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, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-17756
CONSULIER ENGINEERING, INC.
(Name of small business issuer in its charter)
Florida 59-2556878
------------------------------- -----------------------------------
(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
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(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, 2004 totaled
$48,626.
As of March 31, 2005, there were 5,243,105 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 31, 2005 based on
the average bid and asked price on such date was $3.40.
CONSULIER ENGINEERING, INC.
2004 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
PAGE
----
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 6
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 7
Item 6. Management's Discussion and Analysis or Plan of Operation 7
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 12
Item 8a. Controls and Procedures 12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act 13
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial Owners and Management 16
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 17
Item 14. Principal Accountant Fees and Services 17
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 development of
household and tool products, and corporate and investment activities. In 2002,
the Company was also in the distribution of automobile parts in the automotive
after market. Consulier conducted its automobile parts distribution business
through a wholly owned subsidiary, Southeast Automotive Acquisition Corporation
(Southeast), which is based in Miami, Florida. Effective December 31, 2002,
Consulier sold 70% of its interest in Southeast to Southeast's executive
officers. In the 2nd Quarter of 2003, the Company sold its remaining interest in
Southeast to Southeast's executive officers. Consulier's corporate office is
located in Riviera Beach, Florida.
DESCRIPTION OF BUSINESS SEGMENTS
(1) 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 December 31, 2004 and 2003, 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
allocated approximately 8% of AVM's earning in 2004 and 8 1/2 % in 2003,
amounting to $2,327,869 and $3,095,475 for 2004 and 2003, respectively.
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. ("BioSafe"), a
Connecticut limited liability corporation. BioSafe develops and markets
environmentally safe products, alternatives to traditionally toxic pesticides.
Consulier is entitled to representation on BioSafe's Board of Managers. BioSafe
had revenues of approximately $6,388,772 and $5,826,000 for fiscal 2004 and
fiscal 2003, respectively. Steady and consistent progress has been made with
respect to establishing an algaecide/fungicide product into the commercial
greenhouse/nursery market. Sales in the 4th Quarter were negatively effected by
hurricane damage sustained by its customers.
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SYSTEMS TECHNOLOGIES, LLC
During August 2002 the Company purchased a 14.25% interest in Systems
Technologies, LLC ("ST, LLC"), a Nevada limited liability company. During the
year ended December 31, 2004, the Company made additional contributions of
$5,180,000 to increase its investment in ST, LLC. As of December 31, 2004, the
Company's interest in ST, LLC totaled 34%. ST, LLC is a member of Patient Care
Technology Systems, LLC, a California limited liability company ("PCTS"). At
December 31, 2004 ST, LLC's primary asset was its 75% investment in PCTS. The
original ST, LLC agreement provided that the losses from ST, LLC be allocated to
ST, LLC's principal members. Effective April 1, 2003, the agreement was amended
and stipulates that the Company receives allocated losses to the extent that the
Company has made capital contributions during the current year or since
inception. Consequently, the loss allocated to the Company is greater than 34%.
The Company's majority shareholder owns approximately 51% of ST, LLC, and
together with the Company's 34%, the ownership aggregates 85%. The Company can
require the Company's majority shareholder to purchase its interest in ST, LLC
for cash equal to the Company's total capital contributions in ST, LLC at any
time with 60 days written notice. Management has evaluated ST, LLC's (primarily
PCTS') projections and related assumptions regarding their operations. In this
regard, management periodically compares actual results to these projections.
Should actual results be significantly less than the projection, a write down
might be necessary. Following is a summary of the results of operations of PCTS
and the losses allocated to the Company:
(UNAUDITED)
(IN THOUSANDS)
-------------------------
2004 2003
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Revenue $ 672 $ 387
Costs and expenses 8,030 4,953
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Net loss $(7,358) $(4,566)
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Consulier's share of loss $(6,029) $(4,566)
======= =======
PCTS markets the Amelior(TM) patient care systems which are data based
integrated emergency room information systems. During 2004, PCTS focused on
acquiring new products and marketing and selling its Amelior(TM) systems,
greatly expanded and upgraded their sales force and by year end had fully
operational installations in 42 facilities which can serve approximately
1,200,000 patients annually.
FIN 46(R) requires a VIE to be consolidated if a party with an ownership,
contractual or other financial interest in the VIE is obligated to absorb a
majority of the risk of loss from the VIEs activities, is entitled to receive a
majority of the VIEs residual returns (if no party absorbs a majority of the
VIEs losses), or both. A variable interest holder that consolidates the VIE is
called the primary beneficiary. Upon consolidation, the primary beneficiary
generally must initially record all of the VIEs assets, liabilities and
noncontrolling interests at fair value and subsequently account for the VIE as
if it were consolidated based on majority voting interest.
The Company owns a 34% equity interest in ST, LLC, however, as stipulated in the
amended operating agreement, losses are allocated first to the Company subject
to its contributions from inception. Consequently, the loss allocated to the
Company was greater than 34%. This entity qualifies as a VIE under FIN 46(R),
and we are the primary beneficiary. We began consolidating the balance sheet of
ST, LLC in accordance with FIN 46(R), as of December 31, 2004. Previously the
Company carried the investment under the equity method. A cumulative effect
adjustment was not recorded upon initial consolidation because the Company had
previously recognized its allocated share of losses and our investment had been
written down to zero at December 31, 2004. ST, LLC's surplus in stockholders'
equity at the December 31, 2004 (adoption date), is reflected as a minority
interest liability in the consolidated balance sheet.
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(2) CORPORATE SEGMENT
GENERAL
Consulier's Corporate Segment includes management and finance activities as well
as consulting, engineering, new product development and business management.
Since C-6 Products, Inc. was merged into the Company during the 3rd Quarter of
2004, the Company's only wholly owned subsidiary is Consulier International,
Inc.
(3) 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
attached 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. On
June 30, 2000, Tool Topper(TM) inventory and tooling were written down based on
the unit's failure to meet expected sales and income goals.
During the third Quarter of 2003 Consulier International, Inc. took over the
marketing of Tool Topper(TM) products. During the fourth Quarter of 2003, the
Company was successful in selling substantially all of its Tool Topper(TM)
inventory to an independent marketing company who resold the Tool Topper(TM)'s
on QVC. The Company is in negotiations concerning possible licensing of its Tool
Topper(TM) patents and molds. During the fourth Quarter of 2004 C-6 Products,
Inc. was merged into Consulier Engineering, Inc.
(4) AUTOMOTIVE PARTS DISTRIBUTION (DISCONTINUED OPERATIONS)
BACKGROUND
Southeast Automotive Acquisition Corporation (a former subsidiary) ("Southeast")
is located in Miami, Florida. It is engaged in research, development and
distribution to the automotive wholesale market. It celebrated its 21st year of
existence in the automotive transmission industry, as a significant contributor
of OEM Quality Aftermarket Products, distributing automotive flywheels, flex
plates, transmission and engine mounts, torque struts, nylon gears, plastic
components, grommets, cables and repair kits.
DIVESTITURE
Effective December 31, 2002, the Company sold seventy percent of the common
stock of its wholly-owned subsidiary, Southeast, to executive officers of
Southeast, in exchange for the return of 45,000 shares of the Company's common
stock, and a promissory note of 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 bore interest at 6% and was payable in monthly installments of
principal and interest of approximately $9,600 beginning February 20, 2003
through January 20, 2033.
On June 29, 2003, the Company transferred its remaining thirty percent of the
common stock of Southeast to executive officers of Southeast in consideration of
their agreement to change the method of calculating the purchase price of the
seventy percent of common stock of Southeast and their agreement to amend the
original promissory note to reflect an original principal balance of $1,764,581
with a term of 40 years from June 20, 2003, with a balloon payment of $206,916
due on May 20, 2043; the remaining terms of the Note were unchanged. On June 30,
2003 the Company sold and assigned the Note to the Company's majority
shareholder, together with its security interest for the consideration of
$1,762,575, the then
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current unpaid principal balance and accrued interest due on the Note which was
received by the Company in collected funds on June 30, 2003.
(5) HEALTHCARE INFORMATION AND TRACKING SYSTEM
PCTS markets the Amelior(TM) patient care systems which are data based
integrated emergency room information systems. During the last Quarter of 2004,
PCTS purchased Healthcare IT for $1,240,000. Healthcare IT, Inc. is a provider
of passive tracking technology for Emergency Departments and Operating Rooms.
The system tracks the real time status and location of patients and assets
through wireless technology. PCTS offers advanced clinical information systems
to hospitals Emergency Department and will cross market the passive tracking
technology of Healthcare IT.
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
Warren Mosler, the Company's majority shareholder.
Consulier owns a 47,000 square foot industrial warehouse in Medley, Florida,
which is leased to Southeast Automotive Acquisition Company, its former
subsidiary for a five (5) year term which commenced on July 1, 2002 with an
initial base rent of $10,000 per month; the lease contains provisions for annual
CPI rental increases and two (2) options to renew for additional terms of five
(5) years each.
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.
As of December 31, 2004, there were no legal proceedings pending against the
Company or its subsidiaries nor did the Company have any knowledge of any
proceedings, which were being contemplated except a personal injury claim
concerning a fall from a lifeguard stand manufactured by the Company (prior to
2000 in a previous line of business), which was filed on May 16, 2003. Although
the outcome of any litigation cannot be guaranteed with certainty and the
Company maintains insurance coverage for this type of claim, there is a good
likelihood that the Company will succeed in its defense of this claim.
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, 2004. Warren B. Mosler, Alan R. Simon, Burck E. Grosse and Skender
Fani were elected upon receipt of the following votes: for 4,446,226, against 0,
and 600 shares abstaining. Goldstein Lewin & Co. was approved as independent
auditors by a vote for of 4,446,226, against 0, and 600 shares abstaining.
6
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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, 2003 HIGH LOW
------------------------------------------ -------- --------
First quarter $ 2.60 $ 2.05
Second quarter 3.00 2.20
Third quarter 2.65 2.20
Fourth quarter 3.00 2.00
YEAR ENDED DECEMBER 31, 2004 HIGH LOW
------------------------------------------ -------- --------
First quarter $ 5.25 $ 2.50
Second quarter 4.00 2.75
Third quarter 3.40 2.25
Fourth quarter 5.50 2.75
As of March 31, 2005, there were approximately 342 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
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, AVM and ST, LLC, and the marketing of Consulier's Tool Topper(TM) and
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.
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CRITICAL ACCOUNTING POLICIES
The FASB issued Interpretation No. 46(R), Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research Bulletin No. 51 (FIN 46(R))
describes variable interest entities. The Company's consolidated balance sheet
includes the assets of ST, LLC, as of December 31, 2004, which is a variable
interest entity. The statement of operations reflects the allocated loss from
ST, LLC.
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Software to be Sold, Leased or Otherwise Marketed. Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility are
classified as product research and development and are expensed as incurred.
Once technological feasibility has been determined, a portion of the costs
incurred in development, including coding, testing, and product quality
assurance, are capitalized and subsequently reported at the lower of unamortized
cost or net realizable value.
Financial Reporting Release No. 60, which was recently released by the U.S.
Securities and Exchange Commission, encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation of
consolidated financial statements. Note 1 to the Company's consolidated
financial statements includes a summary of the significant accounting policies
and methods used in the preparation of Consulier's consolidated financial
statements.
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the consolidated
financial statements:
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 or
under the provisions of FIN 46(R). Income or loss is allocated by the investee
to Consulier based on the partnership and LLC agreements.
REVENUE RECOGNITION
Sales are recorded upon shipment of goods to customers.
Shipping and handling costs billed to customers are included in sales and
recorded when goods are shipped to customers. Shipping costs of the Company are
classified as a selling expense.
Revenue is derived from the licensing and sale of systems, either directly to
end-users or through third-party resellers, comprised of internally developed
software, third-party software and hardware components product support,
maintenance and professional services. The Company's revenue recognition
policies conform to Statement of Position 97-2, Software Revenue Recognition.
Generally, revenue from software license fees and hardware sales to end-users is
recognized when a master agreement is signed and products are made available to
end-users. Revenues from agreements that contain multiple-element arrangements
are allocated to the various elements based on the fair value of the elements.
Revenues related to routine installation and integration and project management
are deferred until the work is performed. If a contract requires the Company to
perform services and modifications that are deemed significant to system
acceptance, revenues are recorded either on the percentage-of-completion method
or revenues related to the delivered hardware and software components are
deferred until such obligations are deemed insignificant, depending on the
contractual terms. The Company follows this method since reasonably dependable
estimates of the revenues and costs applicable to various stages of a contract
can be made. Recognized revenues and profit are subject to revisions as the
contract progresses to completion. Revisions in profit estimates are charged or
credited to income in the period in which the facts that give
8
rise to the revision become known. Revenues from consulting, education, and
application-hosting services are recognized as the services are performed.
Revenues from short-term support and maintenance agreements are recognized
ratably over the term of the agreements. Billings to customers recorded prior to
the recognition of revenues are classified as deferred revenues. Revenues
recognized prior to progress billings to customers are recorded as contract
receivables.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
RESULTS OF OPERATIONS
CONSOLIDATED OPERATING RESULTS FROM CONTINUING OPERATIONS - During the twelve
months ended December 31, 2004, sales decreased $145,340, to $48,626, from the
prior twelve months. Cost of goods sold increased $7,854, to $26,472, from the
comparable amounts recorded during the twelve months ended December 31, 2003.
Gross profit for the twelve months ended December 31, 2004 decreased $153,194
from the year ended December 31, 2003, primarily due to the sale, during 2003,
of previously written off inventory of Tool Topper(TM) and Cra-Z Soap (prior
formula) of approximately $158,000. The decrease in selling, general and
administrative costs were as a result of decreased accounting and auditing fees
associated with the divestiture of Southeast Automotive. When these factors are
combined they resulted in a $95,856 increase in operating loss, from $457,202 in
2003 to $553,058 in 2004.
Other income, consisting primarily of investment income, less net undistributed
loss of equity investees reflects a total loss from other income of $3,326,815
in 2004, compared to total loss from other income of $1,130,701 during 2003. The
primary reason for the decrease in net income was due to the increase in loss
allocated from the Company's investment in ST, LLC (as discussed below) coupled
with the following:
HOUSEHOLD AND TOOL PRODUCTS - During the third Quarter of 2003 Consulier
International, Inc. began implementing marketing plans for the Captain Cra-Z
Hand and All Purpose Cleaner to retail distribution outlets. During the fourth
Quarter of 2003, the Company was successful in selling substantially all of its
Tool Topper(TM) and Cra-Z Soap (prior formula) inventory to two independent
marketing companies for approximately $158,000. This inventory had previously
been written off in 2000.
INVESTMENT IN AVM - Investment income from Consulier's AVM limited partnership
interest was $2,327,869 in 2004, a 24.8% decrease from 2003 income of
$3,095,475. This represents annualized returns of 126% and 167% on Consulier's
average investment during the years ended December 31, 2004 and 2003,
respectively.
INVESTMENT IN BIOSAFE - Equity in income of BioSafe was $286,953 in 2004, a 8%
increase over 2003 income of $265,148. This represents the Company's 40%
interest in BioSafe's net income of approximately $717,000 in 2004, compared to
approximately $663,000 in 2003. The Company received distributions from BioSafe
of $720,439 of which $612,000 was a distribution of prior year's earnings.
INVESTMENT IN ST, LLC - Equity in the loss of ST, LLC was $6,029,544 for 2004
and $4,566,126 in 2003. The increase in losses allocated to the Company was
mainly due to the increase in salary and outside services in the continuing
installation effort of PCTS.
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OUTLOOK FOR 2005
Based on AVM's recent operations and operating results over the past five years,
management expects continued annualized returns in 2005 on Consulier's limited
partnership investment. However, there is no guarantee that the returns of 126%
and 167% in 2004 and 2003, respectively, will be maintained.
Consulier International, Inc. has been developing new retail and distribution
outlets locally, nationally and internationally. There are several trade shows
scheduled for marketing the Cra-Z Hand and All Purpose Cleaner throughout 2005
and the internet web site continues to be a good lead generator with
applications for distribution being received through the site from countries all
over the world and new marketing materials are being developed.
BioSafe Systems, LLC will be introducing a new product in the second half of
2005, specifically designed for use in the membrane filtration market. Trade
named Sanidate, the product safely and efficiently cleans and sanitizes membrane
filters used in numerous industries, notably power generation facilities. The
necessary regulatory approvals and registrations are anticipated in the second
Quarter of 2005. Additionally, BioSafe will introduce a Retail version of its
popular TerraCyte Moss and Algaecide product for residential use. Also scheduled
for a second half introduction, the product will be offered in 13 pound, shaker
top containers, designed for ease of use. Gross Margins in 2005 continue to be
pressured by significant freight cost factors, as well as increased petroleum
based packaging costs. No significant Operating Cost factor increases are
projected in 2005.
The Company intends to substantially increase its investment in ST, LLC over the
next three to five years. While the exact amount of the Company's future
investment has not been quantified at this time, it is expected that the
investment will be between $5 million and $7 million. The exact amount will be
based upon market acceptance of PCTS's Amelior products and the need for
investment funds. PCTS currently has contracts for 10 additional installations
which are scheduled to be in place during the 2nd, 3rd and 4th quarters of 2005.
The new installations which should serve approximately 340,000 patients would
bring the estimated number of patients to approximately 1,500,000 annually.
During 2005 PCTS plans to expand its product scope to incorporate solutions for
departments in addition to Emergency Room, such as Operating Room, ICU and Labor
& Delivery. PCTS plans to concentrate on selling and marketing their newly
acquired Passive Tracking solutions and further developing their product
offerings by developing strategic partnerships with vendors that offer unique
technologies and augment their core emergency department information system.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, Consulier's cash totaled $117,124 as compared to
$1,002,613 at December 31, 2003, a decrease of $885,489. Net cash provided by
operations was $483,788 in 2004, compared to net cash used in $840,873 in 2003.
Net cash provided by operations increased mainly due to a decrease in an
estimated receivable for an overpayment of estimated income taxes offset by
changes in undistributed income (losses) and investment income from equity
investees.
Net cash used in investing activities was $1,282,666 in 2004, compared to net
cash provided by investing activities of $1,563,394 in 2003. The net decrease is
the result of the additional contributions made in the continued investment in
ST, LLC, of $5,180,000. The amounts were offset by distributions from
investments in AVM and BioSafe of $3,048,308.
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
10
redeem the partnership interest, there can be no assurance that AVM will not do
so in the future. Consulier is planning to continue to invest in ST, LLC and
estimates an additional investment of $5 million to $7 million, at which time
the goal is for ST, LLC to be at the break-even point for its operations.
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
$76,419 as of December 31, 2004. 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 be significantly reduced, but such expenditures should not be significantly
affected by inflation.
ITEM 7. FINANCIAL STATEMENTS
See table of contents to Financial Statements on page F-1.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
CHANGES IN CERTIFYING ACCOUNTANTS
Effective June 11, 2003, the accounting firm of BDO Seidman, LLP of West Palm
Beach, Florida was dismissed as Consulier's auditor. Effective June 11, 2003,
Goldstein Lewin & Co. of Boca Raton, Florida was appointed and retained by the
Company as its auditor.
On June 13, 2003, the Company filed a Form 8-K per Regulation S-K, Item 304 (a)
(I) and submitted the following:
(a) (i) the former accountant was dismissed.
(ii) the accountant's report on the consolidated financial statements
for the past two years contained no adverse opinions or disclaimers of opinions,
nor was it modified as to uncertainty, audit scope, or accounting principles.
(iii) the change of accountant was not recommended by anyone but
precipitated by the Board of Directors and the Company's Audit Committee's
desire to engage new accountants. The Board of Directors, Chairman of the Audit
Committee and the outside Director members of the Audit Committee recommended
and approved the accountant change.
(iv) (A) during the registrant's two most recent fiscal years and the
subsequent interim period through June 11, 2003, there were no disagreements,
exceptions noted below, or "reportable events" with the former accountant as
described in Item 304(a) (I) (iv) and (v) of Regulation S-K.
As of March 31, 2003 there was a disagreement as to the propriety of
consolidating the financial statements of a subsidiary that was partially sold
effective December 31, 2002. The disagreement was ultimately resolved. Reference
is made to Note 1 to the consolidated financial statements included in the
Company's Form 10-QSB for the quarter ended March 31, 2003 for a discussion of
this matter.
(b) no added disagreements, requests or events that could effect the
financial statements were made by the accountant.
ITEM 8A. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the
end of the period covered by the annual report, being December 31, 2004, we have
carried out an evaluation of the effectiveness of the design and operation of
our Company's disclosure controls and procedures. This evaluation was carried
out under the supervision and with the participation of our Company's management
including our Company's President along with our company's Chief Financial
Officer. Based upon that evaluation, our Company's President along with our
Company's Chief Financial Officer concluded that our Company's disclosure
controls and procedures are effective. Based upon that evaluation, no change in
our Company's internal controls over financial reporting has occurred during the
quarter then ended, which has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Disclosure controls and procedures and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time period specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure the
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934 is accumulated and communicated to management including our
President and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.
12
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
DIRECTOR POSITIONS AND OFFICES HELD AND PRINCIPAL OCCUPATION OR OTHER
NAME AGE SINCE EMPLOYMENT DURING THE PAST FIVE YEARS
------------------------- ------- ---------- ---------------------------------------------------------------------
Warren B. Mosler 55 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, Esq. 54 1985 General Counsel, Treasurer and Secretary since November 2001. 1982
to present, private practice of law in Palm Beach Gardens,
Florida. President of Consulier International, Inc.
Burck E. Grosse 75 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 65 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.
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, 55, 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, 54, 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. He is also President of
Consulier International, Inc.
13
Clark T. Feezel has served as President and CEO of Consulier International since
its inception in 2003 when it was founded as a wholly owned subsidiary of the
Company. Previously, Mr. Feezel was a Regional Manager of Ferguson Enterprise,
Inc. a division of Wosleley, PLC for thirteen years.
IDENTIFICATION OF AUDIT COMMITTEE
The Audit Committee of the Company is currently composed of three directors
(Alan R. Simon, Burck E. Grosse and Skender Fani) and operates under a written
charter adopted by the Board of Directors. The Company's audit committee is
responsible for: (1) selection and oversight of our independent accountant; (2)
establishing procedures for the receipt, retention and treatment of complaints
regarding accounting, internal controls and auditing matters; (3) establishing
procedures for the confidential, anonymous submission by our employees of
concerns regarding accounting and auditing matters; (4) engaging outside
advisors; and, (5) funding for the outside auditor and any outside advisors
engagement by the audit committee.
AUDIT COMMITTEE FINANCIAL EXPERT
The Company's board of directors does not have an "audit committee financial
expert," within the meaning of such phrase under applicable regulations of the
Securities and Exchange Commission, serving on its audit committee. The board of
directors believes that all members of its audit committee are financially
literate and experienced in business matters, and that one or more members of
the audit committee are capable of (i) understanding generally accepted
accounting principles ("GAAP") and financial statements, (ii) assessing the
general application of GAAP principles in connection with our accounting for
estimates, accruals and reserves, (iii) analyzing and evaluating our financial
statements, (iv) understanding our internal controls and procedures for
financial reporting; and (v) understanding audit committee functions, all of
which are attributes of an audit committee financial expert. However, the board
of directors believes that there is not any audit committee member who has
obtained these attributes through the experience specified in the SEC's
definition of "audit committee financial expert." Further, like many small
companies, it is difficult for the Company to attract and retain board members
who qualify as "audit committee financial experts," and competition for these
individuals is significant. The board believes that its current audit committee
is able to fulfill its role under SEC regulations despite not having a
designated "audit committee financial expert."
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a comprehensive code of ethics that applies to its
principle officers and persons performing similar functions.
The Company is committed to sound principles of corporate governance. The
Company has adopted standards of business conduct applicable to all of its Board
members and employees including the Chief Executive Officer and the
Secretary/Treasurer.
14
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
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION
--------------------------------------- ----------------- ---------------- --------------------
Warren B. Mosler, 2004 $ 75,000 $ -
Chairman of the Board, 2003 $ 75,000 $ -
President and CEO 2002 $ 75,000 $ -
Certain columns have been omitted from the above table because there is no
compensation required to be reported in such columns.
OPTION/SAR GRANTS IN LAST FISCAL YEAR NEED TO CONFIRM
There were no stock options/SARs granted to executive officers during 2004
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 2004 and no stock options/SARs
outstanding at December 31, 2004.
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 2004 and 2003 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.
15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following officers and directors of Consulier beneficially own the indicated
number of shares of Common Stock of Consulier as of December 31, 2004:
AMOUNT AND NATURE PERCENT OF CLASS
NAME AND ADDRESS OF BENEFICIAL AT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP DECEMBER 31, 2004
------------------- -------------------------------------- -------------------- -------------------------
Common Warren B. Mosler 4,337,211 82.7%
Stock 5000 Estate Southgate
Christainsted, USVI 00820
Common Alan R. Simon 201,368 (1) 3.8%
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
All directors and executive
Officers as a group (4 people) 4,558,579 86.9%
(1) Includes 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 2000, Consulier moved its headquarters to 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.
Effective December 31, 2002, 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 of 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
bore interest at 6% and was payable in monthly installments of principal and
interest of approximately $9,600 beginning February 20, 2003 through January 20,
2033.
On June 29, 2003, the Company transferred its remaining thirty percent of the
common stock of Southeast to executive officers of Southeast in consideration of
their agreement to change the method of calculating the purchase price of the
seventy percent of common stock of Southeast and their agreement to amend the
original promissory note to reflect an original principal balance of $1,764,581
with a term of 40 years from June 20, 2003, with a balloon payment of $206,916
due on May 20, 2043; the remaining terms of
16
the Note were unchanged. On June 30, 2003 the Company sold and assigned the Note
to the Company's majority shareholder, together with its security interest for
the consideration of $1,762,575, the then current unpaid principal balance and
accrued interest due on the Note which was received by the Company in collected
funds on June 30, 2003.
LEASE OF REAL ESTATE
Consulier owns a 47,000 square foot industrial warehouse in Medley, Florida,
which is leased to Southeast Automotive Acquisition Company, its former
subsidiary for a five (5) year term which commenced July 1, 2002 with an initial
base rent of $10,000 per month; the lease contains provisions for annual CPI
rental increases and two (2) options to renew for additional terms of five (5)
years each.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See index subsequent to Annual Report.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate audit fees billed to Consulier by Goldstein Lewin & Co. for
professional services rendered for the audited annual financial statements
included in our Annual Report on Form 10-KSB for the year ended December 31,
2003 and for the review of quarterly financial statements included in our
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2004, June 30,
2004 and September 30, 2004 was $85,200.
AUDIT-RELATED FEES
None.
TAX FEES
None.
ALL OTHER FEES
None.
AUDIT COMMITTEE POLICIES
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that
require that before our independent auditor is engaged by us to render any
auditing or permitted non-audit related service, the engagement be:
o approved by our audit committee; or
o entered into pursuant to pre-approval policies and procedures
established by the audit committee, provided the policies and
procedures are detailed as to the particular service, the audit
committee is informed of each service, and such polices and procedures
do not include delegation of the audit committee's responsibilities to
management.
17
The audit committee pre-approves all services provided by our independent
auditors, including those set forth above. The audit committee has considered
the nature and amount of fees billed by Goldstein Lewin & Co. and believes that
the provision of services for activities unrelated to the audit is compatible
with maintaining Goldstein Lewin & Co.'s independence.
18
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 15, 2005 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 15, 2005
--------------------
Warren B. Mosler President and Chief Executive Officer
/s/ Alan R. Simon Secretary, Treasurer April 15, 2005
-----------------
Alan R. Simon
/s/ Burck E. Grosse Director April 15, 2005
-------------------
Burck E. Grosse
/s/ Skender Fani Director April 15, 2005
----------------
Skender Fani
19
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB ITEM 7 CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Goldstein Lewin & Co.) F-1
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to the Consolidated Financial Statements F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Consulier Engineering, Inc. and Subsidiaries
Riviera Beach, Florida
We have audited the accompanying consolidated balance sheet of Consulier
Engineering, Inc. and Subsidiaries as of December 31, 2004 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Consulier Engineering, Inc. and
Subsidiaries as of December 31, 2004 and the results of their operations and
their cash flows for each of the two years then ended in conformity with U.S.
generally accepted accounting principles.
As discussed in Note 2, the Company changed the manner in which it accounts for
its investment in a variable interest entity effective December 31, 2004 upon
the adoption of FIN No. 46(R) Consolidation of Variable Interest Entities.
/s/ Goldstein Lewin & Co.
Certified Public Accountant
April 11, 2005
Boca Raton, Florida
F-1
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2004
ASSETS 2004
-----------
CURRENT ASSETS
Cash and Cash Equivalents $ 117,124
Receivables, Net of Allowance for Doubtful Accounts of $81,167 293,883
Due from Related Parties 86,960
Income Tax Receivable 747,068
Inventories 76,419
Other Current Assets 49,452
Deferred Income Taxes 87,883
-----------
Total Current Assets 1,458,789
PROPERTY AND EQUIPMENT, Net 1,853,181
CAPITALIZED SOFTWARE DEVELOPMENT COSTS 619,951
PARTNERSHIP AND LIMITED LIABILITY COMPANIES - INVESTMENTS 2,472,166
NOTE RECEIVABLE - RELATED PARTY 160,000
DEFERRED INCOME TAXES 948,338
INTANGIBLE ASSET 1,106,750
-----------
$ 8,619,175
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit $ 285,000
Accounts Payable and Accrued Liabilities 573,217
Income Tax Payable 28,420
-----------
Total Current Liabilities 886,637
-----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 2,605,028
-----------
STOCKHOLDERS' EQUITY:
Common Stock of $.01 Par Value:
Authorized 25,000,000 Shares; Issued 5,243,105 Shares 52,431
Additional Paid-in Capital 3,216,008
Retained Earnings 2,477,839
-----------
5,746,278
Less:
Treasury Stock at Cost - 275,007 Shares (582,686)
Notes Receivable for Common Stock (36,082)
Total Stockholders' Equity 5,127,510
-----------
$ 8,619,175
===========
The Accompanying Notes are an Integral
Part of These Consolidated Financial Statements
F-2
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------- -----------
Revenue:
Net Sales $ 48,626 $ 193,966
----------- -----------
Operating Costs and Expenses:
Cost of Goods Sold 26,472 18,618
Selling, General and Administrative 575,212 632,550
----------- -----------
Total Operating Costs and Expenses 601,684 651,168
----------- -----------
Operating Loss (553,058) (457,202)
----------- -----------
Other Income (Loss)/ (Expense):
Investment Income - Related Parties 2,327,869 3,095,475
Interest Income - Related Parties 4,610 24,138
Interest Expense (43,266) (36,840)
Net Undistributed (Loss) of Equity Investees (5,742,591) (4,300,978)
Other Income 126,563 87,504
----------- -----------
Total Other Income (Loss)/(Expense) (3,326,815) (1,130,701)
----------- -----------
(Loss) from Continuing Operations Before Income Taxes (3,879,873) (1,587,903)
Income Tax Benefit 1,244,935 672,966
----------- -----------
(Loss) from Continuing Operations (2,634,938) (914,937)
----------- -----------
Discontinued Operations:
Income From Operations of Discontinued Subsidiary -- 15,420
Less Income Taxes -- (4,905)
----------- -----------
-- 10,515
----------- -----------
Gain on Disposal of Subsidiary -- 342,782
Less Income Taxes -- (245,218)
----------- -----------
-- 97,564
----------- -----------
Net (Loss) $(2,634,938) $ (806,858)
=========== ===========
(Loss) Per Share - Basic and Diluted:
Continuing Operations (0.53) (0.18)
Discontinued Operations -- 0.02
----------- -----------
Net (Loss) Per Share $ (0.53) $ (0.16)
=========== ===========
The Accompanying Notes are an Integral
Part of These Consolidated Financial Statements
F-3
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
COMMON STOCK TREASURY STOCK ADDITIONAL
------------------------ ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 5,198,298 $51,983 218,055 $(417,911) $3,124,253
Sale of Treasury Stock (7,171) 12,411 5,378
Acquisition of Treasury Stock 45,000 (110,250)
Net (Loss)
Change in Unrealized Loss on
Marketable Securities,
Net of Tax Included in Loss
Total Comprehensive (Loss)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 5,198,298 51,983 255,884 (515,750) 3,129,631
Common Stock issued for Cash 44,807 448 86,377
Acquisition of Treasury Stock 19,123 (66,936)
Net (Loss)
Proceeds from Notes Receivable
for Common Stock
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2004 5,243,105 $52,431 275,007 $(582,686) $3,216,008
=========== =========== =========== =========== ===========
NOTES
RECEIVABLE OTHER TOTAL
RETAINED FOR COMPREHENSIVE STOCKHOLDERS'
EARNINGS COMMON LOSS EQUITY
----------- ----------- ----------- -----------
Balance, December 31, 2002 $5,919,635 $(76,540) $(39,861) $8,561,559
Sale of Treasury Stock 17,789
Acquisition of Treasury Stock (110,250)
Net (Loss) (806,858) (806,858)
Change in Unrealized Loss on
Marketable Securities,
Net of Tax Included in Loss
39,861 39,861
-----------
Total Comprehensive (Loss) (766,997)
----------- ----------- ----------- -----------
Balance, December 31, 2003 5,112,777 (76,540) -- 7,702,101
Common Stock issued for Cash 86,825
Acquisition of Treasury Stock (66,936)
Net (Loss) (2,634,938) (2,634,938)
Proceeds from Notes Receivable
for Common Stock 40,458 40,458
----------- ----------- ----------- -----------
Balance, December 31, 2004 $2,477,839 $(36,082) $ -- $5,127,510
=========== =========== =========== ===========
The Accompanying Notes are an Integral
Part of These Consolidated Financial Statements
F-4
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
----------- -----------
Operating Activities:
Net (Loss) $(2,634,938) $(806,858)
Adjustments to Reconcile Net (Loss) to Net Cash Provided by
(Used in) Operations:
Gain on Sale of Discontinued Operations, Net of Tax -- (97,564)
Gain on Sale of Marketable Security -- (16,516)
Depreciation 25,559 25,557
Amortization of Bonds Discount 18,326 15,540
Undistributed Loss of Equity Investee 5,742,591 4,300,978
Investment Income - Related Party (2,327,869) (3,095,475)
Deferred Income Taxes (901,847) (60,508)
Cash Provided from Discontinued Operations -- 266,694
Provision for Doubtful Accounts 70,586 71,101
Changes in Operating Assets and Liabilities:
Decrease (Increase) in Receivables (138,818) 7,903
Decrease (Increase) in Income Tax Receivable 508,997 (1,381,396)
Decrease (Increase) in Inventories 10,681 (56,588)
Increase in Accounts Payable and Accrued Liabilities 82,100 12,572
Increase (Decrease) in Income Taxes Payable 28,420 (26,313)
----------- -----------
Net Cash Provided by (Used in) Operations 483,788 (840,873)
----------- -----------
Investing Activities:
Distributions from Partnership Interest 3,048,308 3,095,475
Contributions to Partnership Interest (5,180,000) (4,057,005)
Proceeds from Sale of Equity Investment -- 66,783
Acquisition of Property and Equipment -- (4,400)
Acquisition of Treasury Stock (66,936) --
Net Proceeds from Related Parties 860,464 2,462,541
Consolidation of Variable Interest Entity (Note 2) 55,498 --
----------- -----------
Net Cash Provided by (Used in) Investing Activities (1,282,666) 1,563,394
----------- -----------
Financing Activities:
Proceeds from Subscription Receivable 40,458 --
Sale of Treasury Stock -- 17,789
Payments on Bonds (357,786) --
Proceeds from Line of Credit 285,000 --
Payment of Related Party Payables (141,108) --
Proceeds from the Issuance of Common Stock 86,825 --
----------- -----------
Net Cash Provided by (Used in) Financing Activities (86,611) 17,789
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents (885,489) 740,310
Cash and Cash Equivalents - Beginning of Period 1,002,613 262,303
----------- -----------
Cash and Cash Equivalents - End of Period $117,124 $1,002,613
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid for Taxes $20,691 $1,024,689
=========== ===========
Cash Paid for Interest $24,656 $21,300
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Consolidation of Variable Interest Entity (Note 2) $2,549,530 $ --
=========== ===========
Repurchase of Treasury Stock in Connection with Discontinued Operations $ -- $110,250
=========== ===========
The Accompanying Notes are an Integral
Part of These Consolidated Financial Statements
F-5
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Consulier Engineering, Inc. (Consulier) and its subsidiaries are engaged in
three primary business lines: the distribution of Captain Cra-Z Soap, investment
activities and other activities.
Consulier International, Inc. (a subsidiary) markets and distributes Captain
Cra-Z Soap(TM).
Consulier's investment income and losses are derived from investments in limited
liability companies and limited partnership interests (Note 8) in BioSafe
Systems, LLC ("BioSafe"), Systems Technologies, LLC ("ST, LLC") and AVM, L.P.
("AVM"), an Illinois limited partnership. BioSafe develops and markets
environmentally safe products, alternatives to traditionally toxic pesticides.
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. ST, LLC is the
majority member (75%) of Patient Care Technology Systems, LLC ("PCTS") which
develops and licenses data based integrated emergency room information systems
Amelior ED(TM). On September 28, 2004, PCTS acquired all of the assets and
assumed certain liabilities of Healthcare Information Technology, Inc.("HIT"), a
provider of passive tracking technologies for emergency departments and
operating rooms. The software technologies acquired from HIT tracks the status
and location of patients and assets through wireless badges worn by people and
staff or attached to equipment in the emergency department and ancillary areas.
On October 8, 2004, the Company merged C-6 Products, Inc. into Consulier
Engineering, Inc. C-6 Products, Inc. distributed the Tool Topper(TM) products.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include Consulier and its
wholly-owned subsidiary, Consulier International, Inc., (Note 2) (collectively
known as the "Company"). The Company began consolidating ST, LLC, a variable
interest entity ("VIE") as of December 31, 2004 (Note 2).
The accompanying consolidated financial statements include the accounts of
Consulier and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company uses the equity
method of accounting for investments where its ownership is between 20% and 50%.
For investments in partnerships that meet the criteria of a VIE and where the
Company is deemed to be the primary beneficiary for accounting purposes, such
entities are consolidated effective December 31, 2004 (Note 2).
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States, 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 revenue and expenses during the reporting
period. Estimates are used when accounting for allowances for doubtful accounts,
revenue reserves, inventory reserves, depreciation and amortization, taxes,
contingencies and impairment allowances. Such estimates are reviewed on an
on-going basis and actual results could differ from these estimates.
F-6
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents. The Company had no cash equivalents as of December 31,
2004.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company evaluates the collectibility of its accounts receivable based on a
combination of factors. In cases where the Company is aware of circumstances
that may impair a specific customer's ability to meet its financial obligations
to the Company, the Company records a specific allowance against amounts due to
us, and thereby reduce the net recognized receivable to the amount the Company
reasonably believes will be collected. For all other customers, the Company
recognizes allowances for doubtful accounts based on the length of time the
receivables are past due, the current business environment and historical
experience.
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, management believes
its allowance for doubtful accounts as of December 31, 2004 is adequate.
However, actual write-offs might exceed the recorded allowance.
CONCENTRATIONS
Financial instruments, which potentially expose the Company to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
Disclosure of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations of Credit Risk, consist
primarily of accounts receivable. ST, LLC's accounts receivable are concentrated
in the healthcare industry. However, ST, LLC's customers typically have been
well-established hospitals or medical facilities. However, some hospitals and
medical facilities have experienced significant operating losses as a result of
limits on third-party reimbursements from insurance companies and governmental
entities and extended payment of receivables from these entities is not
uncommon.
To date, ST, LLC has relied on a limited number of customers for a substantial
portion of its total revenues. The Company expects that a significant portion of
its future revenues will continue to be generated by a limited number of
customers. The failure to obtain new customers or expand sales through
remarketing partners, the loss of existing customers or reduction in revenues
from existing customers could materially and adversely affect the Company's
operating results.
ST, LLC currently buys all of its hardware and some major software components of
its emergency room information systems from third-party vendors. Although there
are a limited number of vendors capable of supplying these components,
management believes that other suppliers could provide similar components on
comparable terms. A change in suppliers, however, could cause a delay in system
implementations and a possible loss of revenues, which could adversely affect
operating results.
F-7
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market by analyzing market conditions, current sales prices, inventory costs,
and inventory balances. The Company evaluates inventory balances for excess
quantities and obsolescence on a regular basis by analyzing backlog, estimated
demand, inventory on hand, sales levels and other information. Based on that
analysis, the Company's management estimates the amount of provisions made for
obsolete or slow moving inventory.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated depreciation.
Property and equipment under capital leases are stated at the lower of the
present value of the minimum lease payments at the beginning of the lease term
or the fair value at the inception of the lease. Depreciation is computed using
the straight-line method over the estimated useful lives of the related assets.
Amortization expense on assets acquired under capital leases is included in
depreciation expense. The costs of leasehold improvements are amortized over the
lesser of the lease term or the life of the improvement.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Software to be Sold, Leased or Otherwise Marketed. Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility are
classified as product research and development and are expensed as incurred.
Once technological feasibility has been determined, a portion of the costs
incurred in development, including coding, testing, and product quality
assurance, are capitalized and subsequently reported at the lower of unamortized
cost or net realizable value.
Amortization is provided on a product-by-product basis over the estimated
economic life of the software, not to exceed three years, using the
straight-line method. Amortization commences when a product is available for
general release to customers. Unamortized capitalized costs determined to be in
excess of the net realizable value of a product are expensed at the date of such
determination.
INTANGIBLE ASSETS
Intangible assets consist of customer lists acquired in connection with PCTS's
acquisition of HIT (Notes 2 and 7), which are being amortized, over five years,
using the straight-line method. The Company periodically reviews its intangible
assets for impairment and assesses whether significant events or changes in
business circumstances indicate that the carrying value of the assets may not be
recoverable.
F-8
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
LONG-LIVED ASSETS - IMPAIRMENTS AND DISPOSALS
The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company compares the carrying amount of the asset to
the estimated undiscounted future cash flows expected to result from the use of
the asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company records an impairment charge for the
difference between the carrying amount of the asset and its fair value. The
estimation of fair value is generally measured by discounting expected future
cash flows at the Company's incremental borrowing rate or fair value, if
available.
PARTNERSHIP AND LIMITED LIABILITY COMPANIES INVESTMENTS
The Company's partnership and limited liability companies ("LLC") investments,
all of which are less than 50% interests, are accounted for using the equity
method or consolidated under the provisions of Financial Accounting Standards
Board ("FASB") Interpretation No. 46(R) Consolidation of Variable Interest
Entities ("FIN 46(R)") which is effective for the Company's December 31, 2004,
financial statements. The Company owns less than 20% in the partnership
investment, however, the Company has the ability to significantly influence this
investee under the terms of the partnership agreement. Income or loss is
allocated to Consulier based on the partnership and LLC agreements. The Company
reviews its partnership and limited liability companies investments for other
than temporary declines in value on a monthly basis by analyzing the underlying
investee's actual revenue, earnings capacity and estimated future undiscounted
cash flows.
Due to the Company's partnership agreement with ST, LLC and ST, LLC's
partnership agreement with PCTS, the Company is exposed to the majority of risk
related to the activities of ST, LLC and PCTS. Therefore, in accordance with FIN
46(R), the Company considers ST, LLC as a variable interest entity that requires
consolidation into the Company's financial statements as of December 31, 2004.
The Company has elected, as permitted under FIN 46(R), not to restate prior
year's financial statements. In 2003 and 2004, the investment in ST, LLC was
carried on the equity method of accounting. Since the Company consolidated ST,
LLC as of December 31, 2004, there was no effect on operations from this
accounting change. As a result of consolidating ST, LLC, a minority interest was
created representing the other members.
STOCK-BASED COMPENSATION
In previous years, the Company granted stock options to employees under stock
option plans that are more fully described in Note 10. The Company accounted for
those plans using the intrinsic value method under Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." All options
under such plans, granted in previous years, expired during 2001 and no new
options were granted in 2004 and 2003. As such, there is no proforma effect on
net income (loss) and
F-9
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
earnings (loss) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," and SFAS
No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure."
REVENUE RECOGNITION
Revenue from sales of goods are recognized when (i) persuasive evidence of an
arrangement between the Company and the customer exists, (ii) the good or
service has been provided to the customer, (iii) the price to the customer is
fixed or determinable and (iv) collectibility of the sales prices is reasonably
assured. 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. For the years ended December 31, 2004 and 2003, shipping and
handling expenses were not material. Historically, the Company's warranty costs
have been nominal as the Company's suppliers bear the cost of warranty claims.
Revenue is derived from the licensing and sale of systems, either directly to
end-users or through third-party resellers, comprised of internally developed
software, third-party software and hardware components, product support,
maintenance and professional services. The Company's revenue recognition
policies conform to Statement of Position 97-2, Software Revenue Recognition.
Generally, revenue from software license fees and hardware sales to end-users is
recognized when a master agreement is signed and products are made available to
end-users. Revenues from agreements that contain multiple-element arrangements
are allocated to the various elements based on the fair value of the elements.
Revenues related to routine installation and integration and project management
are deferred until the work is performed. If a contract requires the Company to
perform services and modifications that are deemed significant to system
acceptance, revenues are recorded either on the percentage-of-completion method
or revenues related to the delivered hardware and software components are
deferred until such obligations are deemed insignificant, depending on the
contractual terms. The Company follows this method since reasonably dependable
estimates of the revenues and costs applicable to various stages of a contract
can be made. Recognized revenues and profit are subject to revisions as the
contract progresses to completion. Revisions in profit estimates are charged or
credited to income in the period in which the facts that give rise to the
revision become known. Revenues from consulting, education, and
application-hosting services are recognized as the services are performed.
Revenues from short-term support and maintenance agreements are recognized
ratably over the term of the agreements. Billings to customers recorded prior to
the recognition of revenues are classified as deferred revenues. Revenues
recognized prior to progress billings to customers are recorded as receivables.
ADVERTISING COSTS
Advertising costs are expensed as incurred and amounted to $8,736 and $35,627
for the years ended December 31, 2004 and 2003, respectively.
F-10
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes under the liability method. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the consolidated financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
As part of the process of preparing our consolidated financial statements, the
Company is required to estimate its income taxes in each of the jurisdictions in
which it operates. This process involves estimating current tax exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within the Company's consolidated
balance sheet. The Company then assesses the likelihood that the deferred tax
assets will be recovered from future taxable income and to the extent it
believes that recovery is not likely, it establishes a valuation allowance. To
the extent the Company establishes a valuation allowance or changes this
allowance in a period, it includes an expense or a benefit within the tax
provision in the Company's statement of operations.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share - basic is computed as net income (loss)
divided by the weighted average number of common shares outstanding during the
year. Earnings (loss) per common share - diluted is based on the weighted
average of common shares and dilutive potential common shares outstanding during
the year. Common stock equivalents, if any, are not included in the calculation
of diluted earnings (loss) per common share diluted for the year ended December
31, 2004 and 2003, as their effect would be anti-dilutive.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents the change in net assets of the Company
during the period from transactions and other events and circumstances from
non-owner sources. Comprehensive income (loss) of the Company included net
income (loss) adjusted for the change in net unrealized gain (loss) in a
marketable security investment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of information about the fair value of certain financial instruments
for which it is practicable to estimate the value. For purposes of this
disclosure, the fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced sale or liquidation.
The carrying amounts of the Company's financial instruments, including cash and
cash equivalents, accounts receivables, income taxes receivable, accounts
payable and accrued liabilities approximate fair value because of their short
maturities. The carrying amount of investments approximate fair value based upon
the recoverability of these assets.
F-11
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Emerging Issues Task Force reached a consensus opinion on
EITF 00-21, "Accounting For Revenue Arrangements with Multiple Elements." The
consensus provides that revenue arrangements with multiple deliverables should
be divided into separate units of accounting if certain criteria are met. The
consideration for the arrangement should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all deliverables are not known or if the fair value is contingent
on delivery of specified items or performance conditions. Applicable revenue
recognition criteria should be considered separately for each separate unit of
accounting. EITF 00-21 is effective for revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. Entities may elect to report the
change as a cumulative effect adjustment in accordance with APB Opinion 20,
Accounting Changes. In December 2003, the Securities and Exchange Commission
released Staff Accounting Bulletin (SAB) 104, Revenue Recognition, which
supersedes SAB 101, Revenue Recognition in Financial Statements. SAB 104
clarifies existing guidance regarding revenue contracts that contain multiple
deliverables to make it consistent with EITF 00-21. The adoption of SAB 104 did
not have material impact on the Company's results of operations or financial
position. The Company believes its revenue recognition policies are consistent
with these standards.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS 150
requires certain financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity to be classified as
liabilities. Many of these instruments previously were classified as equity or
temporary equity and as such, SFAS 150 represents a significant change in
practice in the accounting for a number of mandatorily redeemable equity
instruments and certain equity derivatives that frequently are used in
connection with share repurchase programs. SFAS 150 is effective for all
financial instruments created or modified after May 31, 2003, and to other
instruments at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS 150 did not have a material effect on the
Company's results of operations, liquidity, or financial condition.
In November 2004, the FASB issued SFAS 151 "Inventory Costs", an amendment of
ARB No. 43, Chapter 4. The amendments made by SFAS 151 clarify that abnormal
amounts of idle facility expenses, freight, handling costs, and wasted materials
(spoilage) should be recognized as current-period charges and require the
allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
In December 2004, the FASB issued SFAS 123R, "Share-Based Payment", which
requires all companies to measure compensation cost for all share-based
payments, including employee stock options, at fair value. SFAS 123R is
effective for public companies for interim or annual period beginning after June
15, 2005, except small business issuers (as defined in SEC Regulation S-B), for
which the effective date is December 15, 2005. The Company is in the process of
determining the impact of this statement on its consolidated financial
statements.
F-12
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets, an
amendment of APB 29, Accounting for Nonmonetary Transactions." The amendments
made by SFAS 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the narrow exception for nonmonetary exchanges of similar
productive assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Previously, APB 29
required that the accounting for an exchange of a productive asset for a similar
productive asset or an equivalent interest in the same or similar productive
asset should be based on the recorded amount of the asset relinquished. APB 29
provided an exception to its basic measurement principle (fair value) for
exchanges of similar productive assets. The FASB believes that exception
required that some nonmonetary exchanges, although commercially substantive, be
recorded on a carryover basis. By focusing the exception on exchanges that lack
commercial substance, the FASB believes SFAS 153 produces financial reporting
that more faithfully represents the economics of the transactions. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
After June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date of issuance. The
provisions of this Statement shall be applied prospectively. The Company is in
the process of determining the impact of this statement on its consolidated
financial statements.
NOTE 2: ACCOUNTING FOR VARIABLE INTEREST ENTITY (VIE)
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51 (FIN 46(R)). In December 2003, the FASB modified FIN 46(R) to make
certain technical corrections and address certain implementation issues that had
arisen. FIN 46(R) provides a new framework for identifying VIEs and determining
when a company should include the assets, liabilities, noncontrolling interests
and results of activities of a VIE in its financial statements and deferred the
effective date for us until December 31, 2004.
In general, a VIE is an entity used to conduct activities or hold assets that
either (1) has an insufficient amount of equity to carry out its principal
activities without additional subordinated financial support, (2) has a group of
equity owners that are unable to make significant decisions about its
activities, or (3) has a group of equity owners that do not have the obligation
to absorb losses or the right to receive returns generated by its operations.
FIN 46(R) requires a VIE to be consolidated if a party with an ownership,
contractual or other financial interest in the VIE is obligated to absorb a
majority of the risk of loss from the VIEs activities, is entitled to receive a
majority of the VIEs residual returns (if no party absorbs a majority of the
VIEs losses), or both. A variable interest holder that consolidates the VIE is
called the primary beneficiary. Upon consolidation, the primary beneficiary
generally must initially record all of the VIEs assets, liabilities and
noncontrolling interests at fair value and subsequently account for the VIE as
if it were consolidated based on majority voting interest.
F-13
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: ACCOUNTING FOR VARIABLE INTEREST ENTITY (CONTINUED)
The Company owns a 34% equity interest in ST, LLC, however, as stipulated in the
amended operating agreement, losses are allocated first to the Company subject
to its contributions from inception. Consequently, the loss allocated to the
Company was greater than 34%.This entity qualifies as a VIE under FIN 46(R), and
we are the primary beneficiary. We began consolidating the balance sheet of ST,
LLC in accordance with FIN 46(R), as of December 31, 2004. Previously the
Company carried the investment under the equity method. A cumulative effect
adjustment was not recorded upon initial consolidation because the Company had
previously recognized its allocated share of losses and our investment had been
written down to zero at December 31, 2004. ST, LLC's surplus in stockholders'
equity at the December 31, 2004 (adoption date), is reflected as a minority
interest liability in the consolidated balance sheet (Note 15).
As of December 31, 2004, total assets and liabilities of the ST, LLC is as
follows:
Cash $ 55,498
----------
Accounts Receivable 142,968
Fixed Assets 802,242
Capitalized Software Costs 619,951
Customer Lists 1,106,750
Other Assets 272,745
Accounts Payable and Accrued Liabilities (395,126)
----------
$2,549,530
----------
Minority Interest $2,605,028
==========
See Notes 8 and 16 for additional information.
NOTE 3: DISCONTINUED OPERATIONS
Effective December 31, 2002, the Company sold seventy percent of the common
stock of its wholly-owned subsidiary, Southeast, to executive officers of
Southeast, in exchange for the return of 45,000 shares of the Company's common
stock, and a promissory note (the "Note") of approximately $1,600,000 payable to
the Company by Southeast for its pre-existing debt to the Company,
collateralized 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 bears interest at 6% and is payable
in monthly installments of principal and interest of approximately $9,600
beginning February 20, 2003 through January 2033. Southeast's activities
included primarily the sale of automobile parts in the automotive after-market.
On June 29, 2003, the Company transferred its remaining thirty percent of the
common stock of Southeast to the former executive officers of Southeast in
consideration of their agreement to amend the Note to reflect an original
principal balance of $1,764,581 with a term of 40 years from June 30, 2003, with
a balloon payment of $206,916 due on May 20, 2043; the remaining terms of the
Note were unchanged. On June 30, 2003, the Company sold and assigned the Note to
the principal stockholder of Consulier, together with its security interest for
the consideration of $1,762,575, the then current unpaid principal balance and
accrued interest due on the Note.
F-14
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Since the Note was sold and assigned, the Company is no longer considered to be
the primary beneficiary. As such, Southeast is considered to be divested as of
the assigned date of the Note, June 30, 2003, and as a result the Company
reflected the operations and disposal of Southeast as discontinued operations
recording an after tax gain on the disposal of subsidiary of $97,564.
NOTE 4: CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts, which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents. As of December 31, 2004, the Company had $167,649 in
these accounts.
The Company grants credit to customers, substantially all of whom are businesses
located in the United States and Canada. The Company typically does not require
collateral from customers. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary in the
circumstances.
There were no sales to any one customer which comprised more than 5% of
consolidated revenue during the year ended December 31, 2004.
NOTE 5: RECEIVABLES
Receivables consist of the following as of December 31, 2004:
Trade receivables $ 228,023
Receivable from Investment in Partnership 147,027
--------
375,050
Less allowance for doubtful accounts (81,167)
--------
$ 293,883
========
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 2004:
RANGE OF
USEFUL
LIVES (YEARS)
------------
Building and Improvements 30 $ 830,463
Land N/A 412,000
Computer Hardware and Software 3-5 1,133,654
Machinery and Equipment 5-7 242,692
Furniture and Fixtures 5-7 175,956
----------
2,794,765
Less: Accumulated Depreciation (941,584)
----------
$ 1,853,181
==========
Depreciation expense totaled $25,559 for the year ended December 31, 2004.
F-15
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: INTANGIBLE ASSETS
Intangible assets at December 31, 2004 consist of:
2004
-----------
Customer List $ 1,106,750
Less: Accumulated Amortization -
----------
$ 1,106,750
==========
Estimated future amortization is as follows:
YEAR ENDING DECEMBER 31,
------------------------
2005 $ 233,000
2006 233,000
2007 233,000
2008 233,000
2009 174,750
----------
$ 1,106,750
==========
NOTE 8: PARTNERSHIP AND LIMITED LIABILITY COMPANIES - INVESTMENTS
The limited partnership and limited liability company interests consist of
Consulier's investment in AVM, BioSafe and ST, LLC.
AVM, L.P
Consulier owned approximately 10% of AVM capital as of December 31, 2004 and
2003. Based on capital and earnings distributions provided in the partnership
agreement, Consulier was allocated approximately 8% and 8 1/2% of AVM's earnings
during 2004 and 2003, respectively. 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. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: PARTNERSHIP AND LIMITED LIABILITY COMPANIES - INVESTMENTS (CONTINUED)
Following is a summary of the financial information of AVM as of and for the
years ended December 31:
2004 2003
------------ ------------
Cash $ 23,269,632 $ 60,137,179
Due from brokers 3,995,000 3,797,006
Securities owned 462,752 521,561
Investment in affiliate and other assets 6,416,144 1,690,146
----------- -----------
Total assets $ 34,143,528 $ 66,145,892
=========== ===========
Due to brokers $ 2,390,854 $ 4,839,835
Customer payables & subordinated borrowings 2,033,504 39,382,169
Other liabilities 1,868,368 2,907,795
Anticipated partners' withdrawals 3,318,247 1,370,318
----------- -----------
Total liabilities 9,610,973 48,500,117
----------- -----------
Partners' capital 24,532,555 17,645,775
----------- -----------
Total liabilities and partners' capital $ 34,143,528 $ 66,145,892
=========== ===========
Revenue $ 68,651,275 $ 77,326,384
=========== ===========
Net income $ 29,364,096 $ 36,373,133
=========== ===========
Consulier's share of AVM's earnings $ 2,327,869 $ 3,095,475
=========== ===========
The carrying value of Consulier's investment in AVM was $1,852,133 at December
31, 2004.
BIOSAFE SYSTEMS, LLC
Consulier owns a 40% interest in BioSafe. At December 31, 2004 and 2003
BioSafe's summarized financial information was as follows:
(UNAUDITED)
2004 2003
----------- -----------
Total Assets $ 1,720,486 $ 2,024,000
========== ==========
Total Liabilities $ 183,525 $ 309,000
========== ==========
Revenue $ 6,388,772 $ 5,826,259
Costs and Expenses 5,671,389 5,163,389
---------- ----------
Net Income $ 717,383 $ 662,870
========== ==========
Consulier's Share of Earnings $ 286,953 $ 265,148
========== ==========
The carrying value of Consulier's investment in BioSafe was $620,033 at December
31, 2004.
F-17
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: PARTNERSHIP AND LIMITED LIABILITY COMPANIES - INVESTMENTS (CONTINUED)
SYSTEMS TECHNOLOGIES, LLC
During August 2002, Consulier purchased a 14.25% interest in ST, LLC, a Nevada
limited liability company. During the year ended December 31, 2004, Consulier
made additional contributions of $5,180,000. As of December 31, 2004,
Consulier's interest in ST, LLC totaled 34%, representing the Company's maximum
ownership percentage as stipulated in the operating agreement. ST, LLC is a
member of Patient Care Technology Systems, LLC ("PCTS"), a California limited
liability company. ST, LLC's primary asset is its 75% (at December 31, 2004)
investment in PCTS. The original ST, LLC operating agreement provided that the
losses from ST, LLC be allocated to ST, LLC's principal members based upon the
capital contributions made from the inception of the LLC. Effective April 1,
2003, this agreement was amended and provides that Consulier receive allocated
losses to the extent of Consulier's contributions from inception. Consequently,
the loss allocated to Consulier was greater than 34%. Consulier's majority
shareholder owns approximately 51% of ST, LLC, and together with the Company's
34%, the combined ownership aggregates 85%.
Consulier can require Consulier's principal shareholder to purchase its interest
in ST, LLC for cash equal to the Consulier's capital contributions in ST, LLC at
any time with 60 days written notice.
Management has evaluated ST, LLC's (primarily PCTS's) projections and related
assumptions regarding their operations. In this regard, management periodically
compares actual results to these projections. Should actual results be
significantly less than the projection, a write down might be necessary.
Following is a summary of the summarized financial information of PCTS and the
losses allocated to Consulier:
(UNAUDITED)
2004 2003
------------ ------------
Total Assets $ 3,000,154 $ 3,092,000
=========== ===========
Total Liabilities $ 395,126 $ 447,000
=========== ===========
Revenue $ 672,623 $ 386,958
Costs and Expenses 9,342,454 4,953,084
----------- -----------
Net Loss $ (8,669,831) $ (4,566,126)
=========== ===========
Consulier's Share of Loss $ (6,029,544) $ (4,566,126)
=========== ===========
Based upon the provisions of FIN 46(R), the Company's investment in ST, LLC was
eliminated in consolidation at December 31, 2004.
F-18
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES
Provisions (benefits) for federal and state income tax in the consolidated
statements of operations consist of the following:
CONTINUING OPERATIONS 2004 2003
--------------------- ------------ ------------
Current:
Federal $ (651,068) $ (612,458)
State 28,420 -
----------- -----------
(622,648) (612,458)
----------- -----------
Deferred:
Federal (409,257) (53,931)
State (213,030) (6,577)
----------- -----------
(622,287) (60,508)
----------- -----------
Total income tax (benefit) $ (1,244,935) $ (672,966)
=========== ===========
DISCONTINUED OPERATIONS 2004 2003
----------------------- ------------ ------------
Current:
Federal $ - $ 66,822
State - 7,425
----------- -----------
- 74,247
----------- -----------
Deferred:
Federal - 158,288
State - 17,588
----------- -----------
- 175,876
----------- -----------
Total income tax expense $ - $ 250,123
=========== ===========
Applicable income taxes (benefit) for financial reporting purposes differ from
the amount computed by applying the statutory federal income tax rate as
follows:
2004 2003
------------ ------------
Tax expense (benefit) at statutory rate $ (1,095,030) $ (539,887)
State income tax expense (benefit) net
of federal tax effect (149,905) (43,409)
Transfer to discontinued operations - (72,571)
Other - (17,099)
----------- -----------
Income tax (benefit) $ (1,244,935) $ (672,966)
=========== ===========
F-19
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES (CONTINUED)
The Company utilized all of its capital loss carry-forward during the year ended
December 31, 2003 due to the sale of Southeast. During the year ended December
31, 2004, the Company generated a Federal tax net operating loss that is to be
carried-back to prior year operating income, giving rise to an income tax
refund. As of December 31, 2004, the Company had state tax loss carry-forwards
of approximately $4,967,000 available to reduce future years' income for state
tax purposes through 2023.
The approximate tax effects of temporary differences that give rise to deferred
tax assets (liabilities) are as follows:
2004 2003
------------ ------------
Depreciation $ 17,653 $ 17,653
Allowance for doubtful accounts 30,543 8,655
Tax loss carry forward 922,701 57,794
Other 16,405 16,405
Accrued Wages 48,919 33,867
----------- -----------
Total Net Deferred Tax Asset $ 1,036,221 $ 134,374
=========== ===========
Deferred tax assets and liabilities are reflected on the balance sheet as of
December 31, 2004 as follows:
Net Short-Term Deferred Tax Assets $ 87,883
Net Long-Term Deferred Tax Assets 948,338
-----------
Net Deferred Tax Assets $ 1,036,221
===========
NOTE 10: STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
Consulier 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").
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 Consulier's common stock by employees were
exercised in fiscal 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, 2004, $36,082 remains outstanding and is recorded as notes
receivable for common stock, included as a reduction of stockholders' equity.
On October 8, 1991, the majority shareholder of the Company granted options to
one of the officers of the Company to purchase common stock of the Company from
that primary shareholder. As of
F-20
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: STOCKHOLDERS' EQUITY (CONTINUED)
December 31, 2004, the remaining balance of these options amounted to 190,000
shares at $1.25 per share. Since the issuance of these options in 1991 and all
subsequent revisions made to the options were for reasons unrelated to the
business of Consulier Engineering, Inc., no accounting recognition was reflected
on the books and records of the Company in 1991 nor at the time of any
subsequent extension.
CAPITAL STOCK
During February 2003, the Company received the return of 45,000 shares of its
common stock held by certain executive officers of Southeast in connection with
the sale of that subsidiary. The value of the stock was based upon the closing
market value on the day received (Note 3).
On December 23, 2003, 7.171 shares of restricted treasury stock with a
historical cost of $12,411 were sold to a related party for cash of $17,789
(approximately $2.48 per share, the then market price).
On December 31, 2004 a former bondholder exercised warrants to purchase 40,000
shares of common stock at $1.75 per share for cash of $70,000.
During December 2004, the Company repurchased 19,123 shares of its common stock
from one of its former bondholders for $3.50 per share for a total purchase
price of $66,936.
On December 23, 2004, 4,807 shares of stock were issued to a related party for
cash of $16,825 (approximately $3.50 per share, the then market price).
COMMON STOCK WARRANTS
In connection with the issuance of bonds in prior years, Consulier issued
warrants to purchase shares of its common stock at a purchase price of $1.75 per
share. The fair value of the warrants represented an original issue discount,
which were amortized over the term of the bonds. The allocated value of the
warrants had been recorded as additional paid-in-capital.
The following represents the stock option activity during the years ended
December 31, 2004 and 2003:
WEIGHTED
AVERAGE
OPTIONS PRICE
--------- --------
Balance at January 1, 2003 70,000 $ 1.75
Options granted - -
Options exercised - -
Options expired - -
--------- ------
Balance at December 31, 2003 70,000 1.75
Options granted - -
Options exercised 40,000 1.75
Options expired 30,000 1.75
--------- ------
Balance at December 31, 2004 - $ -
========= ======
F-21
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE
PCTS has notes receivable from two employees totaling $160,000 as of December
31, 2004. These unsecured notes receivable are non-interest bearing and due on
demand.
DUE FROM RELATED PARTIES
Due from related parties represents loans made to certain employees during the
year ended December 31, 2004. These unsecured loans are non-interest bearing and
due on demand.
OTHER
For other related party transactions see Notes 8, 10 and 14.
NOTE 12: BUSINESS SEGMENT INFORMATION
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, distribution of household and tool products, investments, and
corporate. The automotive parts distribution segment distributed after-market
automotive and truck parts to wholesale markets, which is shown as discontinued
operations (Note 3). The household and tool products manufacturing segment is
engaged in sales of the Captain Cra-Z soap product line and 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. Segment
information as of and for the years ended December 31, 2004 and 2003 are as
follows:
YEAR ENDED DECEMBER 31, 2004
-----------------------------------------------------------------------------
DISTRIBUTION INVESTING CORPORATE DISCONTINUED
ACTIVITIES ACTIVITIES ACTIVITIES OPERATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Revenue (b) $ 48,626 $ - $ - $ - $ 48,626
Operating Income (Loss) (167,482) - (385,576) - (553,058)
Other Income (Loss) - (3,414,722) 87,907 - (3,326,815)
(Loss) From Continuing
Operations(a) (118,856) (3,414,722) 898,640 - (2,634,938)
Total Assets $ 82,284 $ 5,345,338 $ 3,191,553 $ - $ 8,619,175
YEAR ENDED DECEMBER 31, 2003
-----------------------------------------------------------------------------
DISTRIBUTION INVESTING CORPORATE DISCONTINUED
ACTIVITIES ACTIVITIES ACTIVITIES OPERATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Revenue (b) $ 193,966 $ - $ - $ - $ 193,966
Operating Income (Loss) (211,294) - (245,908) - (457,202)
Other Income (Loss) - (1,205,503) 74,802 - (1,130,701)
Income (Loss) From
Continuing Operations(a) (121,746) (694,601) (98,590) - (914,937)
Income (Loss) From
Discontinued Operations - - - 108,079 108,079
Total Assets $ 214,683 $ 3,755,196 $ 4,308,781 $ - $ 8,278,660
------------
(a) All interest expense incurred by the Company was allocated to the Corporate
Activities Segment.
(b) There were no intersegment revenue during the year.
F-22
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share for the years ended December 31:
2004 2003
----------- -----------
EARNINGS (LOSS) PER SHARE COMPUTATION:
NUMERATOR:
(Loss) from continuing operations $(2,634,938) $ (914,937)
Discontinued operations, net of income taxes - 108,079
----------- -----------
Net (Loss) $(2,634,938) $ (806,858)
=========== ===========
DENOMINATOR:
Average number of common shares outstanding 4,942,577 4,935,439
=========== ===========
DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION:
NUMERATOR:
(Loss) from continuing operations $(2,634,938) (914,937)
Discontinued operations, net of income taxes - 108,079
----------- -----------
Net (Loss) $(2,634,938) $ (806,858)
=========== ===========
DENOMINATOR:
Average number of common shares outstanding 4,942,577 4,935,439
Incremental shares for assumed exercise of warrants - (a)
----------- -----------
Total shares 4,942,577 4,935,439
=========== ===========
------------
(a) The weighted average shares of common stock outstanding were not adjusted
for potential effects of the Company's stock options/warrants because of
their antidilutive effect.
NOTE 14: COMMITMENTS AND CONTINGENCIES
LINE OF CREDIT
On August 1, 2004, the Company renewed its line of 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% (4.5% and 3.22%, respectively at December 31,
2004). The borrowings are collateralized by primarily all assets of the Company,
by collateral pledged by the principal shareholder, WBM Investors Limited
Partnership (partially owned by the majority shareholder) and AVM, L.P. (Note
7). The revolving credit agreement matures on August 1, 2005. As of December 31,
2004, the Company borrowed $285,000 under this credit agreement.
F-23
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14: COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDING
From time to time, the Company is involved in lawsuits and claims incidental in
the ordinary course of business. Management does not believe the outcome of any
litigation against the Company would have a material adverse effect on the
Company's financial position or results of operations.
LEASES
The Company leases office space under month-to-month leases. Rent expense
charged to operations was $2,181 for the year ended December 31, 2003, all of
which was to related parties. The Company did not incur any rent expense during
the year ended December 31, 2004.
On December 31, 2004 the Company consolidated ST, LLC in accordance with FIN
46(R) (Note 2), which has a non-cancelable operating leases for office space.
The office lease, which matures on June 2005, requires aggregate monthly
payments of approximately $18,500.
LEASE OF REAL ESTATE
Consulier leases its industrial warehouse to Southeast (Note 3) with a base rent
of $10,000 per month for the first year, adjusted for any cost of living
adjustments every succeeding year over the lease term. The term of this lease is
5 years, ending on June 30, 2007. Southeast is also responsible to pay 100% of
the real estate taxes during the term of the lease. Rental income totaled
$120,000 and $120,000 for the year ended December 31, 2004 and 2003,
respectively, and is included in other income on the consolidated statements of
operations.
NOTE 15: 401(K) PLAN
PCTS maintains a 401(k) Employee Retirement Plan to provide all qualified
employees with retirement benefits. Presently, the Company pays the
administrative cost of the plan, and does not make any matching contributions to
participants.
NOTE 16: SUBSEQUENT EVENT
AMENDMENT TO THE ST, LLC OPERATING AGREEMENT
Effective April 1, 2005, ST, LLC amended its operating agreement to reallocate
membership interests based upon historical contributions. As a result of this
amendment, the Company's ownership percentage in this limited liability company
increased to approximately 61% and will be included as a majority owned
consolidated subsidiary. Therefore, the provisions of FIN 46(R) will no longer
apply as of April 1, 2005.
F-24
FORM 10-KSB ITEM 13
EXHIBITS
PAGE
----
Exhibit 31(i) - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 E-1
Exhibit 31(ii) - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 E-2
Exhibit 32(i) Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350) E-3
Exhibit 32(ii) Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. Section 1350) E-4