ALCO rents its facilities from third parties. As of December 31, 2015, ALCO leased approximately 12,003 square feet of office space for its operations. Its current leased properties are:
The Dalian office is leased from a third party starting from January 2013.
In consideration of the excessive supply of tonnage in the shipping market, management believes that the 2016 fiscal year will still be a difficult year. Many companies, including us, have been facing pressures from increasing operating costs such as salaries and rent. Therefore, the Company plans to continue to tighten control measures in order to monitor and reduce operating expenses. For example, we have frozen our headcount and implemented new computer system to improve the work efficiency. Moreover, we are looking for alternative office spaces for some offices to reduce rent. Meanwhile, we will maintain the current level of marketing activities to promote the Company to new clients and to strengthen our relationship with our existing clients. In addition, because current market conditions are still bad, with many shipping companies facing liquidity problems, we will maintain our credit controls to retain the average collection period for outstanding receivables.
We believe the plans mentioned above will help to turn the Company back to profitability. However, implementation of the plans will depend on the market situation, associated risk factors and our internal resources. There is no assurance that we will be able to implement these plans within the foreseeable future.
Consulting income for 2015 increased to $107,153 from $29,000 in 2015. The increase of $78,153, or 269%, was because a new consulting service was provided which boosted the consulting income increased. In addition, website advertising for 2015 was $0, the decrease was due to no website advertising service was provided during the year. In addition, enrollment fees for 2015 decreased 67% to $9,052 as compared to $27,684 for 2014. The decrease was mainly due to decreases in customer’s demand and enrollment.
Other income increased to $162,439 in 2015 from $28,115 in 2014. The increase of $134,324, or approximately 478%, was mainly due to the increase in other income and investment which was partially offset by the decrease in interest income and gain on disposal of fixed assets. Interest income decreased by 83% to $3,309 in 2015. The decrease was due to interest earned on loans made to a third party in 2014 was no longer received in 2015. Investment income increased by 7% to $20,377 in 2015 as compared to $18,982 in 2014. The increase was mainly the result of an increase in dividend income received from publicly traded equity securities owned by the Company. Other income for 2015 was $141,197 compared to ($14,662) for 2014. The increase of $155,859, or approximately -1,063%, was mainly due to increased commissions from business referral and other business services we provided to clients and the increase of gain on exchange difference.
Total operating expenses were $6,254,141 for 2015, as compared to $6,093,862 for 2014. The increase of $160,279, or approximately 3%, was mainly due to increases in salary, rents, bad debt expenses, depreciation and amortization expenses which were partially offset by decreases in travel expenses and other general and administrative expenses.
The reasons for the increases and decreases in the major items of operating expense in 2015, as compared to 2014, are as follows:
Salaries - increased by $354,563, or 10%, from $3,630,683 in 2014 to $3,985,246 in 2015. The increase was mainly due to a new department was set up and increases in pay rates for all offices during the year of 2015. In addition, pursuant to the Restricted Share Stock Compensation Plans, $4,815 was recognized as stock-based compensation expense in salaries during the year ended December 31, 2015. The amount of stock based compensation decreased $2,610, or approximately 35%, as compared to 2014 because amortization for the plans which was implemented in 2012 was completed.
Depreciation and amortization - increased by $21,538, or 13%, from $161,464 in 2014 to $183,002 in 2015. The Company acquired real property located in the United States, in July 2014. The Company began to claim depreciation deductions for these properties immediately following their acquisition. As a result, during 2015, depreciation for fixed assets was $174,774, an increase of $25,231, or 17%, from $149,543 in 2014. The increase in depreciation expense for fixed assets was partially offset by a decrease in amortization expense for intangible assets. The amortization expense for intangible assets was $8,228 for 2015, which was a decrease of $3,693, or 31%, as compared to 2014. Amortization expenses decreased in 2015 as compared to 2014 because the acquired customer base which was being amortized, had been fully amortized during the year.
For 2015, cash used in operating activities totaled $1,201,104 when compared to cash provided by operating activities totaled $148,186 for 2014. The cash outflow was primarily due to net loss for the year plus increases in commission receivable, deposit and prepayment and other payable which were partially offset by decreases in enrolment fee receivable, fiduciary asset, other receivable, tax receivable, accounts payable, claims payable and accrued expenses.
In 2015, cash used in financing activities totaled $143,834, consisting of a dividend payment of $130,769 to minority shareholders of CAC, repayment of $13,940 of obligations under long-term loans, and principal payments of $254,358 on related party debt. The cash outflow was offset by the borrowings of $255,233 on related party debt.
As of December 31, 2015, the Company’s consolidated balance sheet reflects total current assets of $6,350,044, which decreased by $2,063,525, or 25%, as compared to $8,413,569 as of December 31, 2014. Total current liabilities as of December 31, 2015 were $1,824,636, which decreased by $1,029,276, or 36%, as compared to $2,853,912 as of December 31, 2014. The decrease of total current assets was mainly due to decreases of cash and cash equivalents, short-term investment, enrolment fee receivable, fiduciary asset, loan receivable which were partially offset by increase of commission receivable. The decrease of total current liabilities was mainly due to decreases of trade accounts payable, claim payable, accrued expenses partially offset by increases of other payable, tax payable, due to directors and current portion of obligation under long-term loans.
As of December 31, 2015, commission receivable was $451,252 as compared to $322,589 in 2014, while trade accounts payable and other payable were $1,370,074 and $225,826 respectively, as compared to December 31, 2014 balances of $2,376,271 and $214,504. 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 certain payment advances made on behalf of customers were refunded, other receivable decreased by $29,557, or 24%, as compared to the year end of 2014. Furthermore, because certain fund received on behalf of customers had been received, the other payable increased $11,322, or 5%, as compared to the year end of 2014. In addition, certain claim proceeds received on behalf of customers had been paid, and as a result, the claim payable decreased by $40,363, or 55%, as compared to 2014.
As at December 31, 2015, loan receivable was $1,412,000, which decreased by $500,000, or 26%, as compared to last year. The decrease was due to receipt of payment of the loan by the client. Tax payable as at December 31, 2015 was $28,461, it is in relation to the provision of income tax for 2015.
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.
Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.15818:CNY1 and US$0.72128:SGD1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 21
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
We have audited the accompanying consolidated balance sheets of ALCO, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders’ 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, 2015 and 2014 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.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries and other entity which require consolidation. Inter-company transactions have been eliminated in consolidation. The results of subsidiaries acquired or disposed of during the respective periods are included in the consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as appropriate. The portion of the income or loss applicable to non-controlling interests in subsidiary undertakings is reflected in the consolidated statements of operations.
As of December 31, 2015 and 2014, the carrying amount and classification of the assets and liabilities in the Company’s consolidated balance sheets that relate to SHB, the Company’s VIE is as follows:
Short-term investment includes fixed deposit with maturity of one year with a financial institution.
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 consolidated balance sheets.
Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, freemarket dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.
The Company records the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired as goodwill. Current authoritative guidance requires goodwill to be tested for impairment annually as well as when an event or change in circumstance indicates impairment may have occurred. Goodwill is tested for impairment by comparing the fair value of the Company’s individual reporting units to their carrying amount to determine if there is potential goodwill impairment. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the implied fair value of the goodwill of the reporting unit is less than its carrying value.
The Company rents a quarter in Hong Kong from a company owned by directors of the Company, and a quarter in Shanghai from a director of the Company.
test criteria in ASC 840, the lease then qualifies as a capital lease. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.
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 2015 and 2014. 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.
Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.15818:CNY1
Basic earnings per share is computed by dividing income 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. There were no dilutive shares for the years ended December 31, 2015 and 2014.
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on net earnings and financial position.
In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis”. The amendments in the ASU provide an additional requirement for a limited partnership or similar entity to qualify as a voting interest entity and also amend the criteria for consolidating such an entity. In addition, the new guidance amends the criteria for evaluating fees paid to a decision maker or service provider as a variable interest and amends the criteria for evaluating the effect of fee arrangements and related parties on a variable interest entity primary beneficiary determination. The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”. The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The amendments in ASU 2015-17 eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The amendments in this ASU are effective for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. The amendments in ASU 2016-01, among other things, requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables); Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The new guidance permits early adoption of the own credit provision. In addition, the new guidance permits early adoption of the provision that exempts private companies and not-for-profit organizations from having to disclose fair value information about financial instruments measured at amortized cost. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all public business entities and all nonpublic business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. 'The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. Public entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.
Under the scheme, compensation up to a limit of HK$100,000 (approximately $12,821) per depositor would be paid from the scheme to depositor if the bank with which the depositor holds his/her eligible deposits fails. 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 expired at the end of 2010. Following the enactment of the Deposit Protection Scheme (Amendment) Ordinance 2010 in June 2010, the protection limit of the Deposit Protection Scheme is increased from HK$100,000 per depositor to HK$500,000 (approximately $64,103) per depositor effective from January 1, 2011.
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 $1,389,854 and $2,015,759 at December 31, 2015 and 2014 respectively.
Unrealized loss of $63,829 and $51,178 for the investment in marketable securities were recognized in the other comprehensive income for 2015 and 2014, respectively. All these gains and loss are related to the marketable securities listed in the Hong Kong Stock Exchange.
On August 4, 2012, 2013, 2014 and 2015, ALC entered into loan extension agreements with JMISCL and JXISCL, respectively. Under the three extension agreements, the payable due date is extended to August 4, 2016. All terms and conditions of the loan agreement remain unchanged. During the year ended December 31, 2015, a principal amount of $500,000 was repaid and the balance of the loan is $1,412,000.
On March 26, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of $480,000. The loan bears interest at the rate of 5.25% per annum and is unsecured. The loan term is 30 days and is payable in full at any time upon demand. On April 24, 2014, the loan was fully repaid.
On June 12, 2014, ALC entered into a loan agreement with ZSSA. Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of $300,000. The loan bears interest at the rate of 5.25% per annum and is unsecured. The loan term is 29 days and is payable in full at any time upon demand. On July 10, 2014, ALC entered into a loan extension agreement with ZSSA. Under the extension agreement, the loan term was extended for additional 12 days. All terms and conditions of the loan agreement remain unchanged. On July 23, 2014, the loan was fully repaid.
The Company recorded a goodwill impairment charge of $222,759 during the year ended December 31, 2014 to write off the entire carrying value of goodwill recognized in connection with SHB acquisition. As the operation of SHB had been changed and its revenue significantly declined during the six months period ended June 30, 2014, the Company concluded that goodwill impairment indicators existed and an interim goodwill impairment assessment was required at June 30, 2014. In the first step of the goodwill impairment test, the estimated fair value of SHB was determined utilizing discounted cash flow method. The present value of the future estimated cash flows during a defined projection period and the present value of the terminal value which represents the fair value of all cash flows beyond the projection period were discounted. The result of this test concluded that the carrying value of the Company exceeded its estimated fair value, and as such, the second step of the goodwill impairment test was performed.
On June 12, 2014, the Company’s subsidiary, ALC, entered into a loan agreement with Hitachi Credit (HK) Ltd in relation to the acquisition of a motor vehicle, which was pledged to secure the loan. The total amount of the loan obtained is $32,036, bearing annual interest rate of 2.28% for 48 months, and the related depreciation expense is $6,407 and $4,271 during the year ended December 31, 2015 and 2014, respectively.
On June 22, 2015, the Company’s subsidiary, ALCO Insurance, entered into a loan agreement with DBS Bank Ltd in relation to the acquisition of a new motor vehicle, which was pledged to secure the loan. The total amount of the loan obtained is $58,784, bearing annual interest rate of 2.28% for 60 months, and the related depreciation expense is $11,430 during 2015.
The principal of the loans due within one year is classified as current liability and included in “long-term loan, current” as of balance sheet date.
The aggregate value of this award was $310,860, as determined by multiplying the number of shares by the fair value of the Company’s stock on June 1, 2010, the date of grant. The fair value is based on discounted free cash flow analyses, which involve
On October 1, 2015, 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 $20,655, as determined by multiplying the number of shares by the fair value of the Company’s stock on October 1, 2015, 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 $0.81 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 4.25%, in effect at the time of grant is used in the calculation.
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 de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
For the Hong Kong Office in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012. This lease arrangement has a 50 days rent free period from January 30, 2012 to March 19, 2012. The lease was ended in June 2015 and renewed for two years (from July 1, 2015 to June 30, 2017) with a minimum lease commitment of $519,231.
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.