its general insurance business and now focus on the marine insurance business, and its revenue significantly decline during the six months period ended June 30, 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was performed.  Consequently, a goodwill impairment charge of $222,110 was made during the six months period ended June 30, 2014.



Net income and loss


The Company incurred a net loss of $604,271 during the six months period ended June 30, 2014. In order to return the company to profitability, we will continue to implement our operations plan which is stated in the “PLAN OF OPERATIONS” section above.  In accordance with our operations plan, we will continue to put efforts into establishment of new clients, credit control and control on expenses.





20






LIQUIDITY AND CAPITAL RESOURCES


Cash flow


For the six months ended June 30, 2014, cash used in operating activities totaled $361,497.  This was primarily due to the net loss during the period plus a decrease in commission receivable, other receivables, tax receivable, accrued expenses and deferred revenue, which was partially offset by an increase in enrollment fees, deposits and prepayments, fiduciary asset, account payables, claims payable, and other payable.  


Net loss after adjustments of non-cash activities for the six months ending June 30, 2014 decreased by $356,952, or 254% as compared to the same period of 2013. The changes in operating assets and liabilities for the six months ending June 30, 2014 increased $111,242 or 43% as compared to the same period of 2013.  As a result, net cash used in operating activities for the six months ended June 30, 2014 increased by $245,710 or approximately 212% as compared to the same period of last year.  


For the six months ended June 30, 2014, cash provided by investing activities amounted to $595,088 as compared to cash used in investing activities of $269,071 for the same period of last year.  For the first half of 2014, deposit and prepayment paid for the acquisition of real property in New York was $184,650, loan made to third party was $1,580,000, loan repayment from third party was $2,380,000, cash paid for purchase of fixed assets was $36,354 and sales proceed for disposal of fixed assets was $16,367.  For 2013, the fund was mainly used for the prepayment for asset acquisition of $190,925 and purchase of fixed assets of $78,146.


For the six months ended June 30, 2014 and 2013, cash used in finance activities totaled $146,223 and $147,560 respectively. For 2014, the funds were mainly used for the dividend payment to minority shareholders and repayment of obligations under hire purchase.  In addition, the fund borrowed from related parties almost offset the payments on related parties debt.  For 2013, the funds were mainly used for the dividend payment to minority shareholders.


Assets and liabilities


For the six months ended June 30, 2014, the Group’s balance sheet reflects total assets of $13,606,454 and total liabilities of $2,865,269.  Total assets decreased $348,318, or approximately 2%, and total liabilities increased $355,783, or approximately 14%, when compared to the year ended December 31, 2013.  The decrease of total assets was mainly due to a decrease of loan receivable, tax receivable, property, plant and equipment, goodwill, intangible asset, marketable securities, and other receivable which was partially offset by an increase of cash and cash equivalents, short-term investment, commission receivable, enrollment fee receivable, fiduciary asset and deposit and prepayment.  In addition, the increase of total liabilities was mainly due to an increase of trade accounts payable, claim payable, other payable, obligation from hire purchase lease which was partially offset by a decrease of accrued expenses, due to directors and deferred revenue.


As at June 30, 2014, commission receivable was $163,884 as compared to $142,739 as at December 31, 2013, while trade accounts payable was $2,425,239 as compared to December 31, 2013 balance of $2,090,472.  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 marine insurance usually renews in late February every year, and the average collection period increased during the period, commission receivable as at June 30, 2014 increased by $21,145 or 15% as compared to December 31, 2013 balance.  In addition, because certain advances made on behalf of customers were refunded, other receivable decreased by $70,303 or 30% as compared to the year end of 2013.  Furthermore, because certain fund received on behalf of customers during the period, the other payable increased $4,738 or 3% as compared to the year end of 2013.  On the other hand, certain claim proceeds were received on behalf of customers but had not been paid yet, the claim payable increased by $93,755 or 103% as compared to the year end of 2013.


As at June 30, 2014, loan receivable was $2,212,000, which decreased by $800,000 or 27% as compared to $3,012,000 as at December 31, 2013.  The decrease was due to receipt of a partial payment of the loan by the client.   Tax receivable as at June 30, 2014 was $56,140, which decreased by $32,013, or 36%, as compared to last year.  The decrease is in relation to the provision of income tax for the six months ending of 2014.


Accrued expenses of $60,810 as at June 30, 2014, reduced by $105,701 or approximately 63% from $166,511 as at December



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31, 2013.  The reduction was mainly due to repayment of the accrued expenses which were provided for the year of 2013.  In addition, the Company provided a deferred tax asset of $13,948 as at June 30, 2014 and December 31, 2013.  Such asset is primarily attributable to the taxable loss carrying over and different methods used in the calculation of depreciation of property, plant and equipment for financial reporting purpose and for income tax purpose.  


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 June 30, 2014, the market value of the equity securities was $393,453, which represents a decrease of $19,875 or approximately 5% as compared to the market value of $413,328 for the last year.  The decrease was due to the change of fair values between June 30, 2014 and December 31, 2013.


As at June 30, 2014, property, plant and equipment were $2,233,222 as compared to $2,248,611 as at December 31, 2013. The decrease of $15,389 or approximately 1% was mainly due to the depreciation and disposal of certain old fixed assets. Due to the fact that the Company acquired a subsidiary in 2012, certain assets such as customer list and goodwill were recognized in the same year.  As of June 30, 2014, the carrying value of customer lists was $15,118 and the carrying value of goodwill was $78,184.  However, due to the fact that the operation of SHB was changed to focus on marine insurance which resulted in a significant decline in revenue during the six months period ended June 30, 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was performed.  Consequently, a goodwill impairment charge of $222,110 was made during the six months period ended June 30, 2014 to write-off the entire carrying value of SHB’s goodwill.


The Company has bank and cash equivalents of approximately $5,271,463 as at June 30, 2014.  The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months.  As of June 30, 2014, the Company had $1,498,500 of commitments for capital expenditures in relation to the acquisition of real property in New York and $0 for off-balance sheet arrangements. The company has lease commitments of $778,698.



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 2013 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,



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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 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 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 June 30, 2014 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 six months ended June 30, 2014, 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.





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ITEM 5. OTHER INFORMATION


None.


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:  August 14, 2014


  

By: /s/ John Liu, Director


Date:  August 14, 2014



By: /s/ Colman Au, Chief Financial Officer


Date:  August 14, 2014




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