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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, 1997
[ ] 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
(Exact name of registrant as specified in its charter)
Maryland 73-0629975
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8135 Forsyth, Suite 206, P.O. Box 16184
St. Louis, Missouri 63105
Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-6141
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 13, 1998 was $2,642,935. This value was based on
the average of the bid and asked prices on February 13, 1998.
As of February 13, 1998, the Registrant had outstanding 16,518,344 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 1998 Annual Meeting of Shareholders, which
involves the election of directors, is incorporated by reference into Items 10,
11, 12 and 13.
INDEX
PAGE
PART I
Item 1. Business.................................................... 3 - 7
Item 2. Properties.................................................. 7 - 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission Of Matters To A Vote Of Security Holders......... 8
PART II
Item 5. Market For Registrant's Common Equity And Related
Stockholder Matters....................................... 9
Item 6. Selected Financial Data.................................... 10 - 11
Item 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations...................... 11 - 13
Item 8. Financial Statements And Supplementary Data................ 13
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 - 33
Signatures.......................................................... 34
Exhibit Index....................................................... 35
PART I
Item 1 - Business
General
The principal businesses in which the Company engages, directly and through its
subsidiaries, are the publishing and distribution of educational software
products and the holding of certain natural resource interests.
Industry Segments And Subsidiaries
At December 31, 1997, the Company conducted its business directly and through
several wholly-owned subsidiaries, as follows:
Industry Division Or Year Of
Segment Subsidiary Incorporation Organization
-------- ----------- ------------- ------------
Continuing Operations:
Educational Products Siboney Learning Group Division -- --
Gamco Industries, Inc. Texas 1968
(part of Siboney Learning Group
Division)
Natural Resources Axel Heiberg Oil Company Delaware 1968
Natural Resources Siboney Resources - Texas, Inc. Texas 1968
Natural Resources Siboney Coal Company, Inc. Kentucky 1978
Discontinued Operations:
Audiovisual Equipment Siboney Communications, Inc. Texas 1950
A summary of the results of each of the Company's two industry segments,
educational products and natural resources, for the years ended December 31,
1997, 1996 and 1995, which appears in Note 13 to the Consolidated Financial
Statements on Page 28, is incorporated herein by reference.
Description Of Business And Properties By Industry Segment
Educational Products:
Siboney Learning Group Division/Gamco Industries, Inc.
Business - General Description And Current Developments -- The Company is
engaged, through its Siboney Learning Group Division and Gamco Industries,
Inc. ("Gamco"), a wholly-owned subsidiary, in the publishing and
distribution of educational software.
The Company has served the educational market for more than 35 years. The
Company's main business is publishing proprietary 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 which are stressed on standardized tests and in textbooks. Gamco
sells through a network of independent distributors throughout the United
States as well as through its own catalogs and sales force. Popular Gamco
titles include Money Challenge, Discover Time, the Touchdown Math series
and Undersea Reading for Meaning. Gamco publishes over 100 titles for
Macintosh, Windows, DOS and Apple II operating systems.
In 1997, Siboney Learning Group expanded its distribution and product
offering by launching Orchard: Teacher's Choice Software through a network
of 25 dealers to complement its traditional distribution strategy of single
title sales through dealer catalogs and its own catalogs. Orchard is a
comprehensive instructional software solution for students who are
struggling to master key skills. It provides schools with a universal
management system that tracks student progress across all titles and a
variety of instructional approaches that motivate students to learn.
Orchard allows the Company to compete in the market for Integrated
Learnings Systems which offer larger and more expensive curriculum-based
software packages to schools needing to remediate their students.
In late 1997, the Company relocated most of its five person inside sales
force to St. Louis and hired a new manager. The inside sales group focuses
on selling the Company's proprietary software to more than 10,000 school
customers and 30,000 additional school prospects.
During 1997, Siboney Learning Group accelerated its conversion of titles to
the Windows, Macintosh and CD-ROM platforms, which are now the predominant
systems used in schools. The Company released its first titles for Windows
in June 1997 and launched its first CD-ROM titles in September. During the
year, the Company converted 15 products for Windows, 25 titles for
Macintosh, and produced 27 new CD-ROM titles.
Also in 1997, the Company entered into a licensing agreement with
Intentional Educations to publish 12 early reading educational software
titles in a hybrid multimedia CD-ROM format and commenced the sale of such
products. The Company plans to continue its efforts to obtain additional
licensing agreements in 1998.
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 --Siboney Learning Group/Gamco holds
various patents, copyrights and license rights which are considered to be
material to its business.
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 & July). However, seasonality is
not deemed to have an overall material effect on the Company's operations.
Working Capital Items -- The Company does not engage in unusual practices
relating to working capital items. Siboney Learning Group/Gamco 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. Siboney Learning Group/Gamco 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/Gamco
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. Prior to
1998, a 30 day preview policy was followed by Siboney Learning Group/Gamco,
under which goods made available on preview were invoiced when shipped and
the invoice cancelled if the goods were returned. Sales of Orchard products
are returnable within 90 days if the customer is dissatisfied. For the year
1997, approximately 8% of sales were returned, of which the majority
represented previewed sales returned within thirty days. Siboney Learning
Group/Gamco also maintains a general return policy under which products may
be returned within 12 months from the date of purchase if they do not meet
a customer's satisfaction.
Dependence On Limited Number Of Customers -- In 1997 approximately 10% of
Siboney Learning Group/Gamco'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 for its educational products.
Government Business -- Although a substantial portion of Siboney Learning
Group/Gamco'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 protection of the environment are not expected to materially
affect the Company.
Research And Development --Siboney Learning Group/Gamco's expenditures for
research and development of new computer software products and upgrading
and adapting existing software products were approximately $440,000,
$412,000 and $391,000 in 1997, 1996 and 1995, respectively.
The development of Siboney Learning Group/Gamco products resulted in the
release of five new and improved titles in 1995, seven in 1996, and
eighty-eight in 1997. As a result of continuing internal product
development and the development of newly licensed software, the Company is
expected to release approximately eighty new and improved titles in 1998.
Competition -- Siboney Learning Group/Gamco 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. Sales of Siboney Learning Group/Gamco's computer software
products are substantially dependent upon expenditures of school districts
and individual schools.
Natural Resources:
Siboney Coal Company, Inc.
Siboney Coal Company, Inc. ("Siboney Coal"), a subsidiary of the Company,
owns the fee and mineral interests in certain coal properties in Johnson
and Martin Counties, Kentucky. The properties consist of approximately 325
surface or fee acres which include mineral rights and approximately 1,120
acres of mineral rights alone.
Siboney Coal leases the coal properties to Mountaineer Land Company
("Mountaineer"), a subsidiary of Arch Coal Company (formerly Ashland Coal
Company), under a twenty-five year lease entered into in 1987, under which
mining operations have been conducted on and off since March 1990. Under
the terms of the lease, Mountaineer has the right to mine the coal and pay
a royalty to Siboney Coal. An advance royalty and certain royalties
previously paid by Mountaineer are recoupable against future production
royalties payable on coal mined and sold from the properties. The lease
calls for annual payments of $30,000 plus royalties per ton of coal mined.
The lease is cancellable on thirty days' prior written notice by the
lessee. Siboney Coal earned $61,414 in 1997, $78,033 in 1996 and $70,596 in
1995 under the lease. 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, and in the future, may be discontinued.
For further discussion of the "Natural Resources Segment" see Note 7 to the
Consolidated Financial Statements on Page 25.
Oil And Gas
Siboney Resources - Texas, Inc. ("Siboney Resources - Texas"), a subsidiary
of the Company, has royalty interests in certain oil and gas leases in
Texas. Revenues from such leases are not a material factor in the Company's
consolidated revenues.
Axel Heiberg Oil Company ("Axel"), a subsidiary of the Company, holds a
2.28% working interest in oil and gas property rights on 1,843 acres in the
Canadian Arctic Islands. Due to the high cost of exploration and recovery
of oil and gas from this region, it is not anticipated that revenues will
be generated from this interest in the foreseeable future.
Revenue and income after tax from oil and gas related operations are not
significant to the Company. The present value of estimated future net oil
and gas reserves of Axel and Siboney Resources - Texas is presently not
determinable.
Prior to the takeover of Cuba by Fidel Castro in 1958, the Company and its
predecessor held oil exploration rights covering approximately four million
acres in Cuban territory. Following the expropriation of these properties
by the Castro regime, the Company filed claims against the Cuban government
with the United States Foreign Claims Settlement Commission, which was
authorized under the International Claims Settlement Act of 1949, as
amended, to determine the validity and value of claims of United States
nationals against the Cuban government for properties which have been
expropriated. The Commission certified the Company's loss to be $2,454,000
plus interest at 6% per annum from November 1959. No funds have ever been
appropriated to satisfy such claims. Accordingly, the Company has not
considered and currently does not consider the claim to be material and
cannot determine the possibility of or the amount of any possible recovery.
In 1996, a new federal law, popularly known as the "Helms-Burton Act", was
passed, which grants U.S. companies whose properties were confiscated by
the Cuban government the right to bring action in U.S. federal district
courts against foreign nationals that "traffic" in, or make use of,
confiscated properties and provides that those companies are liable for
money damages to the U.S. company which owns the claim to the confiscated
property.
However, under the law, the President of the United States has the
authority every six months to suspend the right of potential plaintiffs to
file lawsuits, which he has done on several occasions, most recently in
February 1998. The Company cannot predict whether the President will
continue to postpone the effectiveness of this legislation.
Personnel:
As of February 13, 1998 the Company had 25 employees, 2 of which were
employed by the parent corporation, and 23 by Siboney Learning Group/Gamco.
The Company's employees are not represented by any union.
Item 2. Properties
The Company leased 817 square feet of office space under a lease which
expired December 31, 1997 and an additional 850 square feet of office space
which is used by Siboney Learning Group Division under a lease which
expires May 30, 1998. Effective February 1, 1998, the Company entered into
a new lease for 2,148 square feet and extended the lease term to May 30,
1999.
Gamco owns a 23,000 square foot building in Big Spring, Texas on 12 acres.
Gamco utilizes 100% of the space available in the building.
The Company considers these facilities adequate to meet its needs for the
foreseeable future.
The Company's subsidiaries operating in the natural resources segment own
interests in certain coal, oil and gas properties. The present value of
estimated future reserves of such properties is not presently determinable
by the Company.
Item 3. Legal Proceedings
On October 4, 1985, the Company's subsidiary, Siboney Communications, Inc.
("SCI"), filed a voluntary petition under Chapter 7 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division. The proceeding remains currently
pending; however, substantially all of the assets of SCI were sold and
distributed in 1986 under supervision of the Bankruptcy Court.
Item 4. Submission Of Matters To A Vote Of Security Holders
Not applicable.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
(a) Principal Market
The Company's common stock, par value $.10 per share, 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 as reported by market makers polled by the Company:
1997 Bid 1996 Bid
-------------------------------- ---------------------------------
Quarter High Low Quarter High Low
------- ---- --- ------- ---- ---
First .14 .14 First .14 .14
Second .15 .14 Second .26 .14
Third .12 .12 Third .24 .19
Fourth .13 .11 Fourth .19 .16
The foregoing market quotations reflect interdealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.
(c) Approximate Number Of Holders Of Common Stock
The number of holders of record of the Company's common stock as of
February 13, 1998 was 17,017.
Item 6. Selected Financial
Years Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets of continuing
operations $ 938,994 $ 1,440,893 $ 1,696,432 $ 1,875,057 $ 1,764,684
=========== =========== =========== =========== ===========
Revenues from continuing
operations $ 1,957,088 $ 2,014,268 $ 2,359,492 $ 2,306,827 $ 2,060,465
=========== =========== =========== =========== ===========
Income (loss) from continuing
operations $ (571,688) $ (315,276) $ (98,405) $ 89,272 $ 74,128
=========== =========== =========== =========== ===========
Income from discontinued
operations [Note (a)] $ -- $ -- $ -- $ 60,691 $ 603,202
=========== =========== =========== =========== ===========
Cumulative effect on prior
years of change in
Accounting principle $ -- $ -- $ (66,368) $ -- $ --
=========== =========== =========== =========== ===========
Net income (loss) $ (571,688) $ (315,276) $ (164,773) $ 149,963 $ 677,330
=========== =========== =========== =========== ===========
Earnings (loss) per common
share [Note (b)]:
Continuing operations $ (0.0351) $ (0.0201) $ (0.0063) $ 0.0057 $ 0.0047
Discontinued operations -- -- -- 0.0038 0.0388
Cumulative effect on prior
years of change in
accounting principle -- -- (0.0040) -- --
----------- ------------ ----------- ---------- ----------
$ (0.0351) $ (0.0201) (0.0103) $ 0.0095 $ 0.0435
=========== =========== =========== =========== ==========
Weighted average number of
common shares outstanding 16,249,565 15,613,269 15,566,694 15,566,694 15,566,694
=========== =========== =========== =========== ==========
Earnings (loss) per common
share - assuming dilution
[Notes (b) and (c)]
Continuing operation $ (0.0351) $ (0.0201) $ (0.0063) $ 0.0054 $ 0.0045
Discontinued operations -- -- -- 0.0036 0.0367
Cumulative effect on prior
years of change in
accounting principle -- -- (0.0040) -- --
-------- --------- --------- ----------- ---------
$ (0.0351) $ (0.0201) $ (0.0103) $ 0.0090 $ 0.0412
========= ========= ========== =========== ==========
Weighted average number of common
and common equivalent shares
outstanding 16,249,565 15,613,269 15,566,694 16,422,782 16,204,465
========== =========== =========== ========== ==========
Notes:
(a) Discontinued operations relate primarily to SCI. In 1994, income from
discontinued operations arose from an adjustment to a liability reserve
relating to SCI previously established, which management determined to be
no longer necessary. In 1993 and prior years, income from discontinued
operations was generated as liabilities relating to legal judgments were
settled for less than was originally recorded and established reserves were
adjusted to reflect amounts determined by management to be currently
required.
(b) 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 15 to the consolidated financial
statements beginning on page 31.
(c) For 1995, 1996 and 1997, options on shares of common stock were not
included in computing diluted EPS because their effect was antidilutive.
(d) The Company has paid no cash dividends during the five years ended
December 31, 1997.
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, 1997, and comments on the Company's financial
position as of December 31, 1997.
Results Of Operations:
1997 in Comparison with 1996:
During 1997, the Company's consolidated revenues decreased 2.8% or $57,180
to $1,957,088. Revenues from the educational products segment decreased
2.1% or $40,907 to $1,892,551 and revenues from the natural resource
segment decreased 20.1% or $16,273 to $64,537. A substantial drop in sales
of old products, including Apple II software (which declined from
approximately $281,000 in 1996 to approximately $134,000 in 1997) and
non-proprietary products (which declined from approximately $279,000 in
1996 to approximately $40,000 in 1997), was partially offset by sales of
new and newly converted titles. The Company introduced its first Windows
and CD-ROM titles during the second half of 1997. The Company also improved
its new Orchard: Teacher's Choice Software by developing a universal
management program that tracks student progress across all titles. Of
$1,892,551 of educational products revenues in 1997, approximately $615,000
occurred as a result of sales of new products and product distribution
strategies. This compared to new product sales of approximately $65,000 in
1996. The Company also continues to expand through licensing agreements.
Natural resource revenue decreased due to less mining activity, from which
Siboney Coal receives royalty payments. Future royalty payments are
dependent on the level of mining operations by the Company's lessee and are
outside the control of the Company.
Cost of product sales from the educational products segment decreased
$136,054 to $319,841. Even though sales and cost of sales were down, gross
profit percentage increased from 76.4% to 83.1%. The reasons for the
increase in gross profit percentage were the 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 relatively constant
as compared to 1996.
The Company's loss from operations for 1997, primarily for the reasons
above, was $590,816. In 1996, the Company reported a loss from operations
of $640,046, which was offset in part by a gain from the sale of assets and
other income in connection with the sale of discontinued print shop
operations, resulting in a net loss for the year of $315,276.
1996 in Comparison with 1995:
During 1996, the Company's consolidated revenues decreased $345,224 to
$2,014,268. Revenues from the educational products segment decreased
$351,071 to $1,933,458 while revenues from the natural resources segment
increased $5,847 to $80,810. Educational product revenues decreased due to
an overall industry decline in the school software business and a planned
phase out of Gamco's sales of non-proprietary products. The most important
factors behind the industry decline in school software sales were increased
interest in and expenditures for equipment and access to the Internet,
general confusion regarding the future of Apple's Macintosh computers, and
delayed funding due to the spring federal budget impasse. Gamco was also
negatively affected by increased interest in newer CD-ROM and Windows
products in 1996, two areas where Gamco had no product offerings, but which
the Company will introduce in 1997. Natural resource revenues increased
slightly due to more mining activity, which increased royalty payments
earned by Siboney Coal. Future royalty payments are dependent on the level
of mining operations by the Company's lessee and are outside the control of
the Company.
Cost of product sales from the educational products segment decreased
$67,160 to $455,895. This decrease was due to the decline in sales. Gross
profit, as a percentage of sales, decreased from 77.2% to 76.4%, due
primarily to the impact of royalty advances paid by the Company for newly
licensed products.
Selling, general and administrative expenses increased $224,063 to
$2,198,419, primarily due to approximately $116,000 expended for the
development of an inside sales department at Gamco and approximately
$119,000 of increased administrative salaries associated with the expansion
of the Siboney Learning Group Division.
The Company's loss from operations for 1996, for the reasons described
above, was $640,046, which was offset in part by a gain from the sale of
assets and other income in connection with the sale of discontinued print
shop operations, resulting in a net loss for the year of $315,276. This
compared to a loss from operations of $137,919 and net loss of $164,773 in
1995.
Liquidity And Capital Resources
The Company considers its cash position and line of credit availability
adequate to fund its anticipated operations and capital expenditures based
on anticipated continued improvements in the level and nature of
educational products revenues and continued control of expenses. If such
increased revenues and reduced losses or profitable operations do not
occur, 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 $750,000. Under such circumstances,
the Company could be forced to reduce its operations.
Year 2000 Issue
The Year 2000 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
will assume the year 1900 rather than 2000, with various potential adverse
effects. Consequently, most computer programs must be adjusted to assure
that they will go forward and not backward.
Since 1996, the Company has been in the process of converting its
educational products from old software programs to new programs or
designing and introducing new programs. In doing so, it has taken the Year
2000 Issue into consideration. Therefore, the Company does not believe that
the Year 2000 Issue will pose significant problems for the Company's
products.
With respect to the Company's operating and accounting computer systems,
the Company is presently converting its systems to new software systems. As
a result, the Company also does not believe that the Year 2000 Issue will
pose significant operating or accounting problems for the Company.
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.
Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
Not applicable.
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 1998 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 1998 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 1998 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 1998 annual meeting of stockholders, which
involves the election of directors, is incorporated herein by this
reference.
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, 1997 And 1996.......... 17
Consolidated Statement Of Stockholders' Equity For The Years
Ended December 31, 1997, 1996 And 1995............................ 18
Consolidated Statement Of Operations For The Years Ended
December 31, 1997, 1996 And 1995.................................. 19
Consolidated Statement Of Cash Flows For The Years Ended
December 31, 1997, 1996 And 1995.................................. 20
Notes To Consolidated Financial Statements........................ 21-32
(a) (2) Financial Statement Schedule:
V Valuation And Qualifying Accounts -- 1997, 1996 And 1995........ 33
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............................................... 35
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 1997.
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, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1997, and the
information as of December 31, 1997, 1996 and 1995 and for the years then ended
included in the supporting schedule which is listed in the Index to Consolidated
Financial Statements. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 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, 1996 and 1995 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles, and the supporting schedule presents fairly the
information required to be set forth therein.
As described in Note 15 to the financial statements, the Company adopted
Statement of Position 93-7, "Reporting on Advertising Costs".
/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri RUBIN, BROWN, GORNSTEIN & CO. LLP
February 13, 1998
SIBONEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Assets
December 31,
-------------------------------
1997 1996
---- ----
Current Assets
Cash and cash equivalents $ 289,752 $ 775,830
Investment (Note 3) 27,500 --
Accounts receivable (Notes 4 and 8) 206,682 152,437
Inventories (Notes 5 and 8) 169,274 174,939
Prepaid expenses and deposits 106,646 160,033
---------- ------------
Total Current Assets 799,854 1,263,239
Property, Plant And Equipment
(Notes 6 And 8) 133,989 172,553
Investments In Natural Resources (Note 7) 5,101 5,101
---------- ------------
$ 938,944 $ 1,440,893
=========== ===========
Liabilities And Stockholders' Equity
Current Liabilities
Accounts payable $ 76,634 75,280
Accrued expenses 111,683 91,191
----------- -----------
Total Current Liabilities 188,317 166,471
----------- -----------
Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at $0.10
par value; issued and outstanding
16,518,344 in 1997, and 15,766,694
in 1996 1,651,835 1,576,670
Unrealized holding gain on investment 27,500 --
Additional paid-in capital (Note 9) 300 13,028
Retained earnings (deficit) (Note 9) (929,008) (315,276)
--------- ---------
Total Stockholders' Equity 750,627 1,274,422
--------- ---------
$ 938,944 $ 1,440,893
=========== ===========
See the accompanying notes to consolidated financial statements.
SIBONEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1997, 1996 And 1995
Common Stock Additional Unrealized Retained Total
------------------------ Paid-In Holding Earnings Stockholders'
Shares Amount Capital Gain (Deficit) Equity
------ ------ ------- ---- ------- ------
Balance - January 1, 1995 15,566,694 $ 1,556,670 $ 6,152,403 $ -- $ (5,960,102) $ 1,748,971
Net Loss -- -- -- -- (164,773) (164,773)
Equity Transfer (Note 9) -- -- (6,124,875) -- 6,124,875 --
---------- --------- ----------- ---------- ----------- -----------
Balance - December 31, 1995 15,566,694 1,556,670 27,528 -- -- 1,584,198
Issuance Of Common Stock 200,000 20,000 (14,500) -- -- 5,500
Net Loss -- -- -- -- (315,276) (315,276)
---------- --------- ---------- ---------- ---------- ----------
Balance - December 31, 1996 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
========== =========== ============ ========= ============= ========
See the accompanying notes to consolidated financial statements
SIBONEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For The Years Ended December 31,
--------------------------------------------------
1997 1996 1995
---- ---- ----
Revenues $ 1,957,088 $ 2,014,268 $ 2,359,492
Cost Of Product Sales 319,841 455,895 523,055
Selling, General And
Administrative Expenses 2,228,063 2,198,419 1,974,356
---------- ---------- ----------
Loss From Operations (590,816) (640,046) (137,919)
---------- ---------- ----------
Other Income
Interest income 17,964 25,042 26,005
Gain on sale and disposition
of assets -- 294,542 8,119
Miscellaneous 1,164 5,186 5,390
--------- -------- --------
Total Other Income 19,128 324,770 39,514
--------- -------- --------
Loss Before Provision For Income Taxes
And Cumulative Effect Of Change
In Accounting Principle (571,688) (315,276) (98,405)
Provision For Income Tax (Note 11) -- -- --
-------- ------- -------
Loss Before Cumulative Effect
Of Change In Accounting Principle (571,688) (315,276) (98,405)
Cumulative Effect On Prior Years Of
Change In Accounting Principle
(Note 16) -- -- (66,368)
---------- ---------- ----------
Net Loss $ (571,688) $ (315,276) $ (164,773)
=========== =========== ===========
Basic And Diluted Loss Per Common Share
Continuing operations $ (0.0351) $ (0.0201) $ (0.0063)
Cumulative effect on prior years of
change in accounting principle -- -- (0.0040)
---------- ---------- ----------
$ (0.0351) $ (0.0201) $ (0.0103)
============ =========== ===========
See the accompanying notes to consolidated financial statements
SIBONEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended December 31,
--------------------------------------------
1997 1996 1995
Cash Flows From Operations
Net loss from continuing operations $ (571,688) $ (315,276) $ (164,773)
Adjustments to reconcile net loss
from continuing operations to net cash
provided by continuing operations:
Depreciation 58,244 117,651 130,202
Gain on sales and disposition of assets -- (294,542) (8,119)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (54,245) 25,712 32,983
Decrease in inventories 5,665 55,297 32,593
Decrease in prepaid expenses and
deposits 53,387 146,390 85,471
Increase (decrease) in accounts payable
and accrued expenses 21,846 55,237 (13,852)
--------- -------- --------
Net Cash Provided By (Used In) Operations (486,791) (209,531) 94,505
--------- -------- --------
Cash Flows From Investing Activities
Payments for equipment (19,680) (38,560) (73,322)
Proceeds from sale of assets, net of
related selling expenses -- 419,497 8,550
-------- -------- -------
Net Cash Provided By (Used In)
Investing Activities (19,680) 380,937 (64,772)
-------- -------- -------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 20,393 5,500 --
Net repayments under line-of-credit agreement -- (1,000) --
------- ------- ------
Net Cash Provided By Financing Activities 20,393 4,500 --
------- ------- ------
Net Increase (Decrease) In Cash And Cash
Equivalents (486,078) 175,906 29,733
Cash And Cash Equivalents - Beginning Of Year 775,830 599,924 570,191
-------- -------- --------
Cash And Cash Equivalents - End Of Year $ 289,752 $ 775,830 $ 599,924
========== ========== ==========
Supplemental Disclosure Of Cash
Flow Information (Note 12):
Interest paid $ 327 $ 94 $ 367
---------- ---------- ----------
See the accompanying notes to consolidated financial statements
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 And 1995
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-five 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.
SIBONEY CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
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.
Right Of Return
The Company maintained a 30 day preview return policy, under which goods
made available on preview are invoiced when shipped and cancelled if goods
are returned. The Company also maintains a general return 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 non-preview product returns, and
therefore, Company management is of the opinion that no allowance for sales
returns is necessary.
Natural Resources
The investments in coal, oil and gas leases are carried at cost, less
accumulated depreciation and depletion. Depreciation was provided using the
straight-line method over three years, while cost depletion was provided
primarily on the units-of-production method for producing properties.
Research And Development
Research and development costs are expensed in the year incurred and
totalled approximately $440,000, $412,000, and $391,000 in 1997, 1996 and
1995, respectively.
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.
Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 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 and, where appropriate, restated to conform to the Statement
128 requirements.
Stock Based Compensation
The Company adopted Financial Accounting Standards No. 123 (FAS 123)
"Accounting for Stock Based Compensation" in 1997. As permitted by FAS 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
14 pro forma disclosures of the effect on net income (loss) and earnings
per share as if the fair value-based method prescribed by FAS 123 had been
applied in measuring compensation expense.
Revenues From Major Products And Major Customer
Revenue from proprietary educational software and other related products
accounted for 95%, 83% and 79% of Siboney Learning Group/Gamco's revenue in
1997, 1996 and 1995, respectively. In addition, 10%, 12% and 13% of Siboney
Learning Group/Gamco's revenues were generated from catalog sales through
one dealer in 1997, 1996 and 1995, respectively.
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.
2. Operations
The Company's continuing operations consist of the following two segments:
1) The publishing and distribution of educational software products through
its Siboney Learning Group Division and Gamco Industries, Inc. ("Gamco"), 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.
2) The holding of interests in certain natural resources, including coal,
oil and gas, through several subsidiaries. (See Note 7.)
Segment information which highlights the relative importance of each line
of business is presented in Note 13 to the consolidated financial
statements.
3. Investment
In accordance with Statement of Financial Standards No 115, 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 the Company had previously expensed the amounts 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, 1997 of $27,500.
4. Accounts Receivable
Accounts receivable consist of:
1997 1996
---- ----
Accounts receivable $ 256,513 $ 202,140
Less: Allowance for doubtful accounts 49,831 49,703
--------- ---------
$ 206,682 $ 152,437
========= =========
Accounts receivable are pledged as collateral for notes payable (see Note
8).
5. Inventories
Inventories are summarized as follows:
1997 1996
---- ----
Raw materials $ 104,562 $ 135,710
Finished goods 64,713 39,229
--------- ---------
$ 169,275 $ 174,939
========= =========
Inventories are pledged as collateral for notes payable (see Note 8).
Inventories are net of reserve for obsolescence of $22,441 and $66,619 in
1997 and 1996, respectively.
6. Property, Plant And Equipment
Property, plant and equipment consist of:
1997 1996
---- ----
Land and improvements $ 23,997 $ 23,997
Buildings and improvements 163,397 157,417
Machinery and equipment 172,877 172,877
Office equipment, furniture
and fixtures 283,904 270,204
---------- ---------
644,175 624,495
Less: Accumulated depreciation 510,186 451,942
---------- ---------
$ 133,989 $ 172,553
========= =========
Depreciation charged against income amounted to $58,244 in 1997, $117,651
in 1996 and $130,202 in 1995.
The buildings and certain equipment are pledged as collateral for notes
payable (see Note 8).
The building and equipment used by Gamco's print shop were sold in 1996.
7. Investments In Natural Resources
Investments in natural resources consist of:
1997 1996
---- ----
Canadian exploratory permits $ 5,101 $ 5,101
Oil and Gas leases - Texas 145,821 145,821
---------- ----------
150,922 150,922
Less: Accumulated depreciation and
cost depletion 145,821 145,821
---------- ----------
$ 5,101 $ 5,101
========== ==========
Coal Properties - Kentucky
Siboney Coal Company, Inc., a wholly-owned subsidiary, collects royalties
under a twenty-five year lease with Mountaineer Land Company entered into
in May 1987, under which Siboney Coal Company, the lessor, receives minimum
annual payments of $30,000 plus royalties per ton of coal mined. The lessee
can cancel the lease upon thirty days' prior written notification. The
Company earned $60,415 under the lease in 1997, $78,033 in 1996 and $70,596
in 1995. Future royalty revenues from the coal lease are dependent on third
party mining operations and at certain times have been, and may in the
future be, discontinued.
Oil And Gas Leases In Texas
Siboney Resources - Texas, Inc., a wholly-owned subsidiary has royalty
interests in certain oil and gas leases in Texas. Revenues from such leases
are not a material factor in the Company's consolidated revenues.
Canadian Exploratory Permits
Axel Heiberg Oil Company ("Axel"), a wholly-owned subsidiary of the
Company, holds a 2.28% working interest in oil and gas property rights on
1,843 acres in the Canadian Arctic Islands. Due to the high cost of
exploration and recovery of oil and gas from this region, it is not
anticipated that revenues will be generated in the foreseeable future.
Supplemental Oil And Gas Disclosures
Revenue and income after tax from oil and gas related operations are not
significant to the Company. The present value of estimated future net oil
and gas reserves is not presently determinable.
8. Notes Payable
The Company has a revolving line of credit agreement with a bank which
provides funds based on 75% of eligible receivables, as defined by the
agreement, with a maximum of $500,000. The outstanding debt is due on
demand, and if no demand is made, then due on June 1, 1998. 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, 1997 and 1996, 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 $750,000.
The weighted average interest rate was 9.25%, 8.90% and 10.33% for the
years ended December 31, 1997, 1996 and 1995, respectively.
9. Equity Transfer
Under Maryland General Corporation law, a Company may apply any part of its
additional paid-in capital for the reduction or elimination of a retained
deficit. The Board of Directors of the Company unanimously determined, by
resolution, to eliminate the retained deficit reflected in the
Stockholders' Equity section of the consolidated balance sheet at December
31, 1995 in the amount of $6,124,875.
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 $24,600 in 1997, $26,246 in 1996 and
$35,029 in 1995.
11. Income Taxes
There is no provision for federal income taxes reflected in the financial
statements due to the availability of net operating loss carryovers.
The net deferred tax asset includes the following components:
1997 1996 1995
---- ---- ----
Deferred tax asset $ 1,765,000 $ 1,555,000 $ 1,603,000
Deferred tax asset valuation
allowance (1,765,000) (1,555,000) (1,603,000)
------------ ------------ -----------
$ -- $ -- $ --
============ ============ ============
State income taxes are shown as part of selling, general and administrative
expenses.
The Company has net operating loss carryovers for federal income tax
purposes of approximately $5,880,000 at December 31, 1997 available to
reduce future taxable income, if any. The majority of the carryover expires
at December 31, 2001 through December 31, 2010. Under the Tax Reform Act of
1986, the amount available for carryover could be reduced upon a
substantial change in ownership.
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. This amount also creates a deferred tax asset of
a like amount, which is offset completely by a valuation allowance.
12. Supplemental Cash Flow Information
The Company had no significant noncash investing or financing activities
for the years ended December 31, 1997, 1996 and 1995.
13. Segment Information
The Company's business is primarily comprised of two industry segments:
educational products and natural resources. The educational products
segment principally publishes and distributes educational software to
schools and school districts. The natural resources segment principally
receives royalties from its properties.
The Company's consolidated results of operations by business segment are as
follows:
(In Thousands)
-------------------------------------------
1997 1996 1995
---- ---- ----
Net Sales
Educational products $ 1,893 $ 1,933 $ 2,284
Natural resources 64 81 75
------- ------- -------
Continuing operations $ 1,957 $ 2,014 $ 2,359
======= ======= =======
Operating Income (Loss)
Educational products $ (391) $ (491) $ 52
Natural resources 54 69 69
General corporate (254) (218) (259)
------- ------ -------
Continuing operations $ (591) $ (640) $ (138)
======= ======= =======
Identifiable Assets
Educational products $ 790 $ 1,309 $ 1,584
Natural resources 109 116 81
General corporate 40 16 31
------- ------- -------
Continuing operations $ 939 $ 1,441 $ 1,696
======= ======= =======
Capital Expenditures
Educational products $ 20 $ 34 $ 71
Natural resources -- -- --
General corporate -- 6 2
------- ------- -------
Continuing operations $ 20 $ 40 $ 73
======= ======= =======
Depreciation, Depletion And
Amortization
Educational products $ 56 $ 116 $ 129
Natural resources -- -- --
General corporate 2 2 1
------- ------- -------
Continuing operations $ 58 $ 118 $ 130
======= ======= ========
14. Stock Option Plans
In 1992, the Company granted options to purchase an aggregate of 1,025,000
shares of common stock to the directors of the Company. In addition, the
Company granted options to purchase 175,000 shares to employees of Gamco
Industries. All previously issued options either expired or were canceled
prior to the issuance of the 1992 options. In 1995, the Company granted
options to purchase an aggregate of 200,000 shares of common stock to a
newly hired executive.
In 1997 the Company approved an incentive stock option plan for employees.
Under the plan, the board, at its discretion, may authorize up to 800,000
shares. During 1997 the Company authorized 310,000 incentive stock options
to employees. These options expire in 2002 or upon cessation of employment,
which ever occurs earliest.
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 loss and net
loss per common and equivalent share would have been increased. The pro
forma amounts are indicated below:
1997 1996 1995
---- ---- ----
Net Loss
As reported $ (571,688) $ (315,276) $ (164,773)
Pro forma (597,240) (342,522) (189,139)
Net Loss Per Common Share
As reported $ (0.0351) $ (0.0201) $ (0.0103)
Pro forma $ (0.0368) $ (0.0219) $ (0.0122)
The weighted-average fair value of options at date of grant for options
granted during 1997, 1996 and 1995 was $0.062, $0.027 and $0.022 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.
1997 1996 1995
---- ---- ----
Expected life 3.0 1.7 2.0
Interest rate 8.5% 8.5% 8.5%
Volatility 43.22% 83.03% 71.56%
Dividend Yield -- -- --
A summary of stock option activity for 1997, 1996 and 1995 is as follows:
Weighted
Average
Number Price Per Exercise
Of Shares Share Price
--------- --------------- --------
Balance - December 31, 1994 1,000,000 $0.0275 - $0.05 $0.0281
Granted 200,000 $0.165 $0.165
Exercised -- -- --
Forfeited/Expired -- -- --
--------- ---------------- -------
Balance - December 31, 1995 1,200,000 $0.0275 - $0.165 $0.0509
Granted -- -- --
Exercised (200,000) $0.0275 $0.0275
Forfeited/Expired -- -- --
--------- ---------------- -------
Balance - December 31, 1996 1,000,000 $0.0275 - $0.165 $0.0556
Granted 310,000 $0.16 $0.16
Exercised (765,000) $0.0275 - $0.16 $0.0291
Forfeited/Expired (135,000) $0.0275 - $0.16 $0.0207
--------- ---------------- -------
Balance - December 31, 1997 410,000 $0.16 - $0.165 $0.1624
========= ================ =======
Outstanding and exercisable stock options at December 31, 1997 consist of
the following:
Option
Year Year Exercise
Granted Expiring Price 1997
------- -------- -------- ----
1997 2002 .16 210,000
1995 2000 0.165 200,000
-------
410,000
===========
15. 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 16,249,565 in 1997, 15,613,269 in 1996 and 15,566,694 in
1995.
For 1995, 1996 and 1997, options on shares of common stock were not
included in computing diluted EPS because their effect was antidilutive in
each year.
16. Advertising - Change In Accounting Principle
During 1995, in accordance with a required change in generally accepted
accounting principles, the Company changed its accounting method for
advertising costs to comply with the Statement of Position 93-7 "Reporting
on Advertising Costs". The cumulative effect on prior years of this change
in accounting principle is a one-time charge to income of $66,368.
Financial statements for prior years have not been restated.
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, 1997, $84,795 of advertising costs were capitalized.
Advertising expense amounted to $433,640 in 1997, $531,849 in 1996 and
$547,850 in 1995.
17. Commitments
In September 1996, the Company entered into a licensing agreement with an
educational software publisher. The agreement provides for the Company to
pay minimum royalties of $50,000 in 1996 and $100,000 in 1997 and 1998 and
$50,000 in 1999. Subsequent to 1999, the agreement is renewable annually at
minimum royalties of $50,000 per year.
SIBONEY CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1997, 1996 And 1995
Additions Deductions
------------------------- -------------------------------
Balance At Charged To Charges For Balance At
Beginning Costs And Which Reserve End
Description Of Period Expenses Other Was Created Of Period
- ----------- ---------- ---------- ----- ------------- ----------
Reserves deducted in the
balance sheet from the
assets to which they apply:
Accounts receivable allowance
for doubtful accounts
1995 52,770 (1,945) -- (3,695) 47,130
1996 47,130 3,417 -- (844) 49,703
1997 49,703 4,154 (4,026) 49,831
Inventory valuation account
1995 51,966 7,001 -- 5,192 53,775
1996 53,775 21,547 -- 8,703 66,619
1997 66,619 -- -- 44,178 22,441
Investments in natural resources
allowance for depreciation and
cost depletion of natural
resources
1995 145,821 -- -- -- 145,821
1996 145,821 -- -- -- 145,821
1997 145,821 -- -- -- 145,821
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: 3-26-98 BY: /s/ Timothy J. Tegeler
Timothy J. Tegeler
President and Chief Executive and
Financial Officer and Principal
Accounting Officer
Date: 3-26-98 BY: /s/ Timothy J. Tegeler
Timothy J. Tegeler, Director
Date: BY:
Thomas G. Keeton, Director
Date: 3-27-98 BY: /s/ Rebecca M. Braddock
Rebecca M. Braddock, Director
Date: 3-27-98 BY: /s/ Alan G. Johnson
Alan G. Johnson, Director
Date: 3-30-98 BY: /s/ Ernest R. Marx
Ernest R. Marx, Director
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ----------- ----
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 herewith.
10(b) Restated and Amended Coal Lease between the Company
and Mountaineer Land Company dated May 15, 1987,
filed herewith.
10(c) Software Distribution and License Agreement between the
Company and Merit Audio Visual, Inc. dated September
4, 1996, 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)
EX-10
2
EXHIBIT 10(A) LINE OF CREDIT NOTE
SIBONEY CORPORATION
LINE OF CREDIT NOTE
St. Louis, Missouri
$500,000.00 and interest June 12, 1997
On Demand, and if no demand be made, then on the 1st day of June, 1998, the
undersigned promise(s) to pay to the order of SOUTHWEST BANK OF ST. LOUIS, St.
Louis, Missouri, 63110-3498 (herein called "Bank") at its office in said City or
to such other place as the holder hereof shall from time to time designate, the
principal sum of FIVE HUNDRED THOUSAND AND 00/100 Dollars, or the then
outstanding and unpaid principal balance of the sums advanced hereunder together
with accrued interest. Each borrowing hereunder shall bear interest from the
date advanced by Bank at the rate of 0.75% in excess of Southwest Bank of St.
Louis' Prime Rate, to be adjusted with each change thereto, payable monthly, and
shall be calculated on the actual number of days on the basis of a year of 360
days. This note shall bear interest after maturity at the rate of three percent
(3%) over the stated rate. As used herein, the term "Prime Rate" shall mean the
rate of interest announced from time to time by the Bank as its "Prime Rate",
such term being used only as a reference rate and not necessarily representing
the lowest rate charged to any customer of the Bank. In the event the Bank
ceases to use the term "Prime Rate" in setting a base rate for commercial loans,
the term "Prime Rate" as used herein shall be determined by reference to the
rate used by the Bank as its base rate of interest for commercial loans.
Until the occurrence of any event of default herein described or any
default or any event which with the passage of time or giving of notice, or
both, would constitute a default under any agreements listed below, or the
maturity of this note, whether by acceleration or otherwise, the undersigned may
borrow and repay and re-borrow such amounts, hereunder, except that each advance
or repayment will be in a minimum amount of ONE THOUSAND AND 00/100 Dollars or
any multiples thereof, but not exceeding the maximum amount set forth above.
Unless otherwise instructed by the undersigned, all advances under this note
will be credited to checking account No. carried on the books of Bank in the
name of Siboney Corporation and the undersigned agrees that Bank may make
advances at its discretion, upon oral instructions of any of the undersigned or
upon occurrence of an overdraft in said checking account.
Upon the occurrence of any of the following events of default: failure of
the undersigned to make any payments required hereunder or comply with any of
the provisions contained in this note or any other obligations of the
undersigned to Bank or to any other party, and the continuation of such default
following applicable notice and cure rights, if any, or death, dissolution,
termination of existence, insolvency, failure to pay debts as they mature,
appointment of a receiver of any part of the property of, an assignment for the
benefit of creditors, or the commencement of any proceedings under bankruptcy or
insolvency laws, by or against any of the undersigned, then or at any time
thereafter, this note and all other obligations of each of the undersigned to
the Bank shall, at the option of Bank, become due and payable without notice or
demand and no further advances will thereafter be made by Bank under the terms
of this note. Furthermore, Bank reserves the right to offset without notice all
funds or other property held by Bank against matured debts owing to Bank by
undersigned. The undersigned will pay on demand all costs of collection, legal
expenses and attorney's fees incurred or paid in collecting or enforcing this
note including representation in any bankruptcy or insolvency proceedings and
whether or not any lawsuit is ever filed with respect thereto. Each of the
undersigned hereby waives presentment, protest, demand, notice of dishonor or
default and consents to any and all renewals, extensions, and/or the release of
any collateral or party directly or indirectly liable for the payment hereof,
all without notice to and without affecting the liability of any of the
undersigned. As used herein "undersigned" shall mean each maker and each
endorser, and each jointly and severally, agrees to all the provisions hereof.
This note shall be governed by the laws of the State of Missouri and shall bind
the undersigned and shall inure to the benefit of the Bank and any holder
hereof.
1
The undersigned agrees that at all times capital funds shall not be less
than $1,200,000.00. All of the above accounting and financial terms shall be
determined in accordance with generally accepted accounting principles except
that the term "capital funds" shall include any indebtedness which is expressly
subordinated to all indebtedness of the UNDERSIGNED to the BANK in a manner
satisfactory to the BANK.
In addition to all other rights and security of Bank, security for this
note and all other indebtedness owing to Bank:
Security Agreements dated 6/12/97 covering Accounts
Receivable, Inventory and Equipment.
ORAL AGREEMENTS OR COMMITMENTS TO LEND MONEY, EXTEND CREDIT OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH
DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
Signature(s) below constitutes execution of note and acknowledgement of
copy of note.
SIBONEY CORPORATION
By:
Timothy Tegeler
President
By:
Rebecca Braddock
Vice President
Address: P. 0. Box 16184
8000 Maryland Avenue, Suite 1040
St. Louis, MO 63105
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EXHIBIT A
SOUTHWEST BANK
December 18, 1997
Mr. Tim Tegeler
Siboney Corporation
8000 Maryland Ave.
P.O. Box 16184
St. Louis, MO 63105
Re: Waiver of $1.2 Million Net Worth Covenant
Dear Tim:
It was a pleasure meeting with you and Bodie last week and having the
opportunity to meet Joe, as well. Bob and I appreciate both your enthusiasm
about the upcoming fiscal year and your efforts to keep us informed of the
company's plans. Per our discussion, the Line of Credit Note dated 6/12/97 does
contain a minimum net worth covenant of $1.2 million, which would make it
difficult for the company to borrow money as early as January. Therefore, the
Bank has agreed to lower the minimum to $750,000 up to the point in which the
note matures in June of 1998. At that point in time, we will renegotiate the
terms of the loan and hopefully raise the net worth covenant. Please note that
all other terms of the note will remain in tact and in the event that the
company falls below the net worth minimum of $750,000, the note will be
considered in default. I hope this gives the company the ability to meet its
cash flow needs and help it make 1998 a successful year for all those involved.
Tim, again, it was a pleasure to see you. I hope you have a wonderful holiday
season and I look forward to speaking with you in the New Year. If you should
have any questions or concerns regarding this letter, please do not hesitate to
contact me at 268-2505.
Sincerely,
/s/ Tucker E. Eby
Tucker E. Eby
Commercial Banking Officer
cc: Joe Proehl
Bob Witterschein