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, another flat at the existing building of the Hong Kong Office is leased from a third party for office expansion. Before September 2007, the Shanghai office was leased from Fortune Ocean Ltd. In September 2007, the lease was ceased and another office in Shanghai is leased from a third party. ALCO’s current total monthly rental payment for its facilities is approximately US$21,971. We intend to renew both of these leases upon their expiration.
Rent - increased by $12,507 or 2.7% from $468,307 in 2007 to $480,814 in 2008. The increase was mainly because of the increase of rental rate and an additional flat at the existing building of the Hong Kong Office is leased for office expansion.
For the year ended December 31, 2008, cash used by financing activities amounted to $42,560, compared to $76,438 for the fiscal year ended December 31, 2007. The decrease was due to the decrease in overdraft from bank, repayment of amount due to director partially offset by an increase in repayment of obligations under finance leases and loan of amount due to director.
For the year ended December 31, 2008, the Group’s balance sheet reflects total current assets of $5,925,703 and total current liabilities of $1,852,906. These items increased by $1,304,804 (28.2%) and $1,225,976 (195.6%) respectively as compared to the year ended December 31, 2007. The increase of total current assets was mainly due to increases of cash and cash equivalents and commission receivable which partially offset by enrolment fees receivable. The increase of total current liabilities was mainly due to increases of trade accounts payable, claim payable, other payable, accrued expenses, amount due to directors, deferred revenue partially offset by a decrease of income tax payable.
Because the interest rate is maintained at a low level in the recent years, the company purchased publicly traded equity securities with high dividend yield in the last quarter of 2008 for long term investment purpose. As of December 31, 2008, the market value of the equity securities was $143,621.
The Company has bank and cash equivalents of approximately $5,564,247 as at December 31, 2008. The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months. During the year end, the Company had $0 of commitments for capital expenditures and off-balance sheet arrangements as well as lease commitments of $ 261,135.
The balance sheets of ALC and Chang were translated at year-end exchange rates. Income and expenses were translated at exchange rates in effect during the year, substantially the same as the year-end rates.
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 Standard (SFAS) No. 109, "Accounting for Income Taxes", these deferred taxes are measured by applying currently enacted tax laws.
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
The accompanying financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Hong Kong Accounting Standard" ("HKAS").
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 from period to period are included in the cumulative translation adjustment account in shareholders' equity. Gain and losses resulting from foreign currency transactions are included in operations.
SFAS 157 clarifies that fair value is an estimate of the exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Under SFAS 157, fair value measurements are not adjusted for transaction cost. SFAS 157 provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:
The Company accounts for impairment of plant and equipment and amortizable intangible assets in accordance with SFAS No. 144, “Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, 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.
FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS No. 157 effective January 1, 2008 for all financial assets and liabilities as required. The adoption of SFAS No. 157 was not material to the Company's financial statements or results of operations.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS No. 161 on its consolidated financial statements.
In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. It also requires that all prior-period EPS data be adjusted retrospectively. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.
Restricted cash are cash balances held by a bank, mainly consisting of premiums collected from customers and payable to insurers, and claims received from insurers and payable to policyholders.
On April 27, 2006, the Company entered into a lease agreement with Hitachi Credit (HK) Ltd. The related contractual obligations are summarized as follows:
The Company's effective tax rate for the year ended December 31, 2008 and 2007 was 16.50% and 17.50%, respectively. The provisions for income taxes for the year ended December 31, 2008 and 2007 are summarized as follows:
Room 1618A, Bank of America Tower, Hong Kong (Hong Kong Office)
The Company has three material operating lease commitments for its facilities. The initial term of the lease arrangement for Director Quarter is 2 years beginning July 19, 2008 with a minimum lease commitment of $207,692. The initial term of the lease arrangement for the Hong Kong Office is 2 years beginning November 30, 2007 with a minimum lease commitment of $34,981. For the Shanghai Office, the initial term of the lease is 2 years beginning July 3, 2007 with a minimum lease commitment of $18,462. All the lease arrangements mentioned above have no renewal option and rent holiday.