There were three major tasks in the management’s plan of operations for 2013. The first was enhancing the marketing function, the second was streamline the policies and procedures of Singapore subsidiary, and the third was tightening control measures to monitor and reduce operating expenses. After reviewing the operation performance of last year, management believes that each of the tasks was successfully completed.
For purposes of enhancing the company’s marketing function, we set up a new liaison office in Dalian and hired a new marketing representative. In addition, we arranged several marketing activities with our business partners to promote the Company to new clients and to strengthen our relationship with our existing clients. We believe the enhancements were successful because we acquired 66 new clients during 2013. In addition, our client retention rate increased by 5 points during the year, to approximately 77%. Regarding streamlining the policies and procedures of our Singapore subsidiary, we conducted an internal review and established a control manual for financial management, which we believe will help to increase work efficiency. Management believes its efforts to tighten control measures in order to monitor and reduce operating expenses, were successful because some operating expenses decreased during the year. For example, travel expenses at the group level decreased 11% in 2013 when compared to 2012. Other general and administrative expenses for Hong Kong office decreased approximately 4% in 2013 as compared to 2012.
We believe the plans mentioned above will help to turn the Company back into 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.
Revenue for 2013 was $5,783,414 as compared to $6,006,543 for 2012. The decrease of $223,129 or approximately 4%, was mainly due to decreases of commission income from existing clients and from website advertising income, which were partially offset with an increase of consulting and enrollment fee income.
Commission income is based on a percentage of the premiums paid by the insured, and decreased by $219,874 or 4% when compared to last year. The decrease mainly came from ALC and CAC and was mainly due to the fact that average commission earned per client decreased 10% even though the number of clients increased 1%. The main reason for the decrease in average commissions earned per client was that insurance premiums slightly dropped by approximately 1% and commission percentage decreased by approximately 0.5 points during the year. In 2013, total commission income contributed by ALC, CAC, SHB and ALCO Insurance was 79%, 8%, 7% and 6% respectively.
Consulting income for 2013 increased to $55,800 from $53,582 in 2012. The increase of $2,218 or 4% was because demand for consulting services increased. In addition, enrollment fees for 2013 were $9,888 as compared to $6,611 for 2012. The increase was mainly due to the increases of customer’s demand and enrollment. In addition, website advertising for 2013 was $5,250, the decrease was due to the decreases of customers’ demand.
compared to 2012 because certain restricted shares were forfeited by employees who resigned and amortization for the plan which was implemented in 2010 was completed during the year.
Travel expenses - decreased by $48,684 or 11% from $442,447 in 2012 to $393,763 in 2013. The decrease was mainly because of the effort of expense control during the year.
Rents - increased by $66,701 or 10% from $639,096 in 2012 to $705,797 in 2013. The increase was mainly due to the fact that new office spaces were rented for the Singapore office and the Dalian office.
Bad debt (recovery) expenses - increased by $111,782 or 2144% from ($5,213) in 2013 to $106,569 in 2012. The increase was mainly because the provision of doubtful debts increased during the year. In addition, there was an adjustment of over-provision for prior years in 2012.
Other general & administrative expenses - increased $74,440 or 7% for 2013 as compared to last year. Approximately 90% of the increase came from ALCO Insurance. The additional 10% increase was primarily related to a liaison office that was set up in Dalian and general price inflation for the liaison offices in China, which was partially offset by a decrease in Hong Kong Office. The decrease was mainly because of the effort of expense control during the year.
For 2013, cash provided by operating activities totaled $435,045 compared to $401,079 for 2012. The receipt of funds was primarily due to net loss for the year plus increases in commission receivable, enrollment fee receivable, deposit and prepayment, fiduciary asset, other receivable, accounts payable, claims payable, other payable, which were partially offset by decreases in tax receivable, and accrued expenses.
As of December 31, 2013, the Company’s balance sheet reflects total current assets of $10,481,334, which decreased by $1,683,334 or 14% as compared to $12,164,668 as of December 31, 2012. Total current liabilities as of December 31, 2013 were $2,509,486, which increased by $548,498 or 28% as compared to $1,960,988 as of December 31, 2012. The decrease of total current assets was mainly due to decreases of cash and cash equivalents, commission receivable and tax receivable which were partially offset by increases of enrollment fee receivable, fiduciary asset, and loan receivable. The increase of total current liabilities was mainly due to increases of trade accounts payable, claims payable and other payable, partially offset by decreases of accrued expenses, due to directors and deferred revenue.
As at December 31, 2013, property, plant and equipment were $2,248,611 as compared to $224,685 as at December 31, 2012. The increase of $2,023,926 or approximately 901% was mainly due to the newly acquired property. In April 2013, the Company purchased a real property located in Holly Mount, London, United Kingdom. The property is an 83 square meter house for which the gross purchase price is GBP1.25 million (approximately US$1.91 million), exclusive of closing costs. The acquisition was completed in July 2013.
Due to the fact that the Company acquired a subsidiary in 2012, certain assets such as customer list and goodwill were recognized in the same year. As of December 31, 2013, the carrying value of customer lists was $20,855 and the carrying value of goodwill was $301,498.
The Company has bank and cash equivalents of approximately $5,183,870 as at December 31, 2013. The Company has sufficient funds to satisfy its financial commitments and working capital requirements for the next twelve months. As of December 31, 2013, the Company had $0 of commitments for capital expenditures and off-balance sheet arrangements. The company has lease commitments of $822,160.
In accordance with ASC 810, the Company consolidates variable interest entities (VIE’s) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
ALCO’s main subsidiaries, ALC, CAC and ESA use the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during the period between 2002 and 2013. 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.
The functional currency of SHB and ALM Shanghai is the Chinese Yuan (“CNY”) while ALCO Insurance is the Singapore Dollar (“SGD”). The financial statements of SHB, ALM Shanghai and ALCO Insurance are translated into United States dollars in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification TM (ASC) No. 830, " Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At December 31, 2013, the cumulative translation adjustment of $64,434 was classified as an item of other comprehensive income in the shareholders’ equity section of the consolidated balance sheet. For the year ended December 31, 2013, accumulated other comprehensive income was $169,177.
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 and US$0.79328:SGD1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
SHB is 100% beneficially owned by a Chinese party. An agency agreement is entered into between the Chinese party and ALM Shanghai. Under this agreement, the Chinese party is holding the shares of SHB on behalf of ALM Shanghai. The company does not have any direct ownership interest in SHB.
According to the requirements of ASC 810, we have evaluated our relationships with SHB. We have concluded that SHB is a VIE, and the Company is the primary beneficiary of the VIE. Accordingly, we adopted the provisions of ASC 810 and consolidated SHB into our financial statements commencing in the fiscal year of 2010.
The company’s VIE consolidated net assets were US$845,122 at December 31, 2013.
Several areas require significant management estimates relating to uncertainties for which it is reasonably possible that there will be a material change in the near term. The more significant 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.
Short-term investment includes fixed deposit with maturity of one year with financial institution.
We made allowance for doubtful accounts based on a review of all outstanding amounts on a monthly basis. We analyze the aging of receivable balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends and changes in our customer payment terms. Significant changes in customer concentration or payment terms, deterioration of customer credit-worthiness or weakening in economics trends could have a significant impact on the collectability of receivables
All marketable securities are classified as available-for-sale securities. Available-for-sale securities are carried at fair value with resulting unrealized gains and losses, reported as a component of accumulated other comprehensive loss. Long-term marketable securities have remaining maturities at the balance sheet date of one year or greater.
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 No. 740, “Income Taxes”, these deferred taxes are measured by applying currently enacted tax laws. Deferred tax assets and liabilities are measured using the
Unadjusted quoted prices in active markets for identical assets or liabilities
The Company adopted ASU 2011-08 "Intangibles-Goodwill and Other", which amends the guidance in ASC 350-20 on testing for goodwill impairment. The revised guidance allows entities testing for goodwill impairment to have the option of performing a qualitative assessment before calculating the fair value of the reporting unit. In the qualitative assessment, the Company followed the steps specified in ASC 350-20-35-3C to evaluate the fair values of goodwill and considered all known events and circumstances that might trigger an impairment of goodwill. The assessment indicated no impairment of goodwill. Through the
The Company rented an quarter in Hong Kong from a company owned by directors of the Company, and an quarter in Shanghai from a director of the Company.
The accompanying financial statements are presented in United States (US) dollars. The functional currency of ALC, CAC and ESA 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.
The exchange rates used to translate amounts in SGD 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$0.79328:SGD1
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 year ended December 31, 2013.
In March 2013, the FASB issued ASU 2013-05, “Foreign Currency Matters (Topic 830)-Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity”. These amendments provide guidance on releasing Cumulative Translation Adjustments when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. In addition, these amendments provide guidance on the release of CTA in partial sales of equity method investments and in step acquisitions. For public entities, the amendments are effective on a prospective basis for fiscal years and interim reporting periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company does not expect the adoption to have a significant impact on its consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
On October 1, 2012 (“the acquisition date”), the Company acquired 82% equity interest of Kim Insurance Brokers Pte Ltd (“KIM”) for a cash consideration of $367,820. The results of KIM’s operations have been included in the consolidated financial statements since that date. In accordance with the acquisition method of accounting, the company initially allocated the consideration to the net tangible and identifiable intangible assets, based on their estimated fair values as of the date of acquisition. Goodwill is recognized and measured as the excess of the total consideration transferred plus the fair value of non-controlling interest of KIM at the acquisition date over the fair values of the identifiable net assets acquired. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date.
The fair value of the 18% non-controlling interest in KIM is estimated to be $63,265 at the acquisition date. Intangible asset is in relation to the acquired customer list with a useful life of 3 years. The fair value of goodwill will be under the company’s annual goodwill impairment testing staring in next year. The acquired goodwill is not deductible for income tax purposes.
Unrealized gain of $13,377 and $102,552 for the investments were recognized in the other comprehensive income for 2013 and 2012, respectively. All these gain and loss are related to the investments listed in the Hong Kong Stock Exchange.
On December 27, 2013, ALC entered into a loan agreement with its client, Zhenghe Shipping S.A. (“ZSSA”). Under the loan agreement, ALC will make available to ZSSA an on demand loan facility in the principal amount of up to US$1,100,000. The loan bears interest at the rate of 5.25% per annum and is unsecured. The loan term is two months and is payable in full at any time upon demand.
The Company's effective tax rate for 2013 and 2012 was -364.62% and 26.16%, respectively. The provisions for income taxes for 2013 and 2012 are summarized as follows:
For the Hong Kong Office in Wanchai, the initial term of the lease is three years and five months beginning January 30, 2012 with a minimum lease commitment of $468,923. 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 Shanghai Office, the initial term of the lease is one year beginning January 1, 2013 with a minimum lease commitment of $17,327. For the Office of ALM Shanghai, the initial term of the lease is one year beginning January 1, 2013 with a minimum lease commitment of $26,693. All the lease arrangements mentioned above have no renewal option and rent holiday.
On July 25, 2013, paid up share capital of ALCO Insurance was increased from SGD304,000 (approximately US$243,419) to SGD1,230,000 (approximately US$984,887). The increase of SGD926,000 (approximately US$741,468) was divided into 926,000 ordinary shares and allotted in according to the current shareholding percentage. The Company injected additional SGD759,320 (approximately US$609,424) into ALCO Insurance and received capital injection of SGD166,680 (approximately US$132,044) from the non-controlling shareholder. The ownership percentage remains unchanged after the capital injection.
ALCO’s subsidiary, ALC, is subject to a legal proceeding that has not been resolved and that has arisen in the ordinary course of business. On September 16, 2012, a shipowner named Eastshine Limited filed a civil claim against five parties, including ALC, in the Qingdao Maritime Court (“QMC”) in China, claiming losses suffered of CNY 9.9 million (approximately US$1.6 million) due to the allegedly wrongful arrest of a vessel named Tongli Yantai. Although ALC had no direct relationship with the Plaintiff in the business for the vessel, ALC was the insurance broker of one of the parties named in the legal proceeding, and assisted in resolving the vessel arresting matter. As a result, the Plaintiff has included ALC as one of the defendants in the legal action. In the opinion of management, there is a remote possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies. In addition, because the claims asserted in the legal proceeding are covered by an insurance policy with a policy limit of HK$75 million (approximately US$9.6 million) any one claim and in the