UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 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 000-51105

ALCO, INC.

 (Exact name of registrant as specified in its charter)

Nevada	11-3644700
(State or other jurisdiction of incorporation)	(IRS Employer Identification Number)

25th Floor, Fortis Bank Tower No. 77-79 Gloucester Road Wanchai, Hong Kong

(Address of principal executive office)

Registrant’s telephone number, including area code:  852-2521-0373

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
N/A	N/A

Securities to be registered under Section 12(g) of the Act:

Common Stock

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  

o Yes     x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  

o Yes     x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

x Yes   o No

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  

x Yes   o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

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

 Yes o  No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  0

APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  As of March 31, 2015, there were 10,336,000 shares of the registrant’s common stock, $0.001 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

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INDEX

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PART I

DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report, including statements in the following discussion, are what are known as “forward-looking statements”, which are basically statements about the future.  For that reason, these statements involve risk and uncertainty since no one can accurately predict the future.  Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects,” and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement.  Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits.  Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits.  Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-K and in the 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.

ITEM 1. BUSINESS

BACKGROUND

ALCO

ALCO, Inc. (“ALCO,” “we,” “us,” the “Company”) was incorporated under the laws of the State of Nevada on June 7, 1999 under the name Sea Horse, Inc.  On September 20, 2004, we changed our name to Lotus Capital Corp.  On February 13, 2006, we changed our name to ALCO, Inc.

ALCO was formed as a "blind pool" or "blank check" company whose business plan was to acquire one or more properties or businesses and to pursue other related activities intended to enhance shareholder value.

From the date of its incorporation until December 9, 2005, ALCO’s only business activities were organizational activities directed at developing its business plan, raising its initial capital and registering under the Securities Exchange Act of 1934.  On November 22, 2005, ALCO entered into an Agreement for Share Exchange with AL Marine Holdings (BVI) Ltd (“AL Marine”) and the individual shareholders of AL Marine pursuant to which it agreed to acquire all of the issued and outstanding stock of AL Marine in exchange for the issuance of 9,766,480 shares of ALCO’s common stock.  The closing under the Agreement for Share Exchange was completed on December 9, 2005, and upon completion of the closing, AL Marine became a wholly-owned subsidiary of ALCO.   

AL Marine

AL Marine was incorporated under the laws of the British Virgin Islands on May 30, 2005 for the sole purpose of acting as a holding company for interests in several affiliated operating businesses.  On July 15, 2005, AL Marine acquired 100% of the outstanding shares of Andrew Liu & Company Limited (“ALC”), a Hong Kong corporation, 85% of the outstanding shares of EduShipAsia, Ltd. (“ESA”), a Hong Kong corporation, and 60% of the outstanding shares of Chang An Consultants Limited (“CAC”), a Hong Kong corporation.  

On July 28, 2010, AL Marine set up a Hong Kong corporation called AL Marine Holdings (Hong Kong) Limited (“ALM HK”).  On December 16, 2010, ALM HK acquired 100% of the outstanding shares of Shanghai Heshili Broker Co. Ltd (“SHB”), a China corporation.  In order to hold and run SHB effectively, ALM HK appoints a local Chinese through an agency agreement to hold SHB on behalf of ALM HK.  In addition, ALM HK and SHB enter into an exclusive agreement on December 16, 2010. Under this agreement, ALM HK is entitled to receive all the profits earned from SHB.

On July 19, 2011, a new entity named AL Marine Consulting Services (Shanghai) Ltd (“ALM Shanghai”) was legally established in China.  AL Marine indirectly owns 100% of ALM Shanghai through ALM HK.  ALM Shanghai is set up for

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holding all the interest of SHB.  On July 20, 2011, the agency agreement between ALM HK and the local Chinese was replaced by another agency agreement between ALM Shanghai and the local Chinese.  At the same date, the exclusive agreement between ALM HK and SHB was replaced by another exclusive agreement between ALM Shanghai and SHB.

On October 1, 2012, AL Marine acquired 82% of the outstanding shares of Kim Insurance Brokers Pte Limited (“KIM”), a Singapore corporation.  On March 27, 2013, the Company changed the name of KIM to ALCO Insurance Brokers Pte Limited (“ALCO Insurance”).

The business of ALCO is now carried on through AL Marine and its subsidiaries.

PRINCIPAL PRODUCTS AND SERVICES

ALCO operates through its subsidiaries: ALC, CAC, ESA, SHB and ALCO Insurance.  These subsidiaries operate primarily in Hong Kong, China and Singapore.

ALC

ALCO is principally engaged in the marine insurance brokerage business through its wholly owned subsidiary, ALC, which was incorporated in 1989 as an insurance brokerage firm specializing in marine hull protection and indemnity insurance. ALC began operations in Hong Kong and moved into China in 1991.  

Under Hong Kong regulations, a person who acts as an insurance broker must have authorization from the Insurance Authority or be a member of a body of insurance brokers approved by the Insurance Authority.  The Hong Kong Confederation of Insurance Brokers (“HKCIB”) is such a body that has been approved by the Insurance Authority.  ALC became a member of the HKCIB in 1993.  In order to be admitted to the Confederation, an insurance broker must meet minimum requirements in regard to qualifications and experience; capital and net assets; professional indemnity insurance; keeping of separate records; and the keeping of proper books and accounts.  These requirements are determined by the Insurance Authority.  If an insurance broker does not meet these standards, the Confederation can withdraw the insurance broker’s membership.

Insurance brokers represent the insured in negotiating and placing insurance coverage with insurers, as well as handling claims when they occur.  Insurance brokers generate revenue from commissions and fees on insurance premiums and earn interest on premiums held before remittance to the insurers.  Brokers do not issue the policies themselves; they only find and place policies with insurance carriers on behalf of their clients and act as a liaison between the insurer and the client during the claims process.

ALC works in placing insurance coverage with both hull and machinery coverage (“H&M”) providers and protection and indemnity coverage (“P&I”) providers.  H&M covers the physical loss of or damage to the vessel arising from accidents, while P&I covers liabilities, losses, expenses and costs incurred in relation to injury or death on board. Business from China-based clients accounts for 95% of the business of ALC.

ALC places insurance coverages with approximately twenty different insurance providers. For P&I insurance, the Company places insurance with the thirteen major P&I clubs.  For H&M coverage, ALC places coverages with Lloyd’s Underwriters, among others.  ALC does not have any written agreements with these insurance providers.

  

 

ESA

AL Marine owns 85% of ESA.  In 2004, ESA was appointed as an exclusive agent by the Institute of Chartered Shipbrokers (UK) ("ICS") to set up ICS's first distant learning center in Shanghai, China.  ICS is an internationally recognized professional body representing shipbrokers, managers, and agents throughout the world.  ICS has approximately 3,500 members in over 60 countries.

We believe that many students in China will take advantage of the ICS training being offered in their country because they will not be required to travel overseas. As the exclusive agent of ICS in China, ALCO plans to provide delivery of courses in accordance with the syllabus of ICS, promotion of membership in ICS, and management of the examination center.  ICS is the only internationally recognized professional and vocational qualification in the shipping industry.  Pursuant to its contract with ICS, ESA is required to provide seminars, review sessions, revision workshops and other assistance to the students who enroll in

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the learning center.  Students will be charged GBP385 (approximately US$599), of which GBP225 (approximately US$350) will be paid to ICS.  The fees may be revised in the future upon the agreement of both parties.  ESA is responsible for paying the set up and maintenance for the center.

ESA has limited assets and its operations to date have not been significant.  As of December 31, 2014, ESA had net assets of $(113,729) with a cash balance of $51,750, accounts receivable of $8,652, due to related parties of $161,901 and accounts payable of $7,640.  During the 2014 fiscal year, ESA received $13,091 from enrollment fees from this arrangement and $14,593 from seminar income. It spent approximately $37,688 setting up and maintaining the learning center.

CAC

AL Marine owns 60% of CAC which participates in a joint venture with a large state-owned shipping group in China, the China Changjiang Shipping Corporation (the "CSC Group").  CAC, which was incorporated in Hong Kong in March 1999, acts as an in-house insurance brokerage firm and general consultant for the CSC Group.  CAC looks for business opportunities for the CSC Group and uses the CSC Group’s connections in China to create business opportunities for other foreign shipping interests.  

The CSC Group owns a substantial and growing fleet of ships, advertising space, and seafarers’ schools in China.  The CSC Group has a large share of the market in logistics, cruising, shipbuilding and other related businesses along the Changjang region in China and has expanded its businesses all over the country. The CSC Group’s other business activities include shipbuilding, crane manufacturing, cruising, advertising, and seafarers’ training.

CAC has no formal agreement with the CSC Group.  In 2014, approximately 9% of ALCO’s revenue was generated from CAC.

SHB

AL Marine indirectly owns 100% of SHB through ALM Shanghai and a local Chinese individual.  SHB, which was incorporated in China in July 2005, is an insurance brokerage firm engaging in general insurance brokerage in relation to property, motor vehicle, liability & indemnity, health and accident, etc.  SHB’s primary operations are in China.  

Under Chinese government regulations, a person who acts as an insurance broker must obtain a license from the China Insurance Regulatory Commission.  SHB obtained the necessary license in June 2005. In order to maintain the license, an insurance broker must meet minimum requirements in regard to qualifications and experience; paid-up capital; professional indemnity insurance; and keeping of proper books and accounts.  These requirements are determined by the Chinese government. If an insurance broker does not meet these standards, the Commission can withdraw the insurance broker’s license.

SHB became ALCO’s subsidiary on December 16, 2010. In 2014, approximately 1.3% of ALCO’s revenue was generated from SHB.

ALCO Insurance

AL Marine owns 82% of ALCO Insurance, which it acquired on October 1, 2012.  ALCO Insurance was incorporated in Singapore in February 1989.  It is an insurance brokerage firm engaging in general insurance brokerage business for property, motor vehicle, liability & indemnity, health and accident, etc.  The primary operations of ALCO Insurance are in Singapore.  

Under Singapore government regulations, a person who acts as an insurance broker must be registered with the Monetary Authority of Singapore (“MAS”) starting 1999.  ALCO Insurance was registered in July 2000 in accordance with the regulations. In order to maintain the registration, an insurance broker must meet minimum requirements in regard to paid-up capital, professional indemnity insurance, net asset value, insurance broking premium accounts, etc. These requirements are determined by the Singapore government.  If an insurance broker does not meet these standards, MAS can withdraw the insurance broker’s registration.

ALCO Insurance became ALCO’s subsidiary on October 1, 2012.  In 2014, approximately 10% of ALCO’s revenue was generated from ALCO Insurance.  

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On July 25, 2013, paid up share capital of ALCO Insurance was increased from SGD304,000 (approximately US$243,419) to SGD1,230,000 (approximately US$984,887).  The increase of SGD926,000 (approximately US$741,468) was divided into 926,000 ordinary shares and allotted in according to the current shareholding percentage. The Company injected additional SGD759,320 (approximately US$609,424) into ALCO Insurance and received capital injection of SGD166,680 (approximately US$132,044) from the non-controlling shareholder.  The ownership percentage remains unchanged after the capital injection.

DESCRIPTION OF INDUSTRY

Marine Insurance Brokerage

Marine insurance is a mature industry, which is diverse in terms of types of coverage and insurers.  These different options are intended to suit the risk profile and requirements of different types of vessels, voyages, shipowners, and charterers. Within marine insurance, the two most common forms of insurance are H&M and P&I.  H&M covers the physical loss of or damage to the vessel arising from accidents, while P&I covers liabilities, losses, expenses and costs incurred in relation to injury or death.  

Various insurers differ significantly in the coverages and options they provide.  Most shipowners and charterers rely on professional insurance brokers for advice to make an informed decision on the choice of insurer and coverage that will suit their needs.  Insurance brokers represent the insured in negotiating and placing insurances with the insurers.  Brokers generate revenue primarily from commissions and fees on insurance calls and premiums.  Revenue is also generated from interest on calls and premiums held before remittance to the insurers and on claims held before payment to the insured.  Commission revenue varies based on the calls and premiums on the policies that are placed on behalf of clients.  When call and premium rates in the market rise, revenue for brokers increases, and revenue declines when call and premium rates decline.  The standard rate of commission for an insurance broker is approximately 10% on the call or premium of the insurance placed.

In addition, as part of the brokerage service, the brokers have a duty to make claims for their clients.  In doing so, they appraise the merits of the claim, devise a strategy for the claim and submit it to the insurer at the right place and in the correct form.

   

GOVERNMENT REGULATION

ALCO’s subsidiaries, ALC and CAC, as members of HKCIB, must comply with the minimum requirements specified by the Insurance Authority under Section 70(2) of the Insurance Companies Ordinance of Hong Kong.  The minimum requirements specified by the Insurance Authority (“IA”) under Section 70(2) of the Insurance Companies Ordinance are:

(a)

To maintain paid up share capital or minimum net assets of HK$100,000

(b)

To maintain adequate accounting records to reflect the transactions of its business

(c)

To maintain client accounts in accordance with the minimum requirements specified by the IA under Section 70(2) of the Ordinance

(d)

To maintain a professional indemnity insurance policy in accordance with the minimum requirements specified by the IA under Section 70(2) of the ordinance.

These restrictions and other laws with which we must comply are subject to change.  Any change in these laws may cause our cost of doing business to increase or cause a change in the demand for our services.  

ALCO’s subsidiary, SHB, must comply with the minimum requirements specified by the Chinese government under the Rules on Administration of Insurance Brokerage Institutions.  The minimum requirements specified by the rules include:

(a)

To maintain adequate accounting books to record the revenue and expenditure of insurance brokerage business

(b)

To maintain a professional indemnity insurance policy

(c)

To submit auditor’s report to the Commission within three months after the year-end closing date.

These restrictions and other laws with which we must comply are subject to change.  Any change in these laws may cause our cost of doing business to increase or cause a change in the demand for our services.  

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ALCO’s subsidiary, ALCO Insurance, must comply with the minimum requirements specified by the MAS under Section 35Y of the Insurance Act Chapter 142.  The minimum requirements specified by the rules include:

(a)

To maintain paid up share capital of an amount not less than Singapore dollar $300,000

(e)

To maintain a professional indemnity insurance policy in accordance with the minimum requirements specified by the MAS under Section 35Y of the Insurance Act

(b)

To maintain net asset value at all times not less than 50% of the minimum paid up share capital

(c)

To maintain client accounts in accordance with the requirements specified by the MAS under Regulation 7 of the Insurance (Intermediaries) Regulations

These restrictions and other laws with which we must comply are subject to change.  Any change in these laws may cause our cost of doing business to increase or cause a change in the demand for our services.  

CUSTOMERS AND MARKETING

While members of the senior management regularly appear at industry-targeted functions and speak at seminars organized for the shipping industry, ALCO believes that the best marketing channel is by word-of-mouth and clients’ referrals based on quality of service and results in providing a solution to difficult claims.  The very close-knit nature of the Chinese shipping community places ALCO in a good position.  This strategy has so far proven to be effective.

ALCO had a customer retention rate of approximately 78% in 2014. We anticipate that we will maintain this retention rate in the future because we have been able to maintain this rate for the last three years.  In 2014, ALCO had over 270 customers, and its customers were mainly from China.  ALCO obtains new clients through the channels of existing clients or sub-brokers.

COMPETITION

ALCO’s major competitors are large US insurance brokers such as Aon, Marsh and Willis, who provide a wide range of insurances and are not focused on marine insurance.  These competitors are much larger than ALCO and have access to significantly more financial resources than ALCO.  However, these competitors are international companies who focus on many different types of insurance.  We believe that ALCO is one of the few insurance providers that specializes in the marine insurance business.    

Competition for business is intense in all of ALCO’s business lines and in every insurance market, and other providers of global risk management services have substantially greater market shares than ALCO does.  Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business.  Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.

EMPLOYEES

At the time of this report, ALCO had 70 employees, including 48 in operations and 22 in supporting and administrative functions.  All employees are full time.

REPORTS TO SECURITY HOLDERS

ALCO is subject to the reporting requirements of the Exchange Act and the rules and regulations promulgated thereunder, and, accordingly, files reports, information statements or other information with the Securities and Exchange Commission, including quarterly reports on Form 10-Q, annual reports on Form 10-K, reports of current events on Form 8-K, and proxy or information statements with respect to shareholder meetings.  Although ALCO may not be obligated to deliver an annual report to its shareholders, we will voluntarily provide electronic or paper copies of the Company’s filings free of charge upon request.  The public may read and copy any materials ALCO files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address is http://www.sec.gov.  

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ITEM 1A. RISK FACTORS

N/A

ITEM 1B. UNRESOLVED STAFF COMMENTS

N/A

ITEM 2. PROPERTIES

ALCO rents its facilities from third parties.  As of December 31, 2014, ALCO leased approximately 13,846 square feet of office space for its operations.  Its current leased properties are:

Location	Size	Description
Wanchai, Hong Kong	6,350 sq. ft	Headquarters
Shanghai, China	3,251 sq. ft	Offices
Fuzhou, China	1,243 sq. ft	Office
District 01, Singapore	2,024 sq. ft	Office
Dalian, China	978 sq. ft	Office

The Hong Kong office was leased from a third party since March 2010.  Starting from December 2007, additional flats at the existing building of the Hong Kong Office were leased from third parties for office expansion.  As the Company is continuing growth and the existing properties were no longer able to meet the Company’s needs, the Hong Kong Office moved to a new property in March 2012. The new property is located in Wanchai, Hong Kong with 6,350 sq. ft and is leased from a third party. The leases for the old office located in Central were not renewed.

The Shanghai offices have been leased from a third party since December 2007. For expansion purpose, another flat in the same building is leased from another third party starting in December 2010.  

The Fuzhou office is leased from a third party starting from October 2010.

The Singapore office is leased from a third party starting from December 2012.

The Dalian office is leased from a third party starting from January 2013.

ALCO’s current total monthly rental payment for the facilities mentioned as above is approximately US$43,977. We intend to renew these leases upon their expiration.

ITEM 3. LEGAL PROCEEDINGS

ALCO’s subsidiary, ALC, is subject to a legal proceeding that has not been resolved and that has arisen in the ordinary course of business.  On September 16, 2012, a shipowner named Eastshine Limited filed a civil claim against five parties, including ALC, in the Qingdao Maritime Court (“QMC”), in China, claiming losses suffered of CNY 9.9 million (approximately US$1.6 million) due to the allegedly wrongful arrest of a vessel named Tongli Yantai.  Although ALC had no direct relationship with the Plaintiff in the business for the vessel, ALC was the insurance broker of one of the parties named in the legal proceeding, and assisted in resolving the vessel arresting matter.  As a result, the Plaintiff has included ALC as one of the defendants in the legal action.

In the opinion of management, there is not a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies.  In addition, because the claims asserted in the legal proceeding are covered by an insurance policy up with a policy limit of HK$75 million (approximately US$9.6 million) any one claim and in the aggregate, ALC’s liability to the claim above is limited to HK$150,000 (approximately US$19,230) and this amount is fully provided in the book of 2012.  However, the outcome of this legal proceeding brought against the Company is

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subject to significant uncertainty.  Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding was resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

Other than the legal proceeding mentioned as above, ALCO is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. None of ALCO’s directors, officers or affiliates, and no owner of record or owner of more than five percent (5%) of its securities, or any associate of any such directors, officer or security holder is a party adverse to ALCO or has a material interest adverse to it in reference to pending litigation.

ITEM 4. MINE SAFETY DISCLOSURES

N/A

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our shares are approved for trading on the OTC Bulletin Board under the symbol ALCQ, but there has been no trading activity in the shares and no trading market has been established.  There is no assurance as to when, or whether, an active trading market in our shares will be established.

None of ALCO’s common equities are subject to any outstanding options, warrants to purchase, or securities convertible into, common stock.  ALCO filed a registration statement on Form SB-2 to register a total of 500,000 shares for resale on behalf of certain selling shareholders.  The registration statement was declared effective on November 13, 2006. Other than the 500,000 shares registered for resale on behalf of certain selling shareholders,  there are no common equities of ALCO that are being, or have been proposed to be, publicly offered by ALCO, the offering of which could have a material effect on the market price of its common stock.

As of December 31, 2014, ALCO had 10,336,000 shares of common stock issued and outstanding.  The shares are held by 37 shareholders of record.  

On June 1, 2010, the Company issued 198,000 shares of restricted stock to certain key employees and directors of the Company under the 2010 Restricted Share Stock Compensation Plan.  The plan was approved by the board of directors on June 1, 2010.  The restricted shares were issued subject to certain terms and conditions such as that the shares may not be transferred during the applicable restriction period and that the shares will be forfeited if the employment is terminated by the holder or the Company. The shares were issued in reliance upon an exemption from registration provided by Regulation S under the Securities Act of 1933.  The shares were issued at a strike price of approximately $1.57, which was equal to the fair value of the Company’s stock on June 1, 2010, the date of grant.  Therefore, the aggregate value of these shares as of the date of issuance was $310,860, of which $85,303 (6,000 shares with fair value of $9,420 were subsequently forfeited) and $37,615 was recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2012 and the year ended December 31, 2013 respectively.  No balance was recognized as stock-based compensation expenses in 2014 because it is fully amortized in 2013.

On June 1, 2011, the Company issued 25,500 shares of restricted stock to certain key employees of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above.  The plan was approved by the board of directors on June 1, 2011.  The shares were issued at a strike price of $2.79, which was equal to the fair value of the Company’s stock on June 1, 2011, the date of grant.  Therefore, the aggregate value of these shares as of the date of issuance was $71,145, of which -$1,744 (13,500 shares with fair value of 37,665 were subsequently forfeited) and -$8,835 (6,000 shares with fair value of 16,740 were subsequently forfeited) were recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2012 and 2013 respectively.  No balance was recognized as stock-based compensation expenses in 2014 because the balance of shares was forfeited in 2013.

On June 1, 2012, the board of directors approved and the Company granted an award of 13,500 shares of restricted stock to a key employee of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan

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mentioned as above.  The shares were issued at a strike price of $1.65, which was equal to the fair value of the Company’s stock on June 1, 2012, the date of grant.  Therefore, the aggregate value of these shares as of the date of issuance was $22,275, of which $4,331, $7,425 and $7,425 was recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2012, 2013 and 2014 respectively.  The balance will be recognized as stock-based compensation expenses in the coming year.

ALCO has never declared any cash dividends on its common stock and does not anticipate declaring dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

N/A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PLAN OF OPERATIONS

To cope with the difficult shipping market in 2014, there were several tasks in the management’s plan of operations for 2014.  The first task was tightening control measures to monitor and reduce operating expenses.  Management believes that this task was successfully completed as other general and administrative expense decreased 10% in 2014 when compared to 2013. Although salaries and travel expenses increased 6% and 7% respectively, it was because the level of marketing activities increased in 2014.  The second task was enhancing our credit controls to improve the average collection period for outstanding receivables. Management believes that the enhancement was successful although the average collection period increased from 34 days in 2013 to 35 days in 2014.  The third task was carrying out an audit review for our Singapore subsidiary.  This task was completed and no significant finding was noticed during the audit.  The fourth task was  organizing marketing activities with our business partners and putting more effort into acquiring new clients.  We believe that this task was successfully achieved as our client retention rate increased by 1 point to 78% and 68 new clients were acquired during 2014.

Management believes that the 2015 fiscal year will still be a difficult year even though the shipping market is expected to be improved to some extent.  However, many companies, including us, have been facing pressures from increasing operating costs such as salaries and rent.  Therefore, the Company plans to continue to tighten control measures in order to monitor and reduce operating expenses.  Meanwhile, we will maintain the current level of marketing activities to promote the Company to new clients and to strengthen our relationship with our existing clients.  In addition, because current market conditions are still bad, with many shipping companies facing liquidity problems, we will maintain our credit controls to retain, or further reduce, the average collection period for outstanding receivables.   

We believe the plans mentioned above will help to turn the Company back to 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

Year ended December 31, 2014 compared with 2013

Revenue:

Revenue for 2014 was $5,337,978 as compared to $5,783,414 for 2013. The decrease of $445,436 or approximately 8%, was mainly due to decreases of commission income from existing clients, and decreasing in consulting income and website advertising income, which were partially offset with an increase of enrollment fee income.  

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Commission income, which is based on a percentage of the premiums paid by the insured, and decreased by $431,849, or 8%, when compared to last year. The decrease was mainly contributed by a reduction of commission income for SHB, ALC and CAC which was partially offset by an increase of commission income for ALCO Insurance.  If the contributions from SHB and ALCO Insurance are excluded, commission income of the group for 2014 decreased by $194,091, or 4%, as compared to 2013. The factors which resulted in the decrease of commission income attributable to ALC and CAC were a decrease of 6% in average commission earned per client, partially offset by an increase of 4% in number of clients.

Some clients sold their vessels as scrap during the year because of the poor shipping market.  Such sales resulted in lowered demand for insurance.  However, the Company’s number of clients still increased during 2014 because of our marketing activities and acquisition of new clients.  Average commission earned per client decreased during the year because of decreases in the commission percentage.  In 2014, commission income contributed by ALC, CAC, SHB and ALCO Insurance was 80%, 9%, 1.3% and 10% respectively, of our total commission income for the year.

Consulting income for 2014 decreased to $29,000 from $55,800 in 2013.  The decrease of $26,800, or 48%, was because demand for consulting services decreased.  In addition, website advertising for 2014 was $667, the decrease was due to the decreases of customers’ demand.  On the contrary, enrollment fees for 2014 increased 180% to $27,684 as compared to $9,888 for 2013. The increase was mainly due to increases in customer’s demand and enrollment.  

Net loss before tax and noncontrolling interest:

Net loss before tax and noncontrolling interest for 2014 was $727,769 compared to income before tax and noncontrolling interest $11,821 for 2013. The increase of $715,948, or approximately 6057%, was mainly because of the 8% decrease in revenues combined with a 4% increase in operating expenses during 2014.  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 $222,759 was made during the year.  If the impairment charge is excluded, the operating expenses only increased by 1%.

Other income decreased to $93,971 in 2014 from $107,253 in 2013.  The decrease of $13,282, or approximately 12%, was mainly due to the increase in interest expenses and other revenues which was partially offset by the interest income, investment income and gain on disposal of fixed assets.  Interest income increased by 289% to $19,932 in 2014.  The increase was due to interest earned on loans made to a third party.  Investment income increased by 7% to $18,982 in 2014 as compared to $17,770 in 2013.  The increase was mainly the result of an increase in dividend income received from publicly traded equity securities owned by the Company.  Other revenue for 2014 was $51,194 compared to $84,355 for 2013.  The decrease of $33,161, or approximately 39%, was mainly due to decreased commissions from business referral and other business services we provided to clients.  In addition, there was a government grant received by ALCO Insurance in 2013.  Because no such grant was received in 2014, it also caused the decrease of other income in 2014.

Operating expenses:

Total operating expenses were $6,159,718 for 2014, as compared to $5,902,488 for 2013.  The increase of $257,230, or approximately 4%, was mainly due to the goodwill impairment charge of $222,759 and increases in salary, travel, depreciation and amortization expenses which were partially offset by decreases in rents, bad debts expenses and other general and administrative expenses.  If the impairment charge is excluded, the operating expenses only increased by 1% from 2013 to 2014.

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

·

Salaries – increased by $211,725, or 6%, from $3,418,958 in 2013 to $3,630,683 in 2014.  The increase was mainly due to increases in headcounts for the Hong Kong office and increases in pay rates for all offices during the year of 2014.  In addition, pursuant to the Restricted Share Stock Compensation Plans, $7,425 was recognized as stock-based compensation expense in salaries during the year ended December 31, 2014.  The amount of stock based compensation decreased $28,780, or approximately 79%, as compared to 2013 because amortization for the plans which was implemented in 2010 and 2011 was completed.

·

Travel expenses – increased by $28,033, or 7%, from $393,763 in 2013 to $421,796 in 2014.  The increase was because more business trips were taken during 2014 to establish relationships with new clients and maintain relationships with existing clients.

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·

Rents – decreased by $3,489, or 0.5%, from $705,797 in 2013 to $702,308 in 2014.  The decrease was mainly due to the fact that the separate office space for SHB was not renewed, and instead, SHB and the Company’s Shanghai office share the same office space with SHB.  This decrease was partially offset by an increase which was due to new office spaces were rented for the Dalian office and an increase in rental rates during the year.

·

Bad debt expenses – decreased by $111,255, or 104%, from $106,569 in 2013 to ($4,686) in 2014.  The decrease was mainly because the provision of doubtful debts decreased during the year.

·

Depreciation and amortization – increased by $26,258, or 19%, from $135,206 in 2013 to $161,464 in 2014.  The Company acquired real property in the United Kingdom in July 2013, and acquired real property located in the United States, in July 2014.  The Company began to claim depreciation deductions for these properties immediately following their acquisition.    As a result, during 2014, depreciation for fixed assets was $149,543, an increase of $48,544, or 48%, from $100,999 in 2013. The increase in depreciation expense for fixed assets was partially offset by a decrease in amortization expense for intangible assets.  The amortization expense for intangible assets was $11,921 for 2014, which was a decrease of $22,286, or 65%, as compared to 2013.  Amortization expenses decreased in 2014 as compared to 2013 because the acquired customer base which was being amortized, had been fully amortized during the year.

·

Other general & administrative expenses – decreased $116,801, or 10%, for 2014 as compared to last year.  The decrease was due to a decrease in employee related expenses for SHB and to the Company’s expense control efforts.

·

Impairment of goodwill – due to the fact that the operation of SHB had changed and its revenue significantly declined during 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was performed at June 30, 2014.  Consequently, a goodwill impairment charge of $222,759 was made during 2014.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow

For 2014, cash provided by operating activities totaled $148,186 compared to $435,045 for 2013.  The receipt of funds was primarily due to net loss for the year plus increases in enrollment fee receivable, fiduciary asset, accounts payable, other payable and accrued expenses, which were partially offset by decreases in commission receivable, deposit and prepayment, other receivable, tax receivable, claims payable, and deferred revenue.

Net loss after adjustments of non-cash activities for 2014 increased by $610,901, or 355%, as compared to 2013.  The changes in operating assets and liabilities for 2014 increased $324,042, or 123%, as compared to 2013.  As a result, net cash provided by operating activities for 2014 decreased by $286,859, or approximately 66%, as compared to last year.  

For the year of 2014 and 2013, cash used in investing activities amounted to $1,104,120 and $3,224,873, respectively. For 2014, the fund was mainly used for deposit and prepayment paid for the acquisition of assets, loan made to third party, and cash paid for purchase of fixed assets including a real property located in New York, United States.  The cash outflow was partially offset by the loan repayment from third party and sale proceeds from disposal of fixed assets.  For 2013, the fund was primarily used for the loan made to third party and purchase of fixed assets including a real property located in Holly Mount, London, United Kingdom.  

In 2014, cash used in financing activities totaled $149,973, consisting of a dividend payment of $143,077 to minority shareholders of CAC, repayment of $6,720 of obligations under capital lease, and principal payments of $21,589 on related party debt.  The cash outflow was offset by the borrowings of $21,413 on related party debt.

Assets and liabilities

As of December 31, 2014, the Company’s balance sheet reflects total current assets of $8,413,569, which decreased by $2,067,765, or 20%, as compared to $10,481,334 as of December 31, 2013.  Total current liabilities as of December 31, 2014 were $2,853,912, which increased by $344,426, or 14%, as compared to $2,509,486 as of December 31, 2013.  The decrease of total current assets was mainly due to decreases of cash and cash equivalents, short-term investment, commission receivable, loan receivable and tax receivable which were partially offset by increases of enrollment fee receivable and fiduciary asset.  The increase of total current liabilities was mainly due to increases of trade accounts payable, other payable, accrued expenses, tax

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payable, and current portion of obligation from capital lease, partially offset by decreases of claims payable, due to directors and deferred revenue.  

As of December 31, 2014, commission receivable was $322,589 as compared to $142,739 in 2013, while trade accounts payable and other payable were $2,376,271 and $214,504 respectively, as compared to December 31, 2013 balances of $2,090,472 and $159,451.  Each of these changes was due to the timing of commissions received from customers and making payments to insurers at the year end.  In addition, because the commission income decreased, commission receivable as at December 31, 2014 increased by $179,850, or 126%, as compared to the December 31, 2013 balance.  In addition, because certain payment advances made on behalf of customers were refunded, other receivable decreased by $111,188, or 47%, as compared to the year end of 2013.  Furthermore, because certain fund received on behalf of customers had been received, the other payable increased $55,053, or 35%, as compared to the year end of 2013.  In addition, certain claim proceeds received on behalf of customers had been paid, and as a result, the claim payable decreased by $17,457, or 19%, as compared to 2013.

As at December 31, 2014, loan receivable was $1,912,000, which decreased by $1,100,000, or 37%, as compared to last year.  The decrease was due to receipt of payment of the loan by the client.  Tax payable as at December 31, 2014 was $10,429, it is in relation to the provision of income tax for 2014.

Accrued expenses were $170,200 as at December 31, 2014, which represents an increase of $3,689, or approximately 2%, from $166,511 as at December 31, 2013.  The increase was mainly due to the fact that certain operating expenses which were higher than last year were accrued in 2014.  The Company provided a deferred tax asset of $13,948 as at 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.  As at December 31, 2014, no deferred tax asset was provided.

Because the interest rate is maintained at a very low level in the recent years, since 2008, the Company has purchased publicly traded equity securities with high dividend yields for long term investment purpose.  As of December 31, 2014, the market value of the equity securities was $381,204, which represents a decrease of $32,124, or approximately 8%, as compared to the market value of $413,328 for the last year.  The decrease was mainly due to the change of fair values between December 31, 2014 and December 31, 2013, and the addition of equity securities which were acquired during the year.

As at December 31, 2014, property, plant and equipment were $4,035,084 as compared to $2,248,611 as at December 31, 2013.  The increase of $1,786,473, or approximately 79%, was mainly due to acquisition of a real property in United States.  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 December 31, 2014, the carrying value of customer lists was $8,585 and the carrying value of goodwill was $73,997.  However, due to the fact that the operation of SHB has been changed and its revenue significantly declined during the six month period ended June 30, 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was performed at June 30, 2014.  Consequently, a goodwill impairment charge of $222,759 was made during 2014 to write off the entire carrying value of SHB’s goodwill.

The Company has bank and cash equivalents of approximately $4,048,846 as at December 31, 2014.  The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months.  As of December 31, 2014, the Company had $0 of commitments for capital expenditures and off-balance sheet arrangements. The company has lease commitments of $556,135.

CRITICAL ACCOUNTING POLICIES

Estimates and Assumptions

In preparing financial statements that conform to generally accepted accounting principles, management makes estimates and assumptions that may affect the reported amount of assets and liabilities.  Actual results could differ from these estimates. Particularly, the areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.

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Consolidation policy

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

In accordance with ASC 810, the Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary.  The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.

VIEs are generally entities that lack sufficient equity to operate without additional subordinated financial support from other parties or are entities whose equity holders do not have adequate decision making authority.  The primary beneficiary of a VIE is the party that (a) has the power to direct the activities of a VIE that significantly impacts its economic performance and (b) has the obligation to absorb the losses or the rights to receive the benefits that could be significant to the VIE.

According to the requirements of ASC 810, we have evaluated our relationships with SHB.  We have concluded that SHB is a VIE, and the Company is the primary beneficiary of the VIE.  Accordingly, we adopted the provisions of ASC 810 and consolidated SHB into our financial statements commencing in the fiscal year of 2010.

             

Earnings per Share

The Earnings per share is determined by dividing the net earnings by the weighted average number of outstanding shares during that period.  

Currency

ALCO’s main subsidiaries, ALC, CAC and ESA use the Hong Kong dollar as its currency.  The exchange rate for HK$ to US dollars has varied by very little during the period between 2013 and 2014.  Thus, the consistent exchange rate used has been 7.80 HK$ per each US dollar.  Since there have been no greater fluctuations in the exchange rate, there is no gain or loss from foreign currency translation and no resulting other comprehensive income or loss.  There were no material gains or losses recognized as a result of translating foreign currencies to the U.S. or Hong Kong dollar.  No assurance can be given as to the future value of foreign currency and how fluctuations in such value could affect ALCO’s earnings.  

The balance sheets of ALC, CAC and ESA were translated at year-end exchange rates.  Income and expenses were translated at exchange rates in effect during the year, substantially the same as the year-end rates.

The functional currency of SHB and ALM Shanghai is the Chinese Yuan (“CNY”) while ALCO Insurance is the Singapore Dollar (“SGD”).  The financial statements of SHB, ALM Shanghai and ALCO Insurance are translated into United States dollars in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification TM (ASC) No. 830, " Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.  At December 31, 2014, the cumulative translation adjustment of $3,894 was classified as an item of other comprehensive income in the shareholders’ equity section of the consolidated balance sheet.  For the year ended December 31, 2014, accumulated other comprehensive income was $53,565.

The exchange rates used to translate amounts in CNY and SGD into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:  

Balance sheet items, as of year-end date:

 US$0.16060:CNY1 and US$0.75259:SGD1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.16137:CNY1 and US$0.78377:SGD1

Revenue Recognition

Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later.  At that date, the earnings process has been completed, and the Company can reliably estimate the impact of

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policy cancellations based upon historical cancellation experience adjusted by known circumstances.  The Company keeps a policy cancellation reserve fund to use if policies are cancelled.  Subsequent commission adjustments are recognized upon notification from the insurance companies.  Fee income is recognized as services are rendered.

Income Taxes

Income tax expense is based on reported income before income taxes.  Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.  In accordance with FASB Accounting Standards Codification TM (ASC) No. 740, " Income Taxes”, these deferred taxes are measured by applying currently enacted tax laws.  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

N/A

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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ALCO, INC.

FINANCIAL STATEMENTS

AT DECEMBER 31, 2014

INDEX

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

ALCO, Inc.

Hong Kong

We have audited the accompanying consolidated balance sheets of ALCO, Inc. and its subsidiaries (collectively, the “Company”)  as of December 31, 2014 and 2013 and the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ALCO, Inc. and its subsidiaries as of December 31, 2014 and 2013 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MALONEBAILEY, LLP

www.malone-bailey.com

Houston, Texas

March 31, 2015

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ALCO, INC

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013

ASSETS		December 31, 2014		December 31, 2013
Current Assets:
Cash and cash equivalents	$	4,048,846	$	5,183,870
Short-term investment		105,723		109,785
Commissions receivable, net		322,589		142,739
Enrollment fee receivable		8,652		8,593
Fiduciary asset		2,015,759		1,936,194
Loan receivable		1,912,000		3,012,000
Tax receivable		-		88,153
Total Current Assets		8,413,569		10,481,334
Property, plant and equipment, net		4,035,084		2,248,611
Goodwill		73,997		301,498
Intangible asset		8,585		20,855
Other Non-current Assets:
Deposits and prepayment		223,471		240,430
Marketable securities		381,204		413,328
Other receivable		123,580		234,768
Deferred tax assets		-		13,948
Total Other Non-current Assets		728,255		902,474
Total Assets	$	13,259,490	$	13,954,772
LIABILITIES AND EQUITY
Current Liabilities:
Trade accounts payable	$	2,376,271	$	2,090,472
Claim payable		73,940		91,397
Other payable		214,504		159,451
Accrued expenses		170,200		166,511
Tax payable		10,429		-
Due to directors		811		988
Deferred revenue		-		667
Capital lease obligation, current		7,757		-
Total Current Liabilities	$	2,853,912	$	2,509,486
Non-current Liabilities
Capital lease obligation, non-current	$	17,559	$	-
Total  Non-current Liabilities	$	17,559	$	-
Total Liabilities	$	2,871,471	$	2,509,486
COMMITMENTS AND CONTINGENCIES
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 December 31, 2014 and  2013		10,336		10,336
Additional paid-in capital		350,183		342,758
Accumulated other comprehensive income		71,593		169,177

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Retained earnings		9,644,190		10,593,963
Total ALCO, Inc. Shareholders' Equity		10,076,302		11,116,234
Non-controlling interest		311,717		329,052
Total Equity		10,388,019		11,445,286
Total Liabilities and Equity	$	13,259,490	$	13,954,772
See Notes to Consolidated Financial Statements

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ALCO, INC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS) FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

		Year ended December 31,
Revenues		2014		2013
Commission income	$	5,280,627	$	5,712,476
Consulting income		29,000		55,800
Website advertising		667		5,250
Enrollment fee income		27,684		9,888
Total Revenues		5,337,978		5,783,414
Operating Expenses
Salaries	$	3,630,683		3,418,958
Travel expenses		421,796		393,763
Rents		702,308		705,797
Bad debt expenses / (recovery)		(4,686)		106,569
Depreciation and amortization		161,464		135,206
Other general and administrative		1,025,394		1,142,195
Impairment of goodwill		222,759		-
Total Operating Expenses		6,159,718		5,902,488
Loss from Operations	$	(821,740)		(119,074)
Other Income (Expense)
Interest income	$	19,932		5,128
Investment income		18,982		17,770
Interest expense		(1,292)		-
Other revenues		51,194		84,355
Gain on disposal of fixed assets		5,155		-
Total Other Income		93,971		107,253
Loss Before Provision for Income Taxes		(727,769)		(11,821)
Provision for income taxes		87,836		43,102
Net Loss		(815,605)		(54,923)
Less: Net loss attributable to the non-controlling interest		(134,168)		(148,316)
Net Loss Attributable to ALCO, Inc.	$	(949,773)	$	(203,239)
Comprehensive Income (Loss):
Net loss		(815,605)		(54,923)
Other Comprehensive Income (Loss)
Marketable securities		(51,178)		13,377
Foreign currency translation adjustments		(54,832)		2,731
Comprehensive Loss	$	(921,615)	$	(38,815)
Less: Comprehensive loss attributable to non-controlling interest		(125,742)		(142,608)
Comprehensive Loss Attributable to ALCO. Inc.		(1,047,357)		(181,423)
Basic and Fully Diluted Loss per Share
Net loss attributable to ALCO, Inc common shareholders	$	(0.09)	$	(0.02)
Weighted Average Shares Outstanding		10,336,000		10,336,016
See Notes to Consolidated Financial Statements

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ALCO, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

			Year ended December 31,
			2014		2013
Operating Activities
Net loss		$	(815,605)	$	(54,923)
Adjustments to reconcile net loss to net cash:
Bad debt expense (recovery)			(4,686)		106,569
Depreciation expense			149,543		100,999
Amortization expense			11,921		34,207
Stock-based compensation			7,425		36,205
Gain on disposal of fixed assets			(5,155)		-
Deferred income taxes			13,948		(33,218)
Stock dividend received			(18,982)		(17,770)
Impairment of goodwill			222,759		-
Changes in operating assets and liabilities:
(Increase)/Decrease in commission receivable			(59,646)		(40,257)
(Increase)/Decrease in enrolment fee receivable			(59)		(924)
(Increase)/Decrease in deposit and prepayment			319,039		(2,053)
(Increase)/Decrease in fiduciary asset			(92,390)		(191,359)
(Increase)/Decrease in other receivable			111,060		(146,895)
(Increase)/Decrease in tax receivable			99,254		97,252
Increase/(Decrease) in accounts payable			166,531		510,483
Increase/(Decrease) in claims payable			(17,456)		50,424
Increase/(Decrease) in other payable			56,342		27,984
Increase/(Decrease) in accrued expenses			5,010		(40,429)
Increase/(Decrease) in deferred revenue			(667)		(1,250)
Net cash provided by operating activities			148,186		435,045
Investing Activities
Prepayment for fixed asset acquisition			(303,548)		-
Short-term investment			(288)		(539)
Loan made to third parties			(1,580,000)		(1,100,000)
Loan repayment from third parties			2,680,000		-
Cash paid for purchase of fixed assets			(1,916,672)		(2,124,334)
Sale proceed from disposal of fixed assets			16,388		-
Net cash used in investing activities			(1,104,120)		(3,224,873)
Financing Activities
Dividend paid to minority shareholders			(143,077)		(147,179)
Capital injection from minority interest shareholder			-		132,044
Repayment of obligations under capital lease			(6,720)		-
Borrowings on related party debt			21,413		52,166
Principal payments on related party debt			(21,589)		(52,626)
Net cash used in financing activities			(149,973)		(15,595)
Decrease in cash			(1,105,907)		(2,805,423)
Effect of exchange rate changes on cash			(29,117)		432
Cash at beginning of the year			5,183,870		7,988,861
Cash at end of the year		$	4,048,846	$	5,183,870
Supplemental Disclosures of Cash Flow Information:

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Cash paid / (received) during year for:
Interest		$	1,292	$	-
Income taxes paid		$	10,746	$	54,063
Non-Cash Transactions
Dividend received		$	19,056	$	17,840
Restricted shares forfeited		$	-	$	(6)
Acquisition of assets by capital lease		$	32,036	$	-
Change in fair value for available-for-sales securities		$	(51,178)	$	13,377
See Notes to Consolidated Financial Statements

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ALCO, INC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

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ALCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014

Note 1 – Organization and Operations

Description of Business

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 Company is principally engaged in the marine insurance brokerage business in the Asia Pacific region, through its wholly owned subsidiary, AL Marine Holdings (BVI), Ltd., a British Virgin Islands corporation ("AL Marine").

AL Marine is the 100% owner of Andrew Liu and Co., Ltd., a corporation principally engaged in the business of marine insurance brokerage in Asia.  AL Marine owns 60% of Chang An Consultants Ltd., a joint venture with China Changjiang National Shipping Corporation (“CSC Group”) that serves as a vehicle for the provision of marine insurance brokerage and other marine business services by AL Marine.  AL Marine owns 85% of EdushipAsia Ltd.  In 2005 and 2004, EdushipAsia Ltd was appointed as an exclusive agent by the Institute of Chartered Shipbrokers (UK) (“ICS”) to set up ICS’s first distant learning centre in Shanghai, PRC.  AL Marine owns 100% of AL Marine Holdings (Hong Kong) Limited (“ALM HK”), a corporation principally engaged in the investment holding.  ALM HK owns 100% of AL Marine Consulting Services (Shanghai) Ltd (“ALM Shanghai”), a corporation principally engaged in the investment holding.  ALM Shanghai, through an agency arrangement, owns 100% of Shanghai Heshili Broker Co. Limited (“SHB”), a corporation principally engaged in the business of general insurance brokerage in China.  AL Marine owns 82% of Kim Insurance Brokers Pte Ltd, a corporation principally engaged in the business of general insurance brokerage in Singapore. On March 27, 2013, the Company changed the name of Kim Insurance Brokers Pte Limited to ALCO Insurance Brokers Pte Limited (“ALCO Insurance”).

ALCO, Inc. and AL Marine are hereafter referred to as the Company.

Under the current Chinese regulations, there are restrictions on the percentage interest foreign or foreign-invested companies may have in Chinese companies providing insurance brokerage services in China.  In addition, the operation by foreign or foreign-invested companies of insurance brokerage business in China is subject to government approval.  In order to comply with these restrictions and other Chinese rules and regulations, ALM Shanghai entered into an exclusive agreement with SHB.  Under the agreement, the Company provides all management and administration services and financial support to SHB for its operations. SHB is prohibited from entering into any exclusive agreement without the Company’s prior approval.

SHB is 100% beneficially owned by a Chinese party.  An agency agreement is entered into between the Chinese party and ALM Shanghai.  Under this agreement, the Chinese party is holding the shares of SHB on behalf of ALM Shanghai.  The company does not have any direct ownership interest in SHB.

As a result of our contractual arrangements with SHB above, we bear the risks of, and enjoy the rewards associated with, and therefore are the primary beneficiary of our investments in SHB, and we have begun to consolidate its results of operations in our consolidated financial statements commencing in the fiscal year 2010.

Control by Principal Shareholders

The directors, executive officers, their affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding share capital of the Company.  Accordingly, directors, executive officers and their affiliates, if

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they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.

Note 2 – Significant Accounting Policies

Economic and Political Risks

The Company faces a number of risks and challenges since its assets are located in Hong Kong, a Special Administrative Region of the People's Republic of China ("PRC"), and its revenues are derived from its operations therein.  The PRC is a developing country with an early stage market economic system, overshadowed by the state.  Its political and economic systems are very different from the more developed countries and are in a state of change.  The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States.  Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.

Basis of Presentation and Principles of Consolidation

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

In accordance with ASC 810, the Company consolidates variable interest entities (“VIEs”) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.

VIEs are generally entities that lack sufficient equity to operate without additional subordinated financial support from other parties or are entities whose equity holders do not have adequate decision making authority.  The primary beneficiary of a VIE is the party that (a) has the power to direct the activities of a VIE that significantly impacts its economic performance and (b) has the obligation to absorb the losses or the rights to receive the benefits that could be significant to the VIE.

According to the requirements of ASC 810, we have evaluated our relationships with SHB.  We have concluded that SHB is a VIE, and the Company is the primary beneficiary of the VIE.  Accordingly, we adopted the provisions of ASC 810 and consolidated SHB into our financial statements commencing in the fiscal year of 2010.

The Company’s VIE consolidated net assets were US$548,316 at December 31, 2014.

The consolidated financial statements have been prepared in accordance with US GAAP and the instructions to Form 10-K and Regulation S-K.  In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows at December 31, 2014 and 2013 for all periods presented have been made.

Certain accounting principles, which are stipulated by US GAAP, are not applicable in the HKAS.  The difference between HKAS accounts of the Company and its US GAAP financial statements is immaterial.

The Company maintains its books and accounting records in Hong Kong dollar ("HK$"), which is determined as the functional currency.  Assets and liabilities of the Company are translated at the prevailing exchange rate at each year end.  Contributed capital accounts are translated using the historical rate of exchange when capital is injected.  Income statement accounts are translated at the average rate of exchange during the year.  Translation adjustments arising from the use of different exchange rates from period to period are included in the cumulative translation adjustment account in shareholders' equity.  Gains and losses resulting from foreign currency transactions are included in operations.

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Concentration of Credit Risk

Financial instruments which subject the Company to concentrations of credit risk consist principally of accounts receivable and cash.  Exposure to losses on receivables is dependent on each customer's financial condition.  The Company controls its exposure to credit risk through a process of credit approvals, credit limits and monitoring procedures, establishing allowances for anticipated losses.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results, when ultimately realized could differ from those estimates.

Significant Estimates

Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term.  The more significant areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.

Revenue Recognition

Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later.  At that date, the earnings process has been completed and the Company can reliably estimate the impact of policy cancellations based upon historical cancellation experience adjusted by known circumstances.  The policy cancellation reserve is periodically evaluated and adjusted as necessary.  Subsequent commission adjustments are recognized upon notification from the insurance companies.  Commission revenues are reported net of commissions paid to sub-brokers.  Fee income is recognized as services are rendered.

Cash and Cash Equivalents

The Company invests idle cash primarily in money market accounts, certificates of deposit and short-term commercial paper. Money market funds and all highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents.

Short-term Investment

Short-term investment includes fixed deposit with maturity of one year with financial institution.

Commissions and Other Receivables

Commissions and other receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts.  An estimate for doubtful accounts is made when collection of the full amount becomes questionable.

We made allowance for doubtful accounts based on a review of all outstanding amounts on a monthly basis.  We analyze the aging of receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms.  Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness or weakening in economics trends could have a significant impact on the collectability of receivables and the allowance.  If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances will be made.

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Allowances are applied to commissions and other receivables where events or changes in circumstance indicate that the balances may not be collectible. The identification of doubtful debts requires the use of judgment and estimates as mentioned above. Where the expectation on or the actual recoverability of commissions and other receivables is different from the original estimate, such difference will impact the carrying value of commissions and other receivables and doubtful debts expenses in the periods in which such estimate is changed or the receivable are collected.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets.  The estimated useful live of our property is 20 years.  Land is not depreciated.  The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the income statement in the year of disposition.

The annual percentages applied on depreciation are:

Motor vehicles

20%

Furniture and fixtures

15%

Office equipment

15%

Leasehold improvements

20%

Property

5%

Land

0%

Marketable Securities

 

All marketable securities are classified as available-for-sale securities. Available-for-sale securities are carried at fair value with resulting unrealized gains and losses, reported as a component of accumulated other comprehensive loss. Long-term marketable securities have remaining maturities at the balance sheet date of one year or greater.

Accounts Payable and Claims Payable

In its capacity as an insurance agent or broker, the Company collects premiums from customers and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers on behalf of customers.  Unremitted insurance premiums and claims are held in a fiduciary capacity.  The obligation to remit premiums is recorded as accounts payable and the obligation to remit claims and refunds is recorded as claims payable on the balance sheet.

Pension Costs

Mandatory contributions are made to the Hong Kong's Mandatory Provident Fund (MPF), based on a percentage of the employees' basic salaries.  The cost of these payments are charged to the profit and loss accounts as they become payable in accordance with the rule of the MPF Scheme.  The employer contributions vest fully with the employees when contributed into the MPF Scheme.

Income Taxes

Income tax expense is based on reported income before income taxes.  Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.  In accordance with FASB Accounting Standards Codification TM No. 740, “Income Taxes”, these deferred taxes are measured by applying currently enacted tax laws.  Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income (losses) in the years in which those temporary differences are expected to be realized or settled.  

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Fair Value of Measurements

The Company adopted Statement of ASC 820, “Fair Value Measurements and Disclosures,” effective January 1, 2008.  The provisions of ASC 820 are to be applied prospectively.

ASC 820 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Under ASC 820, fair value measurements are not adjusted for transaction cost.  ASC 820 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:

Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2:

Input other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3:

Unobservable inputs.  Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.  Availability of observable inputs can vary and is affected by a variety of factors.  The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

Valuation of Goodwill and Other Intangible Assets

 

The Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill.  Current authoritative guidance requires goodwill to be tested for impairment annually as well as when an event or change in circumstance indicates impairment may have occurred.  Goodwill is tested for impairment by comparing the fair value of the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment.  If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.

Long-lived assets, including fixed assets and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  In reviewing for impairment, the carrying value of such assets is compared to the estimated undiscounted future cash flows expected from the use of the assets and their eventual disposition.  If such cash flows are not sufficient to support the asset’s recorded value, an impairment charge is recognized to reduce the carrying value of the long-lived asset to its estimated fair value.  The determination of future cash flows, as well as the estimated fair value of long-lived assets, involves significant estimates on the part of management.  In order to estimate the fair value of a long-lived asset, the Company may engage a third-party to assist with the valuation.  If there is a material change in economic conditions or other circumstances influencing the estimate of future cash flows or fair value, the Company could be required to recognize impairment charges in the future.

The Company adopted ASU 2011-08 "Intangibles-Goodwill and Other", which amends the guidance in ASC 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. In the qualitative assessment, the Company followed the steps specified in ASC 350-20-35-3C to evaluate the fair values of goodwill and considered all known events and circumstances that might trigger an impairment of goodwill.  The assessment indicated impairment of goodwill existed and an interim goodwill impairment assessment was required at June 30, 2014.  The detail is described in “Note 9 – Goodwill” as below. In addition, there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year.  

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Related Party Transactions

The Company rented an quarter in Hong Kong from a company owned by directors of the Company, and an quarter in Shanghai from a director of the Company.

Leases

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with ASC840. When substantially all of the risks and benefits of property ownership have been transferred to the Company, as determined by the test criteria in ASC 840, the lease then qualifies as a capital lease. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.  

Rent expense for operating leases, which may include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized on a straight-line basis over the duration of each lease term.

Foreign Currency and Other Comprehensive Income

The accompanying financial statements are presented in United States (US) dollars.  The functional currency of ALC, CAC and ESA is the Hong Kong dollar (HK$).  The financial statements are translated into US dollars from HK$ at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses.  Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

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 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 SHB and ALM Shanghai is the Chinese Yuan (“CNY”).  The financial statements of SHB and ALM Shanghai are translated into United States dollars in accordance with FASB Accounting Standards Codification TM (ASC) No. 830, " Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity.  Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.

 

The exchange rates used to translate amounts in CNY into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:  

Balance sheet items, as of year-end date: US$0.16060:CNY1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.16137: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

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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 year-end date:  US$0.75259:SGD1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.78377: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 year ended December 31, 2014.

Legal and Other Contingencies

As discussed in Part I, Item 3 of this Form 10-K under the heading “Legal Proceedings”, and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 16, “Commitments and Contingencies”, ALCO’s subsidiary, ALC, is subject to a legal proceeding that has not been resolved and that has arisen in the ordinary course of business.  The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable.  There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.  

In the opinion of management, there is not a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies for legal and other contingencies.  However, the outcome of this legal proceeding brought against the Company is subject to significant uncertainty.  Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding is resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

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 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-

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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.

In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period”. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation – Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.

In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendment in the ASU provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”. The amendments in the ASU provide an additional requirement for a limited partnership or similar entity to qualify as a voting interest entity and also amend the criteria for consolidating such an entity. In addition, the new guidance amends the criteria for evaluating fees paid to a decision maker or service provider as a variable interest and amends the criteria for evaluating the effect of fee arrangements and related parties on a variable interest entity primary beneficiary determination. This standard is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

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Note 3 – Cash

		December 31,		December 31,
Cash consist of the following:		2014		2013
Cash in hand	$	27,947	$	22,653
Cash in bank - Saving & Checking
China Construction Bank (Asia) (formerly known as Bank of America (Asia))		2,828,125		3,763,362
United Overseas Bank		564,775		568,362
Bank of China		72,079		225,199
Sun Hung Kei Financial		198		284
Bank of Shanghai		549,167		597,407
Industrial and Commercial Bank of China		137		189
Cash in bank – Fixed deposit		6,418		6,414
	$	4,048,846	$	5,183,870

The Company established a bank guarantee of HK$45,000 (approximately $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 $6,418 fixed deposit included in Cash in bank – Fixed deposit as shown above.  On December 31, 2014, a bank guarantee of $5,540.81 was provided and the detail is described in “Note 17 – Commitments and Contingencies” as below.

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 (approximately $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 $64,103) per depositor with effect from January 1, 2011.

Note 4 – Commissions Receivable

		December 31,		December 31,
Commissions receivable consist of the following:		2014		2013
Commissions receivable	$	503,392	$	336,299
Less: allowance for doubtful accounts		(180,803)		(193,560)
	$	322,589	$	142,739

Note 5 – Fiduciary Assets

Fiduciary assets are cash balances held by a bank, mainly consisting of premiums collected from customers and payable to insurers, and claims received from insurers and payable to policyholders.

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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 $2,015,759 and $1,936,194 at December 31, 2014 and 2013 respectively.

Note 6 – Property, Plant and Equipment

		December 31,		December 31,
Property, Plant and Equipment consists of the following:		2014		2013
Furniture and fixtures	$	49,379	$	47,610
Office equipment		274,053		230,271
Leasehold improvements		92,609		92,823
Motor Vehicle		58,601		92,689
Land		2,235,640		810,938
Buildings		1,516,407		1,216,407
Construction in progress		141,972		-
		4,368,661		2,490,738
Less: Accumulated depreciation		(333,577)		(242,127)
	$	4,035,084	$	2,248,611

Depreciation expense for 2014 and 2013 was $149,543 and $100,999, respectively.  Gain on disposal of fixed assets for the years ended December 31, 2014 and 2013 was $5,155 and $0, respectively.

Note 7 – Fair Value of Investments and Investment Income

The Company’s investments measured at fair value on a recurring basis at December 31, 2014 and 2013 are as follows:

Assets		Fair value				Fair value Hierarchy
		December 31, 2014		December 31, 2013
Stocks	$	381,204	$	413,328		Level 1
Short-term investment	$	105,723	$	109,785		Level 1

Unrealized loss of $51,178 and unrealized gain of $13,377 for the investment in marketable securities were recognized in the other comprehensive income for 2014 and 2013, respectively.  All these gain and loss are related to the marketable securities listed in the Hong Kong Stock Exchange.

		December 31,		December 31,
Investment Income		2014		2013
Dividend from marketable securities	$	18,982	$	17,770

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Note 8 – Loan 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 $3,000,000.  The loan is interest free and secured by the claim proceeds under a claim filed by JMISCL and JXISCL under the terms an existing Hull & Machinery insurance policy insuring a vessel owned and managed by JMISCL and JXISCL respectively. The loan is payable upon demand at any time following settlement of the claim if the claim proceeds are not adequate to cover the loan in full, and in any event is due and payable in full on or before August 4, 2012.  As of August 4, 2012, the balance of the loan is $1,912,000.

On August 4, 2012, 2013 and 2014, ALC entered into loan extension agreements 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 and the balance of the loan remain unchanged.

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 $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 $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 $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 $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 $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 additional 12 days.  All terms and conditions of the loan agreement remain unchanged.  On July 23, 2014, the loan was fully repaid.

Note 9 – Goodwill

Changes to the carrying amount of goodwill during 2014 were as follows:

		Gross amount		Accumulated impairment losses		Net amount
Balance as at January 1, 2014	$	301,498	$	-	$	301,498
Goodwill impairment charge		-		(222,759)		(222,759)
Exchange different		(4,742)		-		(4,742)
Balance as at December 31, 2014	$	296,756	$	(222,524)	$	73,997

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As the operation of SHB had 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 at June 30, 2014.  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 as of June 30, 2014.  Consequently, the Company recorded a goodwill impairment charge of $222,759 during 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.

Note 10 – 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 in the amount of the total principal, $32,036, and the related depreciation expense is $4,271 during 2014.  The principal due within one year represents the current portion of capital lease obligation and is classified as current liability.

Note 11 – Due to Directors

		December 31,		December 31,
Due to directors consists of the following:		2014		2013
Andrew Liu Fu Kang	$	145	$	283
John Liu Shou Kang		666		705
	$	811	$	988

Due to directors represents loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand.

Note 12 – Stock-based Compensation

2010 restricted stock plan

On June 1, 2010, the board of directors approved and the Company granted an award of 198,000 shares of restricted stock to certain key employees and directors of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan as approved by the Company’s Board of Directors. Under the plan, a maximum of 500,000 common shares may be delivered in satisfaction of awards. Key employees and directors are eligible to participate in the plan. Each grant of restricted shares under the Plan is subject to certain terms and conditions such as the shares cannot be transferred during the restriction period and the shares will be forfeited if the employment is terminated by the holder or the Company. Restricted stocks are granted at a strike price that is equal to the fair value of the Company’s stock on the date of grant.

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The aggregate value of this award was $310,860, as determined by multiplying the number of shares by the fair value of the Company’s stock on June 1, 2010, the date of grant. The fair value is based on discounted free cash flow analyses, which involve management’s best estimate of future revenue, operation expenses, investing activities, and financing activities. In the valuation, the free cash flow is projected for five years and is determined by using the Company’s historical figures such as revenue and operation expenses which are compounded annually with 5% growth rate. Free cash flow occurring beyond the five-year projection period is assumed to be in perpetuity and determined by using the Perpetuity Growth Model in which the project net cash flow is divided by the risk-free rate. The sums of the five-year free cash flow together with the perpetual free cash flow are then discounted by the risk free rate. As a result, the fair value of the Company’s stock on the date of the grant award is $1.57 per share. When determining the risk-free rate, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.

2011 restricted stock plan

On June 1, 2011, the board of directors approved and the Company granted an award of 25,500 shares of restricted stock to certain key employees of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above.  The aggregate value of this award was $71,145, as determined by multiplying the number of shares by the fair value of the Company’s stock on June 1, 2011, the date of grant.  The fair value is calculated based on the same approach mentioned above and the fair value of the Company’s stock on the date of grant is $2.79 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.

2012 restricted stock plan

On June 1, 2012, the board of directors approved and the Company granted an award of 13,500 shares of restricted stock to a key employee of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above.  The aggregate value of this award was $22,275, as determined by multiplying the number of shares by the fair value of the Company’s stock on June 1, 2012, the date of grant.  The fair value is calculated based on the same approach mentioned above and the fair value of the Company’s stock on the date of grant is $1.65 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 8.25%, in effect at the time of grant is used in the calculation.

During the years ended December 31, 2014 and 2013, the Company recognized $7,425 and $36,205 of stock-based compensation expense, respectively.

Note 13 – Related Party Transaction

The Company rents quarters for directors in Hong Kong and Shanghai from companies owned by directors of the Company.  The relevant rent expenses consist of following:

				December 31,		December 31,
				2014		2013
Location		Landlord
Shanghai Quarter		Andrew Liu Fu Kang	$	30,769	$	30,769
			$	30,769	$	30,769

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Note 14 – Income Taxes

The Company's effective tax rate for 2014 and 2013 was -12.07% and -364.62%, respectively.  The provisions for income taxes for 2014 and 2013 are summarized as follows:

		2014		2013
Current tax	$	73,888	$	76,321
Deferred tax		13,948		(33,219)
	$	87,836	$	43,102

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

		2014		2013
U.S. statutory rate		34.00%		34.00%
Foreign income not recognized in the U.S.		-34.00%		-34.00%
Temporary differences		-4.43%		-381.12%
Hong Kong income tax rate		16.50%		16.50%
Provision for income tax		-12.07%		-364.62%

As of December 31, 2014, the significant components of the Company’s deferred tax asset and liability are as follows:

		2014		2013
Taxable loss carrying over	$	175,477	$	29,621
Deferred tax asset	$	175,477	$	29,621
Depreciation of property, plant and equipment	$	21,923	$	15,673
Deferred tax liability	$	21,923	$	15,673
Valuation allowance		(153,554)		-
Deferred tax asset (liability), net	$	-		13,948

Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.  Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income (losses) in the years in which those temporary differences are expected to be realized or settled.  

Accounting for Uncertainty in Income Taxes

The Company adopted the provisions of Accounting for Uncertainty in Income Taxes on January 1, 2007.  The provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with the standard “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The provisions of Accounting for Uncertainty in Income Taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

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Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

The Company may from time to time be assessed interest or penalties by major tax jurisdictions.  In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

Note 15 – Operating Leases

Future minimum lease payments for operating leases for the succeeding years consists of following:

		2015		2016		Total
Carmel Hill, Hong Kong (Director Quarter)	$	130,769	$	65,385	$	196,154
Fortis Tower, Hong Kong (Hong Kong Office)		156,308		-		156,308
Car park at Stanley (Hong Kong Office)		923		-		923
Car park at Wanchai (Hong Kong Office)		9,487		1,897		11,384
Union Building, Shanghai, China (Shanghai Office)		7,131		-		7,131
Sino Plaza, Fuzhou (Fuzhou Office)		45,194		30,129		75,323
The Octagon, Singapore (ALCO Insurance Office)		100,534		8,378		108,912
	$	450,346	$	105,789	$	556,135

The Company has seven material operating lease commitments for its facilities.  The initial term of the lease arrangement for Director Quarter is two years beginning July 19, 2014 with a minimum lease commitment of $196,154.  

For the Hong Kong Office in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012 with a minimum lease commitment of $156,308. This lease arrangement has a 50 days rent free period from January 30, 2012 to March 19, 2012.  When the lease is ended in June 2015, the Company can renew the lease for two years (from July 1, 2015 to June 30, 2017) at the prevailing market rent.

For the Shanghai Office, the initial term of the lease is one year beginning June 1, 2014 with a minimum lease commitment of $7,131.    

For the Fuzhou Office, the initial term of the lease is two years beginning August 16, 2014 with a minimum lease commitment of $75,323.  

For the Singapore Office of ALCO Insurance, the initial term of the lease is three years beginning February 1, 2013 with a minimum lease commitment of $108,912.  This lease arrangement has a 46 days rent free period from December 17, 2012 to January 31, 2013.  When the lease is ended in February 2016, the Company can renew the lease for three years (from February 1, 2016 to February 2019) at the prevailing market rent.

Note 16 – Noncontrolling Interest

On April 7, 2014, the Company’s 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.

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Note 17 – Commitments and Contingencies

The Company provided a bank guarantee of $5,540.81 in respect of an insurance policy to a client in August 2012.  The guarantee is callable upon the client’s defaults in payment of the deferred calls and supplementary calls under the insurance policy.

ALCO’s subsidiary, ALC, is subject to a legal proceeding that has not been resolved and that has arisen in the ordinary course of business.  On September 16, 2012, a shipowner named Eastshine Limited filed a civil claim against five parties, including ALC, in the Qingdao Maritime Court (“QMC”) in China, claiming losses suffered of CNY 9.9 million (approximately $1.6 million) due to the allegedly wrongful arrest of a vessel named Tongli Yantai.  Although ALC had no direct relationship with the Plaintiff in the business for the vessel, ALC was the insurance broker of one of the parties named in the legal proceeding, and assisted in resolving the vessel arresting matter. As a result, the Plaintiff has included ALC as one of the defendants in the legal action.  In the opinion of management, there is a remote possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies.  In addition, because the claims asserted in the legal proceeding are covered by an insurance policy with a policy limit of HK$75 million (approximately $9.6 million) any one claim and in the aggregate, ALC’s liability to the claim above is limited to HK$150,000 (approximately $19,230) and this amount is fully reserved in the book of 2012.  However, the outcome of this legal proceeding brought against the Company is subject to significant uncertainty.  Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding was resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.

The Company's business operations are mainly conducted in the PRC and are subject to significant risks not typically associated with companies in North America and Western Europe.  These include risks associated with, among others, the political, economic and legal environments and foreign currency limitations.

The Company's results may thus be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies, laws, regulations, anti-inflationary measures, currency conversion and remittance limitation, and rates and methods of taxation, among other things.

Note 18 – Subsequent Event

On March 13, 2015, the Company’s subsidiary, Chang An Consultants Ltd., declared dividends of HK$2,550,000, or approximately $326,923. 40% of the dividends or $130,769 was paid to the noncontrolling shareholders in March 2015.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Management's Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.  The Company’s internal control over financial reporting is designed to provide reasonable assurance for the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations (further discussed in next paragraphs below), internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.  In this assessment, the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework were used.  Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2014.

Inherent Limitations in Control Systems

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. As a result, our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal control over financial reporting, will prevent all error and all fraud.

Evaluation of Disclosure on Controls and Procedures

The Company's management, with the participation of the chief executive officer and the chief financial officer, carried out an evaluation of the effectiveness of the design and operation of the Company's "disclosure, controls and procedures" (as defined in the Exchange Act Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this annual report (the "Evaluation Date").  Based upon that evaluation, the chief executive officer and the chief financial officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and

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of ensuring that such information is recorded, processed, summarized and reported within the time periods specified.  Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of December 31, 2014 to provide reasonable assurance of the achievement of these objectives.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.

Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) or any other factors during the quarter of the fiscal year ended December 31, 2014, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS AND OFFICERS

The directors and executive officers currently serving ALCO are as follows:

Name	Age	Position	Director/Officer Since
Andrew Liu Fu Kang	53	President and Chairman of the Board	2005
John Liu Shou Kang	54	Director	2005
Colman Au Kwok Wai	49	Chief Financial Officer, Secretary	2008

BIOGRAPHICAL INFORMATION

Mr. Andrew Liu Fu Kang, is the founder and Chairman of AL Marine and has been the Chairman and Chief Executive Officer of the Company since December 9, 2005.  He is responsible for the overall management, development, and strategic planning of AL Marine.  He also oversees certain key client accounts and is frequently consulted on insurance claims of a more complex nature.  Before establishing AL Marine, he worked for Richard Hogg International Adjusters in London and Stevens Elmslie & Co. in Hong Kong for a total of 6 years handling all aspects of ship-owners’ rights under the hull policy and vis-a-vis third parties, such as general average and salvage, legal defense work and arbitrations.  He was awarded an honors degree in Naval Architecture & Shipbuilding from the University of Newcastle Upon Tyne, U.K, a Master’s degree in Marine Law from Cardiff University, U.K and a Diploma in International Trade Law from the City of London Polytechnic.  He passed the Common Professional Exams in Law from Manchester Polytechnic.  He is a member of the Chartered Insurance Institute and the Chartered Institute of Shipbrokers.  He is the brother of John Liu Shou Kang.

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Mr. John Liu Shou Kang is a Director of AL Marine and has been a Director and Vice President of the Company since December 9, 2005.  He is responsible for the overall management of AL Marine, in particular, human resources and operational activities.  Prior to joining AL Marine in 1990, he worked in Sembawang Shipyard, Singapore for 2 years and was in charge of the supervision of all aspects of ship repairs including, design, conversion and costing.  He later worked in Sembawang Shipping Co., Singapore for another 4 years as manager in charge of operations including charter parties, litigation and Hull and P&I claims.  He was awarded an honors degree in Naval Architecture & Shipbuilding from the University of Newcastle Upon Tyne, U.K and a Masters degree in International Shipping from Plymouth University, U.K.  He is the brother of Andrew Liu Fu Kang.

Mr. Colman Au Kwok Wai is the Financial Controller of AL Marine and has been the Chief Financial Officer and Secretary of the Company since January 7, 2008.  He has worked for an accounting firm and a number of listed companies and multi-national corporations in Hong Kong and China and has over 15 years' experience in internal auditing, statutory auditing and accounting.  From September 2002 to November 2004, he was the Internal Audit Manager of Huawei Technology Co., Ltd, a China based multi-national corporation specializing in development, production and sales of communication equipment and solutions for telecom carriers, where he was responsible for performing risk assessments, preparing audit plans and conducing audit reviews on the operations of Huawei in China, Hong Kong and overseas.  From November 2004 to January 2008, he was the Senior Internal Audit Manager of Esquel Enterprises Limited, a Hong Kong based multi-national corporation with production facilities in China, Hong Kong and overseas producing premium cotton shirts for high-end brand names, where he was responsible for overseeing the internal audit function of the operations of Esquel in China and Hong Kong.  He obtained a Bachelor of Commerce degree in Accounting from the Curtin University of Technology in 1999 and a Master degree in Professional Accounting from the Hong Kong Polytechnic University in 2002.  He is a fellow member of the Association of Chartered Certified Accountants, a member of Hong Kong Institute of Certified Public Accountants, a certified information system auditor (“CISA”) of the Information Systems Audit and Control Association and a certified internal auditor (“CIA”) of the Institute of Internal Auditors.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership.  Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file.  Based solely on our review of the copies of such forms received by us with respect to fiscal year 2014, or written representations from certain reporting persons, we believe all of our directors and executive officers met all applicable filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

The following table provides summary information concerning compensation awarded to, earned by, or paid to any of ALCO’s officers and directors for all services rendered to ALCO and its consolidated subsidiaries, in all capacities for the fiscal years ended December 31, 2012, 2013 and 2014.

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(1)

The figures reflect the shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan.  The amounts represent the proportionate amount of the total fair value of restricted stock recognized by the Company as an expense in fiscal year 2010 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions.  The fair values of these awards and the amounts expensed in fiscal year 2012, 2013 and 2014 were determined in accordance with Statement of ASC No. 820 “Fair Value Measurements and Disclosures” (“ASC820”).

(2)

Includes expense reimbursement of $93,849 and Mandatory Provident Fund contributions of $1,763.

(3)

Includes expense reimbursement of $61,121 and Mandatory Provident Fund contributions of $1,923.

(4)

Includes expense reimbursement of $69,548 and Mandatory Provident Fund contributions of $2,147.

(5)

Being Mandatory Provident Fund contributions.

The Mandatory Provident Fund is a compulsory savings/retirement scheme for the residents of Hong Kong.  Most employees and employers are required to contribute monthly to schemes provided by government approved private organizations. Contributions are based on a percentage of an employee’s salaries.  The contribution vests fully with the employee immediately upon payment into the scheme.  

Director Compensation

The following table provides summary information concerning compensation awarded to, earned by, or paid to any of our directors for all services rendered to the Company in all capacities for the fiscal year ended December 31, 2014.

(1)

Includes expense reimbursement of $31,575 and Mandatory Provident Fund contributions of $2,147.

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Our subsidiary, Andrew Liu & Company, has entered into written employment agreements with Andrew Liu and John Liu.  The agreements remain in effect until terminated by either party with three (3) months notice.  The agreement sets out the duties of the officers, their compensation (as stated above), and their benefits (20 days of vacation time, health insurance, 2 days of sick time per month, etc.).  Pursuant to the agreement, the officers cannot conduct marine insurance brokering or any other business conducted by the Company in the Hong Kong area for a period of two years after the termination of the employment agreement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The following table sets forth, as of the date of this report, the stock ownership of each executive officer of ALCO, of all the executive officers and directors of ALCO as a group, and of each person known by ALCO to be a beneficial owner of 5% or more of its Common Stock.  Except as otherwise noted, each person listed below is the sole beneficial owner of the shares and has sole investment and voting power as to such shares.  No person listed below has any options, warrant or other right to acquire additional securities of ALCO, except as may be otherwise noted.

(1)

The person named is an officer, director, or both.

(2)

49,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan are included.

(3)

49,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan are included.

(4)

It represents 13,500 shares of restricted stock of the Company granted under the 2010 Restricted Share Stock Compensation Plan.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Other than the related transactions mentioned in the Note 11 of the Notes to Consolidated Financial Statements, no officer, director, promoter, or affiliate of ALCO has, or proposes to have, any transactions and any direct or indirect material interest in any asset proposed to be acquired by ALCO through security holdings, contracts, options, or otherwise.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit-Related Fees

(1) The aggregate fee billed by MaloneBailey, LLP for audit of the Company’s annual financial statements was $68,000 for the fiscal year ended December 31, 2014 and $68,000 for the fiscal year ended December 31, 2013.  The aggregate fees billed by MaloneBailey, LLP for the reviews of the Company’s financial statements included in its quarterly reports on Form 10-Q during 2014 were $21,000.

(2) MaloneBailey, LLP did not bill the Company any amounts for assurance and related services that were related to its audit or review of the Company’s financial statements during the fiscal years ending 2014.

Tax Fees

(3) The aggregate fees billed by MIDDLETONRAINES + ZAPATA, LLP for tax compliance, tax advice and tax planning were $2,500 for the fiscal year ended December 31, 2013.  The aggregate fees for the fiscal year ended December 31, 2014 with $2,500 are accrued.

All Other Fees

(4) MaloneBailey, LLP did not bill the Company for any products and services other than the foregoing during the fiscal year ended December 31, 2014.

Audit Committee’s Pre-approval policies and procedures

(5) ALCO, which is not yet publicly traded, does not have an audit committee.  The current board of directors functions as the audit committee.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The Exhibits listed below are filed as part of this Annual Report.

2.1	Agreement for Share Exchange dated November 22, 2005, by and among LOTUS CAPITAL CORP., a Nevada corporation, AL MARINE HOLDINGS LTD., a British Virgin Islands corporation, and the Shareholders of AL MARINE (herein incorporated by reference from report on Form 8-K for report dated November 22, 2005 and filed with the Securities and Exchange Commission on December 9, 2005).
3.1	Articles of Incorporation (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).
3.2	Bylaws (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).
10.1	Exclusive representative agreement between ALC and The Strike Club (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).
10.2	Agreement between EduShipAsia Ltd. and the Institute of Chartered Shipbrokers appointing EduShipAsia Ltd. as ICS’s exclusive agent in China (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).
10.3	Employment Agreement between Andrew Liu & Company, Ltd. and Andrew Liu.  (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)
10.4	Employment Agreement between Andrew Liu & Company, Ltd. and John Liu.  (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)
31.1	Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
31.2	Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.*
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101	INS XBRL Instance Document.*
101	SCH XBRL Schema Document.*
101	CAL XBRL Taxonomy Extension Calculation Linkbase Document.*
101	LAB XBRL Taxonomy Extension Label Linkbase Document.*

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101	PRE XBRL Taxonomy Extension Presentation Linkbase Document.*
101	DEF XBRL Taxonomy Extension Definition Linkbase Documet.*

*filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ALCO, INC.
(Registrant)

By: /s/ Andrew Liu, CEO and Chairman

Date: March 31, 2015

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Andrew Liu, CEO and Chairman

Date: March 31, 2015

By: /s/ John Liu, Director

Date: March 31, 2015

By: /s/ Colman Au, Chief Financial Officer

Date: March 31, 2015

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