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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, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO __________
COMMISSION FILE NUMBER 0-17756
Consulier Engineering, Inc.
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(Name of small business issuer in its charter)
Florida 59-2556878
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(State or other jurisdiction of (I.R.S Employer Indentification No.)
incorporation or organization)
169 Tequesta Drive, Suite 31E
Tequesta, FL 33469
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(Address of principal executive offices) (Zip Code)
(561) 745-9149
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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
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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, 1998 totaled
$2,713,044.
As of March 30, 1999, there were 4,888,918 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 30, 1999 based on
the average bid and asked price of such date was $1,525,048.
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CONSULIER ENGINEERING, INC.
1998 FORM 10-KSB ANNUAL REPORT
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I PAGE
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<S> <C> <C>
Item 1. Description of Business........................................... 3
Item 2. Description of Property........................................... 9
Item 3. Legal Proceedings................................................. 9
Item 4. Submission of Matters to a Vote of
Security Holders.................................................. 10
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters............................................... 10
Item 6. Management's Discussion and Analysis.............................. 11
Item 7. Financial Statements.............................................. 14
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................... 14
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act............................................... 15
Item 10. Executive Compensation............................................ 17
Item 11. Security Ownership of Certain Beneficial Owners
and Management.................................................... 18
Item 12. Certain Relationships and Related Transactions.................... 20
Item 13. Exhibits and Reports on Form 8-K.................................. 21
</TABLE>
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Consulier Engineering, Inc. ("Consulier") was incorporated in June 1985 in
Florida. Its principal businesses are the distribution of automobile and truck
parts in the automotive and truck after-market, the development of advanced
engineering products, and investment activities. The automobile and truck parts
distribution business is conducted through a wholly-owned subsidiary, Southeast
Automotive Acquisition Corporation, which is based in Miami, Florida.
Consulier's corporate headquarters are located in Tequesta, Florida.
From inception until March 31, 1990, Consulier was engaged in research and
development and manufacturing activities relating to a high performance sports
car, the Consulier GTP. These operations were not profitable. In April 1990,
Consulier sold this business at net book value to Mosler Auto Care Center, Inc.
("MACC"), a corporation wholly owned by Warren B. Mosler ("Mosler"), Consulier's
chairman and majority shareholder. Consulier retained the right to repurchase
this business at fair value for a five year period. On October 31, 1993, MACC
sold the business for restricted stock and production royalty rights. In
exchange for waiving its repurchase option, Consulier was granted an option to
purchase the restricted stock, and receive all royalty payments (see
"Description of Business Segments" - "Discontinued Automobile Manufacturing
Segment").
On April 1, 1990, Consulier purchased a $3,000,000 limited partnership interest
in Adams, Viner & Mosler, Ltd. ("AVM"), a government securities broker/dealer
located in West Palm Beach, Florida. This purchase was financed through a
$3,000,000 loan from Mosler, who was a founder of AVM and is a general partner
of AVM Associates, the general partner of AVM. At December 31, 1998, the limited
partnership interest is $2,064,215 and the loan from Mosler was repaid in 1992.
Consulier acquired Southeast Automotive Parts, Inc. of Dade ("Southeast
Automotive") on April 1, 1991, through a merger of Southeast Automotive into
Southeast Automotive Acquisition Corporation ("Southeast"). Prior to this
acquisition, Southeast Automotive was 50% owned by Mosler.
In April 1997 Consulier contracted with Gugel Enterprise, Inc. to purchase six
patents for tool and ladder related products. Several of the patents are for
work platform and tool holding attachments to ladders. A new Florida corporation
named C-6 Products, Inc. ("C-6") was formed to develop, manufacture, sell and
distribute the patented products. C-6 is a wholly-owned subsidiary of Consulier.
These are now being called the Tool Topper(TM) line of products. The balance of
the patents are related to powered hack saws which are powered by 110/220 volt
AC, pneumatic and battery power sources.
Consulier contracted with Gugel Enterprise, Inc. for marketing services
necessary to sell and distribute the Tool Topper(TM) line.
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DESCRIPTION OF BUSINESS SEGMENTS
(1) AUTOMOTIVE AND TRUCK PARTS DISTRIBUTION
BACKGROUND
Southeast is located in Miami, Florida. It is engaged in research and
development, manufacturing and distribution to the automotive and truck
wholesale markets.
PRODUCTS
Southeast's primary products are transmission, engine, torque strut and
hydraulic mounts. Southeast sells approximately 200 different after-market
mounts for domestic and imported vehicles. Development efforts are directed
towards developing mount or strut products which replace two or more original
equipment products. For example, the Southeast 2000 mount replaces nine existing
General Motors' mounts used in 85 percent of GM's rear wheel drive vehicles
produced from 1954 to 1994. Efforts have also been directed to foreign
automobiles where 30 new products were developed in 1997 introducing mount
products through year 1996 vehicles.
Other products include over 180 automotive flywheels and flexplates, specialty
tools and bushings for transmission repair, automotive springs, speedometer
gears, accelerator detente and clutch cables, linkage parts, thrust washers,
electrical connector plugs and sensor switches, specialty machine shop products
and over 100 plastic parts related to transmissions. Southeast is also
developing foreign flywheel applications, and is beginning to manufacture
aluminum parts for transmission and other automotive applications using three
and four axis CNC machining.
Mounts are imported from one primary source and are manufactured to Southeast's
specifications, which meet or exceed original equipment specifications. Due to
shipping schedules, Southeast attempts to maintain a three months supply of
mounts in inventory to service customers.
Flywheels are purchased from USA/OEM. Quantities held in inventory are
maintained at minimum levels. The specialty tools for transmission repair are
manufactured by Southeast at its Miami facilities. Other products are purchased
from a variety of domestic and foreign sources, or are manufactured by
Southeast.
Southeast is currently a distributor of CRA-Z Soap Hand Cleaner, a unique heavy
duty bar with the ability to remove both surface grime and deeply embedded
stains without resorting to petroleum based solvents or skin irritating pumice
common to all other hand cleaners. Southeast's initial marketing efforts
targeted mechanics, spray painters, shop personnel, printers and all other
craftsmen. CRA-Z Soap is a high density, long lasting cleaner which is non-toxic
and biodegradable. CRA-Z soap comes in bar form only. It is best used with the
custom CRA-Z Soap dispenser which grinds four bars into granular form providing
approximately 1600 washes. One 300 gram bar, the form in which CRA-Z Soap is
manufactured, outlast two gallons of the leading liquid or paste products.
Although CRA-Z Soap is primarily known as a hand cleaner, users have found a
myriad of other applications and general uses. These include clothes washing
applications and pre-scrubbing, household cleaning, auto, bus and marine
washing, etc.
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SALES AND MARKETING
Automotive parts are distributed primarily to specialty transmission parts
distributors located throughout the United States and in several foreign
countries. Southeast competes with other importer/distributors and original
equipment manufacturers and estimates that it has approximately 40% of the
automatic transmission mount after-market and 3-5% of the general automotive
mount market.
In the sale of its automotive parts products, Southeast competes with a number
of other automotive after-market suppliers, many of which are larger than
Southeast in terms of sales, financial resources, product development facilities
and channels of distribution. The sale of automotive parts is extremely
competitive, with prices and warranty provisions comparable throughout the
industry.
Southeast has developed a detailed parts catalogue for its distributors.
Distributors are able to provide this catalogue to their customers under their
own name. Part numbers have been simplified and to the extent possible, made
generic.
Sales of CRA-Z Soap have lagged behind expectations. Sales of CRA-Z Soap
increased 37%, or $20,395, in 1998 over 1997. Aggressive marketing, including
trade show attendance, advertising, and Internet sales and promotion is underway
for 1999. Management believes sales of CRA-Z Soap will continue to increase over
previous years.
RESEARCH AND DEVELOPMENT EXPENDITURES
Product development costs for Southeast's transmission mounts are being funded
primarily by the supplier. Approximately $30,000 per year is spent on tooling
for plastic parts. Other research and development expenditures, including design
of specialty tools, are not significant.
EMPLOYEES
Southeast has 20 employees, three in manufacturing, three in shipping and
receiving, and fourteen in sales, marketing, management and administration.
(2) INVESTMENTS SEGMENT
INVESTMENT IN ADAMS, VINER & MOSLER, LTD.
In April 1990, Consulier borrowed $3,000,000 from Chairman Warren Mosler and
invested the entire proceeds of the loan in a limited partnership interest in
AVM. The loan was reduced during 1990 and 1991 and fully retired during 1992.
AVM, a broker/dealer in U.S. Government securities formed in October 1983, is an
Illinois limited partnership located in West Palm Beach, Florida. AVM is
registered with the Commodity Futures Trading Commission as a Futures Commission
Merchant (FCM) and conducts its FCM 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
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transactions and presently employs 59 people in addition to the four general
partners of its general partner. Mosler is one of the founders of AVM and is a
general partner of the general partner of AVM.
As of December 31, 1998 and 1997, Consulier's limited partnership interest
represented approximately 9% 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, 5% and 6% of AVM's earnings during 1998 and 1997,
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.
In January 1996 Consulier invested $100,000 in The High Risk Opportunities Fund
L.P., (the "HRO Fund") a limited partnership formed to invest in an unrestricted
range of financial instruments. On Septemeber 1, 1998, HRO was placed in
liquidation and all of Consulier's investment in HRO, $150,242 was written off
as a loss.
BIOSAFE SYSTEMS, LLC
On October 31, 1997 Consulier purchased a minority equity interest in BioSafe
Systems, LLC., a New Jersey limited liability corporation ("Biosafe"). Biosafe
develops and markets environmentally safe products, alternatives to
traditionally toxic pesticides. Consulier is entitled to representation on
Biosafe's Board of Managers.
Recent public concern over environmental practices and the effect of toxic
chemicals on the environment are producing increasing pressure on agricultural
concerns to limit their use. BioSafe uses peroxigen chemistry as a pesticide,
algaecide and fungicide. Peroxigen chemistry uses the power of free radical
oxidation to kill all forms of microorganisms that may be pathogenic to plants,
without causing harm to the plant. Peroxigens immediately biodegrade upon
reacting with either microorganisms or organic material such as soil, into
components of oxygen and water leaving behind no toxic residues.
BioSafe's initial product, ZeroTol(TM), utilizes a formulation using peroxigens
as the principal active ingredients. No other company currently has or has
requested a US EPA registration for the use of peroxigens for these purposes.
BioSafe's first federal EPA registration for its ZeroTol(TM) product was granted
in 1998 permitting its use on ornamental plants and turf applications. BioSafe
will concentrate the majority of its initial marketing effort towards commercial
greenhouses, nurseries and the turf and turf management industries.
BioSafe Systems based in Glastonbury, CT completed a profitable year in 1998
with the introduction of ZeroTol Algaecide/Fungicide to the commercial
greenhouse, nursery and turf industries.
ZeroTol has been well received by professional growers and golf course
superintendents across the country. BioSafe Systems introduced a new class of
pesticide chemistry to these markets that utilizes the power of peroxygen
oxidation to "clean" plant tissue of both disease organisms and the spores that
propagate these organisms. ZeroTol is the only product labeled for Horticulture
that is capable of inactivating algae, bacterial and fungal spores on contact.
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BioSafe has developed a well-established national distribution network, serving
the greenhouse and nursery marketplace. In additional, BioSafe has established
distribution in Central and South America. Product registrations have been
secured in Costa Rica, Colombia and Ecuador.
BioSafe System will be introducing two new products in 1999 to both the
horticultural industry as well as general agriculture. The first product is
trademarked as OxiDate(TM) Bactericide/Fungicide and is labeled for
applications to major high value food crops such as potatoes, leafy vegetables,
apples, citrus, stone fruits, grapes and bananas. BioSafe will concentrate its
efforts at expanding its distribution network to cover a broad-spectrum
distribution into the agricultural markets and will utilize some of the already
established distributors who now carry ZeroTol to accomplish this.
BioSafe will also introduce TerraCare Algaecide/Fungicide for use in the
commercial greenhouse/nursery and turf markets. The granular formulation
introduces a new class of peroxygen chemistry that is capable of both killing
and inhibiting algae as well as bacterial and fugal organisms. The TerraCare
product is completely biodegradable into components of oxygen, carbon dioxide
and calcium carbonate (Lime). TerraCare will be distributed by the existing
distributors.
BioSafe System expects an increase in sales with the introduction of the new
products as well as the eventual registration of ZeroTol and OxiDate in
California in the second quarter of 1999.
(3) CORPORATE SEGMENT
GENERAL
Consulier's Corporate segment includes management and finance activities as well
as a consulting, engineering, new product development and business management.
Wholly owned subsidiaries include Southeast, C-6 and a small leasing company
named Consulier Business Services, Inc. Formerly included was a high performance
engine repair and overhaul business which was discontinued in March 1994.
CORPORATE EMPLOYEES
As of December 31, 1998, the Corporate segment of Consulier's business had nine
employees engaged in marketing, engineering, management and finance activities,
and three engineers with specialized areas of expertise retained for different
engineering projects on a consulting basis. As of February 28, 1999, Consulier
had five employees engaged in sales, marketing, engineering, management, and
finance activities.
(3)(a) ENGINEERING PRODUCTS
BACKGROUND
In February 1996, Charles E. Spaeth was appointed acting President and CEO. Mr.
Spaeth, also on Consulier's Board of Directors, filled that role until the
appointment of Michael G. Maguire to that position in April 1997. Mr. Maguire
resigned from the positions of President and CEO of Consulier, and President of
C-6 Products on February 12, 1999. Mr. Warren B. Mosler, Chairman of the Board
of Consulier reassumed the position of President and CEO on February
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12, 1999. Ralph D. Butler has continued to serve as Secretary, Treasurer and
Chief Financial Officer, positions he has held since May 1996.
Most of Consulier's patents and engineering technology were developed by a
former employee, James Shaffer, who left the Company in September 1992.
Consulier's main business had been the purchase or establishment of businesses
as subsidiaries and the engineering, development and manufacturing of its own
concepts and inventions.
PRODUCTS
All products currently being sold or marketed are in support of Consulier's
subsidiaries. The major effort in 1998 was the launch of the Tool Topper(TM)
Workstation and accessory line. The products are now on the market and all
engineering has been completed.
(3)(b) CONSULTING ACTIVITIES
BACKGROUND
On a limited basis, Consulier has continued to provide engineering and
management consulting services. To date these activities have not been
profitable. Consulier had not been actively pursuing consulting work unless it
was tied in support of our subsidiaries or technology areas with synergy to
Consulier's business interests.
(3)(c) CONSULIER BUSINESS SERVICES, INC.
Consulier Business Services, Inc. is a wholly owned subsidiary involved in the
leasing of two vehicles and various machinery and equipment used in the engine
repair and overhaul business (see (3)(d) below). Assets and revenues are not
material, and the business is operated by Corporate staff.
(3)(d) DISCONTINUED AUTOMOBILE MANUFACTURING SEGMENT
Although Consulier was founded as an automobile manufacturer, management
recognized that the development of an effective automotive sales and marketing
program required a much longer period of time than originally anticipated. In
view of projected capital requirements, management considered it imprudent to
continue to commit a majority of Consulier's resources to the long-range
operating needs of its automobile manufacturing business segment. Accordingly,
in March 1990, the Board of Directors approved a sale of the automobile business
to MACC, with Consulier retaining a five year option to repurchase the business.
The sale price of $750,000 resulted in no gain or loss to Consulier.
On October 31, 1993 MACC sold the automobile business to U.S. Electricar, Inc.
("Electricar") of Santa Rosa, California in exchange for 1,000,000 shares of
Electricar restricted common stock, and production royalties payable over a 15
year period. MACC retained the right to produce special order GTP cars and WSC
(World Sports Car) class race cars.
At the time of the sale, Consulier held an option to repurchase the car business
at net book value. In exchange for waiving this purchase option, MACC granted
Consulier the right to purchase the 1,000,000 shares of Electricar restricted
common stock at a price of $.50 per share. Consulier will also receive all
royalty payments arising out of the sale which are based upon production of
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composite vehicles by Electricar. Electricar is currently under reorganization.
No royalty payments have been received to date.
(4) HOUSEHOLD AND TOOL PRODUCTS
In April 1997 C-6 Products, Inc. purchased six patents for tool and ladder
related products. The patents are for work platform and tool holding attachments
to ladders. Initial development was launched in April 1997 of a product that
attaches to a standard stepladder, converting it into a handy work platform for
standard household chores, this is the present day Tool Topper(TM) Workstation
and related accessories. The design and development was completed in 1998, and
the Tool Topper is now being sold worldwide.
C-6 contracted with Gugel Enterprise, Inc. for marketing services necessary to
sell and distribute the Tool Topper Workstation. An aggressive marketing
campaign is scheduled for 1999, including attendance at numerous trade shows,
advertising, and Internet related sales and promotions.
ITEM 2. DESCRIPTION OF PROPERTY
In February 1999, Consulier reduced its office space as a cost reduction
measure. Consulier now occupies approximately 750 square feet in a building
owned by AVM properties, Ltd., an entity affiliated with Consulier Chairman,
President and CEO, Warren B. Mosler. The property is located at 169 Tequesta
Drive, Tequesta, Florida. The space is leased month to month, with a monthly
rental of $662.50.
Consulier's facilities are believed to be suitable for present requirements and
anticipated future uses.
In May 1997, Southeast purchased a 47,000 square foot industrial warehouse in
Medley, Florida. Southeast occupied the building in September 1997. Southeast's
automotive distribution business occupies approximately 35,000 square feet and
offices for its financial, marketing and administrative personnel occupy 2,000
square feet. Southeast leases approximately 10,000 square feet of the building
to an automotive engine component manufacturer as a distribution center. A three
year lease was entered into at $4,200 per month with an option to renew for
three years at $4,500 per month.
This warehouse is expected to give Southeast the additonal space for growth it
will need for the next several years.
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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The election of six directors and the approval of independent auditors were
submitted to a vote of shareholders at the Company's Annual Meeting held October
6, 1998. Warren B. Mosler, Alan R. Simon, Charles E. Spaeth, Burck E. Grosse,
William R. Locke, and Richard Hornstrom were elected upon receipt of the
following votes for, 4,794,851. BDO Seidman, LLP was approved as independent
auditors by a vote for of 4,794,851.
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.
High Low
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YEAR ENDED DECEMBER 31, 1997:
First quarter $2.6250 $1.7500
Second quarter 2.3750 1.8750
Third quarter 2.5000 2.0000
Fourth quarter 2.1250 2.0000
YEAR ENDED DECEMBER 31, 1998:
First quarter $1.7500 $1.0315
Second quarter 4.1875 1.7500
Third quarter 2.1250 1.9690
Fourth quarter 2.0310 1.1250
As of March 19, 1999, there were approximately 577 record holders of Consulier's
common stock. To date, Consulier has not paid 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 since Consulier's initial public offering in May 1989.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
AUTOMOTIVE PARTS DISTRIBUTION - Net sales of the Company's Southeast automotive
parts distribution segment represented 98% of Consulier's net sales in 1998 and
99% in 1997. This segment's sales decreased 19% or $635,774 in 1998. This
decline was primarily due to a customer of Southeast deciding to purchase a
factory and enter the automotive aftermarket business. Not only did Southeast
lose a customer, they gained a competitor. Southeast's sales for 1998 were
$2,656,178 compared to $3,291,952 in 1997.
The automotive parts distribution segment experienced a loss before taxes of
$274,634 in 1998 compared to a loss before taxes of $396,583 in 1997. Sales were
down $635,774 in 1998 but gross profit only decreased $207,675 from 1997 due to
better gross profit percentages. Selling, General and Administrative expenses
were $1,329,970 or 50.0% of net sales in 1998 compared to 1,637,447 or 49.7% of
net sales in 1997. Selling, General and Administrative expenses decreased
$307,477 in 1998 versus 1997 but remained a similar percentage of net sales.
In 1998 there was no bad debt expense while 1997 had a charge of $331,128 as a
result of an amount that was expended to bring inventory into the United States
that was deemed unrecoverable.
Payroll expenses were $414,819 in 1998 as compared to $433,583 in 1997. This
decrease was due to a reduced number of employees working at Southeast for the
majority of 1998.
Interest expense was $330,231 in 1998 as compared to interest expense of
$276,609 in 1997. The increase in interest expense was primarily due to an
increase in bank borrowings and the interest paid on those loans.
Southeast purchased a building in 1997, no rent expense was incurred in 1998
compared to $50,819 in 1997. Occupancy expenses did increase in 1998 in the form
of real estate taxes, depreciation, and repairs and maintenance.
YEAR 2000 ISSUES - The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium (year 2000)
approaches. The "year 2000" problem is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two digit
year value to 00. The issue is whether computer systems will properly recognize
date sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
The Company initiated a program in 1998 to review all of the computer systems of
the Company and it subsidiaries in order to determine whether the systems were
year 2000 compliant. This study not only involved identifying any required
modifications or replacements of certain hardware and software maintained by the
Company, but also receiving assurance from vendors that the appropriate actions
have been taken or are being taken by them to remedy their year 2000 issues for
computer systems that the vendors are responsible for maintaining and that are
relied upon by the Company. The costs associated with this process relate
primarily to salaries and were expensed as incurred. Management believes the
year 2000 problem will not pose significant operational problems for the
Company. The Company's computer operational programs were converted to year 2000
compliant software that use four digits to define the
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applicable year. The Company believes any future costs associated with Year 2000
compliance will be immaterial.
CORPORATE RESEARCH AND DEVELOPMENT - During 1998 Consulier direct expenditures
on research and development totaled $42,733. This represents an decrease of
74.7% from 1997 direct expenditures of $168,781. During 1997 an analysis was
made of the active patents to determine if development should continue. All
development of the previous active patents was discontinued. The major effort in
1997 and 1998 was the design and development of the Tool Topper(TM) Workstation
and accessory line. The products are now on the market
INVESTMENT IN AVM - Investment income from Consulier's AVM limited partnership
interest was $1,355,012 in 1998, a 2% decrease from 1997 income of $1,385,963.
This represents annualized returns of 66% and 69%, respectively, on Consulier's
average investment during each year.
CONSOLIDATED OPERATING RESULTS - Consulier's consolidated net income for the
year ended December 31, 1998 was $75,014, or $.02 per share compared to
$405,107, or $.16 per share for 1997.
OUTLOOK FOR 1999
Based on AVM's current operations and operating results over the past five
years, management expects continued returns in 1999 on Consulier's limited
partnership investment. However, there is no guarantee that the returns of 66%
and 69% in 1998 and 1997 respectively can be maintained. Sales in the automotive
parts distribution segment are expected to increase in 1999 due to the hiring
and training of new salespeople, strengthening of existing product lines, and
increased marketing and promotion. Southeast is scheduled to attend numerous
trade shows around the world to promote and sell its products.
For the year ended December 31, 1998 the Company did not reach its sales goals
for CRA-Z Soap. As a result of falling short of those goals the Company
reclassified an additional $840,902 of CRA-Z Soap as non-current inventory.
However, Southeast has continuing expectations for increased CRA-Z Soap in 1999.
The CRA-Z Soap Internet web site has generated brand recognition worldwide. In
addition, the site supports our distribution and retailer accounts by directing
the consumer to the nearest outlet for local purchases. In February 1999, two
large distributors have contracted to sell CRA-Z Soap in their established
geographical areas. In addition, Paccar Automotive's chain of Auto Parts stores
throughout six western states now carries CRA-Z Soap.
As a result of numerous customer requests, a single bar holder has been
developed and a new low cost four bar dispenser will be available in 1999. The
company has also created new brochures and a new; eye-catching point of sale
display that the company believes will help increase sales.
Numerous trade shows in the automotive, mechanical, hardware, household and
marine industries are scheduled for the promotion and selling of CRA-Z Soap in
1999.
In August 1998 the Tool Topper(TM) Workstation and related accessories were
launched with success at the National Hardware Show in Chicago, Ilinois. In
September 1998, initial production of 10,000 units was completed. To date,
approximately 5,000 units have been sold including sales to several large retail
chains, with a substantial increase expected in 1999. The company has the
ability to produce approximately 40,000 units per month.
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An aggressive sales and marketing effort is planned for the Tool Topper(TM) in
1999. The company can now meet the manufacturing volume required by large retail
chains and as a result, meetings have been scheduled with key personnel at
various companies. In addition, the Tool Topper is scheduled for sale on a major
television shopping channel.
The Tool Topper will be marketed and sold through attendance at trade shows
worldwide during 1999. A cross marketing alliance has also begun between the
Tool Topper and CRA-Z Soap. Finally, the Tool Topper web site is being revamped
to allow gathering and support of distributors and retailers in addition to just
selling the product online.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, Consulier's cash totaled $265,952 as compared to $7,013 at
December 31, 1997. During fiscal 1998, Consulier's cash increased by $258,939.
Net cash used in operations decreased $806,713 from $1,457,492 in 1997 to
$650,779 in 1998. This was primarily due to decreased receivables in 1998 and
the decrease in patent purchases and other assets. Working capital decreased
$1,300,073 in 1998 primarily due to the reclassification of inventory to
non-current. Total net cash provided by investing activities increased as a
result in the swing from cash being used by investing activities of $249,178 in
1997 to cash being provided by investing activities of $187,815 in 1998. This
increase resulted from a reduction of cash used in the remodeling of Southeast's
building.
The ability of Consulier to continue to generate cash flow in excess of its
normal operating requirements depends almost entirely on the performance of its
limited partnership investment in AVM. Consulier cannot, with any degree of
assurance, predict whether there will be a continuation of the net return
experienced in the period the AVM limited partnership interest has been owned.
However, Consulier does not expect that the rate of return will decline to the
point where Consulier has negative cash flow. Furthermore, although AVM has
given Consulier no indication of any intention on its part to redeem the
partnership interest, there can be no assurance that AVM will not do so in the
future. Consulier believes that it may require additional financing to complete
agreements which are currently in place. The timing and amount of Consulier's
additional financing needs will depend, among other things, upon the timing of
Tool Topper(TM) orders.
IMPACT OF INFLATION AND CHANGING PRICES
Management does not consider the impact of inflation on Consulier's operations
to be material. The operating segments of its businesses had inventories of
approximately $2.7 million as of December 31, 1998. 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. Interest rates on bond
indebtedness are fixed and, therefore, are not impacted by inflationary rate
increases, while rates on notes receivable are floating and should move with
inflation.
FORWARD LOOKING STATEMENTS
Statements made in this Management's Discussion and Analysis and elsewhere in
this Annual Report that state Consulier's or management's intentions, hopes,
beliefs, expectations or predictions of the future contain forward looking
statements. Such forward looking statements include, without limitation,
statements regarding Consulier's planned capital expenditure requirements, cash
and working capital requirements, Consulier's expectations regarding the
13
<PAGE> 14
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 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.
ITEM 7. FINANCIAL STATEMENTS
See index to Financial Statements on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
<PAGE> 15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
<TABLE>
<CAPTION>
Director Positions and Offices Held and Principal Occupation or
Name Age Since Other Employment during the Past Five Years
- ---- --- -------- ------------------------------------------------------
<S> <C> <C> <C>
Warren B. 49 1985 Chairman of the Board, 1985 to present. President and
Mosler Chief Executive Officer, June 1985 to May 1994. In
February 1999 Mr. Mosler reassumed the positions of
President and Chief Executive Officer. Principal in Adams,
Viner & Mosler, Ltd., a broker/dealer engaged in arbitrage
and government securities trading, 1983 to present.
Alan R. 49 1985 1982 to present, private practice of law, Boca Raton,
Simon, Esq. Florida.
Charles E. 75 1992 Project Engineer, Pratt & Whitney Aircraft, 1949 to
Spaeth 1990. Last position - responsible for directing product
design support functions in areas of structural analytical
methods, life prediction methods, mission definition and
component design verification.
Burck E. 69 1992 1991 to present, President, BG Consulting Group, Inc.
Grosse 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.
William R. 53 1992 1971 to 1998, First Bank of Florida, Consumer Loan Officer
Locke and Coordinator of Indirect Dealer Lending. Currently
retired.
Richard N. 39 1995 1984 to 1989, floor trader at the Chicago Board of
Hornstrom Trade; 1989 to present, Vice President of Lutrell Capital
Management, a commodity trading advisor Commodity pool
operator located in Tampa, Florida.
</TABLE>
No family relationships exist among the directors and officers of Consulier.
Messrs. Mosler and Simon have been directors since the inception of the company.
15
<PAGE> 16
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, 49 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
Adams, Viner & Mosler, Ltd., a broker/dealer engaged in arbitrage and government
securities trading in West Palm Beach, Florida.
Bernardo Davila, 47, President and CEO of Southeast Automotive Acquisition
Corporation since 1991. Mr. Davila has been successful in the automotive
industry for over 27 years. His expertise has been in the transmission industry
where he has educated mechanics about the need of replacing transmission mounts
and has created a market for same.
Michael G. Maguire, 61, was the former President and Chief Executive Officer of
Consulier. He was elected to these offices in April 1997. In February 1999, Mr.
Maguire resigned from Consulier.
Ralph D. Butler, 52, is Secretary, Treasurer and Chief Financial Officer. He was
elected to these offices in May 1996. Prior to joining Consulier, Mr. Butler was
Chief Financial Officer of Harold Grant, Inc., a multi-state high end clothing
retailer. From 1990 to 1995, Mr. Butler was with Governors Bank Corporation, a
bank holding company, where he was Senior Vice President, Cashier and Chief
Financial Officer.
16
<PAGE> 17
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid to Consulier's
Chief Executive Officer and each of Consulier's other executive officers for the
last three years.
<TABLE>
<CAPTION>
Annual Compensation
------------------- All Other
Name and Principal Position Year Salary Compensation
- ---------------------------- ---- ------ ------------
<S> <C> <C> <C>
Warren B. Mosler 1998 $ 75,000 -
Chairman of the Board 1997 $ 75,000 -
of Directors (2) 1996 $ 75,000 -
Michael G. Maguire 1998 (1) -
President and Chief 1997 (1) -
Executive Officer (3) 1996 (1) -
Ralph D. Butler 1998 (1) -
Secretary, Treasurer 1997 (1) -
and Chief Financial Officer 1996 (1) -
</TABLE>
(1) Total annual salary and bonus was less than $100,000.
(2) Mr. Mosler became President and Chief Executive Officer in February 1999.
(3) Mr. Maguire resigned from Consulier in February 1999.
Certain columns have been omitted from the above table because there is no
compensation required to be reported in such columns.
17
<PAGE> 18
OPTION GRANTS TABLE
There were no stock options granted to executive officers during 1998 requiring
disclosure.
AGGREGATED FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised,
in-the-money stock options held by the named executive officers as of the end of
the 1998 fiscal year. No stock options were exercised by any of the named
executive officers during 1998. All options presented are exercisable.
Number Value of Unexercised
Unexercised Options In-the-Money Options
Name at 1998 Year-End at 1998 Year-End
- ---------------- ------------------- --------------------
Warren B. Mosler 7,020 $1,755
LONG-TERM INCENTIVE AND PENSION PLANS
On January 1, 1998 employees of Consulier Engineering became members of the
Mosler Auto Care Center, Inc. 401(k) Retirement Plan. The Plan allows employees
to save up to 15% of their gross pay. The company may match a percentage of the
employees savings contributions or provide more money, through discretionary
contributions. During 1998 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Amount and
Title Nature of Percent of
Of Name and Address Beneficial Class at
Class of Beneficial Owner Ownership December 31, 1998
----- ------------------- --------- -----------------
<S> <C> <C> <C>
Common Warren B. Mosler 4,128,080 (1) 84.4%
Stock 1020 Fairview Lane
Singer Island, FL 33404
</TABLE>
(1) Includes options to acquire 7,020 shares of Consulier Common Stock.
18
<PAGE> 19
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following officers and directors of Consulier beneficially own the indicated
number of shares of Common Stock of Consulier as of December 31, 1998:
<TABLE>
<CAPTION>
Amount and
Title Nature of Percent of
Of Name and Address Beneficial Class at
Class of Beneficial Owner Ownership December 31, 1998
----- ------------------- --------- -----------------
<S> <C> <C> <C>
Common Warren B. Mosler 4,128,080 (1) 84.4%
Stock 1020 Fairview Lane
Singer Island, FL 33404
Common Alan R. Simon 180,000 (2) 3.7%
Stock 7777 Glades Rd., 204
Boca Raton, FL 33434
Common Richard N. Hornstrom 10,000 .2%
Stock 15607 Cochester Rd.
Tampa, Florida 33647
Common Burck E. Grosse 15,000 (3) .5%
Stock 11 Huntly Circle
Palm Beach Gardens,
FL 33418
Common Charles Spaeth 10,000 (3) .2%
Stock 13 Paddock Circle
Tequesta, FL 33469
Common William R. Locke 10,000 (3) .2%
Stock P.O. Box 3405
Tequesta, FL 33469
Common Ralph D. Butler 3,000 .1%
Stock 2391 Old Dixie Hwy.
Riviera Beach, FL 33404
Common All directors and 4,356,080 89.1%
Stock executive officers
as a group, excluding
duplications (7 people)
</TABLE>
(1) Includes stock options to acquire 7,020 Consulier shares at $1.25 per share.
(2) Consists of options to acquire shares of Consulier common stock from Mr.
Mosler at $1.25 per share.
(3) Consists of stock options granted under Consulier's Tandem Stock Option
Plan. Exercise prices for the options range from $1.25 to $2.50 per share.
19
<PAGE> 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AVM PROPERTIES LIMITED PARTNERSHIP LEASE OF OFFICE SPACE
In June 1994, Consulier leased approximately 1,300 square feet of office space
located in Tequesta, Florida from AVM Properties, Ltd. on a month-to-month
basis. An additional 950 square feet were added to the lease in January 1995,
also on a month-to-month basis. In 1997, Consulier reduced its office space by
approximately 730 square feet. In the first quarter of 1999 Consulier vacated
one suite of offices leaving 750 sq. ft. leased. This property is leased at
competitive market rates.
SALE OF AUTOMOBILE OPERATIONS
In consideration of the sale of Consulier's automobile manufacturing business in
1990, MACC executed a promissory note for $750,000, which note was personally
guaranteed by Mr. Mosler. This note had an interest rate of 12%, and provided
for the monthly payment of interest only ($7,500) for a period of one year.
Monthly principal and interest payments of $16,338 were required over the
following five year period. In January 1993 the rate on this note was reduced to
prime plus 1%.
In October 1993, MACC sold the automobile business to U.S. Electricar, Inc. in
return for restricted common stock and future royalties. Consulier waived its
option to reacquire the business in consideration for the future royalties and
an option to purchase the stock. Also, principal payments on the MACC note were
suspended in November 1993 and the interest rate was further reduced to the one
month U.S. Dollar London Interbank Offering Rate ("LIBOR"). The note is payable
on May 11, 2001. It has an unpaid balance of $430,558 at December 31, 1998, and
is guaranteed by Mr. Mosler.
SALE AND LEASEBACK OF REAL ESTATE
In December 1989, Consulier engaged in a sale and partial leaseback of real
estate to Mr. Mosler, subject to existing bond indebtedness collateralized by
the property. This real estate is located in Riviera Beach, Florida. In
consideration for the property, Mr. Mosler signed a promissory note of
$2,500,000. The note initially bore an annual rate of 12%, with interest payable
monthly. The interest rate was reduced to prime plus 1% in January 1993. The
interest rate was reduced to the one month LIBOR in October 1997. The note
matures in December 2001.
Simultaneously with the execution of the sale, Consulier entered into a lease
with Mr. Mosler for approximately 25,000 square feet of space at an annual gross
rental of $4.00 per square foot. This lease was subsequently reduced to 6,000
square feet when Consulier sold its automobile operations. The lease was
terminated in 1994 when Consulier moved its principal executive offices to
Tequesta, Florida.
20
<PAGE> 21
INTEREST RATE ADJUSTMENTS
In January 1993, the Affiliated Transaction Committee of the Board of Directors
reviewed the promissory notes receivable from MACC and Mr. Mosler described
above. At this review, the interest rates for the notes were adjusted to prime
plus one percent. In October 1993, the Committee further reduced the rate on the
MACC note to the one month LIBOR. In October 1997, the Committee reduced the
rate on the property note to the one month LIBOR.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See index to Exhibits in this report on page E-1.
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
21
<PAGE> 22
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 12, 1999 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:
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Warren B. Mosler
- ----------------------------- Chairman of the Board April 12, 1999
Warren B. Mosler of Directors, President
and Chief Executive
Officer
/s/ Ralph D. Butler
- ----------------------------- Secretary, Treasurer, April 12, 1999
Ralph D. Butler Chief Financial Officer
/s/ Alan R. Simon
- -----------------------------
Alan R. Simon Director April 12, 1999
/s/ Charles E, Spaeth
- -----------------------------
Charles E. Spaeth Director April 12, 1999
/s/ Burck E. Grosse
- -----------------------------
Burck E. Grosse Director April 12, 1999
/s/ William R. Locke
- -----------------------------
William R. Locke Director April 12, 1999
/s/ Richard N. Hornstrom
- -----------------------------
Richard N. Hornstrom Director April 12, 1999
</TABLE>
22
<PAGE> 23
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB
ITEM 7. FINANCIAL STATEMENTS
Financial Statements:
Report of Independent Certified Public
Accountants........................................................... F-2
Consolidated Balance Sheets at December 31,
1998 and 1997......................................................... F-3
Consolidated Statements of Income for the
years ended December 31, 1998 and 1997................................ F-4
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998 and 1997........................ F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1998 and 1997................................ F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
<PAGE> 24
A. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
Consulier Engineering, Inc.
Tequesta, Florida
We have audited the accompanying consolidated balance sheets of Consulier
Engineering, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consulier
Engineering, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
West Palm Beach, Florida BDO Seidman, LLP
April 9, 1999
F-2
<PAGE> 25
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1998 1997
- ----------------------------------------- ------------- ------------
<S> <C> <C>
CURRENT:
Cash $ 265,952 $ 7,013
Receivables, net (Note 2) 516,197 664,154
Receivables - related parties (Note 11(a)) 964,875 861,585
Inventories (Notes 1 and 3) 1,305,500 2,058,263
Other current assets 11,746 105,700
------------ ------------
TOTAL CURRENT ASSETS 3,064,270 3,696,715
Property and equipment, net (Notes 1 and 4) 2,142,388 1,537,554
Limited partnership interests (Notes 1 and 5) 2,337,073 2,132,798
Notes receivable - related parties (Note 11(c)) 2,172,355 2,172,355
Non-current inventories (Notes 1 and 3) 1,440,902 600,000
Patents and other assets 63,443 239,366
------------ ------------
$ 11,220,431 $ 10,378,788
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------
LIABILITIES:
CURRENT:
Accounts payable and accruals $ 249,232 $ 250,765
Income taxes (Notes 1 and 8) 51,489 5,231
Notes payable - banks (Note 6(a)) 1,777,697 1,748,775
Note payable - related parties (Note 6(c)) 946,278 352,297
------------ ------------
TOTAL CURRENT LIABILITIES 3,024,696 2,357,068
Bonds payable (Note 6(b)) 1,275,000 1,275,000
Deferred income taxes (Notes 1 and 8) 14,766 14,766
------------ ------------
TOTAL LIABILITIES 4,314,462 3,646,834
------------ ------------
STOCKHOLDERS' EQUITY: (NOTES 1 AND 9)
Common stock of $.01 par value:
Authorized --- 25,000,000 shares;
Issued --- 5,136,066 shares in 1998 and 5,124,066 in 1997 51,361 51,241
Additional paid-in capital 2,955,082 2,856,202
Retained earnings 4,367,889 4,292,874
------------ ------------
7,374,332 7,200,317
Less treasury stock at cost - 247,148 shares
in 1998 and 1997 (Note 9(c)) (468,363) (468,363)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,905,969 6,731,954
------------ ------------
$ 11,220,431 $ 10,378,788
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE> 26
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
REVENUES:
Net sales $ 2,713,044 $ 3,320,963
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of goods sold 1,495,634 1,901,195
Selling, general and administrative 2,453,712 2,215,735
Research and development expense 42,733 168,781
----------- -----------
3,992,079 4,285,711
----------- -----------
Operating loss (1,279,035) (964,748)
----------- -----------
OTHER INCOME (EXPENSE):
Investment income - related parties (Note 5) 1,372,456 1,394,613
Interest income - related parties 228,563 319,288
Interest expense - other (272,308) (228,259)
Loss on investment - HRO (150,242) --
Other income 247,354 128,628
----------- -----------
1,425,823 1,614,270
----------- -----------
Income before income taxes 146,788 649,522
Income taxes (Notes 1 and 8) 71,774 244,415
----------- -----------
Net income $ 75,014 $ 405,107
=========== ===========
Basic and diluted earnings per share (Note 13) $ 0.02 $ 0.08
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE> 27
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------
TREASURY STOCK ADDITIONAL TOTAL
-------------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 5,124,066 $ 51,241 (125,076) $ (207,950) $ 2,856,202 $ 3,887,768 $ 6,587,261
Net income for the
year -- -- -- -- -- 405,107 405,107
Purchase of shares
for Treasury
(Note 9(c)) -- -- (122,072) (260,413) -- -- (260,413)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1997 5,124,066 $ 51,241 (247,148) (468,363) 2,856,202 4,292,875 6,731,954
Net income for the
year -- -- -- -- -- 75,014 75,014
Sales of common
stock 2,000 20 -- -- 4,730 -- 4,750
Exercise of stock
options
(Note 9(a)) 10,000 100 400 -- 500
Disgorgement of
profit on sale of
common stock by
insider
(Note 17) -- -- -- -- 93,750 -- 93,750
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance,
December 31, 1998 5,136,066 $ 51,361 (247,148) $ (468,363) $ 2,955,082 $ 4,367,889 $ 6,905,969
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE> 28
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Note 10)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 75,014 $ 405,107
Adjustments to reconcile net income to net
cash used in operations:
Depreciation 122,002 92,105
Amortization 32,112 21,088
Write off of investment in HRO 150,241
Investment income (1,372,456) (1,394,613)
Changes in operating assets and liabilities:
Decrease (increase) in receivables and other current assets 241,911 (280,285)
(Increase) in inventories (88,139) (274,287)
Decrease in patents and other assets 143,811 --
(Decrease) increase in accounts payable and accruals (1,533) 62,101
Increase (decrease) in income taxes payable 46,258 (88,708)
----------- -----------
NET CASH USED IN OPERATIONS (650,779) (1,457,492)
----------- -----------
INVESTING ACTIVITIES:
Property and equipment additions, net of dispositions (726,834) (1,392,469)
Distributions from partnership interest 1,464,149 1,338,017
Investment in limited partnerships (446,210) --
Loans to related parties (103,290) (194,726)
----------- -----------
NET CASH PROVIDED (USED IN) INVESTING ACTIVITIES 187,815 (249,178)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings and repayments of bank and other loans 28,922 (2,018)
Net borrowings, related parties 593,981 1,418,475
Sales of common stock 5,250 --
Disgorgement of profit on sale of common stock 93,750 --
Purchase of stock for the treasury and stock options -- (260,413)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 721,903 1,156,044
----------- -----------
INCREASE (DECREASE) IN CASH 258,939 (550,626)
CASH, BEGINNING OF YEAR 7,013 557,639
----------- -----------
CASH, END OF YEAR $ 265,952 $ 7,013
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE> 29
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consulier Engineering, Inc. ("Consulier") and its subsidiaries are engaged in
three primary businesses: the distribution of automobile and truck parts in the
automotive/truck after-market, investment activities, and the distribution of
Tool Topper(TM) Workstation products.
The parts distribution business is conducted through a wholly-owned subsidiary,
Southeast Automotive Acquisition Corporation ("Southeast").
Consulier's investment income is derived from a limited partnership interest
(see Notes 5 and 12) in Adams, Viner & Mosler, Ltd. ("AVM"), an Illinois limited
partnership. AVM is a broker/dealer in government securities and other fixed
income instruments. Consulier's Chairman and majority stockholder, Warren B.
Mosler ("Mosler"), is a general partner of the general partner of AVM.
Consulier conducts research and development activities relating to a variety of
automotive and industrial products. The Tool Topper(TM) Workstation has been
designed and developed through a wholly-owned subsidiary, C-6 Products, Inc.
BASIS OF PRESENTATION
The consolidated financial statements include Consulier and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market. Inventory that management estimates will take more than one
year to sell is classified as non-current.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line and declining balance methods over estimated
useful lives or related lease terms, as appropriate. Depreciation for income tax
purposes is computed using declining balance methods over statutory lives.
F-7
<PAGE> 30
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARTNERSHIP INVESTMENT
The Company's Partnership investments are recorded using the equity method.
Income or loss is allocated to Consulier based on the partnership agreements.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are for product development These costs are
expensed in the period incurred with the exception of the legal cost of
obtaining patents which are amortized over 60 months.
ADVERTISING COSTS
Advertising costs of $235,366 and $77,551 in 1998 and 1997 were expensed as
incurred.
INCOME TAXES
Deferred income taxes are provided for temporary differences arising from
differences between financial statement and income tax bases of assets and
liabilities.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133).
The Company is required to adopt SFAS 133 for the year ending December 31, 2000.
SFAS 133 establishes methods of accounting for derivative financial instruments
and hedging activities related to those instruments as well as other hedging
activities. Because the Company currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
SFAS 133 is expected to have no material impact on the Company's financial
condition or results of operations.
F-8
<PAGE> 31
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
Consulier's financial instruments approximate estimated fair value as of
December 31, 1998 and 1997.
NOTE 2 - RECEIVABLES
Receivables consist of the following:
1998 1997
--------- ---------
Capital and income
distribution due from AVM $ 51,588 $ 160,726
Trade accounts 412,132 482,203
Employee advances and other 67,477 36,225
--------- ---------
531,197 679,154
Less allowance for doubtful
trade accounts 15,000 15,000
--------- ---------
$ 516,197 $ 664,154
========= =========
F-9
<PAGE> 32
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
1998 1997
------------ -----------
Raw materials $ 169,956 $ 26,161
CRA-Z Soap 156,000 1,010,561
Finished goods 1,023,544 1,065,541
Obsolescence Reserve (44,000) (44,000)
------------ -----------
$ 1,305,500 $ 2,058,263
============ ===========
Non - Current inventory $ 1,440,902 $600,000
============ ===========
The non-current portion of inventory consists of $1,440,902 of CRA-Z Soap which
the company believes will take longer than one year to sell.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1998 1997
------------ ------------
Building and improvements $ 930,013 $ 884,471
Land 412,000 425,000
Machinery and equipment 1,084,827 452,973
Furniture and fixtures 177,667 115,227
Vehicles 233,970 237,970
------------ ------------
2,838,477 2,115,641
Less accumulated depreciation
and amortization 696,089 578,087
------------ ------------
$ 2,142,388 $ 1,537,554
============ ============
F-10
<PAGE> 33
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PARTNERSHIP INTEREST AND CONCENTRATION OF CREDIT RISK
5(a) The limited partnership interests consist of Consulier's investment in AVM
and The High Risk Opportunities Fund L.P. ("HRO"). Investment income from HRO
was $17,444 for the year ended December 31, 1998 and $8,650 for year ended
December 31, 1997. On September 1, 1998, HRO was placed in liquidation and
Consulier's investment in HRO, $150,242 was written off as a loss. Additionally,
the Company owns a 40% minority interest in BioSafe, LLC. The investment is
valued at $272,858 at December 31, 1998, further, equity recorded as income for
1998 was $22,858.
Following is a summary of financial position and results of operations of AVM as
of and for the years ended December 31:
1998 1997
----------- -----------
Cash $11,621,962 $14,048,707
Due from brokers 2,944,120 1,409,685
Securities owned 3,591,044 5,403,669
Customer receivables 1,303,004 913,982
Investment in affiliate & other assets 10,981,669 10,984,696
----------- -----------
$30,441,799 $32,760,739
=========== ===========
Due to brokers $ 1,407,922 $ 1,095,059
Customer payables 3,960,008 5,618,809
Other liabilities 649,120 1,510,608
Anticipated partners'
withdrawals 1,524,643 2,655,598
----------- -----------
Total liabilities 7,541,693 10,880,074
Partners' capital 22,900,106 21,880,665
----------- -----------
$30,441,799 $32,760,739
=========== ===========
Revenue $47,330,402 $40,356,253
=========== ===========
Net income $27,104,105 $23,231,213
=========== ===========
Consulier's share of
Earnings $ 1,355,012 $ 1,385,963
=========== ===========
Consulier owned approximately 9% of AVM's capital as of December 31, 1998 and
1997. Based on capital and earnings distributions provided in the partnership
agreement, Consulier was allocated approximately 5% and 6% of AVM's earnings
during 1998 and 1997, respectively.
F-11
<PAGE> 34
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
5(b) As of December 31, 1998 and 1997, there were no concentrations of credit
risk other than the investment in AVM.
NOTE 6 - NOTES AND BONDS PAYABLE
(a) CURRENT NOTES PAYABLE - BANKS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Note payable to bank,unsecured, guaranteed
by the Chairman of the
Board and CEO, due on demand
(see below) $1,500,000 $1,360,000
Note payable at prime plus 2 percent
(10.25% at 12-31-98) to a bank affiliated
by common ownership, collateralized by all
the assets of the Automotive distribution
segment 277,697 388,775
---------- ----------
$1,777,697 $1,748,775
========== ==========
</TABLE>
The $1,500,000 note payable to bank bears interest at a floating rate computed
as the Eurodollar rate applicable to such loan plus 1.90% (7.86875%) at December
31, 1998.
(b) BONDS PAYABLE
Bonds payable are due in 2004 with interest of 8% per annum, payable quarterly.
As part of an agreement with the holders of $175,000 of these bonds, the
interest rate was reduced to 6% in the second quarter of 1993. In exchange for
this interest rate reduction warrants to purchase the Company's common stock at
a price of $1.71875 were extended to December 31, 1999 (see note 9(b)).
No principal payments are due until maturity. The bonds are redeemable by
Consulier at face value after June 30, 1994. They are collateralized by land and
building owned by Mosler (see Note 11(c)(1)), and machinery and equipment,
personal property, and leasehold improvements owned by the Company.
(c) NOTE PAYABLE - RELATED PARTY
During 1997 Mr. Mosler advanced a total of $420,192 to Consulier as a
non-interest bearing note. As of December 31, 1997 $352,297 remained unpaid.
During 1998 Mr. Mosler advanced Consulier subsidiaries $2,453,000 of which
$946,278 remains unpaid as of December 31, 1998.
F-12
<PAGE> 35
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LEASES
Consulier leases office space under a month-to-month lease. Rent expense charged
to operations was $15,900 in 1998 and $69,369 in 1997. Of this expense, $15,900
was paid to related parties in 1998 and $18,550 in 1997.
NOTE 8 - INCOME TAXES
Provisions for federal and state income taxes in the consolidated statements of
income consist of the following:
Year ended December 31,
----------------------------
1998 1997
--------- ----------
Current:
Federal $ 60,083 $ 208,691
State 11,691 35,724
--------- ----------
Total income taxes $ 71,774 $ 244,415
========= ==========
Applicable income taxes for financial reporting purposes differ from the amount
computed by applying the statutory federal income tax rate as follows:
Year ended December 31,
-----------------------------
1998 1997
---------- -----------
Tax at statutory rate $ 49,908 $ 220,837
State income tax net
of federal tax benefits 21,866 23,578
---------- -----------
Income taxes $ 71,774 $ 244,415
========== ===========
F-13
<PAGE> 36
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY
(a) STOCK OPTION AND RESTRICTED STOCK PLANS
Consulier has established a Tandem Stock Option Plan (Tandem Plan) covering
current employees and former employees who currently work for Mosler Auto Care
Center, Inc. ("MACC") (see note 11(c)(2)). Under the Tandem Plan, qualified and
non-qualified options may be granted.
The Tandem Plan provides that an aggregate of 100,000 shares of Consulier's
common stock may be optioned to officers, directors and other key employees of
Consulier and MACC. The options are exercisable after two years of continuous
employment or service and have a maximum life of ten years from the date of
grant. The Tandem Plan terminates March 31, 2000.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB25"), and related Interpretations
in accounting for its employee stock options. Under APB25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The following summary sets forth activity under the plan for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at
Beginning of
Year 208,512 $1.485 208,512 $ 1.485
Forfeited-
Exercised 10,000 .050 --
------- ------ ------- --------
Outstanding and
Exercisable at year end 198,512 $1.556 208,512 $ 1.485
======= ====== ======= ========
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998.
<TABLE>
<CAPTION>
Weighted
Range Average Weighted Options Weighted
of Exercise Options Remaining Average Exercisable at Average
Price Outstanding Contractual Life Exercise Price 12/31/1998 Exercise Price
----- ----------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$1.25 83,512 1.50 $1.25 83,512 $1.25
$1.50 80,000 3.00 $1.50 80,000 $1.50
$2.19 10,000 1.75 $2.19 10,000 $2.19
$2.50 25,000 3.75 $2.50 25,000 $2.50
</TABLE>
F-14
<PAGE> 37
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) COMMON STOCK WARRANTS
In connection with the issuance of the bonds payable (see Note 6(b)), Consulier
issued warrants to purchase 910,000 shares of its common stock at a purchase
price of $1.71875 per share. A total of 800,000 of these warrants expired
December 31, 1994. The remaining 110,000 warrants were extended to December 31,
1999 in exchange for a reduction in interest rate from 8% to 6%. During 1995 an
additional 40,000 warrants were retired in conjunction with the early retirement
of bonds. A total of 70,000 warrants remain outstanding. No warrants have been
exercised to date.
(c) TREASURY STOCK
As of December 31, 1998 247,148 shares had been acquired by Consulier as
Treasury Stock. During 1998 Consulier did not acquire any shares of common
stock. During 1997 Consulier acquired 122,072 shares of Common Stock as Treasury
Stock at a cost of $260,413.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the years ended December 31, 1998 and 1997 totaled $272,308
and $228,259, respectively. Income taxes paid during 1998 and 1997 totaled
approximately $72,000 and $244,000 respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS
(a) CASH ADVANCES
During 1998, Mosler and Consulier continued to share certain costs and expenses
incurred in the normal course of business. Mosler owed Consulier $964,875 and
$861,585, due on demand, at December 31, 1998 and 1997 resulting from these
transactions. Interest was paid on the outstanding balance at the rate of 9.25%
for three quarters of 1997. The Affiliated Transaction Committee approved a rate
change during the fourth quarter of 1997 to monthly LIBOR. At December 31, 1998
monthly LIBOR was 5.62563%
(b) OTHER
For other related party transactions see Notes 5, 6(c), and 7.
F-15
<PAGE> 38
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consist of the following:
1998 1997
---------- ----------
Mosler (see Note 11(c)(1)) $2,500,000 $2,500,000
Mosler Auto Care Center,
Inc. (see Note 11(c)(2)) 430,558 430,558
---------- ----------
2,930,558 2,930,558
Less excess of face
amount of note over
carrying cost of
real estate 758,202 758,202
---------- ----------
Notes receivable $2,172,356 $2,172,356
========== ==========
Interest income relating to the above notes totaled $164,149 in 1998 and
$236,631 in 1997.
(c)(1) SALE AND LEASEBACK OF REAL ESTATE
In 1989, Consulier sold to and partially leased-back real estate from Mosler.
The property was transferred, subject to a pledge on bond indebtedness, in
exchange for Mosler's promissory note for $2,500,000. The note originally paid
interest at 12%. This rate was reduced to prime plus 1% (9.5% at December 31,
1994). On February 1, 1996 the prime rate was lowered by .25% to 9.25%. On March
25, 1997 the prime rate was increased by .25% to 9.50% which remained constant
through the end of the third quarter. On October 28,1997, The Affiliated
Transaction Committee approved a change in rate to monthly LIBOR (5.62563% at
December 31, 1998). Principal on the note is payable at maturity in December
2001. Simultaneously with the execution of the deed, Consulier entered into a
lease with Mosler for approximately 6,000 square feet of the property. This
lease was terminated in 1994 when the Company's principal offices were moved to
Tequesta, Florida.
The transaction resulted in a sales price of $758,202 in excess of the carrying
cost of the building and has been accounted for as a sale leaseback with a
related party. Accordingly, the excess has been offset against the note
receivable from Mosler. The excess will be recorded as a capital contribution to
the extent of any reduction in the principal balance of the note receivable.
(c)(2) SALE OF AUTOMOBILE OPERATIONS
In 1990, Consulier sold its automobile manufacturing business to Mosler Auto
Care Center, Inc. ("MACC"), a company wholly-owned by Mosler. As consideration
for the purchase, MACC executed a promissory note for $750,000, which note was
personally guaranteed by Mosler. This promissory note accrued interest at an
annual rate of 12% until November 1993 when the rate was reduced to the one
month U.S. Dollar London Interbank Offering Rate (one month U.S. Dollar LIBOR -
5.62563% at December 31, 1998). The note provided for monthly payment of
interest only for the first year. Monthly principal and interest payments of
$16,338 were to be paid over the following five year period.
F-16
<PAGE> 39
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 31, 1993 MACC sold the automobile business to U.S. Electricar, Inc.
("Electricar") of Santa Rosa, California in exchange for 1,000,000 shares of
Electricar restricted common stock, and production royalties payable over a
fifteen year period. At the time of the sale, Consulier held an option to
repurchase the automobile business at net book value. In exchange for waiving
this option, MACC granted Consulier an option to purchase the 1,000,000 shares
of Electricar restricted stock at a price of $.50 per share. Consulier will also
receive any production royalty payments arising out of the sale.
Principal payments on the MACC note were suspended in October 1993 when MACC
sold the automobile business to Electricar. The note is payable on May 11, 2001,
and has an outstanding balance of $430,558.
NOTE 12 - BUSINESS SEGMENT INFORMATION
Information related to Consulier's operations in its different industry segments
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
REVENUES AND INVESTMENT INCOME:
Automotive parts distribution $2,656,178 $3,291,952
Household and tool products 37,528 --
Investments 1,372,456 1,394,613
Corporate 19,338 29,011
----------- -----------
$4,085,500 $4,715,576
=========== ===========
OPERATING PROFITS (LOSSES):
Automotive parts distribution $(274,634) $(396,583)
Household and tool products (598,494) --
Investments 1,222,214 1,394,613
Corporate (405,907) (568,165)
----------- -----------
(56,821) 429,865
Interest, net (43,745) 91,029
Other 247,354 128,628
----------- -----------
Income before income taxes $146,788 $649,522
=========== ===========
IDENTIFIABLE ASSETS:
Automotive parts distribution $4,742,313 $4,686,696
Household and tool products 803,400 --
Investments 2,337,073 2,132,798
Corporate 3,337,645 3,559,294
----------- -----------
$11,220,431 $10,378,788
=========== ===========
</TABLE>
Approximately 10% of the Automotive parts distribution company's sales were to
one customer in 1998.
F-17
<PAGE> 40
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Numerator:
Net income,
numerator for basic and diluted
Earnings per share $75,014 $405,107
Denominator:
Denominator for basic earnings
per share - weighted-average shares 4,885,959 4,957,284
Effect of dilutive securities:
Stock options 54,441 59,092
Warrants 11,520 8,790
----------- -----------
Dilutive potential common shares 65,961 67,882
Denominator for diluted earnings
per share - adjusted weighted-average
shares 4,951,920 5,025,166
=========== ===========
Basic earnings per share $.02 $.08
Diluted earnings per share $.02 $.08
</TABLE>
Options to purchase 35,000 shares of common stock at prices ranging from $2.19
to $2.50 per share were not included in the computation of diluted earnings per
share because the options exercise price was greater than the average market
price of the common shares and, therefore, the effect would be antidilutive.
NOTE 14 - ROYALTY AGREEMENT
In April 1996, the Company agreed to purchase and begin distribution of CRA-Z
Soap, a hand cleaner designed for use by tradesmen. The Company agreed to pay
$.50 per bar of soap royalty to the manufacturer upon sale of the product.
Further, in exchange for this purchase and for agreeing to negotiate a financing
agreement for manufacturing costs the manufacturer agreed to pay Southeast
Automotive 3.5% of all net sales. As sales through December 31, 1998 have been
minimal, no amounts have been recorded by the company under this agreement.
However, the Company is in discussion with the manufacturer to re-negotiate the
terms of the mentioned agreements.
F-18
<PAGE> 41
CONSULIER ENGINEERING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - CAPITAL STOCK
During 1998, the company increased its authorized capital from 5,000,000 common
shares to 25,000,000 common shares by amending its Articles of Incorporation.
Additionally, on April 6, 1998, the company approved a two-for-one split of its
oustanding common shares effective April 15, 1998, in order to maintain its
qualification for trading on the NASDAQ SmallCap Market. All periods presented
have been restated for the effect of such stock split.
NOTE 16 - SIGNIFICANT FOURTH QUARTER ADJUSTMENT
In the fourth quarter of fiscal 1997, the company made an adjustment related to
amounts expended to bring inventory into the United States that were deemed
unrecoverable. The company wrote off $323,260 of accounts receivable. The net
effect of the write-off was a decrease in net income of $202,406, net of the tax
effect, or $.08 per share.
NOTE 17 - DISGORGEMENT OF PROFIT ON SALE OF COMMON STOCK BY INSIDER
Section 16(b) of the Securities Exchange Act of 1934 calls for the disgorgement
of any profits realized by insiders as a result of securities purchased and sold
or sold and purchased within a six month period. The recovery provisions of
Section 16(b) constitute an absolute bar against profit. Pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, Warren B.
Mosler, Chairman, has disgorged profits in the amount of $93,750 to the Company
which he earned as a result of two trades in the Company's common stock in 1998.
F-19
<PAGE> 42
CONSULIER ENGINEERING, INC. AND SUBSIDIARIES
FORM 10-KSB ITEM 13(a) EXHIBITS
The following exhibits are incorporated by reference to prior filings by
Consulier in an effective registration statement under the Securities Act or in
reports filed pursuant to the Exchange Act, except as referenced to pages filed
herein.
EXHIBIT DESCRIPTION
1(a) Underwriting Agreement (1)
1(b) Warrant Exercise Fee Agreement (1)
1(c) Financial Advisory Agreement (1)
3(a) Articles of Incorporation of Consulier (1)
3(b) Amendments to Articles of Incorporation of Consulier (2) (3)
3(c) By-Laws of Consulier (1)
4(a) Form of Warrant Agreement (1)
4(b) Form of Underwriters Warrant (1)
4(c) Form of common stock certificate (1)
4(d) Form of specimen warrant (1)
4(e) Form of preferred stock certificate (2)
10(a) Escrow Agreement(2)
10(b) Lease Agreement(2)
10(c) Agreement of Plan of Merger between Southeast Automotive Parts,
Inc. of Dade, Inc. into Southeast Automotive Acquisition
Corporation (6)
10(d) Articles of Merger, Southeast Automotive Parts of Dade, Inc. into
Southeast Automotive Acquisition Corporation (6)
10(e) Promissory Note of Consulier for $3,000,000 dated April 1,
1990 (5)
10(f) Security Agreement between Consulier and Mosler dated April 16,
1990 (5)
10(g) Purchase and Sale Agreement between Consulier and Mosler Auto
Care Center, Inc., regarding sale of automobile business (7)
10(h) Promissory Note of Mosler Auto Care Center, Inc., dated March 31,
1990, regarding sale of automobile business (2)
10(i) Research and Development Funding Agreement between Mosler Auto
Care Center, Inc., and Consulier dated April 1, 1990 (3)
10(j) Agreement of Merger between Consulier and WBM Engines, Inc.,
effective December 31, 1989 (2)
10(k) Purchase and Sale Agreement between Consulier and Warren B. Mosler
regarding sale of real estate (2)
10(m) Promissory Note of Warren B. Mosler for $2,500,000 dated December
31, 1989 regarding sale of real estate (2)
10(n) Mortgage Indenture regarding Bonds and Class B Warrants dated June
30, 1989 (8)
10(o) Agreement between Mosler Auto Care Center, Inc., and Consulier
dated October 31, 1993, relinquishing Consulier's option to
repurchase the automobile business in exchange for option to
purchase U.S. Electricar, Inc. restricted stock at $.50 per share,
and for the right to future royalty payments (9)
10(p) Royalty Agreement, Covenant Not to Compete and Security Agreement
between Mosler Auto Care Center, Inc., and U.S. Electricar, Inc.,
dated October 31, 1993 (9)
10(q) Employment Agreement dated May 16, 1994, between George E. Mount
and Consulier wherein George E. Mount is hired as President and
CEO for a term of two years (10)
E-1
<PAGE> 43
10(r) Purchase and Royalty Agreement between Masters Marketing and
Development, Inc., and Southeast Automotive Acquisition
Corporation, dated April 11, 1996, concerning CRA-Z Soap hand
cleaner.
20 Notice of corporate action regarding election of new directors (4)
21 List of subsidiaries of Consulier (see page E-4)
99(a) Limited Partnership Agreement of Adams, Viner & Mosler, Ltd. (5)
- --------------------------
1 - Incorporated by reference to Registrant's Registration Statement on Form
S-18, effective May 25, 1989
2 - Incorporated by reference to Registrant's Current Report on Form 8-K filed
December 31, 1989 and March 31, 1990
3 - Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1992
4 - Incorporated by reference to Registrant's Current Report on Form 8-K filed
April 16, 1990
5 - Incorporated by reference to Registrant's Current Report on Form 8-K filed
March 1, 1991
6 - Incorporated by reference to Registrant's Annual Report on Form 10-KSB
filed for the year ended December 31, 1989
7 - Incorporated by reference to Registrant's Annual Report on Form 10-KSB
filed for the year ended December 31, 1991
8 - Incorporated by reference to Registrant's Annual Report on Form 10-KSB
filed for the year ended December 31, 1993.
9 - Incorporated by reference to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1994.
E-2
<PAGE> 1
EXHIBIT 21
CONSULIER ENGINEERING, INC.
LIST OF SUBSIDIARIES OF REGISTRANT
State of
Subsidiary Incorporation Names
- ---------- ------------- -----
Southeast Automotive Florida Southeast
Acquisition Southeast Tools
Corporation
Consulier Business Florida None
Services, Inc.
C-6 Products, Inc. Florida None
E-3
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 1,481
<ALLOWANCES> 44
<INVENTORY> 1,306
<CURRENT-ASSETS> 3,064
<PP&E> 2,838
<DEPRECIATION> 696
<TOTAL-ASSETS> 11,220
<CURRENT-LIABILITIES> 3,025
<BONDS> 1,275
0
0
<COMMON> 51
<OTHER-SE> 6,885
<TOTAL-LIABILITY-AND-EQUITY> 11,220
<SALES> 2,713
<TOTAL-REVENUES> 2,713
<CGS> 1,496
<TOTAL-COSTS> 1,496
<OTHER-EXPENSES> 2,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> 147
<INCOME-TAX> 72
<INCOME-CONTINUING> 75
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
