Since the worldwide financial turmoil began in 2008, the volume of international trade dramatically declined, leading to declining volumes in the shipping industry. Although economic recovery began in late 2009, excess tonnage supply in the shipping market during the period of financial turmoil, led to a large volume of layup and some poorly funded owners and operators are still facing financial problems. In order to deal with this financial and shipping turmoil, our plan for 2010 is mainly the continuation of the plan for 2009. The plan consists of improvement of our cost competitiveness, and enhancement of credit control and marketing function.
Net Income before tax: Net income before tax for the year ended December 31, 2009 was $1,814,762 compared to $2,006,912 for the whole year of 2008. The decrease of $192,150, or approximately 10%, was mainly due to an increase of operating expenses and a decrease of other income which was partially offset by an increase in revenue during the year. The reasons for increases in revenue from operations are discussed above, while the increases of operating expense are discussed in the section below. For the other income, the decrease was mainly due to a decrease of interest income. Because of low interest rates in the market, interest income dramatically decreased by $57,930 or 92% from $63,307 in 2008 to $5,377 in 2009.
Depreciation - increased by $3,241 or 10% from $31,456 in 2008 to $34,697 in 2009. The increase was primarily due to the addition of fixed assets during the second half of 2008 and the whole year of 2009.
For the year ended December 31, 2009, the Group’s balance sheet reflects total current assets of $7,248,171, which increased by $1,322,468 (or 22%) as compared to $5,925,703 for the year ended December 31, 2008. Total current liabilities for the year ended December 31, 2009 were $915,069, which decreased by $937,624 (or 51%) as compared to $1,852,693 for the year ended December 31, 2008. The increase of total current assets was mainly due to increases of cash and cash equivalents, commission receivable and enrollment fees receivable. The decrease of total current liabilities was mainly due to decreases of trade accounts payable, claim payable, other payable, amount due to directors, and amount due to minority shareholders partially offset by an increase of accrued expenses and current portion of obligation from hire purchase lease.
As of December 31, 2009, commission receivable was $658,795 as compared to $360,757 for the same period in 2008, while trade accounts payable and other payable were $625,385 and $144,092 respectively, as compared to December 31, 2008 balances of $1,425,946 and $208,293. Each of these changes was due to the timing of commissions received from customers and the timing of making payments to insurers and customers in relation to the year end. In addition, because the rate of insurance premium paid by customers to insurers was raised, cash and cash equivalents, commission receivable and other receivable increased during the year ended December 31, 2009. Furthermore, because certain claims received from insurers on behalf of customers were repaid, the claim payable significantly decreased as compared to the year end of 2008. As of December 31, 2009, there was $1,917 deferred revenue included in the liabilities. This item is in relation to the income received in advance for the website advertising.
ALCO uses the Hong Kong dollar as its currency. The exchange rate for HK$ to US dollars has varied by very little during the period between 2002 and 2009. 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.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 17
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ALCO, Inc. as of December 31, 2009 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
15 MAIDEN LANE - SUITE 1003 - NEW YORK, NY 10038 - TEL (212) 406-7272 - FAX (212) 513-1930
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
As a result of the Agreement, the transaction was treated for accounting purposes as a capital transaction and reverse merger by the accounting acquirer (AL Marine) and as a reorganization of the accounting acquiree (Lotus). Accordingly, the financial statements include the following:
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, 2009 and 2008 for all periods presented have been made.
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 collectibility of receivables and the allowance. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances will be made.
Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The annual percentages applied are:
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 balance sheet.
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 2009 and 2008. 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.
Basic earnings (loss) per share is computed by dividing income (loss) 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. Since the Company’s common stock currently does not trade, the dilutive effect of any warrants or convertible notes outstanding cannot be determined.
In June 2009, the FASB issued guidance amending current principles related to the transfers of financial assets and VIEs. This guidance eliminates the concept of a qualifying special-purpose entity ("QSPE"), creates more stringent conditions for reporting the transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor's interest in transferred financial assets. Former QSPEs will be evaluated for consolidation based on the updated VIE guidance. There are also changes to the approach a company must take in determining a VIE's primary beneficiary and requires companies to more frequently reassess whether they must consolidate VIEs. Additional year-end and interim period disclosures will also be required. These changes will be effective for us beginning in the first quarter of 2010. The Company believes that the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
In May 2009, the FASB issued a new accounting standard regarding subsequent events. This standard incorporates into authoritative accounting literature certain guidance that already existed within generally accepted auditing standards, with the requirements concerning recognition and disclosure of subsequent events remaining essentially unchanged. This guidance addresses events which occur after the balance sheet date but before the issuance of financial statements. Under the new standard, as under previous practice, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that did not exist at the balance sheet date. This standard added an additional required disclosure relative to the date through which subsequent events have been evaluated and whether that is the date on which the financial statements were issued. For the Company, this standard was effective beginning April 1, 2009.
Although the cash balances are not insured, however, starting in September 2006, cash balances (except accounts with overdraft facilities) are protected by the Deposit Protection Scheme which is maintaining by the Hong Kong Deposit Protection Board, an independent statutory body established under the Deposit Protection Scheme Ordinance (Cap. 581).
Fiduciary asset is 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.
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 asset. Also, when the Company receives a claim on behalf of a policyholder, it debits fiduciary asset and credits claims payable and other payables, if necessary. The fiduciary asset balance for December 31, 2009 and 2008 are as follows:
Depreciation expense for the years ended December 31, 2009 and 2008 was $34,697 and $31,456 respectively.
Note 7 - FAIR VALUE OF AVAILABLE FOR SALE MARKETABLE SECURITIES INVESTMENTS AND INVESTMENT INCOME
Unrealized gain of $126,156 and loss of $5,943 for the investments were recognized in the other comprehensive income for the year ended December 31, 2009 and 2008 respectively. All these gain and loss are related to the investments listed in the Hong Kong Stock Exchange.
On April 27, 2006, the Company entered into a lease agreement with Hitachi Credit (HK) Ltd. The lease agreement will expire in March, 2011. The related contractual obligations are summarized as follows:
The Company's effective tax rate for the year ended December 31, 2009 and 2008 was 17.36 and 16.00%, respectively. The provisions for income taxes for the year ended December 31, 2009 and 2008 are summarized as follows:
A reconciliation between the income tax computed at the U.S. statutory rate and the Company’s provision for income tax is as follows:
position taken or expected to be taken in a tax return. The provisions of Accounting for Uncertainty in Income Taxes also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company's business operations exist solely in the PRC and are subject to significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency limitations.