U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NUMBER 0-17756
CONSULIER ENGINEERING, INC.
(Name of small business issuer in its charter)
Florida 59-2556878
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(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
2391 Old Dixie Highway
Riviera Beach, FL 33404-5456
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(Address of principal executive offices) (Zip Code)
(561) 842-2492
---------------------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK AND REDEEMABLE WARRANTS
------------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Issuer's revenues for the fiscal year ended December 31, 2002 totaled
$2,704,182.
As of March 28, 2003, there were 4,934,393 outstanding shares of common stock,
par value $0.01 per share. The aggregate market value of the voting stock of the
registrant held by non-affiliates of the registrant on March 28, 2003 based on
the average bid and asked price on such date was $1,304,839.
No documents are incorporated by reference.
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CONSULIER ENGINEERING, INC.
2002 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
----
PART I
Item 1. Description of Business........................................ 3
Item 2. Description of Property........................................ 6
Item 3. Legal Proceedings.............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............ 7
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....... 8
Item 6. Management's Discussion and Analysis or Plan of Operation...... 9
Item 7. Financial Statements........................................... 13
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 13
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act............................................ 14
Item 10. Executive Compensation......................................... 15
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................ 17
Item 12. Certain Relationships and Related Transactions................. 18
Item 13. Exhibits and Reports on Form 8-K .............................. 18
Item 14. Controls and Procedures ....................................... 18
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
In June 1985, Consulier Engineering, Inc. ("Consulier" or the "Company") was
incorporated in Florida. Its principal businesses are the distribution of
automobile parts in the automotive after-market, the development of household
and tool products, and corporate and investment activities. Consulier conducts
its automobile parts distribution business through a wholly owned subsidiary,
Southeast Automotive Acquisition Corporation (Southeast), which is based in
Miami, Florida. Consulier's corporate office is located in Riviera Beach,
Florida.
DESCRIPTION OF BUSINESS SEGMENTS
(1) AUTOMOTIVE PARTS DISTRIBUTION
BACKGROUND AND RECENT DEVELOPMENTS
Southeast is located in Miami, Florida. It is engaged in research, development
and distribution to the automotive wholesale market. It sells OEM Quality
Aftermarket Products, distributing automotive flywheels, flex plates,
transmission and engine mounts, torque struts, nylon gears, plastic components,
grommets, cables and repair kits.
Based upon the Board of Director's determination that it was in the best
long-term interest of the Company's shareholders to reduce its interest in
Southeast, Consulier sold 70% of its shares of common stock of Southeast to
Bernardo and Aimee Davila, CEO and CFO of Southeast, for a purchase price of all
their stock in Consulier consisting of 45,000 shares, valued at approximately
$110,000. In addition, Southeast agreed to repay Consulier its debt, totaling
approximately $1,600,000 at December 31, 2002, which shall be calculated as
inventory at cost, plus accounts receivable, minus accounts payable, plus cash
on hand, plus any debt to Consulier incurred after the effective date of the
sale. The debt will be paid by an interest -bearing promissory note payable by
Southeast to Consulier in monthly installments of approximately $9,600 of
principal and interest at a rate of 6% beginning February 20, 2003 through
January 20, 2033. The debt is guaranteed by Bernardo and Aimee Davila, up to
approximately $228,000, the amount of cash in Southeast at December 31, 2002,
and is secured by the assets of Southeast. The effective date of the sale was
on December 31, 2002 and the closing was held on February 5, 2003.
PRODUCTS
The Southeast line of products features Premium Quality Mounts, torqued to P/F
Specification fasteners, and the use of natural or synthetic quality rubber
compounds and bonding agents. Southeast's primary products are transmission,
engine, torque strut and hydraulic mounts. Southeast sells approximately 200
different after-market mounts for domestic and imported vehicles. Development
efforts are directed towards developing mount or strut products, which replace
two or more original equipment products.
The Southeast logo on Southeast's mounts is recognized as a quality standard in
the automotive transmission industry. It provides a replacement warranty on any
item of its product line assessed as defective. Also, Southeastools come with a
limited lifetime warranty for materials and craftsmanship.
Consulier is presently working with a new U.S. based manufacturer of soap and
other cleaning products on a new and improved formula for its Captain CRA-Z Soap
to replace its inventory of soap which was
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damaged by Hurricane Irene in 1999. The Company expects its first delivery of
soap based on this formula to be ready for sale in the second quarter of 2003.
Consulier has now received Federal trademark registrations for Captain CRA-Z and
Captain CRA-Z Hand and All Purpose Soap. The Company has made design changes to
the packaging to better serve the industrial as well as retail markets. These
changes will be implemented and launched along with the new formula.
Consulier is developing a new distribution/sales network for the sale of the new
formula soap. The specifics of the new marketing plan are yet to be finalized.
In connection with the Company's sale of 70% of its interest in Southeast, the
Captain CRA-Z Soap product line has been transferred from Southeast to the
Company.
SALES AND MARKETING
In the sale of automotive parts products, Southeast competes with a number of
other automotive aftermarket suppliers, many of which are considerably larger
than Southeast in terms of sales, financial resources, product development
facilities and channels of distribution. Automotive parts sales is an extremely
competitive market and prices and warranty provisions are comparable throughout
the industry. Southeast markets its products through both in-house sales
personnel and commissioned sales people, and using print catalogs sent to
distributors and trade shows.
RESEARCH AND DEVELOPMENT EXPENDITURES
Primarily, the suppliers are funding product development costs for Southeast's
transmission mounts. Other research and development expenditures, including
design of specialty tools, are not significant.
EMPLOYEES
Southeast has 12 employees in various categories, including shipping and
receiving, sales, marketing, management, and administration.
(2) INVESTMENTS SEGMENT
INVESTMENT IN AVM, L.P.
Consulier owns a 10% equity interest in AVM, L.P. (AVM), a broker/dealer in U.S.
Government securities formed in October 1983 as an Illinois limited partnership
and located in West Palm Beach, Florida. AVM is registered with the Commodity
Futures Trading Commission as an Introducing Broker (IB) and conducts its IB
business with other broker/dealers on a fully disclosed basis. AVM is also
registered as a broker/dealer with the Securities and Exchange Commission, and
is a member of the National Association of Securities Dealers, Inc. The firm is
generally engaged in the brokerage of U.S. Government securities, other fixed
income instruments, and arbitrage transactions and presently employs 59 people
in addition to the four members of its general partner. Warren B. Mosler
("Mosler"), Consulier's Chairman and majority shareholder is one of the founders
of AVM and is a member of the general partner of AVM.
As of both December 31, 2002 and 2001, Consulier's limited partnership interest
represented approximately 10% of AVM's total partnership capital. Allocation of
the partnership's income to its partners varies based on amounts of appreciation
of the partnership's assets and operating profits of the partnership. Based on
earnings distributions provided in the partnership agreement, Consulier was
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allocated approximately 8% of AVM's earnings in both 2002 and 2001.
Under the partnership agreement, Consulier may withdraw all or any portion of
its capital upon 30 days written notice. AVM's general partner may also expel
Consulier from the partnership, on 30 days written notice, through return of the
balance of Consulier's capital.
BIOSAFE SYSTEMS, LLC
Consulier owns a 40% equity interest in BioSafe Systems, LLC, a Connecticut
limited liability corporation (BioSafe). Although Consulier is entitled to
representation on BioSafe's Board of Managers, as of March 28, 2003 no such
representation exists. BioSafe develops and markets environmentally safe
products, alternatives to traditionally toxic pesticides. BioSafe has developed
a well-established national distribution network, serving the greenhouse and
nursery marketplace. In addition, BioSafe has established distribution in
Central and South America. BioSafe has introduced products to both the
horticultural industry as well as to general agriculture. BioSafe has
concentrated its efforts at expanding its distribution network to cover a
broad-spectrum distribution into the agricultural markets and utilizes the
already established distributors who now carry their products.
BioSafe had revenues of approximately $4,672,000 and $3,300,000 for fiscal 2002
and fiscal 2001. Steady and consistent progress has been made with respect to
establishing an algaecide/fungicide product into the commercial
greenhouse/nursery market. Slower progress has been experienced with respect to
introducing such products to the golf course industry.
SYSTEMS TECHNOLOGIES, LLC
During 2002, the Company purchased a 14.25% interest for $1,425,000 in Systems
Technologies, LLC, a Nevada limited liability company (ST, LLC). ST, LLC's
primary asset is its approximate 60% (as of December 31, 2002) interest in
Patient Care Technology Systems, LLC, a California limited liability company
(PCTS), which holds the exclusive license to the AmeliorED(TM) Patient Care
Systems. The AmeliorED(TM) Patient Care Systems provides total hospital
emergency department automation support in an integrated computerized emergency
room reporting system. PCTS was formed during 2001 and began piloting its
product to three healthcare facilities, resulting in total revenues for 2002 of
approximately $259,000. The Company's principal stockholder also holds an
approximate 71% interest in ST, LLC.
(3) CORPORATE SEGMENT
GENERAL
Consulier's Corporate Segment includes management and finance activities as well
as consulting, engineering, new product development and business management.
Wholly owned subsidiaries include Southeast, C-6 and a small leasing company
named Consulier Business Services, Inc.
(3)(a) CONSULIER BUSINESS SERVICES, INC.
Consulier Business Services, Inc. is a wholly owned subsidiary involved in the
leasing of various machinery and equipment used in the engine repair and
overhaul business. Assets and revenues are not material, and corporate staff
operates the business.
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(4) HOUSEHOLD AND TOOL PRODUCTS
In April 1997 C-6 Products, Inc. purchased six patents for tool and ladder
related products. The patents are for work platform and tool holding attachments
to ladders. Initial development was launched in April 1997 of a product that
attaches to a standard stepladder, converting it into a handy work platform for
standard household chores, which is the present day Tool Topper(TM) Workstation
and related accessories. The design and development was completed in 1998.
The sales and marketing of the Tool Topper has been taken over by the in-house
sales personnel at Consulier. On June 30, 2000, Tool Topper inventory and
tooling were written down based on the unit's failure to meet expected sales and
income goals. No material sales of Tool Topper Workstations occurred during
2002.
(5) OTHER INVESTMENTS
Since April 2002, Consulier has held an option to purchase a 95% interest in
Asset Assistance Group, LLC, (AAG) a licensed pawn shop, located in Stuart,
Florida, which specializes in unique and high line goods such as airplanes,
boats, and gems. The option, to which no value has been assigned, was granted as
consideration for Consulier issuing a line of credit for up to $900,000 for the
benefit of AAG. The line of credit expires April 16, 2003. No amounts are
outstanding under the line of credit, and management does not intend to extend
the expiration date.
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ITEM 2. DESCRIPTION OF PROPERTY
In May 2000, Consulier moved its headquarters to Riviera Beach, Florida
occupying approximately 500 square feet of office space in a building owned by
Mosler. The office space is adequate and suitable for current operations, with
additional space available for expansion, if needed.
The Company owns a 47,000 square foot industrial warehouse in Medley, Florida,
which is leased to Southeast for a 5-year term beginning July 1, 2002 at an
initial base rent of $10,000 per month. The warehouse space is adequate and
suitable for Southeast's operations.
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, is involved in routine litigation arising in the
ordinary course of business. While the outcome of litigation can never be
predicted with certainty, the Company does not believe that any existing
litigation, individually or in aggregate, will have a material adverse effect
upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The election of five directors and the approval of independent auditors were
submitted to a vote of shareholders at the Company's Annual Meeting held
February 5, 2003. Warren B. Mosler, Alan R. Simon, Charles E. Spaeth, Burck E.
Grosse and Skender Fani were elected upon receipt of the following votes: for
4,933,530, against 100, and 0 shares abstaining. BDO Seidman, LLP was approved
as independent auditors by a vote for of 4,933,530, against 100, and 0 shares
abstaining.
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PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
RECENT SALE OF UNREGISTERED SECURITIES
The award of bonus stock is not subject to the registration requirements of the
Securities Act of 1933 since it did not involve a "sale" of securities for
purposes of Section 2 (a) (3) of the Securities Act.
MARKET PRICE AND DIVIDENDS
The following table sets forth, for the periods indicated, the high and low bid
prices for Consulier's common stock, as reported by NASDAQ.
YEAR ENDED DECEMBER 31, 2002:
High Low
---- ---
First quarter $ 2.25 $ 2.05
Second quarter 2.25 2.00
Third quarter 3.25 1.86
Fourth quarter 3.25 2.02
YEAR ENDED DECEMBER 31, 2001:
High Low
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First quarter $ 2.25 $1.625
Second quarter 2.19 2.00
Third quarter 2.20 2.00
Fourth quarter 2.24 2.09
As of March 18, 2003 there were approximately 331 record holders of Consulier's
common stock. To date, Consulier has not paid any dividends on its common stock.
Because of the financial requirements of the Company, the Board of Directors has
no current intention to commence paying dividends. Future dividend policy will
depend upon Consulier's profitability, capital requirements and other factors.
NASDAQ LISTING
Consulier's common stock (Symbol: CSLR) is listed on the NASDAQ SmallCap Market
and has been traded thereon since Consulier's initial public offering in May
1989.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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CRITICAL ACCOUNTING POLICIES
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the financial
statements:
PARTNERSHIP INVESTMENTS AND LIMITED LIABILITY COMPANIES
The Company's Partnership and Limited Liability Company investments, all of
which are less than 50% interests, are accounted for using the equity method.
Income or loss is allocated by the investee to Consulier based on the
partnership and LLC agreements. Certain of these investments are less than 20%
interests, however, due to the Company's significant shareholder also owning
interests in these entities, and through the terms of the related LLC
agreements, the Company has significant influence over the entities. Therefore,
the Company uses the equity method of accounting for these investments. On a
monthly basis, management evaluates for potential impairment the ongoing value
of these investments through review of financial information, comparison of
budgeted to actual results and in the case of the partnership investment,
monthly distributions. However, actual results of operations of the underlying
entities could differ from management's evaluation, which could require
adjustment to the carrying value of such investments.
REVENUE RECOGNITION
Revenue is recorded upon shipment of goods to customers, which is FOB shipping
point. Revenue is primarily derived from automotive part sales, which include
flywheels, flex plates and engine and transmission mounts. Returns and
allowances are evaluated on a case-by-case basis, at time of sale.
Shipping and handling costs billed to customers are included in sales when goods
are shipped to customers. Shipping and handling costs incurred by the Company
are classified as selling expense.
INVENTORY RESERVES
The reserve for inventory obsolescence is evaluated by management based on
inventory quantities, historical sales reports and sales projections. As the
inventory reserve is an estimate subject to management's judgment, actual
obsolescence could differ from those estimates.
RESULTS OF OPERATIONS
CONSOLIDATED OPERATING RESULTS - During the twelve months ended December 31,
2002, sales decreased $479,072, to $2,704,182, over the prior twelve months.
Cost of goods sold decreased $406,206, to $1,511,745, from the comparable
amounts recorded during the twelve months ended December 31, 2001. Gross profit
for the twelve months ended December 31, 2002 decreased $72,866 over the twelve
months ended December 31, 2001. Selling, general and administrative costs were
reduced by $234,262 from $1,861,602 to $1,627,340. The reductions in selling,
general and administrative costs were primarily as a result of reducing the
number of employees at Southeast Automotive from 20 to 12 employees during 2002.
When these factors are combined they resulted in a $161,396 decrease in
operating loss, from $596,299 in 2001 to $434,903 in 2002.
Interest expense declined $58,676 due to the reduction in notes payable banks
and the partial redemption of bonds payable during 2001.
Other income, consisting primarily of investment income, interest
income/expense, and insurance
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recovery decreased $768,870, from $3,101,228 in 2001 to $2,332,358 in 2002,
primarily attributable to an insurance recovery of $1.75 million in 2001. Income
before income taxes decreased $607,474 from income of $2,504,929 in 2001 to
income of $1,897,455 in 2002.
The effective tax rate increased to approximately 40% in 2002 from 37% in 2001
primarily due to the Company's utilization of its remaining net operating loss
carry forward of approximately $565,000 in 2001.
Consulier's consolidated income for the year ended December 31, 2002 was
$1,139,370 and $.23 basic and diluted earnings per share compared to income of
$1,589,629, or $0.32 basic and diluted earnings per share for 2001.
AUTOMOTIVE PARTS DISTRIBUTION - Net sales of Consulier's Southeast automotive
parts distribution segment represented 98% and 96% of Consulier's net sales in
2002 and 2001 respectively. This segment's sales decreased 14% or $417,790 in
2002 to $2,642,624 compared to $3,060,414 in 2001, principally due to a decrease
of approximately 16% in mount sales and a slight decrease in nylon gear sales.
Due to current economic conditions and foreign competition, management does not
expect Southeast's sales to reach 2001 levels again during 2003. This sales
decrease, attributed to lower priced competitor products in the U.S. market, was
a factor in the determination of selling Southeast.
The automotive parts distribution segment had income (loss) before income taxes
of ($49,358) in 2002 compared to $1,581,067 in 2001. This segment recovered
$1,750,000 in 2001 as a result of the casualty loss in the amount of $1,092,586
caused by Hurricane Irene, which made landfall in Miami (location of Southeast)
on October 15, 1999. The Company suffered extreme hurricane damage resulting in
destruction of a large portion of its inventory, damage to its equipment and
physical plant, and suffered other damage. The majority of the damage was to the
CRA-Z Soap inventory, as a direct result of the intense rain that caused
substantial flooding.
HOUSEHOLD AND TOOL PRODUCTS - During 2002 and 2001, no material sales of C-6
Products, Inc. products (Tool Topper Laddertop Workstation) occurred.
INVESTMENT IN AVM - Investment income from Consulier's AVM limited partnership
interest was $1,871,933, a 58% increase from 2001 income of $1,186,343. This
represents annualized returns of 96% and 57%, respectively, on Consulier's
average investment during each year. This increase is due to AVM's increase in
net income of approximately $7,299,000 from approximately $14,899,000 in 2001 to
approximately $22,198,000 in 2002. AVM's increase in net income is due to its
continued success as an introducing broker.
INVESTMENT IN BIOSAFE - Equity in income of BioSafe was $321,207 in 2002, a 706%
increase over 2001 income of $39,861. This represents the Company's 40% interest
in BioSafe's net income of approximately $815,000 in 2002, compared to $100,000
in 2001. The increase in net income is attributed to an increase in sales of
approximately $1,368,000 and an improvement in the gross margin percentage from
approximately 60% in 2001 to approximately 66% in 2002. Biosafe has shipped more
items as a result of their increased market. This increase has helped cover
their fixed cost, thus improving margins.
INVESTMENT IN ST, LLC - Equity in the loss of ST, LLC was $66,330 in 2002. This
represents the Company's interest in ST, LLC's net loss of approximately
$690,000 for the period from September 2002 through December 31, 2002, during
which the Company made its initial investment in ST, LLC. ST, LLC is in the
emerging stage with its product being piloted in three healthcare facilities.
The Company's management has based their evaluation of the investment in ST, LLC
on monthly financial information, ST, LLC's business plan and forecasts.
Although ST, LLC is expected to begin generating profits during
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2004, management expects ST, LLC to continue to incur significant operating
losses during 2003 due to expenditures for selling and customer support
activities. ST, LLC's business plan requires additional capital contributions,
which are expected to be from the Company's principal shareholder. The Company
has the right to require, with 60 days written notice, the Company's principal
shareholder to purchase for cash the Company's capital account balance of its
investment in ST, LLC.
OUTLOOK FOR 2003
Based on AVM's recent operations and operating results over the past five years,
management expects continued annualized returns in 2003 on Consulier's limited
partnership investment. However, there is no guarantee that the returns of 96%
and 57% in 2002 and 2001, respectively, will be maintained.
Although the Company reduced its ownership interest in Southeast to 30%,
Southeast's operations will continue to be consolidated with the Company's
operations, due to the significance of the long-term note payable by Southeast
to Consulier, which is secured by substantially all of Southeast's assets, and
the limited purchaser guarantee. There are no guarantees concerning the success
of Southeast's future operations, which would allow it to service its debt to
the Company.
In addition to the above, Consulier maintains a sales and marketing department
which is working to develop new retail and distribution outlets nationally and
internationally for Captain CRA-Z Soap.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2002, Consulier's cash totaled $262,303 as compared to $150,032
at December 31, 2001, an increase of $112,271. Net cash used in operations was
$1,460,200 in 2002, compared to net cash provided of $1,327,907 in 2001. The
decrease in cash provided by operations is due primarily to, a change from a net
income of $1,589,629 in 2001 to net income of $1,139,370 in 2002, of which
$1,750,000 is the result of an insurance recovery in 2001, the payment of
approximately $1,488,000 of income taxes in 2002 for 2001 and 2002 income taxes,
and an increase in investment income of AVM of approximately $686,000 from 2002
over 2001. Although total trade accounts receivable decreased from approximately
$520,000 at December 31, 2002 to $395,000 at December 31, 2001, the percentage
of accounts in the 120 days or over category increased from 1% to 14% of
accounts receivable, resulting in an net increase in the provision for bad debts
of approximately $72,000 from 2001 to 2002.
Net cash provided by investing activities was $1,508,466 in 2002, compared to
net cash used in investing activities of $48,828 in 2001. The increase in cash
provided by investing activities is primarily the result of an increase of
approximately $903,000 in distributions from AVM, a reduction of due from
principal shareholder of approximately $735,000, offset by the $1,425,000
purchase of the interest in ST, LLC in 2002, compared to an increase in due from
principal shareholder of $1,263,726 in 2001.
Net cash provided by financing activities was $64,005 from the sale of treasury
stock in 2002 compared to cash used of $1,547,681 in 2001, for partial
repayments of bonds payable of $500,000 and approximately $1,048,000 of bank
loan repayments. Bank indebtedness was retired during 2001 with the insurance
proceeds received.
On August 14, 2002 the Company entered into a revolving credit agreement
("borrowing") with a financial institution in an amount not to exceed
$2,000,000. The borrowings under this agreement bear interest at either a LIBOR
based rate plus a margin of 2.10% or at the financial institution's Prime rate
less 0.075%, depending upon the rate chosen by the Company. The borrowings are
secured by primarily all assets of the Company and by collateral pledged by the
principal shareholder, including a partnership,
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WBM Investors Limited Partnership, a limited partner of AVM, L.P. of which the
Company has a approximately a 10% investment at December 31, 2002. The revolving
credit agreement matures on August 1, 2003. The borrowing was entered for
standby liquidity and the Company has no outstanding balance under the borrowing
at December 31, 2002.
The ability of Consulier to continue to generate cash flow in excess of its
operating requirements depends in the short term almost entirely on the
performance of its limited partnership investment in AVM. Consulier cannot, with
any degree of assurance, predict whether there will be a continuation of the net
return experienced in the period the AVM limited partnership interest has been
owned. However, Consulier does not expect that the rate of return will decline
to the point where Consulier has negative cash flow. Furthermore, although AVM
has given Consulier no indication of any intention on its part to redeem the
partnership interest, there can be no assurance that AVM will not do so in the
future.
During 2001 through July 2002, a significant portion of the Company's excess
cash funds was advanced to Mr. Warren Mosler under demand receivables. During
2002, approximately $735,000 of advances were repaid. The advances are expected
to be repaid during the next two years.
Below is a chart setting forth the Company's contractual cash payment
obligations, which have been aggregated to facilitate a basic understanding of
the Company's liquidity as of December 31, 2002.
PAYMENTS DUE BY PERIOD
CONTRACTUAL LESS THAN 1 - 3 4 - 5 AFTER 5
OBLIGATIONS TOTAL 1 YEAR YEARS YEARS YEARS
Bonds Payable $323,920 $ - $323,920 $ - $ -
Purchase Commitment $100,000 $100,000 - - -
-------- -------- -------- ----- -----
TOTAL CONTRACTUAL
CASH OBLIGATIONS $423,920 $100,000 $323,920 $ - $ -
======== ======== ======== ===== =====
On April 16, 2002, the Company entered into agreement granting a line of credit
of up to $900,000 to Asset Assistance Group, LLC. The line of credit expires on
April 16, 2003 and has $0 outstanding at December 31, 2002. Sources for funding
the line of credit will be investment income from AVM and repayments of
outstanding amounts/advances by the principal shareholder. The Company does not
intend to extend the expiration date of the line of credit.
The Company does not trade derivative instruments. The Company is invested in
AVM, which enters various transactions involving derivatives and other
off-balance sheet financial instruments. These derivatives and off-balance sheet
instruments are subject to varying degrees of market and credit risk.
IMPACT OF INFLATION AND CHANGING PRICES
Management does not consider the impact of inflation on Consulier's operations
to be material. The operating segments of its businesses had inventories of
approximately $1.3 million as of December 31, 2002. Considering the dollar value
of inventory and the gross profit margins generated by sales, moderate rates of
inflation should have little, if any, effect on the business. Product
development expenditures will
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be significantly reduced, but such expenditures should not be significantly
affected by inflation. Interest rates on bond indebtedness are fixed and,
therefore, are not impacted by inflationary rate increases, while rates on notes
payable and notes receivable are floating and should move with inflation.
FORWARD LOOKING STATEMENTS
Statements made in this Management's Discussion and Analysis and elsewhere in
this Annual Report that state Consulier's or management's intentions, hopes,
beliefs, expectations or predictions of the future contain forward looking
statements. Such forward looking statements include, without limitation,
statements regarding Consulier's planned capital expenditure requirements, cash
and working capital requirements, Consulier's expectations regarding the
adequacy of current financing arrangements, product demand and market growth,
other statements regarding future plans and strategies, anticipated events or
trends, and similar expressions concerning matters that are not historical
facts. It should be noted that Consulier's actual results could differ
materially from those contained in such forward looking statements mentioned
above due to adverse changes in any number of factors that affect Consulier's
business including, without limitation, risks associated with investing in
BioSafe, ST, LLC, and AVM and the marketing of Consulier's Tool Topper(TM) and
Captain CRA-Z Soap products, manufacturing and supply risks, risks concerning
the protection of Consulier's patents, reliance upon distributors, regulatory
risks, risks of expansion, product liability and other risks described herein.
ITEM 7. FINANCIAL STATEMENTS
See index to Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 13 -
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERSAND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
DIRECTOR POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATION OR OTHER EMPLOYMENT
NAME AGE SINCE DURING THE PAST FIVE YEARS
Warren B. Mosler 53 1985 Chairman of the Board, 1985 to present. President and Chief Executive
Officer, June 1985 to May 1994. In February 1999, Mr. Mosler reassumed the
positions of President and Chief Executive Officer. Principal in AVM, L.P., a
broker/dealer engaged in arbitrage and government securities trading, 1983 to
present.
Alan R. Simon, 52 1985 General Counsel, Treasurer and Secretary since November 2001. 1982 to
Esq. present, private practice of law in Palm Beach Gardens, Florida.
Charles E. Spaeth 79 1992 Chief Engineer 1992 to present. Project Engineer, Pratt & Whitney Aircraft,
1949 to 1990. Last position - responsible for directing product design
support functions in areas of structural analytical methods, life prediction
methods, mission definition and component design verification.
Burck E. Grosse 73 1992 1991 to present, President, BG Consulting Group, Inc. July 1987 to 1991,
Senior Vice President, Lear Group, Inc., general contracting firm. 1948 to
1987, General Motors Corporation. Last position General Director, Technical
Service; responsible for coordination of all technical service functions for
GM car and truck division.
Dr. Skender Fani 63 1999 Dr. Fani is the Chairman of the Board of Otis Elevators, Austria. Dr. Fani
is a corporate lawyer in Austria, also specializing in sports and
entertainment law. For the past 20 years he has represented top sports and
entertainment personalities throughout Europe.
No family relationships exist among the directors and officers of Consulier.
Messrs. Mosler and Simon have been directors since the inception.
- 14 -
EXECUTIVE OFFICERS
The principal occupation of each executive officer of Consulier is set forth
below. All of the executive officers are elected annually, or until their
successors have been duly elected.
Warren B. Mosler, 53, is the Chairman of the Board of Directors. Mr. Mosler has
served as Chairman since the inception of Consulier and as Chief Executive
Officer from inception to March 1989 and from August 1989 to May 1994. In
February 1999 Mr. Mosler reassumed the positions of President and Chief
Executive Officer. From 1983 to the present, Mr. Mosler has been a principal in
AVM, LP, a broker/dealer engaged in arbitrage and government securities trading
in West Palm Beach, Florida.
Alan R. Simon, 52, is a director, and has served as the Corporation's General
Counsel and its Secretary-Treasurer since November 2001. He has been in the
private practice of law in Boca Raton, Florida since 1982, and has relocated his
practice to Palm Beach Gardens, Florida in 2001. Mr. Simon is a member of the
Board of Directors of Enterprise National Bank of Palm Beach and serves as the
Chairman of its Audit Committee.
Bernardo Davila, 51, has served as President and CEO of Southeast Automotive
Acquisition Corporation since 1991. In 1980 Mr. Davila founded Southeast
Automotive Parts, Inc. of Dade which was purchased by Consulier in 1991. From
1971 to 1980 Mr. Davila was in management at Carfel, Inc., an importer of
automotive parts. In connection with the Company's sale of 70% of its interest
in Southeast in February 2003, Mr. Davila is no longer an executive officer of
the Company.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to Consulier's
Chief Executive Officer for the last three years.
SUMMARY COMPENSATION TABLE
Name and Fiscal All Other
Principal Position Year Salary Compensation
------------------------- ------------ --------------- ------------------
Warren B. Mosler, 2002 $ 75,000 $ -
Chairman of the Board, 2001 $ 75,000 $ -
President and CEO 2000 $ 75,000 $ -
Bernardo Davila 2002 (1) $ -
President and CEO 2001 (1) $ -
Of Subsidiary 2000 (1) $ -
(1) Total annual salary and bonus was less than $100,000.
Certain columns have been omitted from the above table because there is no
compensation required to be reported in such columns.
- 15 -
OPTION/SAR GRANTS IN LAST FISCAL YEAR
There were no stock options/SARs granted to executive officers during 2002
requiring disclosure.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
There were no stock options/SARs exercised during 2002 and no stock options/SARs
outstanding at December 31, 2002.
LONG-TERM INCENTIVE AND PENSION PLANS
On January 1, 1998 employees of Consulier became members of the Mosler Auto Care
Center, Inc. 401(k) Retirement Plan (the Plan). The Plan allows employees to
save up to 15% of their gross pay. Consulier may match a percentage of the
employees' savings contributions or provide more money, through discretionary
contributions. During 2002 and 2001 there were no matching or discretionary
contributions made by the Company to employees' accounts. The benefit derived by
employees was the tax deferral on earnings until they receive them as benefits.
Mr. Mosler and the directors do not participate in this Plan.
COMPENSATION OF DIRECTORS
Directors are compensated $100 for attendance at each Board of Directors'
meeting.
- 16 -
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following officers and directors of Consulier beneficially own the indicated
number of shares of Common Stock of Consulier as of March 28, 2003:
Amount and Percent of Class
Nature Of At
Title Of Name and Address Beneficial December 31,
Class of Beneficial Owner Ownership 2002
---------- ------------------------------- ------------ ------------------
Common Warren B. Mosler 4,273,259 86.6%
Stock 1020 Fairview Lane
Singer Island, Fl 33404
Common Alan R. Simon 212,727(1) 4.3%
Stock 3980 RCA Boulevard, Suite 8012
Palm Beach Gardens, FL 33420
Common Burck E. Grosse 10,000 (2)
Stock 11 Huntly Circle
Palm Beach Gardens, FL 33418
Common Charles Spaeth 10,000 (2)
Stock 13 Paddock Circle
Tequesta, FL 33469
Common Skender Fani 0 -
Stock
All directors and executive
Officers as a group (5 people) 4,315,986 87.5%
(1) Includes of options to acquire 190,000 shares of Consulier common stock from
Mr. Mosler at $1.25 per share.
(2) Does not exceed one (1%) percent of the class.
- 17 -
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LEASE OF OFFICE SPACE
Consulier maintains its headquarters in Riviera Beach, Florida occupying
approximately 500 square feet of office space in a building owned by Warren B.
Mosler, Consulier's Chairman of the Board, President and CEO. Rent expense was
approximately $8,300 for both 2002 and 2001.
SALE OF AUTOMOBILE OPERATIONS
In consideration of the sale of Consulier's automobile manufacturing business in
1990, MACC executed a promissory note for $750,000, which note was personally
guaranteed by Mr. Mosler. This note, which has an interest rate of one month
U.S. Dollar London Interbank Offering Rate (LIBOR), will mature on May 11, 2003.
It had an unpaid balance of $430,559 at December 31, 2002, plus accrued interest
of $7,561.
SALE AND LEASEBACK OF REAL ESTATE
In December 1989, Consulier engaged in a sale and partial leaseback of real
estate to Mr. Mosler, subject to existing bond indebtedness collateralized by
the property. This real estate is located in Riviera Beach, Florida. In
consideration for the property, Mr. Mosler signed a promissory note, which was
to mature in December 2001, of $2,500,000 with interest at one month LIBOR. In
2001, the maturity date was extended to December 2003.
Simultaneously with the execution of the sale, Consulier entered into a lease
with Mr. Mosler for approximately 25,000 square feet of space at an annual gross
rental of $4.00 per square foot. This lease was subsequently reduced to 6,000
square feet when Consulier sold its automobile operations. The lease was
terminated in 1994.
On November 1st, 14th and 16th 2000, Mr. Mosler made payments totaling
$2,000,000 reducing interest and principal owed on this promissory note. The
balance of principal and interest at both December 31, 2002 and 2001 was
$1,748,357.
During October 2000, Mr. Mosler purchased outstanding bonds previously issued by
the Company from a third-party bondholder at face value of $680,000. On July 2,
2001, the Company redeemed $500,000 of Mr. Mosler's bonds. These bonds continue
to carry a due date of 2004 with interest of 8% per annum, payable quarterly.
SALE OF INTEREST IN SOUTHEAST
Based upon the Board of Director's determination that it was in the best
long-term interest of the Company's shareholders to reduce its interest in
Southeast, Consulier sold 70% of its shares of common stock of Southeast to
Bernardo and Aimee Davila, CEO and CFO of Southeast, for a purchase price of all
their stock in Consulier consisting of 45,000 shares, valued at approximately
$110,000. In addition, Southeast agreed to repay Consulier its debt, totaling
approximately $1,600,000 at December 31, 2002, which shall be calculated as
inventory at cost, plus accounts receivable, minus accounts payable, plus cash
on hand, plus any debt to Consulier incurred between the effective date of the
sale and the closing. The debt is in the form of an interest-bearing promissory
note payable by Southeast to Consulier in monthly installments of approximately
$9,600 of principal and interest at a rate of 6% beginning February 20, 2003
through January 20, 2033. The debt is guaranteed by Bernardo and Aimee Davila,
up to approximately $228,000, the amount of cash in Southeast at December 31,
2002, and is secured by the assets of Southeast. The effective date of the sale
on December 31, 2002 and the closing was held on February 5, 2003.
- 18 -
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See index to Exhibits in this report on page E-1.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
ITEM 14. CONTROLS AND PROCEDURES
a. Within the 90 days prior to the date of this report, the Company
evaluated the effectiveness of its disclosure controls and procedures
pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the
Company's Chief Executive Officer and Secretary/Treasurer concluded
that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company
required to be included in its periodic SEC filings.
b. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of the evaluation referenced above.
- 19 -
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
CONSULIER ENGINEERING, INC.
Dated: April 14, 2003 By: /s/ Warren B. Mosler
-------------------------------------
Warren B. Mosler
Chairman of the Board of Directors,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
Name Title Date
---- ----- ----
/s/ Warren B. Mosler Chairman of the Board of Directors, April 14, 2003
-------------------- President and Chief Executive Officer
Warren B. Mosler
/s/ Alan R. Simon Secretary, Treasurer April 14, 2003
----------------- Corporate Counsel
Alan R. Simon
/s/ Charles E, Spaeth Director April 14, 2003
---------------------
Charles E. Spaeth
/s/ Burck E. Grosse Director April 14, 2003
-------------------
Burck E. Grosse
/s/ Skender Fani Director April 14, 2003
----------------
Skender Fani
- 20 -
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Warren B. Mosler, certify that:
1. I have reviewed this annual report on Form 10-KSB of Consulier Engineering,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 14, 2003
/s/ Warren B. Mosler
--------------------------------
Warren B. Mosler
President and Chief Executive Officer
- 21 -
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Alan R. Simon, certify that:
1. I have reviewed this annual report on Form 10-KSB of Consulier Engineering,
Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: April 14, 2003
/s/ Alan R. Simon
----------------------------------
Alan R. Simon
Secretary/Treasurer
- 22 -
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB ITEM 7 FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Certified Public Accountants...................................................... F-2
Consolidated Balance Sheets at December 31, 2002 and 2001................................................ F-3
Consolidated Statements of Income for the years ended December 31, 2002 and 2001......................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002 and 2001........... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001..................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors Consulier of Engineering, Inc.
Riviera Beach, Florida
We have audited the accompanying consolidated balance sheets of Consulier
Engineering, Inc. and subsidiaries as of December 31, 2002 and 2001 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consulier
Engineering, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of their income and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
West Palm Beach, Florida BDO SEIDMAN, LLP
April 4, 2003
F-2
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31 December 31
2002 2001
----------- -----------
ASSETS
CURRENT:
Cash and cash equivalents $ 262,303 $ 150,032
Receivables, net (Note 2) 471,203 560,848
Due from principal shareholder (Note 11) 529,174 1,263,726
Inventories (Note 3) 1,336,162 1,137,168
Deferred income taxes (Note 8) 202,606 158,800
Other current assets 12,785 38,550
----------- -----------
TOTAL CURRENT ASSETS 2,814,233 3,309,124
Property and equipment, net (Note 4) 1,286,505 1,355,466
Limited liability company and partnership interests (Note 5) 4,009,575 2,531,379
Notes receivable - related parties (Note 11) 1,420,714 1,420,714
Deferred income taxes (Note 8) 47,136 35,025
----------- -----------
$ 9,578,163 $ 8,651,708
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
CURRENT:
Accounts payable and accruals $ 429,785 $ 232,330
Accrued bonus payable 50,000 --
Income taxes payable 26,312 710,297
Notes payable - related parties 186,587 29,544
----------- -----------
TOTAL CURRENT LIABILITIES 692,684 972,171
Bonds payable (Note 6) 323,920 308,380
----------- -----------
TOTAL LIABILITIES 1,016,604 1,280,551
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 16)
STOCKHOLDERS' EQUITY: (NOTE 9)
Common stock of $.01 par value:
Authorized --- 25,000,000 shares;
Issued --- 5,198,298 shares 51,983 51,983
Additional paid-in capital 3,124,253 3,110,700
Retained earnings 5,919,635 4,780,265
----------- -----------
9,095,871 7,942,948
Less: Treasury stock at cost - 218,055 and 247,148 shares (note 14) (417,911) (468,363)
Other comprehensive loss (39,861) (26,888)
Notes receivable for common stock (76,540) (76,540)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,561,559 7,371,157
----------- -----------
$ 9,578,163 $ 8,651,708
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------
2002 2001
----------- -----------
REVENUES:
Net sales $ 2,704,182 $ 3,183,254
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of goods sold 1,511,745 1,917,951
Selling, general and administrative 1,627,340 1,861,602
----------- -----------
TOTAL OPERATING COSTS AND EXPENSES 3,139,085 3,779,553
----------- -----------
OPERATING LOSS (434,903) (596,299)
----------- -----------
OTHER INCOME (EXPENSE):
Investment income
- related parties (Note 5) 1,871,933 1,186,343
Interest income - related parties 46,180 107,584
Interest expense (23,085) (81,761)
Insurance recovery (note 15) - 1,750,000
Net undistributed income
of equity investees (Note 5) 254,877 39,861
Other income 182,453 99,201
----------- -----------
TOTAL OTHER INCOME 2,332,358 3,101,228
----------- -----------
Income before income taxes 1,897,455 2,504,929
Income tax provision 758,085 915,300
----------- -----------
NET INCOME $ 1,139,370 $ 1,589,629
=========== ===========
BASIC AND DILUTED
EARNINGS PER SHARE (NOTE 13) $ 0.23 $ 0.32
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CONSULIER ENIGNEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
---------------------------------------------------
Treasury Stock Additional
Paid-in
Shares Amount Shares Amount Capital
-----------------------------------------------------------------
BALANCE, JANUARY 1, 2001 5,198,298 $ 51,983 (247,148) ($468,363) $3,110,700
Comprehensive Income:
Net Income - - - - -
Change in unrealized loss on
marketable securities, net of tax - - - - -
Total comprehensive income
BALANCE, DECEMBER 31, 2001 5,198,298 $ 51,983 (247,148) ($468,363) $3,110,700
====================================================================================================
Sale of Treasury Stock 29,093 50,452 13,553
Comprehensive Income:
Net income
Change in realized loss on
marketable securities, net of tax - - - -
Total comprehensive income
BALANCE, DECEMBER 31, 2002 5,198,298 $ 51,983 (218,055) $ (417,911) $3,124,253
====================================================================================================
Notes
Receivable Other TOTAL
Retained for Comprehensive STOCKHOLDERS
Earnings Common Loss EQUITY
---------------------------------------------------------
BALANCE, JANUARY 1, 2001 $3,190,636 ($76,540) ($35,500) $5,772,916
Comprehensive Income:
Net Income 1,589,629 - - 1,589,629
Change in unrealized loss on
marketable securities, net of tax - - 8,612 8,612
----------
Total comprehensive income 1,598,241
----------
BALANCE, DECEMBER 31, 2001 $4,780,265 ($76,540) ($26,888) $7,371,157
============================================================================================
Sale of Treasury Stock - - - 64,005
Comprehensive Income: 1,139,370 1,139,370
Net income - -
Change in realized loss on
marketable securities, net of tax - - (12,973) (12,973)
----------
Total comprehensive income 1,126,397
BALANCE, DECEMBER 31, 2002 $5,919,635 ($76,450) ($39,861) $8,561,559
============================================================================================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------
2002 2001
----------- -----------
OPERATING ACTIVITIES:
Net income $ 1,139,370 $ 1,589,629
Adjustments to reconcile net income to net
cash (used in) provided by operations:
Depreciation 111,104 108,961
Amortization 15,540 15,540
Provision (recovery) for doubtful accounts 41,168 (31,303)
Provision for inventory obsolescence 10,000 -
Undistributed income of equity investees (254,877) (39,861)
Investment income - related party (1,871,933) (1,186,343)
Deferred income taxes (55,917) 205,000
Changes in operating assets and liabilities:
Decrease in receivables and other current assets 50,869 695,569
Decrease (increase) in inventories (208,994) 30,625
Increase (decrease) in income tax payable (683,985) 710,297
Increase (decrease) in accounts payable and accruals 247,455 (770,207)
----------- -----------
NET CASH (USED IN) PROVIDED BY OPERATIONS (1,460,200) 1,327,907
----------- -----------
INVESTING ACTIVITIES:
Property and equipment additions, net of dispositions (42,143) (26,242)
Distributions from partnership interest, net 2,084,014 1,181,232
Increase in related party loans 157,043 59,908
Decrease (increase) in due from principal shareholder 734,552 (1,263,726)
Purchase of investment (1,425,000) -
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,508,466 (48,828)
----------- -----------
FINANCING ACTIVITIES:
Sale of treasury stock 64,005 -
Net repayments of bank and other loans - (1,047,681)
Payments on bonds payable - (500,000)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 64,005 (1,547,681)
----------- -----------
INCREASE (DECREASE) IN CASH 112,271 (268,602)
CASH, BEGINNING OF PERIOD 150,032 418,634
----------- -----------
CASH, END OF PERIOD $ 262,303 $ 150,032
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consulier Engineering, Inc. (Consulier) and its subsidiaries are engaged in four
primary business lines: the distribution of Captain CRA-Z Soap, sales of
automobile parts in the automotive after-market, investment activities and other
activities.
The parts distribution business is conducted through Southeast Automotive
Acquisition Corporation (Southeast), which was a wholly-owned subsidiary until
the sale of approximately 70% of the Company's interest in Southeast, effective
on December 31, 2002 (see Note 17).
Consulier's investment income is primarily derived from a limited partnership
interest (see Notes 5 and 12) in AVM, L.P. (AVM), an Illinois limited
partnership. AVM is a broker/dealer in government securities and other fixed
income instruments. Consulier's Chairman and majority stockholder, Warren B.
Mosler (Mosler), is a general partner of the general partner of AVM.
BASIS OF PRESENTATION
The consolidated financial statements include Consulier, its wholly-owned and
controlled subsidiaries. All significant intercompany balances and transactions
have been eliminated.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are customer obligations due under normal trade terms.
Management performs continuing credit evaluations of customers' financial
condition and generally does not require collateral. Management reviews accounts
receivable on a monthly basis to determine if any receivables will potentially
be uncollectible. The Company includes any accounts receivable balances that are
determined to be uncollectible, along with a general reserve, in its overall
allowance for doubtful accounts. The general reserve is based upon historical
collection experience, current economic conditions and market conditions. After
all attempts to collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available, the Company believes
its allowance for doubtful accounts as of December 31, 2002 and 2001 is
adequate. However, actual write-offs might exceed the recorded allowance.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line and declining balance methods over estimated
useful lives or related lease terms, as appropriate. Depreciation for income tax
purposes is computed using declining balance methods over statutory lives.
The Company reviews the carrying values of its long-lived and identifiable
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable.
F-7
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
PARTNERSHIP AND LIMITED LIABILITY COMPANY INVESTMENTS
The Company's Partnership and Limited Liability Company investments, all of
which are less than 50% interests, are accounted for using the equity method.
Certain of the investments are less than 20% interests, however, the Company has
the ability to significantly influence these investees under the terms of the
partnership or LLC agreements. Income or loss is allocated to Consulier based on
the partnership and LLC agreements. The Company reviews its partnership and
limited liability company investments for other than temporary declines in value
on a monthly basis, by analyzing the underlying investee's actual revenues,
earnings capacity and estimated future undiscounted cash flows.
LONG-LIVED ASSETS - IMPAIRMENTS AND DISPOSALS
The Company reviews the carrying values of its long-lived assets for possible
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable through the estimated
undiscounted future cash flows resulting from the use of these assets. At
December 31, 2002 and 2001, no long-lived assets were held for disposal.
F-8
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
REVENUE RECOGNITION
Revenue is recorded upon shipment of goods, when related risks and title passes
to the customers and collectibility is reasonably assured. Shipping and handling
costs billed to customers are included in sales when the goods are shipped to
customers. Shipping and handling expenses incurred by the Company are recorded
as selling expenses, and are classified in the caption selling, general and
administrative expenses in the accompanying consolidated statements of
operations. Shipping and handling costs totaled $78,000 and $39,600 in 2002 and
2001, respectively. Historically, the company's warranty costs have been
nominal as the company's suppliers bear the company's cost of warranty claims.
STOCK-BASED COMPENSATION
In previous years, the Company had granted stock options to employees under
stock option plans that are more fully described in Note 9. The Company
accounted for those plans using the intrinsic value method under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Stock-based employee compensation cost reflected in net income is not
significant, as all options granted under those plans had an exercise price
greater than or equal to the market value of the underlying common stock on the
date of grant. As all options under such plans granted in previous years expired
during 2001 and no new grants were made in 2001 and 2002, there is no effect on
net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, ("SFAS 123") "Accounting for Stock-Based
Compensation", to stock-based employee compensation.
ADVERTISING COSTS
Advertising costs of $10,499 and $94,986 in 2002 and 2001 were expensed as
incurred.
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax return.
Income taxes are calculated using the liability method specified by SFAS 109,
"Accounting for Income Taxes." Deferred income taxes are provided for temporary
differences arising from differences between financial statement and income tax
basis of assets and liabilities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 2001 financial statements have been reclassified to
conform to 2002 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including accounts
receivable, accounts payable and short-term debt approximated estimated fair
value as of December 31, 2002 and 2001 because of the relatively short-term
maturities of these instruments. The carrying amount of the Company's long-term
fixed rate bonds payable approximated estimated fair value as of December 31,
2002 and 2001 as they may be redeemed at face value by the Company.
F-9
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NET INCOME PER COMMON SHARE
Net income per common share is calculated according to SFAS 128, "Earnings Per
Share," which requires companies to present basic and diluted earnings per
share. Net income per common share - basic is based on the weighted average
number of common shares outstanding during the year. Net income per common share
- diluted is based on the weighted average of common shares and dilutive
potential common shares outstanding during the year.
SEGMENT INFORMATION
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company has four reportable segments: automotive parts
distribution, household and tool products, investments, and corporate. The
automotive parts distribution segment distributes after-market automotive and
truck parts to wholesale markets, and sales of the Captain CRA-Z soap product
line. The household and tool products segment is engaged in sales of tool and
ladder related products. The investments segment maintains investment interests
in an investment limited partnership and limited liability companies. The
corporate segment is engaged in management of the business and finance
activities.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB finalized FASB Statements No. 141, "Business
Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets"
(SFAS 142). SFAS 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interest method of accounting for business
combinations initiated after June 30, 2001. SFAS 141 also requires that the
Company recognize acquired intangible assets apart from goodwill if the acquired
intangible assets meet certain criteria. SFAS 141 applies to all business
combinations initiated after June 30, 2001 and for purchase business
combinations completed on or after July 1, 2001. It also requires, upon adoption
of SFAS 142, that the Company reclassify the carrying amounts of intangible
assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purpose of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangibles assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The impact of the adoption of
SFAS 141 and SFAS 142 on the Company's financial position and results of
operations was not material.
F-10
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
In October 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" which resolves significant
implementation issues related to FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of a business segment. SFAS 144 is
effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years, with early application encouraged. The impact
of adoption of SFAS 144 on the Company's financial position and results of
operations was not material.
In April 2002, the FASB issued SFAS No. 145 (SFAS 145), Rescission of SFAS No.'s
4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections. In addition
to rescinding the aforementioned statements, SFAS 145 also amends SFAS 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. SFAS 145 is
generally effective for fiscal years beginning after May 15, 2002. The impact of
adoption of SFAS 145 on the Company's financial position and results of
operations is not expected to be material.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires companies to
recognize costs associated with exit (including restructuring) or disposal
activities at fair value when the related liability is incurred rather than at
the date of a commitment to an exit or disposal plan under current practice.
Costs covered by the standard include certain contract termination costs,
certain employee termination benefits and other costs to consolidate or close
facilities and relocate employees that are associated with an exit activity or
disposal of long-lived assets. The new requirements are effective prospectively
for exit or disposal activities initiated after December 31, 2002 and will be
adopted by the Company effective January 1, 2003. The adoption of SFAS No. 146
is not expected to have a material impact on the Company's financial position
and results of operations.
In December 2002, the FASB issued SFAS, No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This statement amends
SFAS 123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in both annual and interim financial statements about the method of accounting
for stock-based accounting for employee compensation and the effect of the
method used on reported results. SFAS 148 is generally effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of SFAS
148 on the Company's financial position and results of operations was not
material as the Company continues to use the intrinsic value method.
F-11
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others" (FIN 45). FIN 45 elaborates on
the disclosures that a guarantor should make in its interim and annual financial
statements regarding its obligations relating to the issuance of certain
guarantees. It also requires a guarantor to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of
this interpretation are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The impact of adopting FIN 45 on the
Company's financial position and results of operations is not expected to be
material.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities", which clarifies the application of Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to certain entities in
which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is applicable immediately for variable interest entities
created after January 31, 2003. For variable interest entities created prior to
January 31, 2003, the provisions of FIN 46 are applicable no later than July 1,
2003. At December 31, 2002, the Company is accounting for its continuing
interest in Southeast (see Note 17) under this Interpretation.
F-12
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 2 - RECEIVABLES
Receivables consist of the following:
2002 2001
--------- ---------
Capital and income distribution due from AVM $ 120,881 $ 67,428
Trade accounts 395,374 520,105
Employee advances and other receivables 26,195 30,012
--------- ---------
542,450 617,545
Less allowance for doubtful trade accounts (71,247) (56,697)
--------- ---------
$ 471,203 $ 560,848
========= =========
F-13
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
DECEMBER 31,
---------------------------------
2002 2001
------------ -----------
Raw materials $ 819 $ 5,719
CRA-Z Soap 29,693 24,123
Finished goods 1,445,650 1,237,326
Obsolescence Reserve (140,000) (130,000)
----------- -----------
$ 1,336,162 $ 1,137,168
=========== ===========
F-14
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
RANGE OF
USEFUL
LIVES 2002 2001
------------- ---------- ----------
Building and improvements 30 yrs $ 830,463 $ 830,463
Land N/A 412,000 412,000
Machinery and equipment 5-7 yrs 671,128 661,911
Furniture and fixtures 5-7 yrs 231,009 204,883
---------- ----------
$2,144,600 $2,109,257
Less accumulated depreciation and amortization (858,095) (753,791)
---------- ----------
$1,286,505 $1,355,466
========== ==========
F-15
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 5- PARTNERSHIP AND LIMITED LIABILITY COMPANY INTERESTS AND CONCENTRATION OF
CREDIT RISK
The limited partnership interests consist of Consulier's investment in AVM,
L.P., BioSafe Systems, LLC and Systems Technologies, LLC.
BIOSAFE SYSTEMS, LLC
The Company owns a 40% interest in BioSafe Systems, LLC ("BioSafe"). At December
31, 2002 and 2001 BioSafe's summarized financial information was as follows:
total assets of approximately $1,725,000 and $965,000, respectively, and total
liabilities of approximately $272,000 and $250,000, respectively. In 2002 and
2001 total revenue was approximately $4,672,000 and $3,304,000, respectively,
gross profit was approximately $3,064,000 and $1,995,000, respectively, and
operating expenses were approximately $2,277,000 and $1,912,000, respectively.
The investment is recorded at $788,371 and $467,164 at December 31, 2002 and
2001. During 2002, due to the Company's earnings begin undistributed compared to
certain distributions taken by the managing member, the Company's carrying value
of its investments was is excess of its underlying equity in the net assets of
BioSafe by approximately $207,000, which represents goodwill. The equity in
income for 2002 and 2001 was $321,207 and $39,861, respectively, and is included
in the statements of income in undistributed income of equity investees.
SYSTEMS TECHNOLOGIES, LLC
During 2002 the Company purchased a 14.25% interest in Systems Technologies,
LLC, a Nevada limited liability company (ST, LLC). ST, LLC is a member of
Patient Care Technology Systems, LLC, a California limited liability company
(PCTS). ST, LLC's primary asset is its approximate 60% (at December 31, 2002)
investment in PCTS. As of and for the year ended December 31, 2002 PCTS's
summarized financial information was as follows: total assets of approximately
$557,000, total liabilities of approximately $254,000, total revenue of
approximately $259,000, and total operating expenses of approximately
$3,409,000. The Company's investment in ST, LLC is recorded at $1,358,670 which
is the initial investment of $1,425,000 net of equity in the loss of ST, LLC of
$66,330. The Company's principal shareholder owns approximately 71% of ST, LLC,
therefore the Company is accounting for its investment using the equity method.
The loss of $66,330 is included in the statements of income in net undistributed
income of equity investees. At December 31, 2002, the difference of
approximately $1,200,000 between the $1,358,670 carrying value of the Company's
investment and its underlying equity in the net assets of ST, LLC of
approximately $159,000 primarily represents goodwill. The Company can require
the Company's principal shareholder to purchase its interest in ST, LLC for cash
equal to the Company's capital account balance in ST, LLC at any time with 60
days written notice.
AVM, L.P
Consulier owned approximately 10% of AVM's capital as of December 31, 2002 and
2001. Based on capital and earnings distributions provided in the partnership
agreement, Consulier was allocated approximately 8% of AVM's earnings during
2002 and 2001. Under the partnership agreement, Consulier may withdraw all or
any portion of its capital account upon 30 days written notice. AVM's general
partner may also expel Consulier from the partnership through payment of the
balance of Consulier's capital account.
F-16
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Following is a summary of financial position and results of operations of AVM as
of and for the years ended December 31:
2002 2001
----------- -----------
Cash $61,267,687 $30,287,780
Due from brokers 3,996,873 5,485,366
Securities owned 614,841 838,721
Investment in affiliate & other assets 1,289,086 1,261,712
----------- -----------
TOTAL ASSETS 67,168,487 37,873,579
----------- -----------
Due to brokers 4,852,837 2,077,100
Customer payables 41,135,418 11,531,437
Other liabilities 1,884,403 2,379,347
Anticipated partners' withdrawals 1,451,142 856,093
----------- -----------
Total liabilities 49,323,800 16,843,977
=========== ===========
Partners' capital 17,844,687 21,029,602
----------- -----------
TOTAL LIABILITIES & PARTNERS' CAPITAL $67,168,487 $37,873,579
=========== ===========
REVENUE 56,859,740 35,542,020
=========== ===========
NET INCOME 22,198,057 14,898,919
=========== ===========
CONSULIER'S SHARE OF AVM'S EARNINGS 1,871,933 1,186,343
=========== ===========
F-17
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 6 - BONDS PAYABLE
Bonds payable are due in 2004 with interest of 8% per annum, payable quarterly.
On December 7, 1999 the December 31, 1999 expiration date of 70,000 warrants
held by bondholders was extended to December 31, 2004. The fair market value of
the 70,000 warrants at December 7, 1999 of approximately $77,700 (see Note 9(b))
has been recorded as original issue discount and is being amortized over the
remaining term of the bonds payable.
No principal payments are due until maturity. The bonds are redeemable by
Consulier at face value after June 30, 1994. On May 1, 1999, 8% Bonds totaling
$420,000 were redeemed. The bonds are collateralized by land and building owned
by Mosler (see Note 11(c)(1)), and machinery and equipment, personal property,
and leasehold improvements owned by the Company.
During October 2000, Mr. Mosler purchased outstanding bonds issued by the
Company from a bond holder at face value of $680,000. These bonds continue to
carry a due date of 2004 with interest of 8% per annum, payable quarterly. On
July 2, 2001, $500,000 of Mr. Mosler's bonds were redeemed.
NOTE 7 - LEASES
Consulier leases office space under month-to-month leases. Rent expense charged
to operations was approximately $8,300 in 2002 and 2001, all of which was to
related parties.
NOTE 8 - INCOME TAXES
Provisions for federal and state income tax (benefit) in the consolidated
statements of income consist of the following:
2002 2001
-------- --------
Current:
Federal $666,598 $650,500
State 147,404 59,800
-------- --------
$814,002 $710,300
-------- --------
Deferred
Federal $(49,839) $186,200
State (6,078) 18,800
-------- --------
$(55,917) $205,000
-------- --------
TOTAL INCOME TAX EXPENSE $758,085 $915,300
======== ========
F-18
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Applicable income taxes (benefit) for financial reporting purposes differ from
the amount computed by applying the statutory federal income tax rate as
follows:
Year ended December 31,
---------------------------
2002 2001
-------- --------
Tax expense (benefit) at statutory rate $645,135 $852,500
State income tax benefit
net of federal tax effect 97,287 90,900
Other 15,663 (28,100)
-------- --------
INCOME TAX EXPENSE $758,085 $915,300
======== ========
As a result of the Company's sale of 70% of its interest in Southeast effective
December 31, 2002 (Note 17), the future utilization by the Company of
approximately $119,000 of the net deferred tax assets listed below at December
31, 2002, applicable to Southeast will be limited to Southeast's taxable income,
if any. The approximate tax effects of temporary differences that give rise to
deferred tax assets (liabilities) are as follows:
December 31,
2002 2001
-------- --------
Depreciation $ 45,500 $ 39,200
Allowance for doubtful accounts 22,500 10,000
Inventory Items 137,200 132,600
Unrealized loss on available for sale securities 24,000 16,200
Other 20,500 (4,200)
-------- --------
TOTAL NET DEFERRED TAX ASSET $249,700 $193,800
======== ========
F-19
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 9 - STOCKHOLDERS' EQUITY
(a) STOCK OPTION PLANS
Consulier has established a Tandem Stock Option Plan (Tandem Plan) and an
Incentive Stock Option Plan (Incentive Plan) covering current employees and
former employees who currently work for Mosler Auto Care Center, Inc. (MACC)
(see note 11(c)(2)). Under the Tandem Plan, qualified and non-qualified options
may be granted.
The Tandem Plan provides that an aggregate of 200,000 options to purchase shares
of Consulier's common stock may be granted to officers, directors and other key
employees of Consulier and MACC. The Incentive Plan provides that an aggregate
of 100,000 options to purchase shares of Consulier's common stock may be granted
to officers and other key employees of Consulier. The options under both plans
are exercisable after two years of continuous employment or service and have a
maximum life of ten years from the date of grant.
Options to purchase 61,232 shares of common stock by employees were exercised in
2000. Loans totaling $76,540 were made to these employees for a term up to five
years at an 8% annual interest rate for the exercise. At December 31, 2002 and
2001, such loans remain outstanding and are recorded as notes receivable for
common stock, included as a reduction of stockholders' equity. As of December
31, 2002, there were no outstanding options.
F-20
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
The following summary sets forth activity under the plan for the years ended
December 31:
2002 2001
------------------------------- ------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------- --------------- --------- ---------------
Outstanding at Beginning of Year 0 $0.00 95,000 $1.66
Granted 0 - 0 -
Expired 0 $0.00 (95,000) ($1.66)
Exercised 0 - 0 -
---- ----- ------- -----
OUTSTANDING AND
EXERCISABLE AT YEAR END 0 $0.00 0 $0.00
==== ===== ------- -----
F-21
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(b) COMMON STOCK WARRANTS
In connection with the issuance of the bonds payable (see Note 6), Consulier
issued warrants to purchase shares of its common stock at a purchase price of
$1.71875 per share. At December 31, 2002 and 2001, 70,000 warrants remain
outstanding. No warrants have been exercised to date. On December 7, 1999 the
Board of Directors extended the December 31, 1999 expiration date to December
31, 2004. Using the Black-Scholes option pricing model, the fair market value of
the 70,000 warrants at the December 7, 1999 extension date was calculated as
approximately $77,700 with the following assumptions: 46% volatility, 4.5 years
expected life, and a 5.86% risk free interest rate. The fair value of the
warrants represents an original issue discount, which is being amortized over
the remaining term of the bonds payable.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest during the years ended December 31, 2002 and 2001 totaled
approximately $23,000 and $71,000, respectively. Cash paid for income taxes
during 2002 and 2001 was approximately $1,488,000 and $0.
NOTE 11 - RELATED PARTY TRANSACTIONS
(a) CASH ADVANCES
During 2002 and 2001, MACC and Consulier continued to incur certain joint costs
and expenses incurred in the normal course of business. MACC owed Consulier
$105,945 and $67,693, due on demand, at December 31, 2002 and 2001 respectively,
resulting from these transactions. Interest was accrued on the outstanding
balance at one month LIBOR (1.38% at December 31, 2002) see Note 11 (c)(1).
(b) OTHER
For other related party transactions see Notes 5, 6, and 7.
F-22
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(c) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consist of the following:
2002 2001
---------- ----------
Mosler (see (c ) (1) below) $1,748,357 $1,748,357
MACC (see (c ) (2) below) $ 430,559 $ 430,559
---------- ----------
$2,178,916 $2,178,916
less excess of face amount of note over
carrying cost of real estate ($ 758,202) ($ 758,202)
---------- ----------
Notes Receivable - Long Term $1,420,714 $1,420,714
========== ==========
Interest income relating to the above notes totaled approximately $45,200 in
2002 and $89,100 in 2001.
(c)(1) SALE AND LEASEBACK OF REAL ESTATE
In 1989, Consulier sold to and partially leased-back real estate from Mosler.
The property was transferred, subject to a pledge on bond indebtedness, in
exchange for Mosler's promissory note for $2,500,000, with interest at one month
LIBOR (1.38% at December 31, 2002). Principal on the note was payable at the
original maturity in December 2001, which was extended to December 2003 in 2001.
Simultaneously with the execution of the deed, Consulier entered into a lease
with Mosler for approximately 6,000 square feet of the property. This lease was
terminated in 1994 when the Company's principal offices were moved to Tequesta,
Florida.
The transaction resulted in a sales price of $758,202 in excess of the carrying
cost of the building and has been accounted for as a sale-leaseback with a
related party. Accordingly, the excess has been offset against the note
receivable from Mosler. The excess will be recorded as a capital contribution to
the extent of any reduction in the principal balance of the note receivable.
In November 2000, Mosler made a payment of $2,000,000 on his note receivable,
including $1,248,357 of interest and $751,643 of principal.
(c)(2) SALE OF AUTOMOBILE OPERATIONS
In 1990, Consulier sold its automobile manufacturing business to MACC. As
consideration for the purchase, MACC executed a promissory note for $750,000,
which note was personally guaranteed by Mosler. This promissory note accrues
interest at an annual rate of one month LIBOR (1.38% at December 31, 2002). The
note, which was to mature on May 11, 2001 and was extended to May 11, 2003 in
2001, has an outstanding balance of $430,559 at both December 31, 2002 and 2001.
F-23
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(d) DUE FROM PRINCIPAL SHAREHOLDER
Prior to 2001, capital and income distributions from the Company's investment in
AVM were distributed directly from AVM to the Company on a monthly basis.
Beginning in 2001 through July 2002, the Company had been advancing its cash
distributions from AVM to the principal shareholder, offset by cash repayments
from the principal shareholder. The unpaid portion of these distributions due on
demand and are included in due from principal shareholder of $529,174 at
December 31, 2002 in the consolidated balance sheet.
NOTE 12 - BUSINESS SEGMENT INFORMATION
Information related to Consulier's operations in its different industry segments
is as follows:
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001
---------- ----------
REVENUES AND INVESTMENT INCOME:
Automotive parts distribution $2,693,871 $3,175,960
Household and tool products 111 0
Investments 2,126,810 1,226,204
Corporate 10,200 7,294
---------- ----------
$4,830,992 $4,409,458
========== ==========
OPERATING PROFITS (LOSSES):
Automotive parts distribution (a) ($ 49,358) $1,581,067
Household and tool products (24,661) (28,073)
Investments 2,126,810 1,226,420
Corporate (360,884) (399,525)
---------- ----------
1,691,907 2,379,889
Interest, net 23,095 25,823
Other 182,453 99,217
---------- ----------
INCOME BEFORE INCOME TAXES $1,897,455 $2,504,929
========== ==========
IDENTIFIABLE ASSETS:
Automotive parts distribution $2,045,029 $2,989,282
Household and tool products 114 4,367
Investments 4,009,575 2,531,379
Corporate 3,523,445 3,162,829
---------- ----------
$9,578,163 $8,687,857
========== ==========
(a) Operating profits of this segment for 2001 include an insurance recovery of
$1,750,000 received in connection with a casualty loss (see note 15).
F-24
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 13 - EARNINGS PER SHARE
Year Ended December 31,
---------------------------
2002 2001
---------- ----------
NUMERATOR:
Net income
numerator for basic and diluted
earnings per share $1,139,370 $1,589,629
---------- ----------
DENOMINATOR:
Denominator for basic earnings
per share, weighted - average shares 4,951,788 4,951,150
---------- ----------
EFFECT OF DILUTIVE SECURITIES:
Stock options - -
---------- ----------
Warrants 17,235 11,124
---------- ----------
Dilutive potential common shares 17,235 11,124
---------- ----------
DENOMINATOR FOR DILUTED EARNINGS
per share, adjusted
weighted - average shares 4,969,023 4,962,274
---------- ----------
BASIC EARNINGS PER SHARE $ 0.23 $ 0.32
========== ==========
DILUTED EARNINGS PER SHARE $ 0.23 $ 0.32
========== ==========
F-25
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 14 - CAPITAL STOCK
During 2000, former employees of Consulier, who are now employees of MACC,
exercised stock option agreements with the Company, 61,232 shares of restricted
common stock were issued as a result.
Consulier loaned a total of $76,540 to these individuals to allow them to
exercise their options and purchase the restricted common stock. Each person
signed a promissory note with an interest rate of 8% per annum. The note is
secured by the maker pursuant to the terms of the stock pledge agreement between
the maker and the holder.
On December 20, 2002, the Company's Board of Directors authorized the sale of up
to 30,000 shares of its Treasury Stock at $2.20 per share (the then market
price) to Mosler Auto Care Center, Inc. and an affiliate to be issued to certain
of their respective employees/contractors.
On December 23, 2002, 29,093 shares of restricted Treasury Stock with a
historical cost of $50,452 were sold for cash of $64,005 ($2.20 per share, the
then market price).
NOTE 15 - CASUALTY LOSS
A casualty loss in the amount of $1,092,586 was caused by Hurricane Irene, which
made landfall in Miami (location of Southeast's facility) on October 15, 1999.
The Company suffered extreme hurricane damage resulting in destruction primarily
of a large portion of its inventory, and certain damage to its equipment and
physical plant. The majority of the damage was to the CRA-Z Soap inventory.
The loss of $1,092,586 was reflected in the 1999 statement of operations as a
casualty loss. The Company began litigation against the insurance company whose
policy covered the Southeast warehouse facility and inventory, to recover the
loss. However, the insurance company disputed the claim.
Upon further inspection and evaluation during the latter part of April 2000,
management estimated that the remaining CRA-Z Soap located at Southeast was
unsaleable. The product's unique fragrance was severely impaired by the
conditions that were a result of the hurricane. Also, it was determined the soap
was unsaleable because of discoloration, a change in texture and the soap stuck
to packaging. The $506,937 change in estimate, representing the remaining CRA-Z
Soap inventory held at Southeast, was recorded as a casualty loss during the
three months ended March 31, 2000.
On March 22, 2001, the Court entered an omnibus Order Granting Plaintiff's
Motion for Summary Declaratory Judgment and a Final Declaratory Judgment in
favor of Southeast against American States Insurance Company, declaring that the
subject insurance contract between the parties covers the loss due to all
damages, including water damage caused by a hurricane, and noted there is no
dispute that the rainfall associated with Hurricane Irene caused the damage to
Plaintiff's (Southeast Automotive Acquisition Corp.) property. In June 2001 the
Company settled its lawsuit with American States Insurance Company for
$1,750,000, recorded as insurance recovery in the accompanying 2001 statement of
income.
F-26
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
NOTE 16 - COMMITTMENTS
On January 15, 2003 the Company entered into an agreement for the production of
CRA-Z Soap. The Company committed to purchase approximately $100,000 of CRA-Z
Soap. Expected delivery of the CRA-Z Soap is during the second quarter of 2003.
On April 16, 2002, the Company entered into an agreement granting a line of
credit of up to $900,000, at an interest rate of 4% per annum, payable on
demand, to Asset Assistance Group, LLC ("AAG"). The line of credit expires one
year from April 16, 2002. Further, in consideration for the line of credit, the
Company was granted an option to acquire 95% of AAG. That option expires one
year from April 16, 2002 and has an exercise price of $950. As of December 31,
2002, no amount was outstanding under the line of credit.
On August 14, 2002 the Company entered into a revolving credit agreement
("borrowing") with a financial institution in an amount not to exceed
$2,000,000. The borrowings under this agreement bear interest at either a LIBOR
based rate plus a margin of 2.10% or at the financial institution's Prime rate
less 0.075%, depending upon the rate chosen by the Company. The borrowings are
secured by primarily all assets of the Company and by collateral pledged by the
principal shareholder, including a partnership, WBM Investors Limited
Partnership, a limited partner of AVM, L.P. of which the Company has a
approximately a 10% investment at December 31, 2002. The revolving credit
agreement matures on August 1, 2003. The Company has no outstanding balance
under the borrowing at December 31, 2002.
NOTE 17 - SALE OF INTEREST IN SOUTHEAST
The Company sold seventy percent of the common stock of its wholly-owned
subsidiary, Southeast, to executive officers of Southeast, in exchange for
45,000 shares of the Company's common stock, and a promissory note initially
estimated to be approximately $1,600,000 payable to the Company by Southeast for
its pre-existing debt to the Company, secured by Southeast's assets, the common
stock in Southeast and the purchasers' personal guarantees, limited to the cash
in Southeast at December 31, 2002 of approximately $228,000. The note, which
balance is subject to certain adjustments based upon actual book balances of
certain of Southeast's assets and liabilities, bears interest at 6% and is
payable in monthly installments of principal and interest of approximately
$9,600 beginning February 20, 2003 through January 20, 2033. The effective date
of the sale on December 31, 2002 and the closing was held on February 5, 2003.
Although the Company will retain a minority interest in Southeast, due to the
significant portion of the sales proceeds being in the form of a note receivable
collateralized by substantially all assets of Southeast, the Company will
continue to account for Southeast as a consolidated subsidiary.
F-27
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB ITEM 13(A) EXHIBITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
The following exhibits are incorporated by reference to prior filings by
Consulier in an effective registration statement under the Securities Act or in
reports filed pursuant to the Exchange Act, except as referenced to pages filed
herein.
Exhibit Description
1(a) Underwriting Agreement (1)
1(b) Warrant Exercise Fee Agreement (1)
1(c) Financial Advisory Agreement (1)
3(a) Articles of Incorporation of Consulier (1)
3(b) Amendments to Articles of Incorporation of Consulier (2) (3)
3(c) By-Laws of Consulier (1)
4(a) Form of Warrant Agreement (1)
4(b) Form of Underwriters Warrant (1)
4(c) Form of common stock certificate (1)
4(d) Form of specimen warrant (1)
4(e) Form of preferred stock certificate (2)
10(a) Escrow Agreement (2)
10(b) Lease Agreement (2)
Agreement of Plan of Merger between Southeast Automotive Parts, Inc. of Dade, Inc. into
10(c) Southeast Automotive Acquisition Corporation (6)
Articles of Merger, Southeast Automotive Parts of Dade, Inc. into Southeast Automotive
10(d) Acquisition Corporation (6)
10(e) Promissory Note of Consulier for $3,000,000 dated April 1, 1990 (5)
10(f) Security Agreement between Consulier and Mosler dated April 16, 1990 (5)
Purchase and Sale Agreement between Consulier and Mosler Auto Care Center, Inc.,
10(g) regarding sale of automobile business (7)
Promissory Note of Mosler Auto Care Center, Inc. dated March 31, 1990, regarding sale
10(h) of automobile business (2)
10(i) Research and Development Funding Agreement between Mosler Auto Care Center, Inc. and Consulier
dated April 1, 1990 (3)
10(j) Agreement of Merger between Consulier and WBM Engines, Inc., effective December 31, 1989 (2)
10(k) Purchase and Sale Agreement between Consulier and Warren B. Mosler regarding sale of real
estate (2)
21 List of Subsidiaries of Registrant
99.1 CEO Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Secretary/Treasurer Certification, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
E-1
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB ITEM 13(A) EXHIBITS
YEARS ENDED DECEMBER 31, 2002 AND 2001
E-2