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Exhibit 99(b)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
A.C.L.N. Limited is an international marine logistics and trading
company focusing on the personal automobile and light truck markets. In 1999,
the Company began a strategic initiative to expand geographically and
diversify its mix of business. Prior to 1999, the Company operated a "freight
collect" service from Antwerp, Belgium to five ports located in North and
West Africa and the Middle East. Freight collect is a term used by the
Company to describe the practice whereby the customer pays the shipping and
associated charges upon receipt of the vehicle. Starting in 1999 through
June, 2000, the Company added additional ports of origination in Northern
Europe and the United States and additional ports of destination in North and
West Africa. In 2000, the Company began to utilize a Company-owned vessel,
and expanded its automobile trading activities to include the acquisition of
closed-out model automobiles at a discount for resale against orders from
automobile agents and trading companies in North and West Africa at prices
which reflect a profit margin plus transportation and associated charges.
Prior to the first quarter of 2000, all vehicle shipments by the Company
were done on a freight collect basis. In 2000, the Company began the phasing out
of its freight collect system in favor of pre-paid freight. With pre-paid
freight, the consumer pays the agent for the shipping when purchasing the
automobile. All payments must be made in hard currency. The agent then passes
these funds to the Company less a commission, pre-arranged by the Company. The
Company expects that more than 90% of its vehicle shipments in 2000 will be
billed as pre-paid freight.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 1999
SALES. Sales increased by $8,911,572, or approximately 45.2%, to
$28,625,292 for the three months ended March 31, 2000, as compared to
$19,713,720 for the three months ended March 31, 1999. Such increase was
primarily attributable to the expansion of the Company's activities into the
area of automobile sales in addition to the operation of liner services for
the transport of automobiles. Automobile sales were $20,400,000 and sales
from the operations of liner services were $8,225,292 for the three months
ended March 31, 2000, as compared with $nil and $19,713,720, respectively,
for the three months period ended March 31, 1999. Sales from the operation of
liner services decreased during the period when compared with the
corresponding period in 1999 following the decision of the Company to expand
its activities into the area of automobile sales where profit margins are
higher. However, the implementation of this new policy whereby the Company
acquires automobiles for resale against outstanding purchase orders resulted
in higher revenue in total.
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COST OF SALES. Cost of automobile sales for the three months ended March
31, 2000 was $14,000,000, representing approximately 68.6% of sales during such
period, as compared to $nil during the three months ended March 31, 1999. Cost
of liner services for the three months ended March 31, 2000 was $4,420,822,
representing approximately 53.7% of sales during such period, as compared to
$14,462,668, representing 73.4% of sales during the three months ended March 31,
1999. The change in the Company's emphasis on automobile sales and away from
freight collect liner service was attributable to higher margins in the
acquisition of closed-out models of automobiles and the elimination of the
destination port agent commission as a cost to the Company in connection with
the shipments to purchaser who pre-paid. The main reason for the decrease in
cost of sales for liner services as a percentage of sales during the period
ended March 31, 2000 as compared with the period ended March 31, 1999 was the
aforementioned elimination of the destination port agent commission. However,
given the Company's limited experience with these changes, no assurance can be
given that the high margin achieved during the first quarter of 2000 will be
achieved in subsequent fiscal quarters or for the full fiscal year.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased by $154,634, or approximately 18.5%, to
$989,516 during the three months ended March 31, 2000, as compared to $834,882
for the three months ended March 31, 1999, and decreased as a percentage of
sales from 4.2% for the three months ended March 31, 1999, to 3.5% for the three
months ended March 31, 2000. The increase in selling, general and administrative
expenses is primarily the result of additional office expenses. The decrease in
such expenses as a percentage of sales during the period is attributable to the
effect of various efficiencies by the Company.
NET INCOME. Net income from operations increased by $4,546,075 or 108.3%,
to $8,745,340 for the three months ended March 31, 2000, as compared to
$4,199,265 for the three months ended March 31, 1999. Net income as a percentage
of sales increased to 30.6% of sales for the three months ended March 31, 2000,
as compared to 21.3% of sales for the three months ended March 31, 1999. The
provision for income taxes of $469,614 for the three months ended March 31, 2000
as compared to $207,435 for the three months ended March 31, 1999, reflecting
rates of 5.1% and 4.7%, respectively, did not have a material impact on the
increase in income between the two comparative periods.
LIQUIDITY AND CAPITAL RISKS
The Company had working capital of approximately $76.3 million at December
31, 1999 and $85.1 million at March 31, 2000.
CREDIT AND POLITICAL RISKS
The Company had previously shipped vehicles exclusively on a freight
collect basis. During the first quarter of 2000, all vehicle shipments were
billed on a pre-paid
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basis. The Company still anticipates utilizing freight collect on some
shipments, but expects freight collect shipments to make up less than 10% of all
shipments for the full year. Under the freight collect system, the related
accounts receivable are collected on behalf of the Company by shipping agents in
the port of destination prior to the release of the automobile to the customer.
Accordingly, the related credit risk from individual customers is considered
minimal. The shipping agents deposit the funds on behalf of the Company with the
local central banking system. These amounts are classified as Cash Restricted as
to Withdrawal on the Company's balance sheet. The funds are transferred to the
Company's bank account at the completion of processing by the central banking
system in accordance with local currency exchange regulations. On average, this
process takes a period of three to four months.
In the first quarter of 2000, all freight shipments were paid to the
Company in advance of the shipments. The related shipping fees at the
destination port, which, under the freight collect system, pass through the
Company as revenue and a matching expense, are paid directly by the customer as
needed with pre-paid freight. The Company's revenues, accordingly from pre-paid
freight do not need to pass through the central banking systems of the
destination nations. The Cash Restricted as to Withdrawal of $53,761,630 as of
March 31, 2000 reflects the amount the Company is owed from shipments in 1999.
OPERATING ACTIVITIES
For the three months ended March 31, 2000, net cash provided by operating
activities was $12,765,209 and net income was $8,745,340. The primary changes in
the Company's operating activities from December 31, 1999 to March 31, 2000 were
(A) (i) a decrease in Cash Restricted as to Withdrawal of $9,868,487, or 15.5%,
to $53,761,630 as of March 31, 2000, as compared to $63,630,117 as of December
31, 1999; (ii) an increase in accounts receivable of $21,370,673, or 890.1%, to
$23,771,537 as of March 31, 2000, as compared to $2,400,864 as of December 31,
1999; and (iii) a decrease in deferred expenses to $71,542 as of March 31, 2000
versus $261,762 as of December 31, 1999; offset in part by (B) (i) an increase
in accounts payable of $14,918,956, or 1,686.6%, to $15,803,497 as of March 31,
2000, as compared to $884,541 as of December 31, 1999; and (ii) an increase in
income taxes payable of $410,096, or 13.6%, to $3,422,711 as of March 31, 2000
as compared to $3,012,615 as of December 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which had an initial adoption
date by the Company of January 1, 2000. During the second quarter of 1999, the
FASB postponed the adoption date of SFAS No. 133 until January 1, 2001. The FASB
further amended SFAS No. 133 in June 2000. SFAS No. 133 requires that all
derivative financial
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instruments be recorded on the consolidated balance sheets at their fair value.
Changes in the fair value of derivatives will be recorded each period in
earnings or other comprehensive earnings, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in other
comprehensive earnings will be reclassified as earnings in the periods in which
earnings are affected by the hedged item. The Company does not expect the
adoption of this statement to have a significant impact on the Company's results
of operations, financial position or cash flows.
In 1999, the SEC issued Staff Accounting Bulletin No. 101 dealing with
revenue recognition, which is effective in the fourth quarter of 2000. The
Company does not expect its adoption to have a material effect on its financial
statements.
YEAR 2000 ISSUE
Through the three months ended March 31, 2000, the Company has not yet
experienced any Year 2000 problems, either internally or from outside sources.
The Company has no reason to believe that Year 2000 failures will have a
material effect in the future. However since it may take some additional time
before it is known whether the Company or third party suppliers, vendors or
customers may have undergone Year 2000 related problems, no assurances can be
given that we will not experience losses or disruptions due to Year 2000
computer-related problems. The Company will continue to monitor the operation of
its computer based systems for Year 2000 problems.
