The Hong Kong office was leased from a third party since March 2010. Starting from December 2007, additional flats at the existing building of the Hong Kong Office were leased from third parties for office expansion. As the Company is continuing growth and the existing properties were no longer able to meet the Company’s needs, the Hong Kong Office moved to a new property in March 2012. The new property is located in Wanchai, Hong Kong with 6,350 sq. ft and is leased from a third party. The leases for the old office located in Central were not renewed.
To cope with the difficult shipping market in 2014, there were several tasks in the management’s plan of operations for 2014. The first task was tightening control measures to monitor and reduce operating expenses. Management believes that this task was successfully completed as other general and administrative expense decreased 10% in 2014 when compared to 2013. Although salaries and travel expenses increased 6% and 7% respectively, it was because the level of marketing activities increased in 2014. The second task was enhancing our credit controls to improve the average collection period for outstanding receivables. Management believes that the enhancement was successful although the average collection period increased from 34 days in 2013 to 35 days in 2014. The third task was carrying out an audit review for our Singapore subsidiary. This task was completed and no significant finding was noticed during the audit. The fourth task was organizing marketing activities with our business partners and putting more effort into acquiring new clients. We believe that this task was successfully achieved as our client retention rate increased by 1 point to 78% and 68 new clients were acquired during 2014.
Management believes that the 2015 fiscal year will still be a difficult year even though the shipping market is expected to be improved to some extent. However, 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. 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, or further reduce, the average collection period for outstanding receivables.
Revenue for 2014 was $5,337,978 as compared to $5,783,414 for 2013. The decrease of $445,436 or approximately 8%, was mainly due to decreases of commission income from existing clients, and decreasing in consulting income and website advertising income, which were partially offset with an increase of enrollment fee income.
Consulting income for 2014 decreased to $29,000 from $55,800 in 2013. The decrease of $26,800, or 48%, was because demand for consulting services decreased. In addition, website advertising for 2014 was $667, the decrease was due to the decreases of customers’ demand. On the contrary, enrollment fees for 2014 increased 180% to $27,684 as compared to $9,888 for 2013. The increase was mainly due to increases in customer’s demand and enrollment.
Other income decreased to $93,971 in 2014 from $107,253 in 2013. The decrease of $13,282, or approximately 12%, was mainly due to the increase in interest expenses and other revenues which was partially offset by the interest income, investment income and gain on disposal of fixed assets. Interest income increased by 289% to $19,932 in 2014. The increase was due to interest earned on loans made to a third party. Investment income increased by 7% to $18,982 in 2014 as compared to $17,770 in 2013. The increase was mainly the result of an increase in dividend income received from publicly traded equity securities owned by the Company. Other revenue for 2014 was $51,194 compared to $84,355 for 2013. The decrease of $33,161, or approximately 39%, was mainly due to decreased commissions from business referral and other business services we provided to clients. In addition, there was a government grant received by ALCO Insurance in 2013. Because no such grant was received in 2014, it also caused the decrease of other income in 2014.
Salaries - increased by $211,725, or 6%, from $3,418,958 in 2013 to $3,630,683 in 2014. The increase was mainly due to increases in headcounts for the Hong Kong office and increases in pay rates for all offices during the year of 2014. In addition, pursuant to the Restricted Share Stock Compensation Plans, $7,425 was recognized as stock-based compensation expense in salaries during the year ended December 31, 2014. The amount of stock based compensation decreased $28,780, or approximately 79%, as compared to 2013 because amortization for the plans which was implemented in 2010 and 2011 was completed.
Other general & administrative expenses - decreased $116,801, or 10%, for 2014 as compared to last year. The decrease was due to a decrease in employee related expenses for SHB and to the Company’s expense control efforts.
For 2014, cash provided by operating activities totaled $148,186 compared to $435,045 for 2013. The receipt of funds was primarily due to net loss for the year plus increases in enrollment fee receivable, fiduciary asset, accounts payable, other payable and accrued expenses, which were partially offset by decreases in commission receivable, deposit and prepayment, other receivable, tax receivable, claims payable, and deferred revenue.
For the year of 2014 and 2013, cash used in investing activities amounted to $1,104,120 and $3,224,873, respectively. For 2014, the fund was mainly used for deposit and prepayment paid for the acquisition of assets, loan made to third party, and cash paid for purchase of fixed assets including a real property located in New York, United States. The cash outflow was partially offset by the loan repayment from third party and sale proceeds from disposal of fixed assets. For 2013, the fund was primarily used for the loan made to third party and purchase of fixed assets including a real property located in Holly Mount, London, United Kingdom.
In 2014, cash used in financing activities totaled $149,973, consisting of a dividend payment of $143,077 to minority shareholders of CAC, repayment of $6,720 of obligations under capital lease, and principal payments of $21,589 on related party debt. The cash outflow was offset by the borrowings of $21,413 on related party debt.
As of December 31, 2014, the Company’s balance sheet reflects total current assets of $8,413,569, which decreased by $2,067,765, or 20%, as compared to $10,481,334 as of December 31, 2013. Total current liabilities as of December 31, 2014 were $2,853,912, which increased by $344,426, or 14%, as compared to $2,509,486 as of December 31, 2013. The decrease of total current assets was mainly due to decreases of cash and cash equivalents, short-term investment, commission receivable, loan receivable and tax receivable which were partially offset by increases of enrollment fee receivable and fiduciary asset. The increase of total current liabilities was mainly due to increases of trade accounts payable, other payable, accrued expenses, tax
As of December 31, 2014, commission receivable was $322,589 as compared to $142,739 in 2013, while trade accounts payable and other payable were $2,376,271 and $214,504 respectively, as compared to December 31, 2013 balances of $2,090,472 and $159,451. 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 the commission income decreased, commission receivable as at December 31, 2014 increased by $179,850, or 126%, as compared to the December 31, 2013 balance. In addition, because certain payment advances made on behalf of customers were refunded, other receivable decreased by $111,188, or 47%, as compared to the year end of 2013. Furthermore, because certain fund received on behalf of customers had been received, the other payable increased $55,053, or 35%, as compared to the year end of 2013. In addition, certain claim proceeds received on behalf of customers had been paid, and as a result, the claim payable decreased by $17,457, or 19%, as compared to 2013.
Accrued expenses were $170,200 as at December 31, 2014, which represents an increase of $3,689, or approximately 2%, from $166,511 as at December 31, 2013. The increase was mainly due to the fact that certain operating expenses which were higher than last year were accrued in 2014. The Company provided a deferred tax asset of $13,948 as at December 31, 2013. Such asset is primarily attributable to the taxable loss carrying over and different methods used in the calculation of depreciation of property, plant and equipment for financial reporting purpose and for income tax purpose. As at December 31, 2014, no deferred tax asset was provided.
In accordance with ASC 810, the Company consolidates variable interest entities (VIEs) for which it is the primary beneficiary. The company has evaluated the provisions of ASC 810 and determined that it applies to its interest in China.
ALCO’s main subsidiaries, ALC, CAC and ESA use the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during the period between 2013 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. 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, 2014, the cumulative translation adjustment of $3,894 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, 2014, accumulated other comprehensive income was $53,565.
policy cancellations based upon historical cancellation experience adjusted by known circumstances. The Company keeps a policy cancellation reserve fund to use if policies are cancelled. Subsequent commission adjustments are recognized upon notification from the insurance companies. Fee income is recognized as services are rendered.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
ALCO, Inc. and AL Marine are hereafter referred to as the Company.
The directors, executive officers, their affiliates and related parties own, beneficially and in the aggregate, the majority of the voting power of the outstanding share capital of the Company. Accordingly, directors, executive officers and their affiliates, if
The consolidated financial statements have been prepared in accordance with US GAAP and the instructions to Form 10-K and Regulation S-K. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows at December 31, 2014 and 2013 for all periods presented have been made.
The Company maintains its books and accounting records in Hong Kong dollar ("HK$"), 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. Gains and losses resulting from foreign currency transactions are included in operations.
Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with ASC840. When substantially all of the risks and benefits of property ownership have been transferred to the Company, as determined by the 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 2014 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.
The functional currency of ALCO Insurance is the Singapore Dollar (“SGD”). The financial statements of ALCO Insurance are translated into United States dollars in accordance with ASC 830, "Foreign Currency Matters”, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the
Amounts included in the statements of operations, statements of changes in shareholders’ equity and statements of cash flows for the year: US$0.78377: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, 2014.
Construction-Type and Production-Type Contracts. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchanged for those goods or services. The standard is effective for annual reporting periods beginning after December 15, 2016, including interim 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 August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. The amendment in the ASU provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial position and results of operations.
The Company established a bank guarantee of HK$45,000 (approximately $5,770) credit line with the China Construction Bank (Asia). The interest rate and charges are subject to change from time to time. The bank guarantee credit line is pledged of $6,418 fixed deposit included in Cash in bank - Fixed deposit as shown above. On December 31, 2014, a bank guarantee of $5,540.81 was provided and the detail is described in “Note 17 - Commitments and Contingencies” as below.
The Company’s investments measured at fair value on a recurring basis at December 31, 2014 and 2013 are as follows:
On December 27, 2013, ALC entered into a loan agreement with its client, Zhenghe Shipping S.A. (“ZSSA”). Under the loan agreement, ALC would make available to ZSSA an on demand loan facility in the principal amount of $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. On February 26, 2014, the loan was fully repaid.
On March 4, 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 $500,000. The loan bears interest at the rate of 5.25% per annum and is unsecured. The loan term is 25 days and is payable in full at any time upon demand. On March 25, 2014, the loan was fully repaid.
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 entered into a lease agreement with Hitachi Credit (HK) Ltd in relation to the acquisition of a motor vehicle. The term of the lease is 48 months with $728 as its monthly payment. The Company’s director, John Liu, provided a guarantee for the lease. The leased property was capitalized as motor vehicle in the amount of the total principal, $32,036, and the related depreciation expense is $4,271 during 2014. The principal due within one year represents the current portion of capital lease obligation and is classified as current liability.
The Company rents quarters for directors in Hong Kong and Shanghai from companies owned by directors of the Company. The relevant rent expenses consist of following:
The Company has seven material operating lease commitments for its facilities. The initial term of the lease arrangement for Director Quarter is two years beginning July 19, 2014 with a minimum lease commitment of $196,154.
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 $156,308. 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 June 1, 2014 with a minimum lease commitment of $7,131.
For the Singapore Office of ALCO Insurance, the initial term of the lease is three years beginning February 1, 2013 with a minimum lease commitment of $108,912. This lease arrangement has a 46 days rent free period from December 17, 2012 to January 31, 2013. When the lease is ended in February 2016, the Company can renew the lease for three years (from February 1, 2016 to February 2019) at the prevailing market rent.
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 $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 $9.6 million) any one claim and in the aggregate, ALC’s liability to the claim above is limited to HK$150,000 (approximately $19,230) and this amount is fully reserved in the book of 2012. However, the outcome of this legal proceeding brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such as outcome to be remote, if the legal proceeding was resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected.
On March 13, 2015, the Company’s subsidiary, Chang An Consultants Ltd., declared dividends of HK$2,550,000, or approximately $326,923. 40% of the dividends or $130,769 was paid to the noncontrolling shareholders in March 2015.