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, 2015

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 30, 2016, there were 10,361,500 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

PART I

4

ITEM 1. BUSINESS

4

BACKGROUND

4

PRINCIPAL PRODUCTS AND SERVICES

5

DESCRIPTION OF INDUSTRY

7

GOVERNMENT REGULATION

7

CUSTOMERS AND MARKETING

8

COMPETITION

8

EMPLOYEES

8

REPORTS TO SECURITY HOLDERS

8

ITEM 1A. RISK FACTORS

9

ITEM 1B. UNRESOLVED STAFF COMMENTS

9

ITEM 2. PROPERTIES

9

ITEM 3. LEGAL PROCEEDINGS

9

ITEM 4. MINE SAFETY DISCLOSURES

10

PART II

10

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  10

ITEM 6. SELECTED FINANCIAL DATA

11

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

11

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

16

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

43

ITEM 9A(T). CONTROLS AND PROCEDURES

43

ITEM 9B. OTHER INFORMATION

44

PART III

44

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

44

ITEM 11. EXECUTIVE COMPENSATION

45

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS  47

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

48

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

48

PART IV

49

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

49

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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.

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On July 19, 2011, a new entity named AL Marine Consulting Services (Shanghai) Ltd (“ALM Shanghai”) was legally established in China.  AL Marine indirectly owns 100% of ALM Shanghai through ALM HK.  ALM Shanghai is set up for holding all the interest of SHB.  On July 20, 2011, the agency agreement between ALM HK and the local Chinese was replaced by another agency agreement between ALM Shanghai and the local Chinese.  At the same date, the exclusive agreement between ALM HK and SHB was replaced by another exclusive agreement between ALM Shanghai and SHB.

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

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only internationally recognized professional and vocational qualification in the shipping industry.  Pursuant to its contract with ICS, ESA is required to provide seminars, review sessions, revision workshops and other assistance to the students who enroll in the learning center.  Students will be charged 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, 2015, ESA had net assets of $(133,739) with a cash balance of $56,340, accounts receivable of $3,231, due to related parties of $188,224, accounts payable of $3,534 and other payable of $1,744.  During the 2015 fiscal year, ESA received $9,052 from enrollment fees from this arrangement and $3,003 from other income. It spent approximately $32,064 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 2015, approximately 8% 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 2015, approximately 0.8% 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 2015, 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, ship-owners, 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 ship-owners 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.

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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, 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 77% in 2015. 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 2015, ALCO had nearly 260 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 specialize 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 50 in operations and 20 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

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at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address is http://www.sec.gov.  

ITEM 1A. RISK FACTORS

N/A

ITEM 1B. UNRESOLVED STAFF COMMENTS

N/A

ITEM 2. PROPERTIES

ALCO rents its facilities from third parties.  As of December 31, 2015, ALCO leased approximately 12,003 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	1,408 sq. ft	Office
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 2012.  As the Company is continuing growth and meet the Company’s needs, the Hong Kong Office moved to the existing building in March 2012. The existing property is leased from a third party and located in Wanchai, Hong Kong with 6,350 sq. ft and is leased from a third party.  As the lease would expire in June 2015, it was renewed for two years in May 2015.

For marketing purpose, the Shanghai office moved to another location in August 2015.  The property is leased from another third party.

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$46,979. 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.

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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 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, 2015, ALCO had 10,361,500 shares of common stock issued and outstanding.  The shares are held by 40 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

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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 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 $7,425 and $3,094 was recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2014 and 2015 respectively.  The balance of shares was fully amortized in 2015.

On October 1, 2015, 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 shares were issued at a strike price of $0.81, which was equal to the fair value of the Company’s stock on October 1, 2015, the date of grant.  Therefore, the aggregate value of these shares as of the date of issuance was $20,655, of which $1,721 was recognized as stock-based compensation expense in salaries and compensation expenses during the year ended December 31, 2015.  The balance of shares will be amortized in the coming years.

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

ITEM 6. SELECTED FINANCIAL DATA

N/A

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

PLAN OF OPERATIONS

To cope with the difficult shipping market in 2015, the Company planned to tighten control measures in order to monitor and reduce operating expenses.  Management believes that it was successfully completed as travel expenses decreased 8% and other general & administrative expenses decreased 14% when compared to 2014.  Although salaries increased 10%, it was because the Company a new department was set up to introduce new consulting service to our clients.  Meanwhile, we planned to maintain the certain level of marketing activities to promote the Company to new clients and to strengthen our relationship with our existing clients.  We believe that this task was successfully achieved as nearly 50 new clients were acquired during 2015, even though our client retention rate decreased by 1 point to 77% during this year.  In addition, we planned to maintain our credit controls to retain, or further reduce, the average collection period for outstanding receivables in order to improve the liquidity.  However, because of the shipping market is still difficult, average collection period increased 5 days to 47 days.

In consideration of the excessive supply of tonnage in the shipping market, management believes that the 2016 fiscal year will still be a difficult year.  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.  For example, we have frozen our headcount and implemented new computer system to improve the work efficiency.  Moreover, we are looking for alternative office spaces for some offices to reduce rent.  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 the average collection period for outstanding receivables.

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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, 2015 compared with 2014

Revenue:

Revenue for 2015 was $5,387,117 as compared to $5,337,978 for 2014. The increase of $49,139 or approximately 1%, was mainly due to increase of consulting income which were partially offset with a decrease of commission income, website advertising and enrollment fee income.  

Commission income, which is based on a percentage of the premiums paid by the insured, and decreased by $9,715, or 0.2%, when compared to last year. The decrease was mainly contributed by a reduction of commission income for SHB and ALCO Insurance which was partially offset by an increase of commission income for ALC and CAC.  If the contributions from SHB and ALCO Insurance are excluded, commission income of the group for 2015 increased by $40,471, or 1%, as compared to 2014.  The factors which resulted in the increase of commission income attributable to ALC and CAC were an increase of 6% in average commission earned per client, partially offset by a decrease of 5% 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.  Therefore, the Company’s number of clients decreased during 2015 although there were some new clients were acquired.  Average commission earned per client increased during the year because of increases in the commission percentage.  In 2015, commission income contributed by ALC, CAC, SHB and ALCO Insurance was 82%, 8%, 1% and 10% respectively, of our total commission income for the year.

Consulting income for 2015 increased to $107,153 from $29,000 in 2015.  The increase of $78,153, or 269%, was because a new consulting service was provided which boosted the consulting income increased.  In addition, website advertising for 2015 was $0, the decrease was due to no website advertising service was provided during the year.  In addition, enrollment fees for 2015 decreased 67% to $9,052 as compared to $27,684 for 2014. The decrease was mainly due to decreases in customer’s demand and enrollment.  

Net loss before tax and noncontrolling interest:

Net loss before tax and noncontrolling interest for 2015 was $704,585 compared to $727,769 for 2014. The decrease of $23,184, or approximately 3%, was mainly because of the 1% increase in revenues which partially offset with a 3% increase in operating expenses during 2015.  Causes for the revenue increase were discussed in the section of Revenue above, while causes for the operating expense increase will be discussed in the section of Operating expenses below.

Other income increased to $162,439 in 2015 from $28,115 in 2014.  The increase of $134,324, or approximately 478%, was mainly due to the increase in other income and investment which was partially offset by the decrease in interest income and gain on disposal of fixed assets.  Interest income decreased by 83% to $3,309 in 2015.  The decrease was due to interest earned on loans made to a third party in 2014 was no longer received in 2015.  Investment income increased by 7% to $20,377 in 2015 as compared to $18,982 in 2014.  The increase was mainly the result of an increase in dividend income received from publicly traded equity securities owned by the Company.  Other income for 2015 was $141,197 compared to ($14,662) for 2014.  The increase of $155,859, or approximately -1,063%, was mainly due to increased commissions from business referral and other business services we provided to clients and the increase of gain on exchange difference.

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Operating expenses:

Total operating expenses were $6,254,141 for 2015, as compared to $6,093,862 for 2014.  The increase of $160,279, or approximately 3%, was mainly due to increases in salary, rents, bad debt expenses, depreciation and amortization expenses which were partially offset by decreases in travel expenses and other general and administrative expenses.

The reasons for the increases and decreases in the major items of operating expense in 2015, as compared to 2014, are as follows:

·

Salaries – increased by $354,563, or 10%, from $3,630,683 in 2014 to $3,985,246 in 2015.  The increase was mainly due to a new department was set up and increases in pay rates for all offices during the year of 2015.  In addition, pursuant to the Restricted Share Stock Compensation Plans, $4,815 was recognized as stock-based compensation expense in salaries during the year ended December 31, 2015.  The amount of stock based compensation decreased $2,610, or approximately 35%, as compared to 2014 because amortization for the plans which was implemented in 2012 was completed.

·

Travel expenses – decreased by $35,803, or 8%, from $421,796 in 2014 to $385,993 in 2015.  The decrease was because of the Company’s expense control efforts.

·

Rents – increased by $43,077, or 6%, from $702,308 in 2014 to $745,385 in 2015.  The increase was mainly due to the new office space rent for Shanghai office and rental rates increased.

·

Bad debt expenses – increased by $58,569 from ($4,686) in 2014 to $53,883 in 2015.  The increase was mainly because the provision of doubtful debts increased during the year.

·

Depreciation and amortization – increased by $21,538, or 13%, from $161,464 in 2014 to $183,002 in 2015.  The Company 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 2015, depreciation for fixed assets was $174,774, an increase of $25,231, or 17%, from $149,543 in 2014. 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 $8,228 for 2015, which was a decrease of $3,693, or 31%, as compared to 2014.  Amortization expenses decreased in 2015 as compared to 2014 because the acquired customer base which was being amortized, had been fully amortized during the year.

·

Other general & administrative expenses – decreased $58,906, or 6%, for 2015 as compared to last year. The decrease was mainly due to the exchange loss decreased, and the effort of expense control.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow

For 2015, cash used in operating activities totaled $1,201,104 when compared to cash provided by operating activities totaled $148,186 for 2014.  The cash outflow was primarily due to net loss for the year plus increases in commission receivable, deposit and prepayment and other payable which were partially offset by decreases in enrolment fee receivable, fiduciary asset, other receivable, tax receivable, accounts payable, claims payable and accrued expenses.

Net loss after adjustments of non-cash activities for 2015 decreased by $118,848, or 27%, as compared to 2014.  The changes in operating assets and liabilities for 2015 decreased $1,230,442, or 210%, as compared to 2014.  As a result, net cash used in operating activities for 2015 increased by $1,349,290 or approximately 911%, as compared to last year.  

For the year of 2015 and 2014, cash provided by investing activities amounted to $279,260 when compared to the cash used in investing activities amounted to $1,104,120 respectively.  For 2015, the cash inflow was due to loan repayment from third party which partially offset by the cash paid for purchase of fixed assets. 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.

In 2015, cash used in financing activities totaled $143,834, consisting of a dividend payment of $130,769 to minority shareholders of CAC, repayment of $13,940 of obligations under long-term loans, and principal payments of $254,358 on related party debt.  The cash outflow was offset by the borrowings of $255,233 on related party debt.

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Assets and liabilities

As of December 31, 2015, the Company’s consolidated balance sheet reflects total current assets of $6,350,044, which decreased by $2,063,525, or 25%, as compared to $8,413,569 as of December 31, 2014.  Total current liabilities as of December 31, 2015 were $1,824,636, which decreased by $1,029,276, or 36%, as compared to $2,853,912 as of December 31, 2014.  The decrease of total current assets was mainly due to decreases of cash and cash equivalents, short-term investment, enrolment fee receivable, fiduciary asset, loan receivable which were partially offset by increase of commission receivable.  The decrease of total current liabilities was mainly due to decreases of trade accounts payable, claim payable, accrued expenses partially offset by increases of other payable, tax payable, due to directors and current portion of obligation under long-term loans.  

As of December 31, 2015, commission receivable was $451,252 as compared to $322,589 in 2014, while trade accounts payable and other payable were $1,370,074 and $225,826 respectively, as compared to December 31, 2014 balances of $2,376,271 and $214,504.  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 certain payment advances made on behalf of customers were refunded, other receivable decreased by $29,557, or 24%, as compared to the year end of 2014.  Furthermore, because certain fund received on behalf of customers had been received, the other payable increased $11,322, or 5%, as compared to the year end of 2014.  In addition, certain claim proceeds received on behalf of customers had been paid, and as a result, the claim payable decreased by $40,363, or 55%, as compared to 2014.

As at December 31, 2015, loan receivable was $1,412,000, which decreased by $500,000, or 26%, 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, 2015 was $28,461, it is in relation to the provision of income tax for 2015.

Accrued expenses were $146,079 as at December 31, 2015, which represents a decrease of $24,121, or approximately 14%, from $170,200 as at December 31, 2014.  The decrease was mainly due to the fact that certain operating expenses which were smaller than last year were accrued in 2015.  As at December 31, 2015, 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, 2015, the market value of the equity securities was $337,847, which represents a decrease of $43,357, or approximately 11%, as compared to the market value of $381,204 for last year.  The decrease was mainly due to the change of fair values between December 31, 2015 and December 31, 2014, and the addition of equity securities which were acquired during the year.

As at December 31, 2015, property, plant and equipment were $4,075,442 as compared to $4,035,084 as at December 31, 2014.  The increase of $40,358, or approximately 1%, was mainly due to acquisition of fixed assets.  Due to the fact that the Company acquired a subsidiary in 2012, certain assets such as customer list and goodwill were recognized in the same year.  As of December 31, 2015, the carrying value of customer lists was $0 and the carrying value of goodwill was $69,071.  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 $2,994,776 as at December 31, 2015.  The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months.  As of December 31, 2015, the Company had $0 of commitments for capital expenditures and off-balance sheet arrangements. The company has lease commitments of $768,428.

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.  

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Particularly, the areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.

Consolidation policy

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 2014 and 2015.  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, 2015, the cumulative translation adjustment of $88,588 was classified as an item of other comprehensive loss in the shareholders’ equity section of the consolidated balance sheet.  For the year ended December 31, 2015, accumulated other comprehensive loss was $10,268.

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$0.15332:CNY1 and US$0.70249:SGD1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.15818:CNY1 and US$0.72128:SGD1

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Revenue Recognition

Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later.  At that date, the earnings process has been completed, and the Company can reliably estimate the impact of policy cancellations based upon historical cancellation experience adjusted by known circumstances.  The Company keeps a 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, 2015

INDEX

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014

19

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014  21

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

22

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

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, 2015 and 2014 and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ 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, 2015 and 2014 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/ MALONEBAILEY, LLP

www.malone-bailey.com

Houston, Texas

March 30, 2016

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ALCO, INC.

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014

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ALCO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

		Year ended December 31,
Revenues		2015		2014
Commission income	$	5,270,912	$	5,280,627
Consulting income		107,153		29,000
Website advertising		-		667
Enrollment fee income		9,052		27,684
Total Revenues		5,387,117		5,337,978
Operating Expenses
Salaries	$	3,985,246	$	3,630,683
Travel expenses		385,993		421,796
Rents		745,385		702,308
Bad debt expense (recovery)		53,883		(4,686)
Depreciation and amortization		183,002		161,464
Other general and administrative		900,632		959,538
Impairment of goodwill		-		222,759
Total Operating Expenses		6,254,141		6,093,862
Loss from Operations	$	(867,024)	$	(755,884)
Other Income (Expense)
Interest income	$	3,309	$	19,932
Investment income		20,377		18,982
Interest expense		(2,444)		(1,292)
Other income		141,197		(14,662)
Gain on disposal of fixed assets		-		5,155
Total Other Income		162,439		28,115
Loss Before Provision for Income Taxes		(704,585)		(727,769)
Provision for income taxes		74,418		87,836
Net Loss		(779,003)		(815,605)
Less: Net income attributable to non-controlling interest		(140,555)		(134,168)
Net Loss Attributable to ALCO, Inc.	$	(919,558)	$	(949,773)
Comprehensive Income (Loss):
Net loss		(779,003)		(815,605)
Other Comprehensive Income (Loss)
Marketable securities		(63,829)		(51,178)
Foreign currency translation adjustments		(92,482)		(54,832)
Comprehensive Loss	$	(935,314)	$	(921,615)
Less: Comprehensive income attributable to non-controlling interest		(126,356)		(125,742)
Comprehensive Loss Attributable to ALCO. Inc.		(1,061,670)		(1,047,357)
Basic and Fully Diluted Loss per Share
Net loss attributable to ALCO, Inc. common shareholders	$	(0.09)	$	(0.09)
Weighted Average Shares Outstanding		10,342,358		10,336,000
See Notes to Consolidated Financial Statements

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ALCO, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

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ALCO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

			Year ended December 31,
			2015		2014
Operating Activities
Net loss		$	(779,003)	$	(815,605)
Adjustments to reconcile net loss to net cash:
Bad debt expense (recovery)			53,883		(4,686)
Depreciation expense			174,774		149,543
Amortization expense			8,228		11,921
Stock-based compensation			4,815		7,425
Gain on disposal of fixed assets			-		(5,155)
Deferred income taxes			-		13,948
Stock dividend received			(20,377)		(18,982)
Impairment of goodwill			-		222,759
Changes in operating assets and liabilities:
(Increase) in commission receivable			(108,822)		(59,646)
(Increase)/Decrease in enrolment fee receivable			5,420		(59)
(Increase)/Decrease in deposit and prepayment			(54,905)		319,039
(Increase)/Decrease in fiduciary asset			597,243		(92,390)
Decrease in other receivable			29,457		111,060
Decrease in tax receivable			19,600		99,254
Increase/(Decrease) in accounts payable			(1,085,054)		166,531
(Decrease) in claims payable			(40,363)		(17,456)
Increase in other payable			16,137		56,342
Increase/(Decrease) in accrued expenses			(22,137)		5,010
(Decrease) in deferred revenue			-		(667)
Net cash provided by (used in) operating activities			(1,201,104)		148,186
Investing Activities
Prepayment for fixed asset acquisition			-		(303,548)
Short-term investment			(252)		(288)
Loan made to third parties			-		(1,580,000)
Loan repayment from third parties			500,000		2,680,000
Cash paid for purchase of fixed assets			(220,488)		(1,916,672)
Proceeds from disposal of fixed assets			-		16,388
Net cash provided by (used in) investing activities			279,260		(1,104,120)
Financing Activities
Dividend paid to minority shareholders			(130,769)		(143,077)
Repayment of obligations under long-term loans			(13,940)		(6,720)
Borrowings on related party debt			255,233		21,413
Principal payments on related party debt			(254,358)		(21,589)
Net cash used in financing activities			(143,834)		(149,973)
Decrease in cash and cash equivalents			(1,065,678)		(1,105,907)
Effect of exchange rate changes on cash and cash equivalents			11,608		(29,117)
Cash and cash equivalents at beginning of the year			4,048,846		5,183,870
Cash and cash equivalents at end of the year		$	2,994,776	$	4,048,846

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Supplemental Disclosures of Cash Flow Information:
Interest paid		$	2,444	$	1,292
Income taxes paid		$	56,386	$	10,746
Non-Cash Transactions
Dividend received		$	20,475		19,056
Acquisition of assets by long-term loans		$	58,784	$	32,036
Change in fair value for available-for-sales securities		$	(63,829)	$	(51,178)
See Notes to Consolidated Financial Statements

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ALCO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

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 accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

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. The results of subsidiaries acquired or disposed of during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to non-controlling interests in subsidiary undertakings is reflected in the consolidated statements of operations.

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.

As of December 31, 2015 and 2014, the carrying amount and classification of the assets and liabilities in the Company’s consolidated balance sheets that relate to SHB, the Company’s VIE is as follows:

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		December 31, 2015		December 31, 2014
ASSETS
Current Assets:
Cash and cash equivalents	$	404,012	$	554,147
Commissions receivable, net		20,435		21,406
Fiduciary asset		305		207
Total Current Assets of VIE		424,752		575,760
Property, plant and equipment, net		18,891		22,818
Other Non-current Assets:
Deposits and prepayment		10,176		-
Other receivable		13		30
Total Other Aon-assets of VIE		10,189		30
Total Assets of VIE	$	453,832	$	598,608
LIABILITIES
Current Liabilities:
Other payable	$	46,313	$	49,063
Accrued expenses		767		803
Tax payable		933		426
Total Current Liabilities of VIE	$	48,013	$	50,292
Total Liabilities of VIE	$	48,013	$	50,292

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.

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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.  Significant estimates include valuation of marketable securities, allowance for doubtful accounts, fair value of share-based compensation, the useful lives and impairment of property, plant and equipment, and impairment of goodwill and intangible assets.

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 a 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.

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

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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 consolidated balance sheets.

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.  

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:

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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.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, freemarket dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

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.

Related Party Transactions

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

From time to time, the Company has amounts due to directors which represent loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand.

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

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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 2015 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.

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$0.15332:CNY1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.15818:CNY1

The functional currency of ALCO Insurance is the Singapore Dollar (“SGD”).  The financial statements of ALCO Insurance are translated into United States dollars in accordance with ASC 830, "Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity.  Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income.

 

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

Balance sheet items, as of year-end date:

 US$0.70249:SGD1

Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.72128:SGD1

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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 years ended December 31, 2015 and 2014.

Stock-based Compensation

The Company accounts for restricted stock awards and other equity based compensation issued to employees in accordance with ASC 718 “Stock Compensation”. ASC 718 requires companies to recognize an expense in the statement of operations at the grant date of stock awards and other equity based compensation issued to employees.

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.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings and financial position.

Recent Accounting Pronouncements

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. The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.

In May 2015, the FASB issued ASU 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts”. The amendments in ASU 2015-09 require insurance entities to disclose for annual reporting periods information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. In addition, the amendments require insurance entities to disclose for annual and interim reporting periods a roll-forward of the liability for unpaid claims and

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claim adjustment expenses. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities and expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. The amendments in this ASU are effective for public business entities for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting 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 September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments”. The amendments in ASU 2015-16 require that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the estimated amounts, calculated as if the accounting had been completed at the acquisition date. The amendments also require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the estimated amounts had been recognized as of the acquisition date. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments should be applied rospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in this ASU are effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in ASU 2016-01, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

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In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-03, “Intangibles-Goodwill and Other (Topic 350); Business Combinations (Topic 805); Consolidation (Topic 810); Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance”. The amendments in this ASU make the guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 effective immediately by removing their effective dates. The amendments also include transition provisions that provide that private companies are able to forgo a preferability assessment the first time they elect the accounting alternatives within the scope of this ASU. Any subsequent change to an accounting policy election requires justification that the change is preferable under Topic 250, Accounting Changes and Error Corrections. The amendments in this ASU also extend the transition guidance in ASUs 2014-02, 2014-03, 2014-07, and 2014-18 indefinitely. While this ASU extends transition guidance for Updates 2014-07 and 2014-18, there is no intention to change how transition is applied for those two ASUs. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. 'The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. Public entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

Note 3 – Cash

		December 31,		December 31,
Cash consist of the following:		2015		2014
Cash in hand	$	33,447	$	27,947
Cash in bank - Saving & Checking
China Construction Bank (Asia) (formerly known as Bank of America (Asia))		1,963,472		2,828,125
United Overseas Bank		344,723		564,775
Bank of China		253,907		72,079
Sun Hung Kei Financial		87		198
Bank of Shanghai		399,058		549,167
Industrial and Commercial Bank of China		82		137
Cash in bank – Fixed deposit		-		6,418
	$	2,994,776	$	4,048,846

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The Company established a bank guarantee of HK$45,000 (approximately $5,770) for credit line with the China Construction Bank (Asia).  The interest rate and charges are subject to change from time to time.  The bank guarantee on the credit line is a pledge of a $6,418 fixed deposit which is included in Cash in bank – Fixed deposit as shown above.  On December 31, 2015, no bank guarantee was provided.

Cash balances are held principally at one financial institution and are not insured.  The Company believes it mitigates its risk by investing in or through major financial institutions.  Recoverability is dependent upon the performance of the institution.  Although the cash balances are not insured, however, starting in September 2006, cash balances (except accounts with overdraft facilities) are protected by the Deposit Protection Scheme which is maintaining by the Hong Kong Deposit Protection Board, an independent statutory body established under the Deposit Protection Scheme Ordinance (Cap. 581).

Under the scheme, compensation up to a limit of HK$100,000 (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 effective from January 1, 2011.

Note 4 – Commissions Receivable

		December 31,		December 31,
Commissions receivable consist of the following:		2015		2014
Commissions receivable	$	630,268	$	503,392
Less: allowance for doubtful accounts		(179,016)		(180,803)
	$	451,252	$	322,589

Note 5 – Fiduciary Assets

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

When the Company receives a premium from a customer, it debits the lump sum amount into one bank account and establishes a schedule to keep track of the amount of premium payable to the insurer.  At the monthly closing, the Company reclassifies the amount of premium payable to insurers as fiduciary assets.  Also, when the Company receives a claim on behalf of a policyholder, it debits fiduciary assets and credits claims payable and other payables, if necessary.  The fiduciary asset had a balance of $1,389,854 and $2,015,759 at December 31, 2015 and 2014 respectively.

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Note 6 – Property, Plant and Equipment

		December 31,		December 31,
Property, Plant and Equipment consists of the following:		2015		2014
Furniture and fixtures	$	264,249	$	49,379
Office equipment		290,397		274,053
Leasehold improvements		99,481		92,609
Motor Vehicle		171,903		58,601
Land		2,235,640		2,235,640
Buildings		1,516,407		1,516,407
Construction in progress		-		141,972
		4,578,077		4,368,661
Less: Accumulated depreciation		(502,635)		(333,577)
	$	4,075,442	$	4,035,084

Depreciation expense for 2015 and 2014 was $174,774 and $149,543, respectively.  Gain on disposal of fixed assets for the years ended December 31, 2015 and 2014 was $0 and $5,155, 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, 2015 and 2014 are as follows:

Assets		Fair value				Fair value Hierarchy
		December 31, 2015		December 31, 2014
Stocks	$	337,847	$	381,204		Level 1
Short-term investment	$	98,931	$	105,723		Level 1

Unrealized loss of $63,829 and $51,178 for the investment in marketable securities were recognized in the other comprehensive income for 2015 and 2014, respectively.  All these gains and loss are related to the marketable securities listed in the Hong Kong Stock Exchange.

		December 31,		December 31,
Investment Income		2015		2014
Dividend from marketable securities	$	20,377	$	18,982

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.

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On August 4, 2012, 2013, 2014 and 2015, 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, 2016.  All terms and conditions of the loan agreement remain unchanged.  During the year ended December 31, 2015, a principal amount of $500,000 was repaid and the balance of the loan is $1,412,000.

On March 4, 2014, 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 $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 2015 were as follows:

		Gross amount		Accumulated impairment losses		Net amount
Balance as at January 1, 2015	$	73,997	$	-	$	73,997
Goodwill impairment charge		-		-		-
Translation adjustment		(4,926)		-		(4,926)
Balance as at December 31, 2015	$	69,071	$	-	$	69,071

The goodwill balance represents the excess of the total excess of the total consideration transferred plus the fair value of non-controlling interest of KIM at the acquisition date over the fair values of the identifiable net assets acquired in connection with the acquisition of KIM.

The Company recorded a goodwill impairment charge of $222,759 during the year ended December 31, 2014 to write off the entire carrying value of goodwill recognized in connection with SHB acquisition. 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.

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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 wrote 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 – Long-term Loans

On June 12, 2014, the Company’s subsidiary, ALC, entered into a loan agreement with Hitachi Credit (HK) Ltd in relation to the acquisition of a motor vehicle, which was pledged to secure the loan. The total amount of the loan obtained is $32,036, bearing annual interest rate of 2.28% for 48 months, and the related depreciation expense is $6,407 and $4,271 during the year ended December 31, 2015 and 2014, respectively.  

On June 22, 2015, the Company’s subsidiary, ALCO Insurance, entered into a loan agreement with DBS Bank Ltd in relation to the acquisition of a new motor vehicle, which was pledged to secure the loan. The total amount of the loan obtained is $58,784, bearing annual interest rate of 2.28% for 60 months, and the related depreciation expense is $11,430 during 2015.

The principal of the loans due within one year is classified as current liability and included in “long-term loan, current” as of balance sheet date.

Note 11 – Due to Directors

		December 31,		December 31,
Due to directors consists of the following:		2015		2014
Andrew Liu Fu Kang	$	1,125	$	145
John Liu Shou Kang		562		666
	$	1,687	$	811

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.

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

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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.

2015 restricted stock plan

On October 1, 2015, 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 $20,655, as determined by multiplying the number of shares by the fair value of the Company’s stock on October 1, 2015, 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 $0.81 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 4.25%, in effect at the time of grant is used in the calculation.

During the years ended December 31, 2015 and 2014, the Company recognized $4,815 and $7,425 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,
				2015		2014
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 2015 and 2014 was -10.56% and -12.07%, respectively.  The provisions for income taxes for 2015 and 2014 are summarized as follows:

		2015		2014
Current tax	$	74,418	$	73,888
Deferred tax		-		13,948
	$	74,418	$	87,836

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

		2015		2014
U.S. statutory rate		34.00%		34.00%
Foreign income not recognized in the U.S.		-34.00%		-34.00%
Effect of expenses not deductible for tax purposes		-0.48%
Effect of income tax exemptions and reliefs		1.55%		-%
Effect of valuation allowance on deferred income tax assets		-28.78%		-26.17%
Effect of income tax difference under different tax jurisdictions		0.65%		-%
Hong Kong income tax rate		16.50%		16.50%
Provision for income tax		-10.56%		-12.07%

As of December 31, 2015, the significant components of the Company’s deferred tax asset and liability are as follows:

		2015		2014
Taxable loss carrying over	$	301,957	$	175,477
Deferred tax asset	$	301,957	$	175,477
Depreciation of property, plant and equipment	$	15,286	$	21,923
Deferred tax liability	$	15,286	$	21,923
Valuation allowance		(286,671)		(153,554)
Deferred tax asset (liability), net	$	-		-

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

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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 de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

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:

		2016		2017		Total
Carmel Hill HK (director quarter)	$	65,385	$	-	$	65,385
Director quarter car park		1,154		-		1,154
New Hong Kong office at Wanchai		346,154		173,077		519,231
Hong Kong Wanchai office car park		2,846		-		2,846
Fuzhou office		28,763		-		28,763
Singapore office		57,955		57,955		115,910
Shanghai director quarter		30,769		-		30,769
Shanghai registered office		2,760		1,610		4,370
	$	535,786	$	232,642	$	768,428

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 $65,385.  

For the Hong Kong Office in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012. This lease arrangement has a 50 days rent free period from January 30, 2012 to March 19, 2012.  The lease was ended in June 2015 and renewed for two years (from July 1, 2015 to June 30, 2017) with a minimum lease commitment of $519,231.

For the Fuzhou Office, the initial term of the lease is two years beginning August 16, 2014 with a minimum lease commitment of $28,763.  

For the Singapore Office of ALCO Insurance, the initial term of the lease is two years beginning January 15, 2016 with a minimum lease commitment of $115,910.

For the Director quarter in Shanghai, the initial term of the lease is one year beginning January 1, 2016 with a minimum lease commitment of $30,769.

Note 16 – Non-controlling Interest

On March 13, 2015, the Company’s subsidiary, Chang An Consultants Ltd., declared dividends of HK$2,550,000, or $326,923.  The Company has paid 40% of the dividends or $130,769 to the non-controlling shareholder.

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Note 17 – 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.  On September 16, 2012, a ship-owner 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 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 February 17, 2016, the Company’s subsidiary, Chang An Consultants Ltd., declared dividends of HK$2,370,000, or approximately $303,846. 40% of the dividends or $121,538 was paid to the noncontrolling shareholders in February 2016.

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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, 2015.  In this assessment, the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013) were used.  Based on our assessment, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2015.

Inherent Limitations in Control Systems

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

Evaluation of Disclosure on Controls and Procedures

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

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objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported within the time periods specified.  Our chief executive officer and chief financial officer also concluded that our disclosure controls and procedures were effective as of December 31, 2015 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, 2015, 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	54	President and Chairman of the Board	2005
John Liu Shou Kang	55	Director	2005
Colman Au Kwok Wai	50	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

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University, U.K and a Diploma in International Trade Law from the City of London Polytechnic.  He passed the Common Professional Exams in Law from Manchester Polytechnic.  He is a member of the Chartered Insurance Institute and the Chartered Institute of Shipbrokers.  He is the brother of John Liu Shou Kang.

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

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

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each of our officers and directors and each person who owns more than 10% of a registered class of our equity securities to file with the SEC an initial report of ownership and subsequent reports of changes in such ownership.  Such persons are further required by SEC regulation to furnish us with copies of all Section 16(a) forms (including Forms 3, 4 and 5) that they file.  Based solely on our review of the copies of such forms received by us with respect to fiscal year 2015, 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, 2013, 2014 and 2015.

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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 2013, 2014 and 2015 were determined in accordance with Statement of ASC No. 820 “Fair Value Measurements and Disclosures” (“ASC820”).

(2)

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

(3)

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

(4)

Includes expense reimbursement of $68,184 and Mandatory Provident Fund contributions of $2,308.

(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, 2015.

(1)

Includes expense reimbursement of $56,368 and Mandatory Provident Fund contributions of $2,308.

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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, 2015 and $68,000 for the fiscal year ended December 31, 2014.  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 2015 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 2015.

Tax Fees

(3) The aggregate fees billed by MIDDLETONRAINES + ZAPATA, LLP for tax compliance, tax advice and tax planning were $2,988 for the fiscal year ended December 31, 2014.  The aggregate fees for the fiscal year ended December 31, 2015 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, 2015.

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.

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*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 30, 2016

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

By: /s/ Andrew Liu, CEO and Chairman

Date: March 30, 2016

By: /s/ John Liu, Director

Date: March 30, 2016

By: /s/ Colman Au, Chief Financial Officer

Date: March 30, 2016

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