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, 2011, ALCO leased approximately 6,084 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$30,884. We intend to renew these leases upon their expiration.
According to the plan of operations last year, the Company would enhance the credit control and marketing functions. After reviewing the result of 2011, we can conclude that the plan is successful. Regarding credit control, our enhancements are operated effectively as the receivable turnover ratio for ALC and CAC was improved from 7.84 in the full year of 2010 to 9.79 in 2011. It means the average collection period for outstanding receivables dropped from 47 days in 2010 to 37 days in 2011. Regarding the marketing function, more resources, including both additional personnel and IT applications, were allocated during 2011. Consequently, positive results were noted as the number of customers increased 5% during 2011.
The plans of investment, phone system upgrade and employee hiring will depend on the market situation, associated risk factors and our internal resources. There is no assurance that we will able to implement these plans within the foreseeable future.
Consulting income for 2011 increased to $96,714 from $69,500 in 2010. The increase of $27,214 or 39% was because demand for consulting services increased. On the other hand, enrollment fee for 2011 was $14,166 as compared to $17,357 for 2010. The decrease was mainly due to the decreases of customer’s demand and enrollment. In addition, website advertising for 2011 was $14,000. It was maintained at the same level with last year.
Rents - increased $18,560 or 4% from $506,732 in 2010 to $525,292 in 2011. The increase was mainly due to an increase in rental rates during the year.
Bad debt expenses - decreased by $288,917 or 62% from $466,265 in 2010 to $177,348 in 2011. The decrease was mainly due to a decrease in the provision of doubtful debts and certain bad debts written off in 2011.
Depreciation and amortization - increased by $71,728 or 176% from $40,836 in 2010 to $112,564 in 2011. The increase was due to the addition of fixed assets during the whole year of 2011. In addition, because of plans to move the Hong Kong Office to a new location in March, 2012, beginning in November 2011, we began to amortize the net book value of the leasehold improvement of the existing location over their its remaining life. Consequently, additional depreciation of $24,464 was charged in 2011. Furthermore, in December, 2010, we began to amortize the acquired intangible assets in relation to SHB. More amortization charges were incurred in 2011 as compared to 2010. During the year ended December 31, 2011, depreciation for fixed assets was $91,271 while amortization charge for intangible asset was $21,293.
For 2011, cash provided by operating activities totaled $2,150,508 compared to $1,974,738 for 2010. The receipt of funds was primarily due to net income for the year plus increases in commission receivable, enrollment fee receivable, deposit and
As of December 31, 2011, commission receivable was $399,942 as compared to $208,843 for the same period in 2010, while trade accounts payable and other payable were $1,054,919 and $663,450 respectively, as compared to December 31, 2010 balances of $879,087 and $240,370. 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 insurance premium rates paid by customers to insurers was raised, cash and cash equivalents and fiduciary assets increased during the year ended December 31, 2011. Furthermore, because certain expenses accrued in 2010 were no longer to be paid in 2011, accrued expenses for 2011 decreased by $64,739 or 39% as compared to last year. As of December 31, 2011, 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.
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, 2011, the market value of the equity securities was $261,854, which represents a decrease of $78,547 or approximately 23% as compared to the market value of $340,401 for the last year. The decrease was mainly because the market value of such equity securities dropped at the year-end date of December 2011 when compared to the year-end date of December 2010.
Due to the fact that the Company acquired a subsidiary in 2010, certain assets such as customer list and goodwill were recognized in the same year. As of December 31, 2011, carrying values of customer lists was $43,153 and carrying value of goodwill was $208,306.
In accordance with ASC 810 (SFAS No.167 “Amendments to FASB Interpretation No. 46(R)”), the Company consolidates variable interest entities (VIE’s) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
ALCO’s main subsidiaries, ALC, CAC and ESA use the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during the period between 2002 and 2011. 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.
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.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
AL Marine is the 100% owner of Andrew Liu and Co., Ltd., a corporation principally engaged in the business of marine insurance brokerage in Asia. AL Marine owns 60% of Chang An Consultants Ltd., a joint venture with China Changjiang National Shipping Corporation (“CSC Group”) that serves as a vehicle for the provision of marine insurance brokerage and other marine business services by AL Marine. AL Marine owns 85% of EdushipAsia Ltd. In 2005 and 2004, EdushipAsia Ltd was appointed as an exclusive agent by the Institute of Chartered Shipbrokers (UK) (“ICS”) to set up ICS’s first distant learning centre in Shanghai, PRC. AL Marine owns 100% of AL Marine Holdings (Hong Kong) Limited (“ALM HK”), a corporation principally engaged in the investment holding. ALM HK owns 100% of AL Marine Consulting Services (Shanghai) Ltd (“ALM Shanghai”), a corporation principally engaged in the investment holding. ALM Shanghai, through an agency arrangement, owns 100% of Shanghai Heshili Broker Co. Limited (“SHB”), a corporation principally engaged in the business of general insurance brokerage in China.
VIEs are generally entities that lack sufficient equity to operate without additional subordinated financial support from other parties or are entities whose equity holders do not have adequate decision making authority. The primary beneficiary of a VIE is the party that (a) has the power to direct the activities of a VIE that significantly impacts its economic performance and (b) has the obligation to absorb the losses or the rights to receive the benefits that could be significant to the VIE.
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, 2011 and 2010 for all periods presented have been made.
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.
The Company rented an office space in Hong Kong and rents an quarter in Shanghai from a company owned by directors of the Company.
The Company has evaluated all the recent accounting pronouncements through the filing date and believes that none of them will have a material effect on the Company.
China Construction Bank (Asia) (formerly known as Bank of America (Asia))
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 assets balance for December 31, 2011 and 2010 are as follows:
In February 2010, Fortune Ocean Ltd, a corporation owned by directors of the Company, sold the properties of Room 501, 502A and 502B of the Hong Kong Office to a third party. In this connection, the Company ceased to rent the properties from Fortune Ocean Ltd starting in March 2010. The amount of US$23,077 due from Fortune Ocean Ltd is the rental deposit and had been returned to the Company during the year of 2011.
On December 16, 2010 (the “Acquisition Date”), the Company acquired all of the outstanding stock of Shanghai Heshili Broker Co. Limited (“SHB”). The total amount of cash paid for the acquisition was $852,223, in which $249,034 and $62,418 were allocated to goodwill and identifiable intangible assets respectively. The allocation was carried out in accordance with the purchase acquisition accounting and based on the estimated fair values of such assets as of the date of acquisition. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets.
The following are the Company’s investments owned and securities sold short by level within the fair value hierarchy at December 31, 2011 and 2010 are as follows:
Unrealized loss of $91,370 and $40,029 for the investments were recognized in the other comprehensive income for 2011 and 2010, respectively. All these gain and loss are related to the investments listed in the Hong Kong Stock Exchange.
On August 4, 2011, the Company subsidiary Andrew Liu & Company Limited (“ALC”) entered into a loan agreement with its clients, Jian Mao International Shipping Co Ltd (“JMISCL”) and Jian Xing Intl Shipping Co Ltd (“JXISCL”). Under the loan agreement, ALC will make available to JMISCL and JXISCL an on demand loan facility in the principal amount of up to US$3,000,000. The loan is interest free and secured by the claim proceeds under a claim filed by JMISCL and JXISCL under the terms an existing Hull & Machinery insurance policy insuring a vessel owned and managed by JMISCL and JXISCL respectively. The loan is payable upon demand at any time following settlement of the claim if the claim proceeds are not adequate to cover the loan in full, and in any event is due and payable in full on or before August 4, 2012.
On June 1, 2011, the board of directors approved and the Company granted an award of 25,500 shares of restricted stock to certain key employees of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above. The aggregate value of this award was $71,145, as determined by multiplying the number of shares times the fair value of the Company’s stock on June 1, 2011, the date of the grant award. The fair value is calculated based on the same approach
The Company's effective tax rate for 2011 and 2010 was 19.76% and 20.08%, respectively. The provisions for income taxes for 2011 and 2010 are summarized as follows:
The Company has eight material operating lease commitments for its facilities. The initial term of the lease arrangement for Director Quarter is two years beginning July 19, 2010 with a minimum lease commitment of $63,846.
For the Hong Kong Office of Room 501 and 502, Bank of America Tower, Central, the initial term of the lease is two years beginning March 1, 2010 with a minimum lease commitment of $25,856. This lease arrangement has no rent holiday but have a renewal option that, when the lease is ended in February 2012, the Company can renew the lease for two years (from March 1, 2012 to February 28, 2014) at the prevailing market rent. For the Hong Kong Office of Room 505, Bank of America Tower, the initial term of the lease is two years beginning November 15, 2009 with a minimum lease commitment of $0. This lease arrangement has a three-month rent free period from November 15, 2009 to February 14, 2010. The lease was ended in 2011 and the Company had renewed the lease for two and half months with a minimum lease commitment of $21,200. Because the Company is continuing growth and the existing properties are no longer to meet the Company’s need, the Hong Kong Office will move to a new property in March 2012. The new property is located in Wanchai, Hong Kong with 6,350 sq. ft. The leasess for the existing office located in Central mentioned as above were not renewed.
For the new property in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012 with a minimum lease commitment of $1,026,924. This lease arrangement has a 50 days rent free period from January 30, 2012 to March 19, 2012. When the lease is ended in June 2015, the Company can renew the lease for two years (from July 1, 2015 to June 30, 2017) at the prevailing market rent.
For the Fuzhou Office, the initial term of the lease is two years beginning August 1, 2010 with a minimum lease commitment of $12,148. This lease arrangement has a one-month rent free period from August 1 to August 31, 2010. In addition, the lease arrangement has no renewal option.