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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from _______________ to _______________
Commission File Number 1-3952
SIBONEY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 73-0629975
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 N. Brentwood, Suite 211, P.O. Box 16184
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St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-6141
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the shares of Common Stock held by nonaffiliates
of Registrant as of February 10, 2000 was $3,719,215. This value was based on
the average of the bid and asked prices on February 10, 2000.
As of February 10, 2000, the Registrant had outstanding 16,529,844 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: the definitive proxy statement of Registrant (to be filed pursuant to
Regulation 14) for Registrant's 2000 Annual Meeting of Shareholders, which
involves the election of directors, is incorporated by reference into Items 10,
11, 12 and 13.
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Page 1
INDEX
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PAGE
PART I
Item 1. Business...................................................3 - 7
Item 2. Properties.....................................................7
Item 3. Legal Proceedings..............................................7
Item 4. Submission of Matters to a Vote of Security
Holders.....................................................7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters...............................8
Item 6. Selected Financial Data...................................9 - 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations..............................................10 - 12
Item 8. Financial Statements and Supplementary Data...................12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......................13
PART III
Item 10. Directors and Executive Officers of the
Registrant..................................................14
Item 11. Executive Compensation........................................14
Item 12. Security Ownership of Certain Beneficial
Owners and Management.......................................14
Item 13. Certain Relationships and Related Transactions................14
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement
Schedule and Reports on Form 8-K.......................15 - 34
Signatures.................................................................35
Exhibit Index..............................................................36
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Page 2
PART I
Forward-Looking Statements
Any forward-looking statements set forth in this Report are necessarily subject
to significant uncertainties and risks. When used in this Report, the words
"believes," "anticipates," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Actual results could be
materially different as a result of various possibilities. Readers are cautioned
not to place undue reliance on forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Item 1 - Business
General
The principal business of the Company is the publishing and distribution of
educational software products.
Description of Business and Properties
Business - General Description and Current Developments -- The Company is
engaged, through its Siboney Learning Group subsidiary, in the publishing and
distribution of educational software, primarily for schools. Siboney Learning
Group offers two product lines: GAMCO Educational Software ("GAMCO") which
provides highly motivational single titles and series and Orchard: Teacher's
Choice Software ("Orchard") which offers schools a comprehensive
curriculum-based solution with universal management.
The Company has served the educational market for more than 35 years. The
Company's main business is publishing educational software in math, reading and
language arts for students and teachers in grades kindergarten through grade 12.
This software motivates students to master key skills and concepts which are
stressed on standardized tests and in textbooks. Popular titles include Reading
Concepts, Reading for Critical Thinking, Process Writing, Money Challenge,
Undersea Reading for Meaning and Touchdown Math. The Company publishes over 200
titles for Windows, Macintosh, DOS and Apple II operating systems.
GAMCO titles are sold primarily through large national catalog dealers, direct
catalogs and the Company's inside sales force of six people. These titles are
known for their effective blend of time-on-task learning with motivational
games. In addition, each GAMCO title includes a management program that tracks
student progress and allows teachers to modify the instruction to meet
individual learning needs.
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Orchard solutions are sold through a network of territorial dealers who actively
call on schools to sell larger curriculum- and technology-based solutions.
Orchard includes universal management which tracks student progress across all
programs used by students. The Company believes that Orchard is now a recognized
competitor in the growing Integrated Learning Systems market as a result of its
motivational approach, strong correlation to major national tests and state
objectives and its cost-effective pricing structure.
In effect, the Company manages two distinct product lines, targeted at different
customer segments and reseller channels, with the same overall management and
technological team. GAMCO appeals to the classroom teacher and school-level
specialist who is looking for title-specific solutions within a limited budget.
Orchard appeals to the supervisor or administrator at both the district and
individual school level who is looking for a more comprehensive approach to
using computer software to supplement traditional instruction. Almost all of the
Company's titles are sold in some form through both product lines, which allows
the Company to profit more quickly from its investment in product development,
staffing and customer service.
During 1999, the Company released 23 new titles which are all available on
CD-ROM for Macintosh and Windows computers. Substantially all of the Company's
sales are of titles used on Macintosh and Windows operating systems. The Company
also upgraded its Orchard solution through several improvements to its
management system and began the development of a major upgrade of Orchard which
will include pre- and post-test assessment along with computer-generated
assignments. This new upgrade of Orchard is expected to be released in 2000. The
Company also began development of a new early reading comprehension program
based upon the latest research in guided reading. This four-title program for
reading levels one through four is expected to be released in 2000.
In 1999 the Company entered into a licensing agreement under which the Company
has agreed to publish four science concepts educational software titles in a
hybrid multimedia CD-ROM format in 2000.
The Company also generated special sales of its products for the first time in
1999 through a direct-to-the-home marketer of educational software. This
alliance allows the Company to reach families in their homes without going
through expensive retail distribution. The Company is considering other special
consumer sales opportunities, including the Internet, to leverage its strong
skills-based content through new sales channels.
In 1999 the Company relocated its warehouse and customer service operation from
Big Spring, Texas to Saint Louis, Missouri. This relocation completed the
transfer of all of the Company's software publishing operation from Texas to
Missouri.
The Company also has certain natural resource interests through several
subsidiaries, which are not believed to be material assets of the Company,
individually or in the aggregate.
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Page 4
Siboney Coal Company, Inc. ("Siboney Coal"), a subsidiary of the Company, owns
the fee and mineral interests in coal properties aggregating approximately 1,425
acres in Johnson and Martin Counties, Kentucky. Siboney Coal leases the
properties to a mining company under a lease which calls for annual payments of
$30,000 plus royalties per ton of coal mined. Future revenues in excess of
minimum royalties from the coal lease are dependent on mining operations of the
lessee and at certain times have been (including 1999), and in the future may
be, discontinued.
Other subsidiaries of the Company have royalty and working interests in oil and
gas leases and property rights. Revenues from such leases and interests are not
material. The present value of estimated future net oil and gas reserves of the
Company's subsidiaries is presently not determinable.
Prior to 1958, the Company held oil exploration rights covering approximately
four million acres in Cuban territory, which were expropriated. The Company
filed claims against the Cuban government with the U.S. Foreign Claims
Settlement Commission which certified the Company's loss as $2,454,000 plus 6%
interest per annum from November 1959. No funds have been appropriated to
satisfy such claims. Accordingly, the Company does not consider the
collectability of the claim to be probable. In 1996, a new federal law was
passed which grants U.S. companies whose Cuban properties were confiscated the
right to bring action in federal courts against foreign nationals that make use
of confiscated properties and makes them liable for money damages to the U.S.
company. However, the President has the authority to suspend the right of
potential plaintiffs to file such lawsuits and has done so consistently since
the law was passed.
Sources and Availability of Raw Materials -- Raw materials are generally
available and are purchased from a wide range of suppliers. Shortages are not
anticipated.
Patents, Trademarks and Licenses -- The Company holds various patents,
copyrights and license rights, some of which are considered to be material to
its business. The licensing agreements provide for minimum royalties to be paid
by the Company over a specified number of years.
Seasonality -- The Company typically experiences its highest levels of sales and
accounts receivable in the educational products business at the end of the
school year (April, May, June and July). However, seasonality is not deemed to
have an overall material effect on the Company's operations.
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Page 5
Working Capital Items -- The Company does not engage in unusual practices
relating to working capital items. The Company does not purchase or maintain an
unusually high amount of inventory in advance, although certain materials are
purchased in larger quantities in order to obtain volume discounts. The Company
does not routinely offer extended terms for payment, but historically some
public school districts and public educational institutions have delayed making
payment until appropriated funds become available. Siboney Learning Group
maintains an "on approval" policy under which goods shipped subject to customer
approval are not billed for and can be returned within 45 days. Invoices are
sent after 45 days if the goods are not returned. Sales of Gamco and Orchard
products are warranted for 90 days. Siboney Learning Group also maintains a
general "satisfaction guaranteed" policy under which products may be returned
within 12 months from the date of purchase if they do not meet a customer's
satisfaction. For the year 1999, approximately 2% of sales was returned.
Dependence on Limited Number of Customers -- In 1999 approximately 18% of the
Company's revenues were generated from catalog sales through one dealer,
Educational Resources, Inc.
Backlog -- The Company traditionally does not have a material backlog of orders.
Government Business -- Sales of Siboney Learning Group's computer software
products are substantially dependent upon expenditures of school districts and
individual schools. Although a substantial portion of Siboney Learning Group's
business is done with governmental subdivisions, such business is not subject to
price renegotiation or termination for convenience of the buyer.
Environmental Impact -- Present federal, state and local provisions regulating
the discharge of materials into the environment or otherwise relating to the
protection of the environment are not expected to materially affect the Company.
Research and Development -- Research and development costs are capitalized at
the point the Company determines that it is technologically feasible to produce
the software title. Such costs are amortized on a declining balance method over
a period of four years.
At December 31, 1999, $208,271 of software research and development costs were
capitalized. Amortization expense charged against earnings in 1999 amounted to
$5,820. There were no capitalized software costs in 1998 or 1997. Research and
development costs not capitalized are expensed in the year and totaled
approximately $286,000, $403,000 and $440,000 in 1999, 1998 and 1997,
respectively.
The development of Siboney Learning Group products resulted in the release of 65
new and improved titles in 1997, 88 in 1998 and 23 in 1999. As a result of
continuing internal product development and the development of newly licensed
software, the Company is expected to complete and release a new upgraded Orchard
and approximately 15 new and improved titles in 2000.
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Page 6
Competition -- Siboney Learning Group operates in highly competitive markets
which are subject to ongoing technological change and are expected to continue
to require relatively high research and development expenditures. A number of
the Company's competitors are significantly larger and have substantially
greater resources than the Company. Over the last several years, the
consolidation of educational software publishers has resulted in a reduction of
the number of new software titles designed for schools.
Personnel -- As of February 10, 2000, the Company had 31 full-time employees.
The Company's employees are not represented by any union.
Item 2. Properties
The Company leases 660 square feet of corporate office space under a lease which
expires May 31, 2001. Siboney Learning Group leases 3,300 square feet of
separate office space under a lease which expires May 31, 2001.
During 1999 the Company completed the final steps of its planned relocation from
Big Spring, Texas by moving its customer service and distribution center to
Saint Louis, Missouri. The 23,000 square foot building in Big Spring, Texas was
sold during the year. To accommodate this move, the Company leased approximately
7,000 square feet of warehouse facilities in Saint Louis under a lease which
expires May 2004.
Item 3. Legal Proceedings
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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Page 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Principal Market
The Company's common stock is traded in the over-the-counter
market.
(b) Stock Price and Dividend Information
The following table sets forth the high and low bid prices per
share of common stock.
1999 Bid 1998 Bid
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Quarter High Low Quarter High Low
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First $. 22 $ .13 First $ .19 $ .11
Second .20 .12 Second .16 .11
Third .18 .13 Third .22 .13
Fourth .28 .17 Fourth .15 .09
The foregoing market quotations reflect interdealer prices,
without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.
No cash dividends were paid on the Company's common stock in 1999
or 1998. The Company intends to continue its historical pattern
of utilizing cash generated by operations to support future
growth.
(c) Approximate Number of Holders of Common Stock
The number of holders of record of the Company's common stock as
of February 10, 2000 was 16,637.
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Page 8
Item 6. Selected Financial Data
Years Ended December 31,
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1999 1998 1997 1996 1995
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Total assets $ 1,521,714 $ 881,230 $ 938,994 $ 1,440,893 $ 1,696,432
=======================================================================================================================
Revenues $ 3,309,021 $ 2,406,759 $ 1,957,088 $ 2,014,268 $ 2,359,492
=======================================================================================================================
Income (loss) from operations $ 315,187 $ (129,222) $ (590,816) $ (640,046) $ (137,919)
=======================================================================================================================
Cumulative effect on prior
years of change in accounting
principle $ -- $ -- $ -- $ -- $ (66,368)
=======================================================================================================================
Net income (loss) $ 543,783 $ (124,749) $ (571,688) $ (315,276) $ (164,773)
=======================================================================================================================
Earnings (loss) per common
share [Note (a)]:
Operations $ 0.033 $ (0.008) $ (0.035) $ (0.020) $ (0.006)
Cumulative effect on prior
years of change in
accounting principle -- -- -- -- (0.004)
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$ 0.033 $ (0.008) $ (0.035) $ (0.020) $ (0.010)
======================================================================================================================
Weighted average number of
common shares outstanding 16,522,821 16,518,344 16,249,565 15,613,269 15,566,694
======================================================================================================================
Earnings (loss) per common
share - assuming dilution
[Notes (a) and (b)]
Operations $ 0.032 $ (0.008) $ (0.035) $ (0.020) $ (0.006)
Cumulative effect on prior
years of change in
accounting principle -- -- -- -- (0.004)
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$ 0.032 $ (0.008) $ (0.035) $ (0.020) $ (0.010)
======================================================================================================================
Weighted average number of common
and common equivalent shares
outstanding 16,839,689 16,518,344 16,249,565 15,613,269 15,566,694
======================================================================================================================
Notes:
(a) The earnings per share amounts prior to 1997 have been
restated as required to comply with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." For further
discussion of earnings per share and the impact of Statement
No. 128, see Note 14 to the consolidated financial statements.
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Page 9
(b) For 1997 and 1998, options on shares of common stock were not
included in computing diluted earnings per share because their
effect was antidilutive.
(c) The Company has paid no cash dividends during the five years
ended December 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis sets forth certain factors which produced
changes in the Company's results of operations during the three years ended
December 31, 1999 and comments on the Company's financial position as of
December 31, 1999.
Results Of Operations:
1999 in Comparison with 1998
1999 was a very successful and profitable year for the Company compared to 1998
due primarily to a 38.6% revenue increase in Siboney Learning Group. The Company
is now realizing the benefits of investments in distribution and product
development made over the past three years. Consolidated revenues increased
37.5%, or $902,262, to $3,309,021.
Sales of GAMCO titles increased by 19.5% as the Company enjoyed almost a full
year of sales of Windows/Macintosh CD-ROM titles which are compatible with most
computers used in schools today. Sales of older DOS and Apple II titles now
account for less than 3% of the Company's software sales. The Company has become
a major software vendor for almost all national school software catalog dealers
due to its recent accelerated product development and the considerable
pull-through sales resulting from its direct marketing efforts, attendance at
trade shows and its inside sales team. While most of GAMCO's major competitors
saw their school software sales drop or flatten during 1999 due to increased
consolidation in the educational software business and the resultant lack of
newly released titles for the school market, GAMCO enjoyed its second
consecutive year of sales growth well above the industry's average rate of sales
growth.
Sales of Orchard titles increased by 103%, the third straight year that sales of
Orchard have more than doubled. The Company believes that Orchard is now a
recognized competitor in the growing Integrated Learning Systems market as a
result of its emphasis on motivational learning, curriculum correlations and
value-oriented pricing. Substantially all of the Company's existing Orchard
dealers increased their sales of Orchard products in 1999 and three newly
recruited and trained Orchard dealers began to produce strong results. In
addition, the Company hired two well-respected sales managers at the end of 1999
to continue Orchard's positive sales momentum through territorial dealers that
call on schools directly. Orchard now accounts for over 35% of the Company's
total sales after only three years and the Company believes it will account for
close to 50% of sales in 2000.
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Page 10
Cost of sales increased $127,185 to $476,237. Gross profit percentage increased
slightly from 85.3% to 85.5%. Higher royalty expenses incurred from sales of
licensed products were almost offset by a higher percentage of sales of higher
priced product licenses including Orchard.
Selling, general and administrative expenses increased by $330,668 or 15.1% due
primarily to an increase in salaries and compensation-related expenses. The
Company increased staffing in its Sales and Marketing Department in order to
increase its positive sales momentum and in its Research and Development
Department to continue the flow of new and upgraded products.
The Company's income from operations for 1999 was $315,187, as compared to a
loss from operations of $129,222 in 1998, due primarily to the improved results
stated above.
1998 in Comparison with 1997:
1998 was a turnaround year for Siboney Learning Group as it began to realize the
benefits of investments in distribution and product development made over the
preceding two years. During 1998, the Company's consolidated revenues increased
22.9% or $449,671 to $2,406,759. Sales of new titles released in the past 18
months accounted for 73% of total sales, compared to 32% in 1997. The new titles
were almost all in the Macintosh/Windows CD-ROM format which was introduced
during the second half of 1997. Sales of the Company's Orchard: Teacher's Choice
Software increased approximately $396,000 to $518,063, compared to $121,992 in
1997.
Cost of product sales increased $29,211 to $349,052. Gross profit percentage
increased from 83.1% to 85.3%. The reasons for the increase in gross profit
percentage were the ongoing implementation of management's plan to eliminate low
margin non-proprietary products and the sale of higher priced product licenses.
Selling, general and administrative expenses remained constant compared to 1997.
The Company's loss from operations for 1998 was $129,222, as compared to
$590,816 in 1997. The improved results from operations were primarily for the
reasons stated above.
Liquidity and Capital Resources
The Company considers its cash position and line of credit availability adequate
to fund its anticipated operations and capital expenditures on both a short-term
and of $500,000 long- term basis based on anticipated continued improvements in
the level and nature of revenues and continued control of expenses. However, if
such increased revenues and reduced losses or profitable operations do not
continue, the Company's available line of credit could become subject to
restriction, including the effect of the covenant therein to maintain the
Company's net worth at not less than $1,000,000. Under such circumstances, the
Company could be forced to reduce its operations.
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Page 11
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits, rather than four, to define the applicable year. As a result,
when moving from the year 1999 to 2000, without adjustment, such programs would
assume the year 1900 rather than 2000, with various potential adverse effects.
Consequently, most computer programs had to be adjusted to assure that they will
go forward and not backward.
The Company utilizes computer technologies throughout its business to carry on
its day to day operations. Computer technologies include hardware and software
used by the Company both in developing its products and in operating its
business. During 1999, the Company converted its operating and accounting system
to software which was warranted to be Y2K compliant.
During 1999, the Company initiated communications and developed a monitoring
program with all of its significant suppliers to determine Y2K compliance. While
the Company is not presently aware of any significant exposure and it
experienced no adverse impact at or since December 31, 1999 in regard to this
issue, there can be no assurance that the systems of third parties on which the
Company relies were properly converted, or that the failure to convert by
another company could not still have a material adverse effect on the Company in
the year 2000 or beyond.
The cost of determining the Company's exposure to risks associated with Y2K
compliance and correction is estimated to have been less than $1,000 and was not
deemed material to its results of operations for the fiscal year.
Educational software produced by the Company is used in conjunction with popular
operating systems, namely DOS, Macintosh and the Windows series. The Company
produces single title programs and multiple title programs. Single title
programs which are operated in DOS have no dates in their management systems.
Single title programs which the Company produces for Macintosh or Windows
operating systems record student performance by raw score percentage followed by
date entered, which is automatically provided by the underlying operating
system. Dates used by the Company's single title programs are displayed in two
digit (i.e., 07-10-98) configuration. Storage of this information is by most
recent entry and is only displayed and retrieved on a "last information entered,
first displayed" basis. It is not sorted on a date basis and therefore is not
subject to the Y2K problem. Multiple title programs use a management system
which displays dates in a four digit (i.e., 07-10-1998) configuration and thus
are not subject to Y2K issues.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data required by this Item 8 are set
forth at the pages indicated in Item 14.
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Page 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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Page 13
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the caption "Information Concerning Nominees"
and "Information Concerning Executive Officers" in the Company's definitive
proxy statement to be filed under Regulation 14A for the Company's 2000 annual
meeting of stockholders, which involves the election of directors, is
incorporated herein by this reference.
Item 11. Executive Compensation
The information contained under the captions "Executive Compensation" and
"Information As To Stock Options" in the Company's definitive proxy statement to
be filed under Regulation 14A for the Company's 2000 annual meeting of
stockholders, which involves the election of directors, is incorporated herein
by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information regarding security ownership contained under the caption
"Information Concerning Nominees" in the Company's definitive proxy statement to
be filed under Regulation 14A for the Company's 2000 annual meeting of
stockholders, which involves the election of directors, is incorporated herein
by this reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the caption "Transactions With Issuer And
Others" in the Company's definitive proxy statement to be filed under Regulation
14A for the Company's 2000 annual meeting of stockholders, which involves the
election of directors, is incorporated herein by this reference.
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Page 14
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule and
Reports on Form 8-K PAGE
(a) (1) Financial Statements:
Report of Independent Certified Public
Accountants.........................................16
Consolidated Balance Sheet at
December 31, 1999 and 1998..........................17
Consolidated Statement of Stockholders'
Equity for the Years Ended December 31,
1999, 1998 and 1997.................................18
Consolidated Statement of Operations
for the Years Ended December 31,
1999, 1998 and 1997.................................19
Consolidated Statement of Cash Flows
for the Years Ended December 31,
1999, 1998 and 1997.................................20
Notes to Consolidated Financial
Statements.....................................21 - 33
(a) (2) Financial Statement Schedule:
Schedule V - Valuation and Qualifying Accounts -- 1999,
1998 and 1997.......................................34
All other schedules and financial statements of the
Registrant only are omitted because they are not required
or the information is included in the financial statements
or notes thereto.
(a) (3) Exhibit Index...........................................36
Management Contracts and Compensatory Plans or
arrangements required to be filed as Exhibits: None
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the fourth
quarter of 1999.
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Page 15
Report of Independent Certified Public Accountants
Stockholders and Board of Directors
Siboney Corporation
St. Louis, Missouri
We have audited the accompanying consolidated balance sheet of Siboney
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 14. These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedule 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of Siboney
Corporation and subsidiaries as of December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles, and the supporting schedule presents fairly the
information required to be set forth therein.
/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri RUBIN, BROWN, GORNSTEIN & CO. LLP
February 10, 2000
Page 16
SIBONEY CORPORATION AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
Assets
December 31,
---------------------------------
1999 1998
---------------------------------
Current Assets
Cash and cash equivalents $ 383,356 $ 134,387
Investment (Note 3) 6,500 8,500
Accounts receivable (Notes 4 and 8) 352,217 274,204
Inventories (Notes 5 and 8) 189,008 187,545
Prepaid expenses and deposits 59,246 77,774
Deferred tax asset 136,000 --
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Total Current Assets 1,126,327 682,410
Property, Plant and Equipment (Notes
6, 8 and 9) 192,936 198,820
Capitalized Software Development
Cost (Note 7) 202,451 --
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$ 1,521,714 $ 881,230
===============================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capitalized
lease obligation (Note 9) $ 22,293 $ 11,828
Accounts payable 77,245 85,508
Accrued expenses 237,546 148,579
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Total Current Liabilities 337,084 245,915
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Long-Term Portion of Capitalized
Lease Obligation (Note 9) 34,266 28,437
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Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at
$0.10 par value; issued and
outstanding 16,529,844 in 1999
and 16,518,344 in 1998 1,652,985 1,651,835
Additional paid-in capital 853 300
Unrealized holding gain on investment 6,500 8,500
Retained earnings (deficit) (509,974) (1,053,757)
- -------------------------------------------------------------------------------
Total Stockholders' Equity 1,150,364 606,878
- --------------------------------------------------------------------------------
$ 1,521,714 $ 881,230
===============================================================================
See the accompanying notes to the consolidated financial statements.
- --------------------------------------------------------------------------------
Page 17
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Common Stock Additional Unrealized Retained Total
--------------------------- Paid-In Holding Earnings Stockholders'
Shares Amount Capital Gain (Deficit) Equity
---------------------------------------------------------------------------------------
Balance - January 1, 1997 15,766,694 $ 1,576,670 $ 13,028 $ -- $ (315,276) $ 1,274,422
Issuance of Common Stock 765,000 76,500 (12,728) -- (41,510) 22,262
Retirement of Common
Stock (13,350) (1,335) -- -- (534) (1,869)
Net Loss -- -- -- -- (571,688) (571,688)
Net Appreciation on
Investment -- -- -- 27,500 -- 27,500
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 16,518,344 1,651,835 300 27,500 (929,008) 750,627
Net Loss -- -- -- -- (124,749) (124,749)
Net Depreciation on
Investment -- -- -- (19,000) -- (19,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 16,518,344 1,651,835 300 8,500 (1,053,757) 606,878
Issuance of Common Stock 11,500 1,150 553 -- -- 1,703
Net Income -- -- -- -- 543,783 543,783
Net Depreciation on
Investment -- -- -- (2,000) -- (2,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1999 16,529,844 $ 1,652,985 $ 853 $ 6,500 $ (509,974) $ 1,150,364
=======================================================================================================================
See the accompanying notes to the consolidated financial statements.
- --------------------------------------------------------------------------------
Page 18
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
------------------------------------------------
1999 1998 1997
------------------------------------------------
Revenues $ 3,309,021 $ 2,406,759 $ 1,957,088
Cost of Product Sales 476,237 349,052 319,841
Selling, General and
Administrative Expenses 2,517,597 2,186,929 2,228,063
- -------------------------------------------------------------------------------
Income (Loss) from Operations 315,187 (129,222) (590,816)
- -------------------------------------------------------------------------------
Other Income
Interest income 5,613 3,331 17,964
Gain on sale and disposition
of assets 86,758 -- --
Miscellaneous 225 1,142 1,164
- -------------------------------------------------------------------------------
Total Other Income 92,596 4,473 19,128
- -------------------------------------------------------------------------------
Net Income (Loss) before
Credit for Income Tax 407,783 (124,749) (571,688)
Credit for Income Tax (Note 11) 136,000 -- --
- -------------------------------------------------------------------------------
Net Income (Loss) $ 543,783 $ (124,749) $ (571,688)
===============================================================================
Basic Income (Loss) Per
Common Share $ 0.033 $ (0.008) $ (0.035)
===============================================================================
Diluted Income (Loss) Per
Common Share $ 0.032 $ (0.008) $ (0.035)
===============================================================================
See the accompanying notes to the consolidated financial statements.
- --------------------------------------------------------------------------------
Page 19
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
Cash Flows from Operations
Net income (loss) $ 543,783 $ (124,749) $ (571,688)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operations:
Depreciation 64,839 62,743 58,244
Amortization 5,820 -- --
(Gain) loss on sales and disposition of assets (86,758) 57 --
Change in assets and liabilities:
Increase in accounts receivable (78,013) (67,522) (54,245)
(Increase) decrease in inventories (1,463) (18,271) 5,665
Decrease in prepaid expenses and deposits 18,528 28,872 53,387
Increase in deferred tax asset (136,000) -- --
Increase in accounts payable and accrued expenses 80,704 45,770 21,846
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operations 411,440 (73,100) (486,791)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Payments for equipment (93,156) (69,180) (19,680)
Proceeds from sale of assets, net of related selling expenses 156,339 -- --
Payments for capitalized software development cost (208,271) -- --
- --------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (145,088) (69,180) (19,680)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 1,703 -- 20,393
Principal payments on capital lease (19,086) (13,085) --
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (17,383) (13,085) 20,393
- --------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 248,969 (155,365) (486,078)
Cash and Cash Equivalents - Beginning of Year 134,387 289,752 775,830
- --------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 383,356 $ 134,387 $ 289,752
====================================================================================================================
Supplemental Disclosure of Cash Flow Information
(Note 12):
Interest paid $ 9,360 $ 7,093 $ 327
- --------------------------------------------------------------------------------------------------------------------
See the accompanying notes to the consolidated financial statements.
- --------------------------------------------------------------------------------
Page 20
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Siboney Corporation and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Cash and Cash Equivalents
The Company considers all investment instruments purchased with a maturity of
three months or less to be cash equivalents. The carrying amount approximates
fair value because of the short maturity of those instruments.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated
collection losses that will be incurred in the collection of all receivables.
The estimated losses are based on historical experience coupled with a review of
the current status of the existing receivables.
Inventories
Raw materials inventory is valued at the lower of cost (first-in, first-out
method) or market. Finished goods inventory is valued at the lower of cost or
market of raw materials and an allowance for overhead, not in excess of market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation
computed principally using the straight-line method. Assets are depreciated over
periods ranging from two to thirty-nine years.
When assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the respective accounts and
any gain or loss realized from disposition is reflected in operations.
- --------------------------------------------------------------------------------
Page 21
- -------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Advertising
The Company expenses the costs of advertising the first time the advertising
takes place except for direct response advertising, which is capitalized and
amortized over its expected period of future benefits.
Direct response advertising consists primarily of catalog advertising to which
sales orders are directly attributed. The capitalized cost of the advertising is
amortized over a 12-month period following the issuance of the catalog.
At December 31, 1999, $41,098 of advertising costs were capitalized. Advertising
expense amounted to $370,334 in 1999, $393,119 in 1998 and $433,640 in 1997.
Revenue Recognition
Revenue from sales of educational software products is generally recognized upon
product shipment, provided that no significant vendor obligations remain and
collection of the resulting receivable is deemed probable. The Company maintains
an "on approval" policy for most products, under which goods shipped subject to
customer approval are not billed for and can be returned within 45 days.
Invoices are sent after 45 days if the goods are not returned. The Company also
maintains a general "satisfaction guaranteed" policy under which most products
may be returned within 12 months from the date of sale if the customer is
dissatisfied. All conditions for revenue recognition are met at the time of sale
as defined in Statement of Financial Accounting Standards No. 48 "Revenue
Recognition When Right of Return Exists." The Company does not experience many
product returns, and therefore, Company management is of the opinion that no
allowance for sales returns is necessary.
Research and Development
Research and development costs are capitalized at the point the Company
determines that it is technologically feasible to produce the software title.
Such costs are amortized on a declining balance method over a period of four
years.
Warranty Costs
The Company provides warranties on sales of educational products and all
significant warranty costs are charged to operations when the costs are probable
and estimatable. No allowance is deemed necessary.
- --------------------------------------------------------------------------------
Page 22
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Earnings (Loss) Per Share
In 1997, Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS 128"), replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented.
Stock Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") in 1997. As permitted by
SFAS 123, the Company continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic method prescribed by
APB No. 25, "Accounting for Stock Issued to Employees" and has provided in Note
13 pro forma disclosures of the effect on net income (loss) and earnings per
share as if the fair value-based method prescribed by SFAS 123 had been applied
in measuring compensation expense.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due, if any, plus deferred
taxes relating to operating losses and tax credits that are available to offset
future taxable income. The Company accounts for investment tax credits using the
flow-through method and thus reduces income tax expense in the year the related
assets are placed in service or qualified progress payments are made.
Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), issued in 1997,
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements. Based on
the definition of an "operating segment" and on materiality levels, both of
which are defined by SFAS 131, management has determined that it is unnecessary
to disclose segment data. The adoption of SFAS 131 did not affect consolidated
results of operations, financial position or cash flows of the Company, but did
result in a reduction in the disclosure of segment data.
- --------------------------------------------------------------------------------
Page 23
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), issued in 1997, establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company has determined that the adoption
of SFAS 130 on the Company's consolidated results of operations, financial
position or cash flows is not significant.
2. Operations
The Company's operations consist of the publishing and distribution of
educational software products through Siboney Learning Group, a wholly owned
subsidiary. Sales are made through a network of independent distributors
throughout the country as well as through its own catalogs and sales force.
The Company also holds interests in certain coal, oil and gas natural resources
which are not considered to be material.
3. Investment
In accordance with Statement of Financial Standards No. 115, the Company's
investment is classified as available for sale and is carried at fair value with
the net unrealized gain reflected as a component of stockholders' equity until
realized. The investment listed was the result of a settlement in a bankruptcy,
where prior to 1997 the Company had previously expensed the amount as a bad
debt; therefore the investment is carried at no cost. The stock received in the
settlement had a fair market value at December 31, 1998 of $8,500 and $6,500 at
December 31, 1999.
4. Accounts Receivable
Accounts receivable consist of:
1999 1998
---------------------------------
Accounts receivable $ 365,074 $ 284,671
Less: Allowance for doubtful accounts 12,857 10,467
- -----------------------------------------------------------------------------
$ 352,217 $ 274,204
=============================================================================
Page 24
Accounts receivable are pledged as collateral for notes payable (see Note 8).
5. Inventories
Inventories are summarized as follows:
1999 1998
-------------------------------
Raw materials $ 137,803 $ 128,727
Finished goods 51,205 58,818
- -----------------------------------------------------------------------------
$ 189,008 $ 187,545
=============================================================================
Inventories are pledged as collateral for notes payable (see Note 8).
Inventories are net of reserve for obsolescence of $42,988 and $39,068 in 1999
and 1998, respectively.
6. Property, Plant and Equipment
Property, plant and equipment consist of:
1999 1998
---------------------------------
Land, building and improvements $ 21,684 $ 192,495
Machinery and equipment 285,140 281,474
Office equipment, furniture and fixtures 359,073 294,500
- ------------------------------------------------------------------------------
665,897 768,469
Less: Accumulated depreciation 472,961 569,649
- ------------------------------------------------------------------------------
$ 192,936 $ 198,820
================================================================================
Depreciation charged against income amounted to $64,839 in 1999, $62,743 in 1998
and $58,244 in 1997.
The building and certain equipment are pledged as collateral for notes payable
(see Note 8).
7. Capitalized Software Development Costs
Software development costs are capitalized at the point the Company determines
that it is technologically feasible to produce the software title. Such costs
are amortized on a declining balance method over a period of four years.
- --------------------------------------------------------------------------------
Page 25
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
At December 31, 1999, $208,271 of software development costs were capitalized.
Amortization expense charged against earnings amounted to $5,820. Research and
development costs not capitalized are expensed in the year incurred and totaled
approximately $286,000, $403,000 and $440,000 in 1999, 1998 and 1997,
respectively.
8. Notes Payable
The Company has a $500,000 revolving line of credit agreement with a bank. The
outstanding debt is due on demand, and if no demand is made, then due on
August 1, 2000. The agreement, secured by accounts receivable, equipment and
inventory, requires monthly interest payments on the outstanding balance at
0.75% above the lender's prime rate. As of December 31, 1999 and 1998 no loans
were outstanding under the line of credit agreement.
The revolving credit agreement with the bank requires the Company to maintain a
minimum net worth of $1,000,000 as of December 31, 1999 and $1,250,000 as of
March 2000.
The weighted average interest rate was 8.74%, 9.17% and 9.25% for the years
ended December 31, 1999, 1998 and 1997, respectively.
9. Capital Leases
During 1998, the Company leased computer equipment with a cost of $53,350 under
a capital lease. The lease provides for payments which are the equivalent of
principal and interest at 6.6%, payable in monthly installments of $1,268, with
final payment due in November 2001.
During 1999, the Company leased computer equipment with a cost of $35,809 under
a capital lease. The lease provides for payments which are the equivalent of
principal and interest at 7.8%, payable in monthly installments of $840, with
final payment due in February 2003.
The future minimum annual lease payments under the capital lease are:
Year Amount
------------------------------------------------------------------
2000 $ 25,656
2001 24,388
2002 10,440
2003 1,740
Less: Amount representing interest 5,665
------------------------------------------------------------------
$ 56,559
==================================================================
Page 26
10. Deferred Compensation Plan
On January 1, 1994, the Company adopted a qualified, defined contribution profit
sharing plan covering eligible full-time and part-time employees. The plan is
qualified under Section 401(k) of the Internal Revenue Code, and allows
employees to contribute on a tax deferred basis. The plan provides for matching
contributions on a graduated scale, up to 3-1/2% of the employee's annual
qualified wages. The plan also provides for nonelective or discretionary
contributions by the Company in such amounts as the Board of Directors may
annually determine. The Company's contribution to the 401(k) plan was $46,000 in
1999, $33,656 in 1998 and $24,600 in 1997.
11. Income Taxes
Prior to 1999, no provisions for federal income taxes were reflected in the
financial statements due to the availability of substantial net operating loss
carryovers. Due to the uncertainty of the Company receiving material benefits
from the carryover, the deferred tax asset was completely offset with a
valuation allowance.
While 1999's income utilizes prior year loss carryforwards, the $136,000 credit
for income taxes in the current year reflects a recognition of tax benefits
resulting from prior years' losses to be used against future income.
The net deferred tax asset includes the following components:
1999 1998 1997
------------------------------------------------
Deferred tax asset $ 1,659,000 $ 1,801,500 $ 1,765,000
Deferred tax asset valuation
allowance (1,523,000) (1,801,500) (1,765,000)
- -------------------------------------------------------------------------------
$ 136,000 $ -- $ --
===============================================================================
State income taxes are shown as part of selling, general and administrative
expenses.
- --------------------------------------------------------------------------------
Page 27
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
The Company has net operating loss carryovers for federal income tax purposes of
approximately $5,530,000 at December 31, 1999 available to reduce future taxable
income. Under the Tax Reform Act of 1986, the amount available for carryover
could be reduced upon a substantial change in ownership.
Amount of Unused
Expiration During Operating Loss
Year Ended Carryforwards
----------------------------------------------------------------
2000 $ 2,025,000
2001 1,945,000
2002 585,000
2011 280,000
2017 577,000
2018 118,000
----------------------------------------------------------------
Total $ 5,530,000
================================================================
In addition, the Company has investment tax credit carryovers of approximately
$53,000 available to reduce future income taxes, if any, through December 31,
2000.
12. Supplemental Cash Flow Information
The Company financed, through a capital lease, the purchase of equipment in the
amount of $35,809 in 1999.
The Company financed, through a capital lease, the purchase of equipment in the
amount of $53,350 in 1998.
The Company had no significant noncash investing or financing activities for the
year ended December 31, 1997.
- --------------------------------------------------------------------------------
Page 28
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
13. Stock Option Plans
The Company's 1997 Incentive Stock Option Plan (the "1997 Plan") provides for
granting to key employees of the Company or its subsidiaries, options to
purchase a maximum of 800,000 shares of the Company's common stock. The Plan
provides for the granting of options which qualify as incentive stock options,
within the meaning of Section 422 of the Internal Revenue Code. All options
granted under the Plan must have an exercise price of not less than 100% of the
fair market value of the common stock on the date of grant and a maximum term of
ten years.
The Board of Directors of the Company may, in its sole discretion, amend,
discontinue or terminate the Plan at any time, provided, however, that it may
not, without stockholder approval, change the maximum number of shares for which
options may be granted under the Plan.
The Company also has a non-qualified stock option plan (the "1987 Plan") which
provides for granting to eligible employees, directors, consultants and
contractors of the Company or its subsidiaries, options to purchase authorized
but unissued or reacquired shares of the Company's common stock. The Board of
Directors has full authority and discretion in fixing the purchase price of the
stock subject to each option granted. The term of each option granted pursuant
to the 1987 Plan shall not be more than five years from the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for the Option Plans. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates for
awards under the Plan, consistent with the alternative method set forth under
SFAS 123, the Company's net income (loss) and net income (loss) per common and
equivalent share would have been affected. The pro forma amounts are indicated
below:
1999 1998 1997
--------------------------------------------
Net Income (Loss)
As reported $ 577,214 $ (124,749) $ (571,688)
Pro forma 429,282 (301,622) (597,240)
Net Income (Loss) Per
Common Share
As reported $ 0.035 $ (0.008) $ (0.035)
Pro forma $ 0.026 $ (0.018) $ (0.037)
Page 29
The weighted-average fair value of options at date of grant for options granted
during 1999, 1998 and 1997 was $0.102, $0.124 and $0.062 per option,
respectively. The fair value of each option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions.
1999 1998 1997
------------------------------------------
Expected life 5.0 5.0 3.0
Interest rate 8.5% 8.5% 8.5%
Volatility 85.5% 134.72% 43.22%
Dividend Yield -- -- --
A summary of stock option activity for 1999, 1998 and 1997 is as follows:
Weighted
Average
Number Price Per Exercise
Of Shares Share Price
----------------------------------------------
Balance - December 31, 1996 1,000,000 $0.0275 - $0.165 $0.056
Granted 310,000 $0.16 $0.160
Exercised (765,000) $0.0275 - $0.16 $0.029
Forfeited/Expired (135,000) $0.0275 - $0.16 $0.121
----------------------------------------------
Balance - December 31, 1997 410,000 $0.16 - $0.165 $0.162
Granted 1,060,000 $0.1275 - $0.145 $0.130
Forfeited/Expired (40,000) $0.1275 - $0.16 $0.148
----------------------------------------------
Balance - December 31, 1998 1,430,000 $0.1275 - $0.165 $0.138
Granted 137,500 $0.18 $0.180
Exercised (11,500) $0.1275 - $0.18 $0.148
Forfeited/Expired (108,500) $0.1275 - $0.18 $0.164
----------------------------------------------
Balance - December 31, 1999 1,447,500 $0.1275 - $0.18 $0.140
The following table summarizes information about stock options outstanding at
December 31, 1999:
Weighted
Number Of Average Weighted
Range Of Options Remaining Average
Exercise Outstanding And Years Of Exercise
Prices Exercisable Contractual Life Price
- --------------------------------------------------------------------------------
$0.1275 - $0.18 1,447,500 3.56 $ 0.14
- --------------------------------------------------------------------------------
Page 30
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
14. Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share ("EPS") is computed by dividing net
income (loss) by the weighted average number of common shares outstanding of
16,522,821 in 1999, 16,518,344 in 1998 and 16,249,565 in 1997.
For 1997 and 1998, options on shares of common stock were not included in
computing diluted EPS because their effect was antidilutive in each year.
For 1999, the computation of basic and diluted earnings per common share is as
follows:
Numerator for basic and diluted earnings per share -
income available to common shareholders $ 577,214
====================
Denominator:
Weighted average number of common shares
used in basic EPS 16,522,821
Effect on dilutive securities:
Common stock options 316,868
--------------------
Weighted number of common shares and dilutive
potential common stock used in diluted EPS 16,839,689
====================
For additional disclosures regarding stock options, see Note 13.
- --------------------------------------------------------------------------------
Page 31
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
15. Commitments
Lease Commitments
The Company leases office and warehouse space under operating leases which
expire at various dates through May 2004. Total rent expense under all operating
leases was $83,349, $32,770 and $31,413 in 1999, 1998 and 1997, respectively.
The future minimum annual rentals under the remaining leases is as follows:
Year Amount
---------------------------------------------------------
2000 $ 95,160
2001 64,150
2002 42,000
2003 43,000
2004 18,000
---------------------------------------------------------
$ 262,310
=========================================================
Royalty Agreement
In September 1996, the Company entered into a licensing agreement with an
educational software publisher. The agreement provided for the Company to pay
minimum royalties cumulatively of $50,000 in 1996, $100,000 in 1997 and 1998 and
$50,000 in 1999. Commencing in 2000, the agreement is automatically renewable
annually provided sales of the licensed products exceeds $100,000 and minimum
annual royalties of $50,000 are paid.
In March 1998, the Company entered into a licensing agreement with an
educational software developer. The agreement provides for the Company to pay
minimum royalties of $16,000 per year starting in 1999 and ending in 2002.
In May 1998, the Company entered into a licensing agreement with an educational
software publisher. The agreement was amended in 1999 and provides for the
Company to pay minimum royalties cumulatively of $100,000 in 1999, $125,000 in
2000 and $125,000 in 2001. Subsequent to 2001, the agreement is automatically
renewable based upon royalties paid of at least $60,000 per year.
In November 1999, the Company entered into an additional agreement with an
educational software author. The agreement provides for minimum annual royalties
of $20,000. The agreement ends on December 31, 2001 and is renewable upon mutual
agreement of both parties.
- --------------------------------------------------------------------------------
Page 32
- --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements (Continued)
16. Significant Customer And Suppliers
During 1999, 1998 and 1997, sales to one customer approximated 18%, 13% and 10%,
respectively, of total consolidated net sales. Accounts receivable from the
customer amounted to approximately $47,000 and $40,000 at December 31, 1999 and
1998, respectively.
There were no significant suppliers for 1999, 1998 and 1997.
- --------------------------------------------------------------------------------
Page 33
SIBONEY CORPORATION
- --------------------------------------------------------------------------------
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1999, 1998 and 1997
Additions Deductions
----------- --------------------------------
Balance at Charged to Charges for Balance at
Beginning Costs and Which Reserve End
Description of Period Expenses Was Created of Period
- ---------------------------------------------------------------------------------------------------------
Reserves deducted in the balance sheet
from the assets to which they apply:
Accounts receivable allowance
for doubtful accounts
1997 $ 49,703 $ 4,154 $ (4,026) $ 49,831
1998 49,831 -- (39,364) 10,467
1999 10,467 6,904 (4,514) 12,857
Inventory valuation account
1997 66,619 -- 44,178 22,441
1998 22,441 18,673 2,046 39,068
1999 39,068 3,920 -- 42,988
Investments in natural resources
allowance for depreciation and
cost depletion of natural resources
1997 145,821 -- -- 145,821
1998 145,821 -- -- 145,821
1999 145,821 -- -- 145,821
- --------------------------------------------------------------------------------
Page 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Siboney Corporation
Date: BY: /s/ Timothy J. Tegeler
----------------------- --------------------------------------
Timothy J. Tegeler
President and Chief Executive
and Financial Officer and
Principal Accounting Officer
Date: BY: /s/ Timothy J. Tegeler
----------------------- --------------------------------------
Timothy J. Tegeler, Director
Date: BY:
----------------------- --------------------------------------
Thomas G. Keeton, Director
Date: BY: /s/ Rebecca M. Braddock
----------------------- --------------------------------------
Rebecca M. Braddock, Director
Date: BY: /s/ Alan G. Johnson
----------------------- --------------------------------------
Alan G. Johnson, Director
Date: BY: /s/ Ernest R. Marx
----------------------- --------------------------------------
Ernest R. Marx, Director
- --------------------------------------------------------------------------------
Page 35
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit No. Description
----------- -----------
3(a) Amended and Restated Articles of Incorporation, filed as Exhibit
3(a) to the Company's Report on Form 10-K for the year ended
December 31, 1986 (the "1986 10-K") and incorporated herein by
this reference
3(b) Bylaws, filed as Exhibit 3(b) to the 1986 10-K and incorporated
herein by this reference
4(a) Siboney Corporation 1997 Incentive Stock Option Plan, filed as
Exhibit 4.1 to the Company's Form S-8 Registration Statement
(Commission file no. 333-35247, and incorporated herein by this
reference.)
10(a) Line of Credit Note, as amended, between the Company and
Southwest Bank of St. Louis dated June 12, 1997, filed as Exhibit
10(a) to the Company's Report on Form 10-K for the year ended
December 31, 1997 (the "1997 10-K") and incorporated herein by
this reference.
10(b) Restated and Amended Coal Lease between the Company and
Mountaineer Land Company dated May 15, 1987, filed as Exhibit
10(b) to the 1997 10-K and incorporated herein by this reference.
10(c) Software Distribution and License Agreement between the Company
and Merit Audio Visual, Inc. dated September 4, 1996, filed as
Exhibit 10(c) to the 1997 10-K and incorporated herein by this
reference.
10(d) Software Distribution and License Agreement between the Company
and NECTAR Foundation dated May 8, 1998 and amended agreement,
dated September 8, 1999, filed herewith.
21 Subsidiaries of the Company, filed herewith
23 Consent of Rubin, Brown, Gornstein & Co. LLP, Independent
Auditors, filed herewith
27 Financial Data Schedule (filed in EDGAR version only)
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