UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  Form 10-KSB/A   X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006  _ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to _____   ALCO, INC. (Formerly Lotus Capital Corp.) (Exact name of registrant as specified in its charter)  Nevada000-5110511-3644700(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification Number)  Suite 501, Bank of America Tower
12 Harcourt Road, Central
Hong Kong(Address of Principal Executive Office)Registrants telephone number, including area code:  852-2521-0373 Securities to be registered under Section 12(b) of the Act:  Title of each class N/A  Securities to be registered under Section 12(g) of the Act:  Common Stock (Title of Class)  Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act  __  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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   ___ No  - 1 -    Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.      ___  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act  [   ] Yes  [ X ]  No  State issuer's revenue for its most recent fiscal year:  $3,746,830  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 stock was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days (See definition of affiliate in Rule 12b-2 of the Exchange Act):  0  (APPLICABLE ONLY TO CORPORATE REGISTRANTS)  State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  10,000,000 as of March 31, 2007  DOCUMENTS INCORPORATED BY REFERENCE  If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (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) of the Securities Act of 1933 (Securities Act).  The listed documents should be clearly described for identification purposes (e.g. annual report to security holders for fiscal year ended December 24,1990).  Transitional Small Business Disclosure Format (Check One):  Yes ____; No _X__      - 2 -   INDEX PART I 4 ITEM 1. DESCRIPTION OF BUSINESS 4 BACKGROUND 4 PRINCIPAL PRODUCTS AND SERVICES 4 DESCRIPTION OF INDUSTRY 7 GOVERNMENT REGULATION 8 CUSTOMERS AND MARKETING 8 COMPETITION 8 EMPLOYEES 9 REPORTS TO SECURITY HOLDERS 9 ITEM 2. DESCRIPTION OF PROPERTY 9 ITEM 3. LEGAL PROCEEDINGS 10 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10 PART II 10 ITEM 5. MARKET FOR COMMON EQUITY AND OTHER STOCKHOLDER MATTERS 10 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 11 CRITICAL ACCOUNTING POLICIES 13 ITEM 7. FINANCIAL STATEMENTS 14 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE33 ITEM 8A. CONTROLS AND PROCEDURES 33 ITEM 8B. OTHER INFORMATION 33 PART III 33 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT33 DIRECTORS AND OFFICERS 33 BIOGRAPHICAL INFORMATION 34 COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 35 ITEM 10. EXECUTIVE COMPENSATION 35 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 36 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 37 ITEM 13. EXHIBITS 37 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 38   - 3 -   PART I  ITEM 1. DESCRIPTION OF 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, ALCO changed its name to Lotus Capital Corp.  On February 13, 2006, ALCO changed its 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 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, a Hong Kong corporation, 85% of the outstanding shares of EduShip Asia, Ltd., a Hong Kong corporation, and 60% of the outstanding shares of Chang An Consultants Limited, a Hong Kong corporation.    The business of ALCO will now be carried on through AL Marine and its subsidiaries.    PRINCIPAL PRODUCTS AND SERVICES  ALCO operates through its wholly owned subsidiaries: Andrew Liu & Company, Chang An Consultants Ltd. and EduShip Asia Ltd.  These subsidiaries operate primarily in Hong Kong and China.     - 4 -   Andrew Liu & Company  ALCO is principally engaged in the marine insurance brokerage business though its wholly owned subsidiary, Andrew Liu & Company (ALC), which was formed in 1988 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.  ALC expanded its operations in South Korea in 1995.  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 Confederation of Insurance Brokers is such a body that has been approved by the Insurance Authority.  ALC became a member of the Confederation in Hong Kong 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 Andrew Liu & Company, Ltd.  While ALC deals directly with most of its clients, it also engages two sub-brokers in China.  Marisk Limited is an exclusive sub-broker in Shandong province and Jiangsu Oriental Navigators Insurance Brokers is the other sub-broker.  The percentages of business of ALC generated by the two sub-brokers are approximately 6.77% and 1.72%, respectively.  Andrew Liu & Company does not have any written agreements with these sub-brokers, and the relationship with them could be terminated at any time without cause.  However, Andrew Liu & Company could replace these sub-brokers, if needed, so it would not suffer a material adverse effect if the relationships were terminated.  Andrew Liu & Company places insurance coverages with approximately twenty different insurance providers.  For P&I insurance, the company places insurance with The West of England Ship Owners Insurance Association, American P&I Club, and The South of England Protection & Indemnity Association (Bermuda) Ltd., among others.  For H&M coverage, Andrew Liu & Company places coverages with Spectrum Marine, Pierre Leblanc &  - 5 -   Associations A.S.S., and Lloyds Underwriters, among others.  Andrew Liu & Company does not have any written agreements with these insurance providers.    Strike Club  In 2002, the Strike Club appointed ALC as its exclusive representative in China.  The Strike Club is an international insurer that was formed to cover losses that could occur in the marine industry, such as lost profits from labor strikes, which were not typically covered by other insurance.  The Strike Club is owned by its members and is a mutual insurer.  The Strike Club covers vessels loss of work resulting from delay due to strikes or other circumstances that are outside the control of the operator.  As the exclusive representative of the Strike Club in China, ALC is the only channel through which any shipowner, charterer or insurance broker in China may place insurance with the Strike Club.  For each policy placed through it, AL Marine takes 20% of the premium as its commission. Andrew Liu & Company cannot place any business with any other company offering the same coverage as the Strike Club during the term of the agreement.  We do not pay Strike Club for this representation.  Our written contract with the Strike Club expired in 2004, and no new agreement has been created. However, we continue to operate as if the 2004 contract were still in effect.  Either party may terminate the relationship at any time, without cause.  During 2006, Andrew Liu & Company received $79,451 in commission income due to this agreement with the Strike Club.   EduShipAsia, Ltd.  AL Marine owns 85% of EduShipAsia Ltd.  In 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 center in Shanghai, China.  ICS is an internationally recognized professional body representing shipbrokers, managers, and agents throughout the world.  ICS has approximately 3,500 members in over 60 countries.  We believe that many students in China will take advantage of the ICS training being offered in their country because they will not be required to travel overseas.  As the exclusive agent of ICS in China, ALCO plans to provide delivery of courses in accordance with the syllabus of ICS, promotion of membership in ICS, and management of the examination center.  ICS is the only internationally recognized professional and vocational qualification in the shipping industry.  Pursuant to its contract with ICS, EduShip Asia 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 GBP165, of which GBP135 will be paid to ICS.  The fees may be revised in the future upon the agreement of both parties.  EduShip Asia is responsible for paying the set up and maintenance for the center.   - 6 -   EduShip Asia Ltd. has limited assets and its operations to date have not been significant.    As of December 31, 2006, EduShip Asia had net assets of $(22,626) with a cash balance of $19,744 and accounts payable of $16,701.  During the 2006 fiscal year, EduShip Asia received $2,916 from enrollment fees from this arrangement.  It spent approximately $12,873 setting up and maintaining the learning center. CSC Group  AL Marine owns 60% of Chang An Consultants Ltd. (Chang), which participates in a joint venture with a large state-owned shipping group in China, the China Chanjiang Shipping Corporation (the "CSC Group").  Chang, which was incorporated in Hong Kong in March 1999, acts as an in-house insurance brokerage firm and general consultant for the CSC Group.  Chang 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.  Chang An Consultants has no formal agreement with CSC.  In 2006, about 4.64% of ALCOs revenue was generated from Chang An Consultants.    DESCRIPTION OF INDUSTRY  Marine Insurance Brokerage  Marine insurance is a mature industry, which is diverse in terms of types of coverage and insurers.  These different options are intended to suit the risk profile and requirements of different types of vessels, voyages, shipowners, and charterers.  Within marine insurance, the two most common forms of insurance are hull and machinery (H&M) and protection and indemnity (P&I).  H&M covers the physical loss of or damage to the vessel arising from accidents, while P&I covers liabilities, losses, expenses and costs incurred in relation to injury or death.  Various insurers differ significantly in the coverages and options they provide.  Most shipowners and charterers rely on professional insurance brokers for advice to make an informed decision on the choice of insurer and coverage that will suit their needs.  Insurance brokers represent the insured in negotiating and placing insurances with the insurers. Brokers generate revenue primarily from commissions and fees on insurance calls and premiums.  Revenue is also generated from interest on calls and premiums held before remittance to the insurers and on claims held before payment to the insured.  Commission revenue varies based on the calls and premiums on the policies that are placed on behalf of clients.  When call and premium rates in the market rise, revenue for brokers increases, and revenue declines when call and premium rates  - 7 -   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, Andrew Liu & Co. Ltd and Chang An Consultant Ltd, as members of Hong Kong Confederation of Insurance Brokers (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.    CUSTOMERS AND MARKETING  While members of the senior management regularly appear at industry-targeted functions and speak at seminars organized for the shipping industry, ALCO believes that the best marketing channel is by word-of-mouth and clients referrals based on quality of service and results in providing a solution to difficult claims.  The very close-knit nature of the Chinese shipping community places ALCO in a good position.  This strategy has so far proven to be effective.  Historically, ALCO has had a customer retention rate of over 90% for the past three years.  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 2006, ALCO had over 200 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  - 8 -   resources than ALCO.  However, these competitors are international companies who focus on many different types of insurance.  We believe that AL Marine is one of the few insurance providers that specializes in the marine insurance business.  Competition for business is intense in all of ALCOs business lines and in every insurance market, and other providers of global risk management services have substantially greater market shares than ALCO does. Competition on premium rates has also exacerbated the pressures caused by a continuing reduction in demand in some classes of business.  Additional competitive pressures arise from the entry of new market participants, such as banks, accounting firms and insurance carriers themselves, offering risk management or transfer services.    EMPLOYEES  At the time of this report, ALCO had 29 employees, including 17 in operations and 12 in general and administrative functions.  Twenty-six employees are full time and three employees are part 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-QSB, annual reports on Form 10-KSB, 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, it intends to voluntarily send such a report, including audited financial statements, to its shareholders each year.  The public may read and copy any materials ALCO files with the SEC at the SECs Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address is http://www.sec.gov. ITEM 2. DESCRIPTION OF PROPERTY  ALCO rents its facilities from companies owned by the directors of ALCO.  As of December 31, 2006, ALCO leased approximately 4,536 square feet of office space for its operations. Its current leased properties are:  LocationSizeDescriptionCentral, Hong Kong2,500 sq.ftHeadquartersShanghai, China2,036 sq.ftOffice  The Hong Kong office is leased from Fortune Ocean Ltd., whose directors and shareholders are Andrew Liu, John Liu, and Madam Yap.  The Shanghai office is leased from Fortune Ocean Ltd.  - 9 -   and First Pacific Development Ltd., whose directors are Andrew Liu and John Liu and whose shareholders are Fortune Ocean Ltd. and Madam Yap. Alcos current total monthly rental payment is approximately US$ 14,744.  We intend to renew both of these leases upon their expiration.   ITEM 3. LEGAL PROCEEDINGS  ALCO is not a party to any pending legal proceedings, and no such proceedings are known to be contemplated. None of 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  No matters were submitted to the shareholders for a vote during the fourth quarter of the fiscal year ended December 31, 2006.  PART II   ITEM 5. MARKET FOR COMMON EQUITY AND OTHER STOCKHOLDER MATTERS  There is no public trading market for shares of ALCOs common stock. ALCOs common stock is not yet quoted on the OTC Bulletin Board or on any other public trading market.  ALCO is in the process of applying to have its common stock quoted on the OTC Bulletin Board, but there is no assurance that the application will be granted. There is no assurance that any public market will be established or will develop for ALCOs shares.  None of ALCOs common equities are subject to any outstanding options, warrants to purchase, or securities convertible into, common stock. ALCO has not agreed to register any common stock under the Securities Act for sale by its security holders, although it reserves the right to do so in the future. Other than those 500,000 shares registered on Form SB-2 on November 13, 2006, 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 March 31, 2006, ALCO had 10,000,000 shares of common stock issued and outstanding. The shares are held by 36 stockholders of record.  ALCO currently has no securities authorized for issuance under any equity compensation plans.    ALCO has never declared any cash dividends on its common stock and does not anticipate declaring dividends in the foreseeable future.   - 10 -   ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS DISCLAIMER REGARDING FORWARD-LOOKING STATEMENTS  Certain statements in this report, including statements in the following discussion, are what are known as forward-looking statements, which are basically statements about the future.  For that reason, these statements involve risk and uncertainty since no one can accurately predict the future.  Words such as plans, intends, will, hopes, seeks, anticipates, expects, and the like, often identify such forward-looking statements, but are not the only indication that a statement is a forward-looking statement.  Such forward-looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits.  Numerous factors and future events could cause the Company to change such plans and objectives, or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits.  Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10QSB and in the Companys other filings with the Securities and Exchange Commission.  No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.  PLAN OF OPERATIONS  Our plan of operations for 2007 includes both expansion and improvement of our efficiency and cost competitiveness. This includes the formation of branch offices in other cities in China.  These branches will rent office space in existing buildings. We will determine how many offices to open based upon how much working capital we have at the time when we begin to open new offices.  Management will determine in which cities we will form branch offices.  We believe that this will greatly enhance the level of service that we provide to our customers in China and further expand our market share in the marine insurance business. Both the extent to which we are able to implement this plan of operations and the timing of its implementation will depend, largely, on the availability of working capital, which we may not have or be able to raise.  Because there is no assurance that working capital will be available to us, there is also no assurance regarding the extent to which we will be able to implement our plan of operations within the foreseeable future.  We do not plan to hire additional employees in the next twelve months.  We do not have any material off-balance sheet arrangements.       - 11 -   RESULTS OF OPERATIONS  Revenue: Revenue for the year ended December 31 2006, was $3,746,830 as compared to 3,005,350 for the same period in 2005. The increase of $741,480 or approximately 25% was due to a substantial increase in growth of our customer base and market share in China.  Net Income before tax and minority interest: Net income before tax and minority interest for the year ended December 31, 2006 was $1,860,799 compared to $1,286,835 for the whole year of 2005.  The increase in the profit from operations was primarily due to an increase business income during the year.  Operating expenses: Total operating expenses were $1,988,597 for year ended December 31, 2006, as compared to $1,754,820 for the same period in 2005.  The increase of $233,777 or 13.3% was mainly due to increase of Staff cost which was related to revenue growth. We anticipate that our operating expenses will increase in future periods, as we increase sales and marketing operations, and fulfill our obligation as a reporting company under the Exchange Act.  LIQUIDITY AND CAPITAL RESOURCES  As of December 31, 2006, commission receivable was $231,602 as compared to $139,320 for the same period in 2005. As of December 31, 2006, trade accounts payable and claims payable were $513,745 and $1,301,587, respectively, as compared to December 31, 2005 balances of $803,407 and $534,636. Each of these changes was due to the timing of commissions received from customers and the timing of making payments to insurers and claimants in relation to the year-end.  For the year ended December 31, 2006, cash provided by operating activities totaled $1,645,268, compared to $923,597 for the fiscal year ended December 31, 2005. The receipt of funds was primarily due to net income for the year plus a increase in commissions receivable, restricted cash and other receivables as well as an decrease in accounts payable, other payable, and taxation, partially offset by an decrease in deposits and prepayments, claims payable, accrued expenses and deferred income.  For the year ended December 31, 2006, cash used in investing activities amounted to $59,828, compared to $19,594 for the fiscal year ended December 31, 2005. The use of funds was for the purchase of office equipment.  For the year ended December 31, 2006, cash used by financing activities amounted to $93,073, compared to $33,663 for the fiscal year ended December 31, 2005.  The increase was due to an increase in dividends paid to a minority shareholder, repayment of amount due to director and overdraft from bank partially offset by repayment of amount due to minority shareholders and loan from obligation under finance leases.  For the year ended December 31, 2006, the Groups balance sheet reflects total current assets of $3,345,115, and total current liabilities of $2,097,369. The Company has bank and cash equivalents of approximately $3,113,513 as at December 31, 2006. The Company has sufficient  - 12 -   funds to satisfy its financial commitments and working capital requirements for the next twelve months.  During the year-end, the Company had $7,853 of commitments for capital expenditures and off-balance sheet arrangements as well as lease commitments of $190,769.   CRITICAL ACCOUNTING POLICIES  Estimates And Assumptions  In preparing financial statements that conform to generally accepted accounting principles, management makes estimates and assumptions that may affect the reported amount of assets and liabilities.  Actual results could differ from these estimates.  Particularly, the areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.  Earnings (Loss) Per Share  The Earnings/ (loss) per share is determined by dividing the net earnings (loss) by the weighted average number of outstanding shares during that period.  Currency  ALCO uses the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during 2006, 2005, 2004, 2003 and 2002. 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 and Chang 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.  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.   - 13 -   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 Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes," these deferred taxes are measured by applying currently enacted tax laws.   ITEM 7. FINANCIAL STATEMENTS                 - 14 -         ALCO, INC. FINANCIAL STATEMENTS AT DECEMBER 31, 2006    INDEX  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 16 CONSOLIDATED BALANCE SHEET 17 CONSOLIDATED STATEMENTS OF OPERATIONS 18 CONSOLIDATED STATEMENTS OF CASH FLOWS 19 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY) 20 NOTES TO FINANCIAL STATEMENTS 21             - 15 -   KEMPISTY & COMPANY CERTIFIED PUBLIC ACCOUNTANTS, P.C. 15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX (212) 513-1930    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Board of Directors ALCO, Inc.    We have audited the accompanying consolidated balance sheet of ALCO, Inc. as of December 31, 2006, and the related statements of operations, changes in stockholders' equity and cash flows for each of the years in the two 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 the 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 misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. at December 31, 2006, and the results of its operations and cash flows for each of the years in the two years then ended in conformity with accounting principles generally accepted in the United States of America.  /s/ Kempisty & Company Kempisty & Company Certified Public Accountants PC New York, New York March 2, 2007     - 16 -    ALCO, INCCONSOLIDATED BALANCE SHEETDecember 31,2006ASSETSCurrent Assets:Cash and cash equivalents (Note 3)$3,113,513Commissions receivable, net (Note 5)231,602Total current assets3,345,115Property, plant and equipment, net (Note 6)70,989Other assetsDeposit and prepayments56,129Restricted Cash (Note 4)1,603,944Other receivable32,094Total other assets1,692,167Total Assets$5,108,271LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Bank over draft  (Note 7)$43,292Trade accounts payable513,745Claim payable1,301,587Other payable495Accrued expenses156,588Deferred Revenue1,917Due to directors (Note 9)15,496Due to Minority shareholders (Note 8)30,577Income tax payable31,845Current portion of obligation from Hire Purchase lease (Note 10)1,827Total Current Liabilities2,097,369Long term portion of obligation from hire purchases lease (Note 10)7,710Minority interest12,713Commitments and contingencies (Note 14)-Stockholders' Equity:Preferred stock, par value $0.01, 5,000,000 shares authorized;no shares issued and outstanding-Common stock, par value $0.001, 50,000,000 shares authorized;10,000,000 shares issued and outstanding as of December 31, 200610,000Additional Paid-in capital10,513Retained earnings2,969,966Stockholders' Equity2,990,479Total Liabilities and Stockholders' Equity$5,108,271See Notes to Financial Statements  - 17 -    ALCO, INCCONSOLIDATED STATEMENTS OF OPERATIONSFor the Year EndedDecember 31,20062005RevenuesCommission income$3,671,229$2,993,075Consulting income46,60211,757Website advertising26,083-Enrollment fee income2,916518Total revenues3,746,8303,005,350Operating ExpensesSalaries942,308498,279Travel expenses224,552220,700Rents387,717266,230Bad debt expenses20,882130,730Depreciation16,47224,861Exchange loss(gain)10,034(7,466)Other general and administrative386,632621,486Total Operating Expenses1,988,5971,754,820Income (Loss) from Operations1,758,2331,250,530Other Income (Expense)Interest income77,83523,250Other30,19018,182Interest expense(5,459)(5,127)Total operating expenses102,56636,305Income (Loss) before provisionfor Income Taxes and Minority Interest1,860,7991,286,835Provision for Income Taxes326,033294,190Income (loss) before Minority Interest1,534,766992,645Minority Interest(35,790)(27,344)Net Income (Loss)$1,498,976$965,301Basic and Fully Diluted Earnings per Share$0.15$0.10Weighted average shares outstanding10,000,0009,933,333See Notes to Financial Statements   - 18 -    ALCO, INCCONSOLIDATED STATEMENTS OF CASH FLOWSFor the Year EndedDecember 31,20062005Operating ActivitiesNet income$1,498,976$965,301Adjustments to reconcile net income tonet cash provided by operating activities:Depreciation16,47224,861Minority interest (income)35,79027,344Changes in operating assets and liabilities:(Increase)/Decrease in commission receivable (net)(92,282)49,176(Increase)/Decrease in restricted cash(255,034)(573,383)(Increase)/Decrease in deposit and prepayment13,439(57,185)(Increase)/Decrease in other receivable(30,225)29,921Increase/(Decrease) in accounts payable(289,662)355,800Increase/(Decrease) in claims payable766,95114,284Increase/(Decrease) in other payable(31,153)18,955Increase/(Decrease) in accrued expenses115,81832,710Increase/(Decrease) in deferred income1,917-Increase/(Decrease) in taxation(105,739)35,813Net cash provided by operating activities1,645,268923,597Investing ActivitiesPurchase of fixed assets(59,828)(19,594)Net cash (used) by investing activities(59,828)(19,594)Financing ActivitiesOverdraft from bank(2,610)45,903Dividend paid to minority shareholders(30,769)(25,641)Repayment of obligations under finance leases-(14,139)Loan from obligations under finance leases9,537-Repayment of amount due to minority shareholders5,128(57,692)Loan from amount due to director-17,906Repayment of amount due to director(74,359)-Net cash provided (used) by financing activities(93,073)(33,663)Increase in cash1,492,367870,340Cash at beginning of period1,621,146750,806Cash at end of period$3,113,513$1,621,146Supplemental Disclosures of Cash Flow Information:Cash paid (receive) during year for:Interest$5,459$5,127Income taxes$431,773$258,376See Notes to Financial Statements   - 19 -    ALCO, INCCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)FOR THE YEARS ENDED DECEMBER 31, 2006 and 2005AccumulatedCommon StockAdditionalRetainedOther$0.001 Par ValuePaid-inEarningsComprehensiveSharesAmountCapital(Deficit)IncomeTotalBalances at December 31, 20049,766,480$9,766$10,513$505,689-525,968Reverse merger adjustment233,520234234Net income---965,301-965,301Balances at December 31, 200510,000,000$10,000$10,513$1,470,990$-$1,491,503Net income1,498,9761,498,976Balances at December 31, 200610,000,000$10,000$10,513$2,969,966$-$2,990,479* The reverse merger adjustment represents the recording of minority shareholders' shares outstanding at the time of the reverse merger.     See Notes to Financial Statements     - 20 -   ALCO, INC.   NOTES TO FINANCIAL STATEMENTS  Note 1 - ORGANIZATION AND OPERATIONS  Description of Business  ALCO, Inc., (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. 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").  Under the terms of the Agreement for the Share Exchange, Lotus has agreed to acquire all of the issued and outstanding stock of AL Marine and $50,000 in a share exchange transaction, in return for the issuance of 9,766,480 shares of stock of Lotus. Upon closing under the Agreement for Share Exchange, AL Marine would become a wholly-owned subsidiary of Lotus.  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.  As a result of the Agreement, the transaction was treated for accounting purposes as a capital transaction and reverse merger by the accounting acquirer (AL Marine) and as a reorganization of the accounting acquiree (Lotus). Accordingly, the financial statements include the following:  The balance sheet consists of the net assets of the acquirer at historical cost and the net assets of the acquiree at historical cost; and  The statements of operations include the operations of the acquirer for the years presented and the operations of the acquiree from the date of the merger.  ALCO, Inc. and AL Marine are hereafter referred to as the Company.   - 21 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 1 - ORGANIZATION AND OPERATIONS (continued)  Control by Principal Stockholders  The directors, executive officers, their affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding share capital of the Company. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.  Note 2 - SIGNIFICANT ACCOUNTING POLICIES  Economic and Political Risks  The Company faces a number of risks and challenges since its assets are located in Hong Kong,   a Special Administrative Region of the People's Republic of China ("PRC"), and its revenues are derived from its operations therein.  The PRC is a developing country with an early stage market economic system, overshadowed by the state.  Its political and economic systems are very different from the more developed countries and are in a state of change.  The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States.  Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.  Basis of Presentation  The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which require consolidation.  Inter-company transactions have been eliminated in consolidation.  The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP").  This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Hong Kong Accounting Standard" ("HKAS").  Certain accounting principles, which are stipulated by US GAAP, are not applicable in the HKAS.  The difference between HKAS accounts of the Company and its US GAAP financial statements is immaterial.   - 22 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note  2 - SIGNIFICANT ACCOUNTING POLICIES (continued)  The Company maintains its books and accounting records in Hong Kong dollar ("HK$"), which is determined as the functional currency.  Assets and liabilities of the Company are translated at the prevailing exchange rate at each year-end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income statement accounts are translated at the average rate of exchange during the year. Translation adjustments arising from the use of different exchange rates from period to period are included in the cumulative translation adjustment account in shareholders' equity. Gain and losses resulting from foreign currency transactions are included in operations.  Concentration of Credit Risk  Financial instruments which subject the Company to concentrations of credit risk consist principally of accounts receivable and cash.  Exposure to losses on receivables is dependent on each customer's financial condition.  The Company controls its exposure to credit risk through a process of credit approvals, credit limits and monitoring procedures, establishing allowances for anticipated losses.  Use of Estimates  The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results, when ultimately realized could differ from those estimates.  Significant Estimates  Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant areas requiring the use of management estimates relate to the valuation of accounts receivable and payable, equipment, accrued liabilities, and the useful lives for amortization and depreciation.  Revenue Recognition  Commission revenue is recognized as of the effective date of the insurance policy or the date the customer is billed, whichever is later. At that date, the earnings process has been completed and the Company can reliably estimate the impact of policy cancellations based upon historical cancellation experience adjusted by known circumstances. The policy cancellation reserve is periodically evaluated and adjusted as necessary. Subsequent commission adjustments are recognized upon notification from the insurance companies. Commission revenues are reported net of commissions paid to sub-brokers. Fee income is recognized as services are rendered.   - 23 -   ALCO, INC. NOTES TO FINANCIAL STATEMENTS  Note 2 -SIGNIFICANT ACCOUNTING POLICIES (continued)   Cash and Cash Equivalents  The Company invests idle cash primarily in money market accounts, certificates of deposit and short-term commercial paper. Money market funds and all highly liquid debt instruments with an original maturity of three months or less are considered cash equivalents.  Commissions Receivable  Commissions receivable 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 collectibility 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.  Property, Plant and Equipment  Property, plant and equipment are carried at cost.  The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.  When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in the income statement in the year of disposition.  Depreciation is calculated on a straight-line basis over the estimated useful life of the assets.  The annual percentages applied are:  Motor vehicles 20% Furniture and fixtures 15% Office equipment 15% Leasehold improvements 20%   - 24 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)  Accounts Payable and Claims Payable  In its capacity as an insurance agent or broker, the Company collects premiums from customers and, after deducting its commissions, remits the premiums to the respective insurers; the Company also collects claims or refunds from insurers on behalf of customers. Unremitted insurance premiums and claims are held in a fiduciary capacity. The obligation to remit premiums is recorded as accounts payable and the obligation to remit claims and refunds is recorded as claims payable on the balance sheet.  Pension Costs  Mandatory contributions are made to the Hong Kong's Mandatory Provident Fund (MPF), based on a percentage of the employees' basic salaries.  The cost of these payments are charged to the profit and loss accounts as they become payable in accordance with the rule of the MPF Scheme.  The employer contributions vest fully with the employees when contributed into the MPF Scheme.  Income Taxes  Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," these deferred taxes are measured by applying currently enacted tax laws.  The effective tax rate was 17.5% in 2006 and 2005.  The Company did not provide any current or deferred income tax provision or benefit for any period presented to date because book income is substantially equal to taxable income, with only minor timing differences with regard to the depreciation of fixed assets. Management has determined that any deferred tax asset or liability is inconsequential, and not material to the financial statements.  Fair Value of Financial Instruments  The carrying value of financial instruments, including cash and cash equivalents, receivables, accounts payable and accrued expenses, approximates their fair value at December 31, 2006, due to the relatively short-term nature of these instruments.     - 25 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)  Valuation of Long-Lived assets  The Company periodically analyzes its long-lived assets for potential impairment, assessing the appropriateness of lives and recoverability of unamortized balances through measurement of undiscounted operating cash flows on a basis consistent with US GAAP.  Related Party Transactions  The captions "Due from directors" and "Due from related companies" represent loans receivable that are unsecured, non-interest bearing and have no fixed terms of repayment, and therefore are not considered current assets. The related companies are owned by directors of the Company.  The captions "Due to director" and "Due to related company" represent loans payable that are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. The related company is a development company owned by directors of the Company.  The Company rents office space in Hong Kong and Shanghai from a company owned by directors of the Company.  Foreign Currency and Other Comprehensive Income  The accompanying financial statements are presented in United States (US) dollars. The functional currency 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, maintain 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 2006 and 2005. 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.   - 26 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS   Note 2  SIGNIFICANT ACCOUNTING POLICIES (continued)  Earnings (Loss) Per Share  Basic earnings (loss) per share is computed by dividing income (loss) 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. Since the Companys common stock currently does not trade, the dilutive effect of any warrants or convertible notes outstanding cannot be determined.  Recent Accounting Pronouncements  In July 2006, the FASB issued FASB Interpretation (FIN) No. 48,  Accounting for Uncertainty in Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). The accounting provisions of FIN No. 48 are effective for fiscal years beginning after December 15, 2006. The Company is currently assessing whether adoption of this Interpretation will have an impact on our financial position or results of operations.  In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) No.157, Fair Value Measurements, which establishes a framework for reporting fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its financial statement.  Note 3- CASH  Cash consist of the following:December 31,2006Cash on hand$2,559Cash in BankBank of America3,105,546Bank of China5,408$3,113,513 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.  - 27 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 4- RESTRICTED CASH  Restricted cash 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 restricted cash. Also, when the Company receives a claim on behalf of a policyholder, it debits restricted cash and credits claims payable and other payables, if necessary. The restricted cash balance was $1,603,944 as of December 31, 2006.  Note 5- COMMISSIONS RECEIVABLE  Commissions receivable consist of the following:December 31, 2006Commissions receivable$319,889Less: allowances for doubtful accounts88,287$231,602  Note 6 - PROPERTY, PLANT AND EQUIPMENTProperty, Plant and Equipment consists of the following:December 31, 2006Furniture and fixtures$155,065Office equipment108,514Leasehold improvements86,452350,031Less: Accumulated depreciation279,042$70,989  Depreciation expense for the years ended December 31, 2006 and 2005 was $16,472 and $24,861 respectively.  - 28 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS Note 7 - BANK OVER DRAFT  The Bank Over Draft consists of the following as of December 31, 2006:  LoanMonthlyFinancial InstitutionsAmountDurationInterest RateCollateral *United Oversea BankRepayable on demand3% over Prime Lending rate12,821Repayable on demand2% over Prime Lending rate30,471$43,292(*) Pledged of GBP 26,000 fixed deposit in the name of 3rd parties and Personal guarantee for HK$100,000 signed by 3rd partiesNote 8 - DUE TO SHAREHOLDERSDue to shareholders consist of the following:December 31,2006CSC Enterprises Development (HK) Co Ltd$30,769Chiang Wei Heng Henry(128)Chin Tsu-Kuang(64)$30,577Note 9 - DUE TO DIRECTORSDue to directors consist of the following:December 31,2006Andrew Liu Fu Kang$15,496   - 29 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 10- CAPITAL LEASE  On April 27, 2006, the Company entered into a lease agreement with Hitachi Credit (HK) Ltd. The related contractual obligations are summarized as follows, 200620072008 - 2011TotalPayment Due$2,054$2,738$8,900$13,692Less: Interest8529111,1902,953Principle$1,202$1,827$7,710$10,739  The term of the lease is 60 months with $228 as its monthly payment. The leased property was capitalized as office equipment in 2006 by the amount of the total principal, 10,739 and the related depreciation expense is 1,342 in 2006. The principal due within one year is the current portion of long term debt and classified as current liability.  Note 11- RELATED PARTY TRANSACTION  The Company rents office space in Hong Kong and Shanghai from companies owned by directors of the Company.  The relevant rent expenses consist of following:  December 31,20062005LocationLandlordHK Office Room 501 and 502AFortune Ocean Ltd$111,077$105,231HK Office Room 502BFortune Ocean Ltd35,0778,308Shanghai Office and quarterFortune Ocean and Andrew Liu Fu Kang61,53846,154First Pacific Development LtdDirector (Andrew) quarter20,0009,475$227,692$169,168   - 30 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS  Note 12- INCOME TAXES  The Company's effective tax rate for the years ended December 31, 2006 and 2005 was 17.50%.  The provisions for income taxes for each of the two years ended December 31, 2006 and 2005 are summarized as follows: Hong Kong only:20062005Current$326,033$294,190Deferred--$326,033$294,190  Note 13  OPERATION LEASE  Future minimum lease payments for operating leases for the succeeding years consists of following:  20072008TotalShanxi Neilu, Shanghai, China$15,385$-$15,385Carmel Hill, Hong Kong116,92358,461175,384$132,308$58,461$190,769  Note 14  COMMON STOCK  During the quarter ended September 30, 2005, the Company issued 100,000 (1,000,000 pre-split) shares of common stock in reliance upon exemptions from registration under the Securities Act of 1933.  The shares were issued to Mid-Continental Securities Corporation on or about August 5, 2005, for total consideration of $40,000, or $0.40 ($0.04 pre-split) per share.  The consideration included cash advances of $20,000 made by Mid-Continental Securities Corporation for payment of on-going legal, accounting and operational expenses, and services valued at $20,000 in conjunction with completing a name change, preparation and filing of a registration statement on Form 10 - SB under the Securities Act of 1934, and preparation and filing of required periodic under the Securities Exchange Act of 1934.   The shares were issued in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act of 1933, and Rule 506 of Regulation D adopted under the Securities Act of 1933.    - 31 -   ALCO, INC.  NOTES TO FINANCIAL STATEMENTS   Note 15  COMMITMENTS AND CONTINGENCIES  The Company's business operations exist solely in the PRC and are subject to significant risks not typically associated with companies in North America and Western Europe.  These include risks associated with, among others, the political, economic and legal environments and foreign currency limitations.  The Company's results may thus be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies, laws, regulations, anti-inflationary measures, currency conversion and remittance limitation, and rates and methods of taxation, among other things.           - 32 -   ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  None.  ITEM 8A. CONTROLS AND PROCEDURES  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 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 effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis.  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, 2006, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.  ITEM 8B. OTHER INFORMATION  None  PART III  ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT  DIRECTORS AND OFFICERS The directors and executive officers currently serving ALCO are as follows:  NameAgePositionDirector/Officer SinceAndrew Liu Fu Kang45President and Chairman of the Board2005John Liu Shou Kang46Director2005Yip Kam Ming37Chief Financial Officer, Secretary2005  - 33 -     BIOGRAPHICAL INFORMATION  Mr. Andrew Liu Fu Kang is the founder and Chairman of AL Marine and is the Chairman and Chief Executive Officer of the Company.  He is responsible for the overall management, development, and strategic planning of AL Marine.  He also oversees certain key client accounts and is frequently consulted on insurance claims of a more complex nature.  Before establishing AL Marine, he worked for Richard Hogg International Adjusters in London and Stevens Elmslie & Co. in Hong Kong for a total of 6 years handling all aspects of shipowners rights under the hull policy and vis-à-vis third parties, such as general average and salvage, legal defense work and arbitrations.  He was awarded an honors degree in Naval Architecture & Shipbuilding from the University of Newcastle Upon Tyne, U.K, a Masters degree in Marine Law from Cardiff University, U.K and a Diploma in International Trade Law from the City of London Polytechnic.  He passed the Common Professional Exams in Law from Manchester Polytechnic.  He is a member of the Chartered Insurance Institute and the Chartered Institute of Shipbrokers.  He is the brother of John Liu Shou Kang.  Mr. John Liu Shou Kang is a Director of AL Marine and is a Director and Vice President of the Company.  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. Yip Kam Ming is the Financial Controller of AL Marine and is the Chief Financial Officer and Secretary of the Company.  He started his career in the accounting and audit industry in 1989.  In 1993 he worked as a management accountant for Guangdong Investment Limited, a Hong Kong listed company. He assumed the responsibility of performing financial statement analysis and preparing management reports, as well as engaging in merger & acquisition and due diligence projects. In 1996, he was transferred to Guangdong Tannery Limited, a subsidiary of Guangdong Investment, a Hong Kong Listed company that manufactures raw leather and retails leather products. He also worked as the Financial Controller and his responsibility was to manage the groups finance. He was also involved in the companys initial public offering and other merger and acquisition projects. In 2002, he began working for Intac International Holdings Limited (Intac), a US Nasdaq listed company, as a financial controller, where he oversaw the preparation of consolidation accounts and setup accounting procedures. He became the group financial controller of Intac in 2004.  In 2005, he became the group financial controller of AL Marine. He is a fellow member of the Association of Chartered Certified Accountants and a member of Hong Kong Institute of Certified Public Accountants. He was awarded a degree from the Curtin University of Technology and has a Masters degree in Corporate Finance from the Hong Kong Polytechnic University.   - 34 -   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 2006, or written representations from certain reporting persons, we believe all of our directors and executive officers met all applicable filing requirements.  ITEM 10. 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,  2004, 2005 and 2006.  Name and Principal PositionYearSalary ($)Bonus  ($)Stock Awards ($)Option Awards ($)Non-equity Incentive Plan Compensation ($)Change in Pension Value and Nonqualified Deferred Compensation EarningsAll Other Compensation ($)Total Compensation ($)Andrew Liu, CEO2004$4,482----------$333,938 (1)$338,4202005$64,561----------$10,356 (2)$74,9172006$151,474$53,689--------$21,538 (3)$226,701Yip Kam Ming, CFO2004----------------2005$17,270----------$385 (4)$17,6552006$66,848$8,333--------$17,333 (5)$92,514 (1) Includes dividends of $333,938 paid by ALCO subsidiaries to Mr. Liu as a shareholder. (2) Includes expense reimbursement of $9,475 and Mandatory Provident Fund contributions of $881. (3) Includes expense reimbursement of $20,000 and Mandatory Provident Fund contributions of $1,538. (4) Includes Mandatory Provident Fund contributions of $385. (5) Includes expense reimbursement of $15,795 and Mandatory Provident Fund contributions of $1,538.  The Mandatory Provident Fund is a compulsory savings/retirement scheme for the residents of Hong Kong. Most employees and employers are required to contribute monthly to schemes provided by government approved private organizations.  Contributions are based on a percentage of an employees salaries.  The contribution vests fully with the employee immediately upon payment into the scheme.   - 35 -   Director Compensation  The following table provides summary information concerning compensation awarded to, earned by, or paid to any of our directors for all services rendered to the Company in all capacities for the fiscal year ended December 31, 2006.  NameSalary/Fees Earned or Paid in Cash ($)Stock Awards ($)Option Awards ($)Non-Equity Incentive Plan Compensation ($)Change in Pension Value and Nonqualified Deferred Compensation EarningsAll Other Compensation ($)Total CompensationAndrew Liu------------$226,701 (1)John Liu$119,813--------$101,457 (2)$221,270 (1) This amount includes the salary Mr. Liu received as CEO of the Company. (2) Includes expense reimbursement of $99,923 and Mandatory Provident Fund contributions of $1,534  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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  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.  NameNo. of sharesPercent of ClassAndrew Liu, President and Chairman (1)
Flat 3, 24/F., Blk A, Viking Garden,
42 Hing Fat Street, Hong Kong6,203,66862.04%John Liu, Director (1)
House No. 12, Carmel Hill, Stanley, Hong Kong2,553,93525.54%  - 36 -    Yip Kam Ming, Chief Financial Officer, Secretary (1)
Flat 9C, Orchid Court, New Town
Plaza III, Shatin, New Territories, Hong Kong00%All Officers and Directors as a group (3 in number)8,757,60387.58%  (1) The person named is an officer, director, or both.   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  No officer, director, promoter, or affiliate of ALCO has, or proposes to have, any direct or indirect material interest in any asset proposed to be acquired by ALCO through security holdings, contracts, options, or otherwise.   ITEM 13. EXHIBITS a) The Exhibits listed below are filed as part of this Annual Report. 2.1 Agreement for Share Exchange dated November 22, 2005, by and among LOTUS CAPITAL CORP., a Nevada corporation, AL MARINE HOLDINGS LTD., a British Virgin Islands corporation, and the Shareholders of AL MARINE (herein incorporated by reference from report on Form 8-K for report dated November 22, 2005 and filed with the Securities and Exchange Commission on December 9, 2005).  3.1 Articles of Incorporation (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).  3.2 Bylaws (herein incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2005).  10.1 Exclusive representative agreement between ALC and The Strike Club (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).  10.2 Agreement between EduShipAsia Ltd. and the Institute of Chartered Shipbrokers appointing EduShipAsia Ltd. as ICSs exclusive agent in China (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on June 5, 2006).   - 37 -   10.3 Employment Agreement between Andrew Liu & Company, Ltd. and Andrew Liu. (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)  10.4 Employment Agreement between Andrew Liu & Company, Ltd. and John Liu. (herein incorporated by reference from the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 14, 2006)  31.1         Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.2        Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. 32.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES  Audit-Related Fees  (1) The aggregate fees billed by Kempisty & Co, CPA for audit of the Companys annual financial statements were $34,800 for the fiscal year ended December 31, 2006. Kempisty & Co, CPA have not yet billed the Company for any reviews of the Companys financial statements included in its quarterly reports on Form 10-QSB.  (2) Kempisty & Co, CPA 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 2006.  Tax Fees  (3) There were no fees billed by Kempisty & Co, CPA for tax compliance, tax advice and tax planning for the fiscal year ended December 31, 2006.  All Other Fees  (4) Kempisty & Co, CPA did not bill the Company for any products and services other than the foregoing during the fiscal year ended December 31, 2006  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.  - 38 -   SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on April 13, 2007. ALCO, INC.(Registrant)  By: /s/ Andrew Liu, CEO and Chairman In accordance with the Exchange Act, 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:  April 13, 2007   By: /s/ Yip Kam Ming, Chief Financial Officer  Date:  April 13, 2007   By: /s/ John Liu, Director  Date: April 13, 2007        - 39 -