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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 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 JUNE 30, 2000 AND JUNE 30, 1999
SALES. Sales increased by $15,352,176 or approximately 62.8%, to
$39,813,876 for the three months ended June 30, 2000, as compared to $24,461,700
for the three months ended June 30, 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 $19,800,000 and sales from the
operation of liner services were $20,013,876 for the three months ended June
30, 2000 as compared with $ nil and $24,461,700 respectively for the three
month period ended June 30, 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
June 30, 2000 was $13,680,000, representing approximately 69.1% of sales
during such period, as compared to $nil, during the three months ended June
30, 1999. Cost of liner services for the three months ended June 30, 2000 was
$14,073,200 representing approximately 70.3% of sales during such period, as
compared to $17,595,998 representing 71.9% of sales during the three months
ended June 30, 1999. The change in the Company's emphasis on automobile sales
and away from the freight collect liner service was attributable to higher
margins in the acquisition of closed-out models of automobiles and the
decrease of the destination port agent commission as a cost to the Company in
connection with the shipments to purchasers who pre-paid. The main reason for
the decrease in cost of sales as a percentage of revenue for liner services
during the three month period ended June 30, 2000 as compared with the three
month period ended June 30, 1999 was the aforementioned decrease 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 quarter ending June 30, 2000 will be achieved in
subsequent fiscal quarters or for the full fiscal year.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses decreased by $89,529, or approximately 7.7%, to
$1,077,463 during the three months ended June 30, 2000, as compared to
$1,166,992 for the three months ended June 30, 1999, and decreased as a
percentage of sales from 4.8% for the three months ended June 30, 1999, to 2.7%
for the three months ended June 30, 2000. The decrease in selling, general and
administrative expenses is primarily the result of savings on office expenses.
The decrease in such expenses as a percentage of sales during the period is
attributable to the effect of various efficiencies achieved by the Company.
NET INCOME. Income from operations increased by $5,284,503 or 92.7%, to
$10,983,213 for the three months ended June 30, 2000, as compared to $5,698,710
for the three months ended June 30, 1999. Income from operations as a percentage
of sales increased to 27.6% of sales for the three months ended June 30, 2000,
as compared to 23.3% of sales for the three months ended June 30, 1999. The
provision for income taxes of $568,987 for the three months ended June 30, 2000
and $268,284 for the three months ended June 30, 1999, reflect effective tax
rates of 5.0 % and 4.7%, respectively, and did not have a material impact on the
increase in income between the two comparative periods.
SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
SALES. Sales increased by $24,263,748 or approximately 54.9%, to
$68,439,168 for the six months ended June 30, 2000, as compared to $44,175,420
for the six months ended June 30, 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 $40,200,000 and sales from the operation of liner
services were $28,239,168 for the six months ended June 30, 2000 as compared
with $ nil and $44,175,420 respectively for the six
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month period ended June 30, 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.
COST OF SALES. Cost of automobile sales for the six months ended June
30, 2000 was $27,680,000, representing approximately 68.9% of sales during such
period, as compared to $nil, during the six months ended June 30, 1999. Cost of
liner services for the six months ended June 30, 2000 was $18,494,022
representing approximately 65.5% of sales during such period, as compared to
$32,058,666 representing 72.6% of sales during the six months ended June 30,
1999. The change in the Company's emphasis on automobile sales and away from the
freight collect liner service was attributable to higher margins in the
acquisition of closed-out models of automobiles and the decrease of the
destination port agent commission as a cost to the Company in connection with
the shipments to purchasers who pre-paid. The main reason for the decrease in
cost of sales as a percentage of revenue for liner services during the six month
period ended June 30, 2000 as compared with the six month period ended June 30,
1999 was the aforementioned decrease 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 six months 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 $56,105, or approximately 2.8%, to
$2,066,979 during the six months ended June 30, 2000, as compared to $2,010,874
for the six months ended June 30, 1999, and decreased as a percentage of sales
from 4.6% for the six months ended June 30, 1999, to 3.0% for the six months
ended June 30, 2000. The increase in selling, general and administrative
expenses is primarily the result of increased activity. The decrease in such
expenses as a percentage of sales during the period is attributable to the
effect of various efficiencies achieved by the Company.
NET INCOME. Income from operations increased by $10,092,287 or 99.9%,
to $20,198,167 for the six months ended June 30, 2000, as compared to
$10,105,880 for the six months ended June 30, 1999. Income from operations as a
percentage of sales increased to 29.5% of sales for the six months ended June
30, 2000, as compared to 22.9% of sales for the six months ended June 30, 1999.
The provision for income taxes of $1,038,601 for the six months ended June 30,
2000 and $476,189 for the six months ended June 30, 1999, reflect effective tax
rates of 5.1 % and 4.7%, respectively, and did not have a material impact on the
increase in income between the two comparative periods.
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LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of approximately $76.3 million at
December 31, 1999 and $95.8 million at June 30, 2000.
CREDIT AND POLITICAL RISKS
The Company had previously shipped vehicles exclusively on a freight
collect basis. During the first six months of 2000, all vehicle shipments were
billed on a pre-paid 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 six months 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 $25,506,147 as of
June 30, 2000 reflects the amount the Company is owed from shipments in 1999.
OPERATING ACTIVITIES
For the six months ended June 30, 2000, net cash provided by operating
activities was $45,583,105 and net income was $19,457,691. The primary changes
in the Company's operating activities from December 31, 1999 to June 30, 2000
were (A) (i) a decrease in Cash Restricted as to Withdrawal of $38,123,970, or
59.9%, to $25,506,147 as of June 30, 2000, as compared to $63,630,117 as of
December 31, 1999; (ii) an increase in accounts receivable of $27,592,952, or
1,149.3%, to $29,993,816 as of June 30, 2000, as compared to $2,400,864 as of
December 31, 1999; and (iii) an increase in deferred expenses to $709,067 as of
June 30, 2000 versus $261,762 as of December 31, 1999; offset in part by (B) (i)
an increase in accounts payable of $15,141,443, or 1,711.8%, to $16,025,984 as
of June 30, 2000, as compared to $884,541 as of December 31, 1999; and (ii) an
increase in income taxes payable of $866,888, or 28.8%, to $3,879,503 as of June
30, 2000 as compared to $3,012,615 as of December 31, 1999.
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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 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 six months ended June 30, 2000, the Company has not 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.
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