ALCO rents a portion of its facilities from companies owned by the directors of ALCO and rents a portion of its facilities from third parties. As of December 31, 2008, ALCO leased approximately 5,020 square feet of office space for its operations. Its current leased properties are:
Because of the recent worldwide financial turmoil, volume of international trade is dramatically reduced leading a declining volume on the shipping industry. In addition, exceeding tonnage supply to the shipping market will lead to a large volume of layup and some poorly funded owners and operators will face severe financial problems. In order to deal with this very unique financial and shipping turmoil of this century, our plan for 2009 consists of improvement of our cost competitiveness, enhancement of credit control and marketing function.
For the improvement of cost competitiveness, we will review our existing operating processes and procedures to identify rooms for improvement and revise them where necessary to ensure the efficiency and effectiveness. For the enhancement of credit control, we are closely monitoring the aging of client premium receivable and aiming to increase the receivable turnover. For the enhancement of marketing function, we will allocate more resource to this function such as allotting more manpower and time in promoting the company’s business, expanding our market share in the marine insurance business and enhancing the level of service that we provide to our customers.
Revenue: Revenue for the year ended December 31, 2008 was $4,890,097 as compared to $4,564,790 for the same period in 2007. The increase of $325,307 or approximately 7.1% was mainly due to increases of commission income fee from the existing clients, website advertising and enrollment fees income. These increases were partially offset by a decrease in consulting income. Commission income is based on a percentage premium paid by the insured. Because of increase of insurance call and premium rates in the market, commission income increased by $416,956 or 9.7%. Website advertising and enrollment frees for the year ended December 31, 2008 were $ 17,083 and $ 6,410 respectively, as compared to $10,917 and $3,227 for the same period of 2007. The increases were mainly due to increases of customer’s demand and enrollment. On the other hand, consulting income for the year ended December 31, 2008 was decreased to $146,923 from $247,921 in 2007. The decrease of $100,998 or 40.7% was because demand for consulting services decreased.
Operating expenses: Total operating expenses were $3,033,687 for year ended December 31, 2008, as compared to $2,805,196 for the same period in 2007. The increase of $228,491 or 8.1% was mainly due to increase of staff cost, rent, depreciation, exchange loss and other general and administrative expenses during the year. The reasons for the increase in the major items are as follows:
Salaries - increased by $223,043 or 16.9% from $1,317,347 in 2007 to $1,540,390 in 2008. The increase was mainly due to increases in headcounts and pay rates during the year of 2008.
Depreciation - increased by $12,888 or 69.4% from $18,568 in 2007 to $31,456 in 2008. The increase was primarily due to the addition of fixed assets during the year of 2008.
Other general and administrative expenses - increased by $8,507 or 1.7% from $489,015 in 2007 to $497,522 in 2008. The increase was associated with building management, consumable store, medical, newspapers, periodicals and books, staff training, storage, subscriptions & membership fees, motor vehicle expenses, printing, post & stationery, repair & maintenance and telecommunication.
For the year ended December 31, 2008, cash provided by operating activities totaled $1,504,573 compared to $1,322,756 for the fiscal year ended December 31, 2007. The receipt of funds was primarily due to net income for the year plus increases in commissions receivable, restricted cash, other receivable, accounts payable, claims payable, other payable, accrued expenses, deferred income as well as decreases in enrolment fee receivable, deposit and prepayment, and income taxes payable.
For the year ended December 31, 2008, cash used in investing activities amounted to $238,781 compared to $18,816 for the fiscal year ended December 31, 2007. The use of funds was for the purchase of office equipment and equity investment for long term investment purpose.
As of December 31, 2008, commission receivable was $360,757 as compared to $277,130 for the same period in 2007, while trade accounts payable and claims payable were $1,425,946 and $99,652 respectively, as compared to December 31, 2007 balances of $278,222 and $90,332. 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. In addition, because the rate of insurance premium paid by customers to insurers was raised, commissions receivable as well as the related balance sheet items such as restricted cash, other receivable, and trade accounts payable significantly increased during the year ended December 31, 2008. In addition, because certain claims were received from insurers on behalf of customers, the claims payable significantly increased as compared to the year end of 2007. As of December 31, 2008, there was $1,917 deferred revenue included in the liabilities. This item is in relation to the income received in advance for the website advertising.
ALCO uses the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during 2007, 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.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 19
Long term portion of obligation from hire purchases lease (Note 10)
10,150,000 shares issued and outstanding as of December 31, 2008 and
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
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.
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 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.
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 consolidated financial statements have been prepared in accordance with US GAAP and the instructions to Form 10-K and Regulation S-K. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows at December 31, 2008 and 2007 for all periods presented have been made.
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 2007 and 16.5% in 2008. 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.
The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), effective January 1, 2008. The provisions of SFAS 157 are to be applied prospectively.
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 quarter in Shanghai from a company owned by directors of the Company.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, "Fair Value Measurements". SFAS No. 157 defines fair value, establishes a framework and gives guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13" ("FSP 157-1") and FASB Staff Position 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2").
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”, which is effective for fiscal years beginning after November 15, 2007. SFAS No. 159 is an elective standard which permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. The Company has not elected the fair value option for any assets or liabilities under SFAS No. 159.
On December 4, 2007, the FASB issued SFAS No. 160, “Noncontrolling interest in Consolidated Financial Statements”. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries as equity in the consolidated financial statements. The statement establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation and expands disclosures in the consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We have not yet determined the impact of the adoption of SFAS No. 160 on our consolidated financial statements and footnote disclosures.
On December 4, 2007, the FASB issued SFAS No.141R, “Business Combinations”. SFAS No. 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to expand disclosures about the nature and financial effect of the business combination. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We have not yet determined the impact of the adoption of SFAS No. 141R on our consolidated financial statements and footnote disclosures.
In April 2008, the FASB issued Staff Position FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”) which amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, “Goodwill and Other Intangible Assets” (“FAS No. 142”). FSP FAS 142-3 applies to intangible assets that are acquired individually or with a group of assets and intangible assets acquired in both business combinations and asset acquisitions. It removes a provision under FAS No. 142, requiring an entity to consider whether a contractual renewal or extension clause can be accomplished without substantial cost or material modifications of the existing terms and conditions associated with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own experience in renewing similar arrangements. An entity would consider market participant assumptions regarding renewal if no such relevant experience exists. FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with early adoption prohibited. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.
Under the scheme, compensation up to a limit of HK$100,000 (approximately US$12,821) will be paid from the scheme to depositor if the bank with which the depositor holds his/her eligible deposits fails. In addition, 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 will remain in force until the end of 2010.
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 for December 31, 2008 and 2007 are as follows:
Depreciation expense for the years ended December 31, 2008 and 2007 was $31,456 and $18,568 respectively.
The following are the Company’s investments owned and securities sold short by level within the fair value hierarchy at December 31, 2008:
At December 31, 2008, unrealized losses of $5,943 are related to investments listed in Hong Kong Stock Exchange.
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 in 2008 is $1,611 with the same amount in 2007. The principal due within one year is the current portion of long term debt and classified as current liability.
During the year ended December, 2007, the Company issued 150,000 shares of common stock in reliance upon exemptions from registration under the Securities Act of 1933. The shares were issued to the Brean Murray, Carret & Co. on or about October 23, 2007, for total consideration of $50,000, or $0.33 per share. The consideration was made for payment of services valued at $50,000 in conjunction with developing with the Company a program to introduce the Company to institutional investors, providing general financial advice and undertaking specific investment banking transactions and/or advisory assignment. The shares were issued in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act of 1933.