ALCO rents its facilities from third parties. As of December 31, 2013, ALCO leased approximately 13,846 square feet of office space for its operations. Its current leased properties are:
ALCO’s current total monthly rental payment for the facilities mentioned as above is approximately US$42,997. We intend to renew these leases upon their expiration.
Management believes that the 2014 fiscal year will still be a difficult year because the shipping market hasn’t fully recovered yet. Therefore, the Company plans to continue to tighten control measures in order to monitor and reduce operating expenses. In addition, because of market conditions, we will further enhance our credit controls to improve the average collection period for outstanding receivables. For our Singapore subsidiary, we plan to appoint an independence consultant to carry out an audit review. The main objective of this audit is to ensure the control measures we established are implemented and working efficiently. Further, because we have received substantial positive feedback on the marketing activities we initiated in 2013, we will continue to organize similar activities with our business partners in 2014. In addition, we will put more effort into acquiring new clients.
Loss before tax and noncontrolling interest for 2013 was $11,821 compared to income before tax and noncontrolling interest $728,675 for 2012. The decrease of $740,496, or approximately 102%, was mainly due to the combination of a decrease of revenue together with an increase in operating expenses during the year. The reasons for the decrease in revenue are discussed above, while the reasons for the increases of operating expense are discussed in the section below. Other income increased to $107,253 in 2013 from $43,245 in 2012. The increase was mainly due to the receipt of increased commissions from business referral and other business services we provided to clients. The increase in other income was also partially the result of a government grant received by ALCO Insurance.
Interest income increased 20% in 2013 as compared to 2012 primarily because of the interest receivable earned from the loan receivable. Another reason is that the appreciation of Chinese Yuan (“CNY”) gave rise to higher interest income from the cash which is deposited in CNY currency. Investment income increased 22% in 2013 as compared to 2012 mainly as a result of an increase in dividend income received from publicly traded equity securities owned by the Company.
Net loss after adjustments of non-cash activities for 2013 decreased by $622,159, or 78% as compared to 2012. The changes in operating assets and liabilities for 2013 increased $656,125 or 167% as compared to 2012. As a result, net cash provided by operating activities for 2013 increased by $33,966 or approximately 8% as compared to last year.
For the year of 2013 and 2012, cash used in investing activities amounted to $3,224,873 and $455,503, respectively. For 2013, the fund was mainly used for purchase of fixed assets including a real property located in Holly Mount, London, United Kingdom, and a loan made to a third party. For 2012, the fund was primarily used for the purchase of Alco Insurance and purchase of fixed assets including the furniture & fixtures for the new office and the upgraded phone system.
In 2013, cash used in financing activities totaled $15,595. It consists of capital injection of $132,044 from minority shareholders of ALCO Insurance, and borrowings of $52,166 on related party debt. The cash inflow was offset by the dividend payment of $147,179 to minority shareholders of CAC, and principal payments of $52,626 on related party debt.
As of December 31, 2013, commission receivable was $142,739 as compared to $207,094 in 2012, while trade accounts payable and other payable were $2,090,472 and $159,451 respectively, as compared to December 31, 2012 balances of $1,577,668 and $131,363. Each of these changes was due to the timing of commissions received from customers and making payments to insurers at the year end. In addition, because the commission income decreased, commission receivable as at December 31, 2013 decreased by $64,355 or 31% as compared to December 31, 2012 balance. In addition, because certain payment advances made on behalf of customers were paid, other receivable increased by $146,883 or 167% as compared to the year end of 2012. Furthermore, because certain fund received on behalf of customers had been received, the other payable increased $28,088 or 21% as compared to the year end of 2012. In addition, certain claim proceeds were received on behalf of customers but had not been paid yet, the claim payable increased by $50,424 or 123% as compared to 2012.
Accrued expenses were $166,511 as at December 31, 2013, reduced by $41,108 or approximately 20% from $207,619 as at December 31, 2012. The reduction was mainly due to repayment of the accrued expenses which were provided for the year of 2012, and certain operating expenses, which were lower than last year, were accrued in 2013. As of December 31, 2013, there was $667 of deferred revenue included in the liabilities. This item is in relation to the income received in advance for the website advertising. In addition, the Company provided a deferred tax asset of $13,948 as at December 31, 2013. Such asset is primarily attributable to the taxable loss carrying over and different methods used in the calculation of depreciation of property, plant and equipment for financial reporting purpose and for income tax purpose.
Because the interest rate is maintained at a very low level in the recent years, since 2008, the Company has purchased publicly traded equity securities with high dividend yields for long term investment purpose. As of December 31, 2013, the market value of the equity securities was $413,328, which represents an increase of $31,218 or approximately 8% as compared to the market value of $382,110 for the last year. The increase was mainly due to the change of fair values between December 31, 2013 and December 31, 2012, and the addition of equity securities which were acquired during the year.
The exchange rates used to translate amounts in CNY and SGD into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:
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
Income tax expense is based on reported income before income taxes. Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. In accordance with FASB Accounting Standards Codification TM (ASC) No. 740, " Income Taxes”, these deferred taxes are measured by applying currently enacted tax laws.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2013 AND 2012
We have audited the accompanying consolidated balance sheets of ALCO, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2013 and 2012 and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ALCO, Inc. and its subsidiaries as of December 31, 2013 and 2012 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
10,336,000 shares issued and outstanding at December 31, 2013 and 10,342,000 shares issued and outstanding at December 31, 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
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.
In accordance with ASC 810, the Company consolidates variable interest entities (“VIEs”) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
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
Commissions and other receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable.
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.
enacted tax rates expected to apply to taxable income (losses) in the years in which those temporary differences are expected to be realized or settled.
The Company adopted Statement of ASC 820, “Fair Value Measurements and Disclosures,” effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.
review completed in 2013, the Company concluded that there were no events or circumstances that triggered impairment, and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year.
The Hong Kong Monetary Authority (“HKMA”), Hong Kong's central bank, maintains a Linked Exchange Rate System since 1983. The HKMA operates Convertibility Undertakings on both the strong side and the weak side of the Linked Rate of US$1: HK$7.8. In fact, the exchange rate for HK$ to US dollars has varied by only 100ths during 2013 and 2012. 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.
The exchange rates used to translate amounts in CNY into U.S. Dollars for the purposes of preparing the consolidated financial statements were as follows:
Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.16059:CNY1
The Company established a bank guarantee of HK$45,000 (approximately US$5,770) credit line with the China Construction Bank (Asia). The interest rate and charges are subject to change from time to time. The bank guarantee credit line is pledged of $6,410 fixed deposit included in Cash in bank - Fixed deposit as shown above. On December 31, 2013, a bank guarantee of $5,540.81 was provided and the detail is described in “Note 16 - Commitments and Contingencies” as below.
When the Company receives a premium from a customer, it debits the lump sum amount into one bank account and establishes a schedule to keep track of the amount of premium payable to the insurer. At the monthly closing, the Company reclassifies the amount of premium payable to insurers as fiduciary assets. Also, when the Company receives a claim on behalf of a policyholder, it debits fiduciary assets and credits claims payable and other payables, if necessary. The fiduciary asset had a balance of $1,936,194 and $1,750,712 at December 31, 2013 and 2012 respectively.
Depreciation expense for 2013 and 2012 was $100,999 and $138,119 respectively. Loss on disposal of fixed assets for the year ended December 31, 2013 and 2012 was $0 and $5,863 respectively.
Note 8 - Fair Value of Marketable Securities Investment and Investment Income
As of December 2013 and 2012, the outstanding balance of the loan is as follows:
On June 1, 2012, the board of directors approved and the Company granted an award of 13,500 shares of restricted stock to a key employee of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above. The aggregate value of this award was $22,275, as determined by multiplying the number of shares by the fair value of the Company’s stock on June 1, 2012, the date of grant. The fair value is calculated based on the same approach mentioned above
and the fair value of the Company’s stock on the date of grant is $1.65 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 8.25%, in effect at the time of grant is used in the calculation.
During the year ended December 31, 2013 and 2012, the Company recognized $36,205 and $87,890 respectively, of stock-based compensation expense.
As of December 31, 2013, the significant components of the Company’s deferred tax asset and liability are as follows:
Deferred income taxes reflect the effect of temporary differences between assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income (losses) in the years in which those temporary differences are expected to be realized or settled.
The Company adopted the provisions of Accounting for Uncertainty in Income Taxes on January 1, 2007. The provisions clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with the standard “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provisions of Accounting for Uncertainty in Income Taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.
For the Fuzhou Office, the initial term of the lease is two years beginning August 16, 2012 with a minimum lease commitment of $25,772. This lease arrangement has no renewal option and rent holiday.
For the Singapore Office of ALCO Insurance, the initial term of the lease is three years beginning February 1, 2013 with a minimum lease commitment of $218,060. This lease arrangement has a 46 days rent free period from December 17, 2012 to January 31, 2013. When the lease is ended in February 2016, the Company can renew the lease for three years (from February 1, 2016 to February 2019) at the prevailing market rent.
aggregate, ALC’s liability to the claim above is limited to HK$150,000 (approximately US$19,230) and this amount is fully reserved in the book of 2012. However, the outcome of this legal proceeding brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding was resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.