The Hong Kong office is leased from Fortune Ocean Ltd., whose directors and shareholders are Andrew Liu, John Liu, and Madam Yap. Starting from December 2007, an additional flat at the existing building of the Hong Kong Office was leased from a third party for office expansion. In December 2009, this lease was ceased and another flat in the same building is leased from a third party for further expansion. The Shanghai office has been leasing from a third party since December 2007. ALCO’s current total monthly rental payment for the facilities mentioned as above is approximately US$25,246. We intend to renew these leases upon their expiration.
In order to seek to improve our cost competitiveness, we are continuously reviewing our current operating processes and procedures to identify areas for improvement and to implement changes where necessary to ensure our efficiency and effectiveness. In addition, beginning in early 2009, we implemented several measures intended to tighten reduce our general and administrative expenses. The effect of these changes was noted in 2009 as our general and administrative expenses decreased 3% in 2009 as compared to 2008. We will continue to implement these measures in 2010.
For enhancement of our credit control, we are closely monitoring the aging of client premium receivables and aiming to increase the receivable turnover. In 2009, we established a marketing function, the main responsibilities of which are maintaining our existing client base and promoting the company’s business to potential new clients. Further resources will be allocated to this new function in 2010.
We do have a plan to hire additional employees in the next twelve months to enhance our operations including marketing, consultancy service and supporting functions. However, this plan will depend on the market situation and internal resources and there is no assurance that we will able to implement this plan within the foreseeable future.
Operating expenses: Total operating expenses were $3,241,749 for year ended December 31, 2009, as compared to $2,983,423 for the same period in 2008. The increase of $258,326 or 9% was mainly due to increases in staff costs, rent, bad debt expense, depreciation, exchange loss, which was partially offset by a decrease in travel expenses and other general and administrative expenses during the year. The reasons for the changes in the major items are as follows:
Salaries - increased by $256,289 or 17% from $1,540,390 in 2008 to $1,796,679 in 2009. The increase was mainly due to increases in headcounts and pay rates during the year of 2009.
Travel expenses - decreased by $13,723 or 5% from $303,686 in 2008 to $289,963 in 2009. The decrease was mainly because of the result of the imposition of limitations on travel in order to reduce operating expenses.
Bad debt expenses - increased by $16,727 or 15% from $114,089 in 2008 to $130,816 in 2009. The increase was mainly due to an increase in the provision of doubtful debts in 2009.
Exchange loss -increased by $6,810 or 44% from $15,466 in 2008 to $22,276 in 2009. The increase was mainly because the exchange rate of US dollar against HK dollar in the market throughout 2009 was under HK$7.8 which is used by the company as standard rate in accounting purpose.
For the year ended December 31, 2009, cash provided by operating activities totaled $1,190,680 compared to $1,504,573 for the fiscal year ended December 31, 2008. The receipt of funds was primarily due to net income for the year plus increases in commission receivable, enrollment fee receivable, deposit and prepayment, other receivable and accrued expenses as well as decreases in fiduciary cash, accounts payable, claims payable, other payable and income taxes receivable.
For the year ended December 31, 2009, cash used in investing activities amounted to $123,279 compared to $238,781 for the fiscal year ended December 31, 2008. The use of funds was for the purchase of office equipment and equity investment for long term investment purpose.
For the year ended December 31, 2009, cash used by financing activities amounted to $43,772, compared to $42,560 for the fiscal year ended December 31, 2008. The use of funds was for the repayment of obligations under finance leases, and amount due to minority shareholders and director.
Because the interest rate is maintained at a very low level in the recent years, the company purchased publicly traded equity securities with high dividend yield since 2008 for long term investment purpose. As of December 31, 2009, the market value of the equity securities was $369,360.
The Earnings/ (loss) per share is determined by dividing the net earnings (loss) by the weighted average number of outstanding shares during that period.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008
We have audited the accompanying consolidated balance sheet of ALCO, Inc., as of December 31, 2009 and the related statements of operations and comprehensive income, changes in stockholders’ equity and cash flows for the year 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 have audited the accompanying consolidated balance sheets of ALCO, Inc. as of December 31, 2008 and 2007, and the related statements of operations, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the two years ended December 31, 2008. 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. at December 31, 2008 and 2007, and the results of its operations and cash flows for each of the years in the two years ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
ALCO, Inc. (“ALCO,” “we,” “us,” the “Company”) was incorporated under the laws of the State of Nevada on June 7, 1999 as Seahorse, Inc. and changed its name to Lotus Capital Corp. (“Lotus”) on September 20, 2004. The Company changed its name to ALCO, Inc. on February 13, 2006.
The 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.
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. The Company's effective tax rate for the year ended December 31, 2009 and 2008 was 17.36 and 16.00%, respectively. 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 ASC No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”), effective January 1, 2008. The provisions of ASC 820 are to be applied prospectively.
The Company accounts for impairment of plant and equipment and amortizable intangible assets in accordance with ASC No. 360, “Property, Plant, and Equipment”, which requires the Company to evaluate a long-lived asset for recoverability when there is event or circumstance that indicate the carrying value of the asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset or asset group is not recoverable (when carrying amount exceeds the gross, undiscounted cash flows from use and disposition) and is measured as the excess of the carrying amount over the asset’s (or asset group’s) fair value.
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 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.
In September 2009, the FASB issued guidance updating current principles related to revenue recognition when there are multiple-element arrangements. This revised guidance relates to the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting and modifies the manner in which the transaction consideration is allocated across the separately identifiable deliverables. The guidance also expands the disclosures required for multiple-element revenue arrangements. These changes will be effective for us beginning in the first quarter of 2011, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or modified after the adoption date. Early adoption is permitted. The Company believes that the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
The following are the Company’s investments owned and securities sold short by level within the fair value hierarchy at December 31, 2009 and 2008 are as follows:
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 2009 is $1,611 with the same amount in 2008. The principal due within one year is the current portion of long term debt and classified as current liability.
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