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, 1996
[ ]
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.)
8000 Maryland Avenue, Suite 1040
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. [ X ]
The aggregate market value of the shares of Common Stock held by nonaffiliates
of Registrant as of February 14, 1997 was $2,522,671. This value was based on
the average of the bid and asked prices on February 14, 1997.
As of February 14, 1997, the Registrant had outstanding 15,766,694 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 1997
Annual Meeting of Shareholders, which involves the election of
directors, is incorporated by reference into Items 10, 11, 12 and 13.
Page 1
<PAGE>
INDEX
PAGE
PART I
Item 1. Business...................................................3 - 8
Item 2. Properties.....................................................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
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 - 31
Signatures.................................................................32
Exhibit Index..............................................................33
Page 2
<PAGE>
PART I
Item 1 - Business
General
The principal businesses in which the Company engages, through its subsidiaries,
are the publishing and distribution of educational software products and
teaching aids and the holding of certain natural resource interests.
Subsidiaries And Industry Segments
The Company conducts its business through several wholly-owned subsidiaries
which, at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Year Of
Industry Segment Subsidiary Incorporation Organization
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing Operations:
Educational Products 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
</TABLE>
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,
1996, 1995 and 1994, which appears in Note 12 to the Consolidated Financial
Statements on Page 27, is incorporated herein by reference.
Page 3
<PAGE>
DESCRIPTION OF BUSINESS AND PROPERTIES BY INDUSTRY SEGMENT
EDUCATIONAL PRODUCTS:
Siboney Learning Group Division/Gamco Industries, Inc.
Business - General Description And 1996 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 and teaching aids.
In 1995, the Company formed the Siboney Learning Group Division and hired a new
Executive Vice President, Ernest R. (Bodie) Marx, as President of the division.
Mr. Marx has been an executive and proprietor of companies engaged in the
educational software and related products business for more than 18 years. In
August 1996, Mr. Marx was also elected President of Gamco.
The Company's purpose for forming the new division was to expand upon its
interests in the publishing and distribution of educational software and related
products by taking advantage of Mr. Marx's background and experience. Such
expansion is expected to occur both through Gamco, which was made part of the
new division and reports to Mr. Marx, and by other internal and external
expansion. In 1996, Mr. Marx expanded the management team of the Siboney
Learning Group Division in St. Louis, Missouri by adding a Director of Research
and Development, a Director of Sales and a Director of Marketing.
The Company has been serving the educational market for more than 35 years.
Today, 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. Popular Gamco titles include Money Challenge,
Discover Time, the Touchdown Math series and Undersea Reading for Meaning. Gamco
publishes over 100 titles for Macintosh, IBM and IBM compatible, and Apple II
computers.
In 1996, Siboney Learning Group licensed school distribution rights to 21 new
titles from Merit Audio Visual ("Merit"). Merit's line of reading and writing
programs for grades 3 through 10 complements Gamco's existing products. The
Merit software was launched in January 1997 as Gamco's Critical Concepts series
and will be sold with Gamco's Skill Builders and Learning Games product lines.
In 1996, Siboney Learning Group implemented a customer targeted product
promotional program, which is supported by a newly created four person inside
sales group.
Page 4
<PAGE>
In 1996, Siboney Learning Group also developed a new approach to selling
software titled Orchard: Teacher's Choice Software, which was introduced in
January 1997. The Orchard program offers schools a comprehensive instructional
software solution using existing titles. Orchard will be sold to schools by a
network of exclusive dealers.
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 -- 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 (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. 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. 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. Gamco maintains a policy under which
products may be returned within thirty days from the date of purchase if they do
not meet a customer's satisfaction. For the year 1996, approximately 7% of sales
were returned, of which 5% represented previewed sales returned within thirty
days.
Dependence On Limited Number Of Customers -- In 1996, approximately 12% of
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 Gamco products.
Government Business -- Although a substantial portion of 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.
Page 5
<PAGE>
Research And Development -- Gamco's expenditures for research and development of
new computer software products and upgrading and adapting existing software
products were approximately $412,000, $391,000, and $345,000 in 1996, 1995 and
1994, respectively.
The development of Gamco products resulted in the release of five new and
improved titles in 1994, five in 1995 and seven in 1996. As a result of
continuing internal product development and the development of newly licensed
software, the Company is expected to release more than 75 new and improved
titles in 1997.
Competition -- 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 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 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 $78,033 in 1996, $70,596 in 1995 and $35,814 in 1994 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 6 to the
Consolidated Financial Statements on Page 25.
Page 6
<PAGE>
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 to the U.S. company
which owns the claim to the confiscated property for money damages.
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 did in August 1996 and again in February 1997. The Company can not
predict whether the President will continue to postpone the effectiveness of
this legislation.
Page 7
<PAGE>
PERSONNEL:
As of February 14, 1997, the Company had 25 employees, 2 of which were employed
by the parent corporation, 5 by Siboney Learning Group and 18 by Gamco.
ITEM 2. PROPERTIES
The Company leases 817 square feet of office space under a lease expiring on
December 31, 1997 and an additional 850 square feet of office space, which is
used by the Siboney Learning Group Division, under a lease which expires May 30,
1998. The second lease has a renewal option for one year on the same terms and
conditions. These facilities are considered adequate to meet the needs of the
Company for the foreseeable future.
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 the needs of Gamco and any acquired
educational software operations 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.
Page 8
<PAGE>
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:
1996 Bid 1995 Bid
- ------------------------------------- --------------------------------------
Quarter High Low Quarter High Low
- --------------------------------------------------------------------------------
First .14 .14 First .17 .13
Second .26 .14 Second .21 .13
Third .24 .19 Third .15 .13
Fourth .19 .16 Fourth .15 .15
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 14,
1997 was 17,236.
Page 9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets of continuing
operations $ 1,440,893 $ 1,696,432 $ 1,875,057 $ 1,764,684 $ 1,721,162
=====================================================================================================================
Revenues from continuing
operations $ 2,014,268 $ 2,359,492 $ 2,306,827 $ 2,060,465 $ 2,208,716
=====================================================================================================================
Income (loss) from continuing
operations $ (315,276) $ (98,405) $ 89,272 $ 74,128 $ 312,714
=====================================================================================================================
Income from discontinued
operations [Note (a)] $ -- $ -- $ 60,691 $ 603,202 $ 91,667
=====================================================================================================================
Cumulative effect on prior
years of change in accounting
principle $ -- $ (66,368) $ -- $ -- $ --
=====================================================================================================================
Net income (loss) $ (315,276) $ (164,773) $ 149,963 $ 677,330 $ 404,381
=====================================================================================================================
Earnings (loss) per common share [Note (b)]:
Continuing operations $ (0.019) $ (0.006) $ 0.005 $ 0.005 $ 0.020
Discontinued operations -- -- 0.004 0.037 0.006
Cumulative effect on prior
years of change in
accounting principle -- (0.004) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
$ (0.019) $ (0.010) $ 0.009 $ 0.042 $ 0.026
=====================================================================================================================
Average number of common and
common equivalent shares
outstanding 16,462,245 16,366,287 16,422,782 16,204,465 15,366,694
=====================================================================================================================
<FN>
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) Earnings per share have been computed by dividing net income by the average
number of common and common equivalent shares outstanding during the year.
(c) The Company has paid no cash dividends during the five years ended December
31, 1996.
</FN>
</TABLE>
Page 10
<PAGE>
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, 1996, and comments on the Company's financial position as of
December 31, 1996.
RESULTS OF OPERATIONS:
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 nonproprietary 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.
Page 11
<PAGE>
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.
1995 IN COMPARISON WITH 1994:
During 1995, the Company's consolidated revenues increased $52,665 to
$2,359,492. Revenues from the educational products segment increased $19,116 to
$2,284,529 while revenues from the natural resource segment increased $33,549 to
$74,963. Educational product revenues increased because of increased outside
printing sales made by Gamco's print shop. Sales of both proprietary and
nonproprietary computer software and related products decreased slightly in the
educational segment during the last half of the year due to educators' concerns
about the federal budget impasse and its effect on future funding for school
expenditures. Natural resource revenues increased due to more mining activity,
which increased royalty payments earned by Siboney Coal.
Cost of product sales increased $30,858 to $523,055, which represented a
decrease in gross margins from 78.4% to 77.2%, due primarily to the effect of
increased material and overhead costs.
Selling, general and administrative expenses increased $222,745 to $1,974,356,
primarily due to increased catalog and magazine advertising costs of
approximately $50,000 and an increase in salaries and other costs totalling
approximately $75,000 associated with the formation of the Siboney Learning
Group Division.
The Company's loss from operations for 1995 was $137,919 compared to income from
operations of $63,019 in 1994. The increase in consolidated revenues was offset
by the increases in cost of sales and selling, general and administrative
expenses.
The Consolidated Statement Of Operations for 1995 reflects a one-time charge
against income of $66,368, which represents the cumulative effect on prior years
of a change in accounting principle resulting from the implementation of
Statement of Position 93-7, "Reporting on Advertising Costs". (See Note 15 to
the Consolidated Financial Statements.)
Page 12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
In 1996, cash and cash equivalents increased $175,906. This was primarily due to
the net cash provided by the sale of the print shop building and equipment.
In 1995, cash and cash equivalents increased $29,733. This was primarily due to
net cash provided by continuing operations.
Gamco's line of credit expired December 1, 1996 and was not renewed by the
Company. There was no outstanding loan balance at December 31, 1996 and a $1,000
outstanding loan balance at December 31, 1995.
The Company considers its cash position adequate to fund its anticipated
operations and capital expenditures.
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.
Page 13
<PAGE>
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 1997 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 1997 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 1997 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 1997 annual meeting of stockholders, which involves the
election of directors, is incorporated herein by this reference.
Page 14
<PAGE>
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, 1996 And 1995.................................17
Consolidated Statement Of Stockholders'
Equity For The Years Ended December 31,
1996, 1995 And 1994........................................18
Consolidated Statement Of Operations
For The Years Ended December 31,
1996, 1995 And 1994........................................19
Consolidated Statement Of Cash Flows
For The Years Ended December 31, 1996,
1995 And 1994..............................................20
Notes To Consolidated Financial
Statements............................................21 - 30
(a) (2) Financial Statement Schedule:
V Valuation And Qualifying Accounts -- 1996, 1995
And 1994...................................................31
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.................................................33
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 1996.
Page 15
<PAGE>
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, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996, and the
information as of December 31, 1996, 1995 and 1994 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 14, 1997
Page 16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Assets
December 31,
---------------------------------------
1996 1995
---------------------------------------
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 775,830 $ 599,924
Accounts receivable (Notes 3 and 7) 152,437 178,149
Inventories (Notes 4 and 7) 174,939 230,236
Prepaid expenses and deposits 160,033 306,423
- ------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,263,239 1,314,732
Property, Plant And Equipment (Notes 5 And 7) 172,553 376,599
Investments In Natural Resources (Note 6) 5,101 5,101
- ------------------------------------------------------------------------------------------------------------------------
$ 1,440,893 $ 1,696,432
========================================================================================================================
Liabilities And Stockholders' Equity
Current Liabilities
Notes payable (Note 7) $ -- $ 1,000
Accounts payable 75,280 29,683
Accrued expenses 91,191 81,551
- ------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 166,471 112,234
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at $0.10 par value;
issued and outstanding 15,766,694 in 1996,
and 15,566,994 in 1995 1,576,670 1,556,670
Additional paid-in capital (Note 8) 13,028 27,528
Retained earnings (deficit) (Note 8) (315,276) --
- ------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,274,422 1,584,198
- ------------------------------------------------------------------------------------------------------------------------
$ 1,440,893 $ 1,696,432
========================================================================================================================
See the accompanying notes to consolidated financial statements.
</TABLE>
Page 17
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Years Ended December 31, 1996, 1995 And 1994
<TABLE>
<CAPTION>
Additional Retained Total
Common Stock Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1994 15,566,694 $ 1,556,670 $ 6,152,403 $ (6,110,065) $ 1,599,008
Net Income -- -- -- 149,963 149,963
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1994 15,566,694 1,556,670 6,152,403 (5,960,102) 1,748,971
Net Loss -- -- -- (164,773) (164,773)
Equity Transfer (Note 8) -- -- (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)6 (315,276)
- ------------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 15,766,694 $ 1,576,670 $ 13,028 $ (315,276) $ 1,274,422
========================================================================================================================
See the accompanying notes to consolidated financial statements.
</TABLE>
Page 18
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended December 31,
----------------------------------------------------------
1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 2,014,268 $ 2,359,492 $ 2,306,827
Cost Of Product Sales 455,895 523,055 492,197
Selling, General And Administrative
Expenses 2,198,419 1,974,356 1,751,611
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations (640,046) (137,919) 63,019
- ------------------------------------------------------------------------------------------------------------------------
Other Income
Interest income 25,042 26,005 20,131
Gain (loss) on sale and disposition of assets 294,542 8,119 (1,273)
Miscellaneous 5,186 5,390 7,395
- ------------------------------------------------------------------------------------------------------------------------
Total Other Income 324,770 39,514 26,253
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Provision For
Income Taxes And Cumulative
Effect Of Change In Accounting
Principle (315,276) (98,405) 89,272
Provision For Income Tax (Note 10) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Continuing
Operations (315,276) (98,405) 89,272
Income From Discontinued
Operations (Note 14) -- -- 60,691
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) Before Cumulative Effect
Of Change In Accounting Principle (315,276) (98,405) 149,963
Cumulative Effect On Prior Years Of
Change In Accounting Principle (Note 15) -- (66,368) --
- ------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (315,276) $ (164,773) $ 149,963
========================================================================================================================
Earnings (Loss) Per Share
Continuing operations $ (0.019) $ (0.006) $ 0.005
Discontinued operations -- -- 0.004
Cumulative effect on prior years of
change in accounting principle -- (0.004) --
- ------------------------------------------------------------------------------------------------------------------------
$ (0.019) $ (0.010) $ 0.009
========================================================================================================================
See the accompanying notes to consolidated financial statements.
</TABLE>
Page 19
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
---------------------------------------------------
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operations
Net income (loss) from continuing operations $ (315,276) $ (164,773) $ 89,272
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by continuing operations:
Depreciation 117,651 130,202 124,162
(Gain) loss on sales and disposition of assets (294,542) (8,119) 1,273
Change in assets and liabilities:
(Increase) decrease in accounts and notes
receivable 25,712 32,983 (36,937)
(Increase) decrease in inventories 55,297 32,593 (22,108)
(Increase) decrease in prepaid expenses and
deposits 146,390 85,471 (51,052)
Increase (decrease) in accounts payable and
accrued expenses 55,237 (13,852) 21,101
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
continuing operations (209,531) 94,505 125,711
Net income from discontinued operations -- -- 60,691
Adjustments to reconcile net income to net
cash used in discontinued operations:
Change in operating assets and liabilities in
discontinued operations:
Decrease in net liabilities relating to
discontinued operations -- -- (60,691)
Net cash used in discontinued operations -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operations (209,531) 94,505 125,711
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Payments for equipment (38,560) (73,322) (147,844)
Proceeds from sale of assets, net of related selling expenses 419,497 8,550 525
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities 380,937 (64,772) (147,319)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock 5,500 -- --
Net repayments under line-of-credit agreement (1,000) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities 4,500 -- --
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash Equivalents 175,906 29,733 (21,608)
Cash And Cash Equivalents - Beginning Of Year 599,924 570,191 591,799
- -----------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents - End Of Year $ 775,830 $ 599,924 $ 570,191
=======================================================================================================================
Supplemental Disclosure Of Cash Flow Information:
Interest paid $ 94 $ 367 $ 88
- -----------------------------------------------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements.
</TABLE>
Page 20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 And 1994
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.
Page 21
<PAGE>
Notes To Financial Statements (Continued)
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 $412,000, $391,000 and $345,000 in 1996, 1995
and 1994, respectively.
Warranty Costs
The Company provides warranties on sales of educational products and
all significant warranty costs are charged to operations as incurred.
Earnings (Loss) Per Share
Earnings (loss) per share is computed by dividing net income (loss) by
the weighted average number of common and common equivalent shares
outstanding of 16,462,245 in 1996, 16,366,287 in 1995, and 16,422,782
in 1994.
For 1996, 1995 and 1994, the weighted average number of common and
common equivalent shares consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Common shares outstanding for the
whole year 15,566,694 15,566,694 15,566,694
Common shares issued during the
year - weighted average 46,575 -- --
Common equivalent shares due to
common stock options 848,976 799,593 856,088
- -------------------------------------------- --------------- --------------- ---------------
16,462,245 16,366,287 16,422,782
============================================ =============== =============== ===============
</TABLE>
Revenues From Major Products And Major Customer
Revenue from proprietary educational software and other related products
accounted for 83%, 79%, and 81% of Gamco's revenue in 1996, 1995 and 1994,
respectively. In addition, 12%, 13% and 10% of Gamco's revenues were generated
from catalog sales through one dealer in 1996, 1995 and 1994, respectively.
Page 22
<PAGE>
Notes To Financial Statements (Continued)
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 and
teaching aids through the Company's subsidiary, Gamco Industries,
Inc. (Gamco). Sales are made throughout the country by the
distribution of catalogs printed by Gamco and through independent
distributors.
2) The holding of interests in certain natural resources, including
coal, oil and gas, through several subsidiaries. (See Note 6.)
Segment information which highlights the relative importance of each line of
business is presented in Note 12 to the consolidated financial statements.
Discontinued operations relate primarily to Siboney Communications, Inc. (SCI),
a subsidiary of the Company.
SCI's Board of Directors determined that it was in the best interest of SCI to
liquidate SCI. On October 4, 1985 a petition under Chapter 7 of the United
States bankruptcy Code was filed by SCI. Substantially all of SCI's assets were
sold and distributed in 1986. The Company gave recognition to this decision in
the December 31, 1984 financial statements.
In 1994, income from discontinued operations consisted primarily of reductions
of estimated liabilities.
Page 23
<PAGE>
Notes To Financial Statements (Continued)
3. Accounts Receivable
Accounts receivable consist of:
1996 1995
-------------------------------
Accounts receivable $ 202,140 $ 225,279
Less: Allowance for doubtful accounts 49,703 47,130
- ---------------------------------------------------------------------------
$ 152,437 $ 178,149
===========================================================================
Accounts receivable were pledged as collateral for notes payable (see Note 7).
4. Inventories
Inventories are summarized as follows:
1996 1995
-------------------------------
Raw materials $ 135,710 $ 128,063
Finished goods 39,229 102,173
- ---------------------------------------------------------------------------
$ 174,939 $ 230,236
===========================================================================
Inventories were pledged as collateral for notes payable (see Note 7).
Inventories are net of reserve for obsolescence of $66,619 and $53,775 in 1996
and 1995, respectively.
5. Property, Plant And Equipment
Property, plant and equipment consist of:
1996 1995
--------------------------------
Land and improvements $ 23,997 $ 23,997
Buildings and improvements 157,417 431,893
Machinery and equipment 172,877 792,816
Office equipment, furniture and fixtures 270,204 239,083
- ----------------------------------------------------------------------------
624,495 1,487,789
Less: Accumulated depreciation 451,942 1,111,190
- ----------------------------------------------------------------------------
$ 172,553 $ 376,599
============================================================================
Depreciation charged against income amounted to $117,651 in 1996, $130,202 in
1995 and $124,162 in 1994.
Page 24
<PAGE>
Notes To Financial Statements (Continued)
The buildings and certain equipment were pledged as collateral for notes payable
(see Note 7).
The building and equipment used by Gamco's print shop were sold in 1996.
6. Investments In Natural Resources
Investments in natural resources consist of:
1996 1995
-------------------------------
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 $78,033 under
the lease in 1996, $70,596 in 1995, and $35,814 in 1994. 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.
Page 25
<PAGE>
Notes To Financial Statements (Continued)
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.
7. Notes Payable
At December 31, 1995, Gamco had a line of credit totalling $350,000, with an
outstanding balance of $1,000. The line of credit was secured by the buildings,
accounts receivable, inventories and certain equipment of Gamco. Interest was
payable on the line of credit, to the extent used, at the prime commercial rate
plus 1.5%. The note was paid off during 1996 and the line of credit expired
December 1, 1996.
The weighted average interest rate was 8.90%, 10.33% and 8.76% for the years
ended December 31, 1996, 1995 and 1994, respectively.
8. 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.
9. 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 $26,246 in
1996 and $ 35,029 in 1995.
Page 26
<PAGE>
Notes To Financial Statements (Continued)
10. 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:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Deferred tax asset $ 1,555,000 $ 1,603,000 $ 1,555,400
Deferred tax asset valuation
allowance (1,555,000) (1,603,000) (1,555,400)
- ------------------------------------------------------------------------------------------------------
$ -- $ -- $ --
======================================================================================================
</TABLE>
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 $5,184,550 at December 31, 1996 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.
11. Supplemental Cash Flow Information
The Company had no significant noncash investing or financing activities for the
years ended December 31, 1996, 1995 and 1994.
12. Segment Information
The Company's business is primarily comprised of two industry segments:
educational products and natural resources. The educational products segment
principally sells educational software and teaching aids to schools. The natural
resources segment principally receives royalties from its properties.
Page 27
<PAGE>
Notes To Financial Statements (Continued)
The Company's consolidated results of operations by business segment are as
follows:
<TABLE>
<CAPTION>
(In Thousands)
-----------------------------------------------------
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Net Sales
Educational products $ 1,933 $ 2,284 $ 2,266
Natural resources 81 75 41
- -------------------------------------------------------------------------------------------------
Continuing operations $ 2,014 $ 2,359 $ 2,307
=================================================================================================
Operating Income (Loss)
Educational products $ (491) $ 52 $ 209
Natural resources 69 69 36
General corporate (218) (259) (182)
- -------------------------------------------------------------------------------------------------
Continuing operations $ (640) $ (138) $ 63
=================================================================================================
Identifiable Assets
Educational products $ 1,309 $ 1,584 $ 1,802
Natural resources 116 81 50
General corporate 16 31 23
- -------------------------------------------------------------------------------------------------
Continuing operations $ 1,441 $ 1,696 $ 1,875
=================================================================================================
Capital Expenditures
Educational products $ 34 $ 71 $ 147
Natural resources -- -- --
General corporate 6 2 1
- -------------------------------------------------------------------------------------------------
Continuing operations $ 40 $ 73 $ 148
=================================================================================================
Depreciation, Depletion And
Amortization
Educational products $ 116 $ 129 $ 122
Natural resources -- -- --
General corporate 2 1 2
- -------------------------------------------------------------------------------------------------
Continuing operations $ 118 $ 130 $ 124
=================================================================================================
</TABLE>
13. Stock Options
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.
Page 28
<PAGE>
Notes To Financial Statements (Continued)
Outstanding and exercisable stock options at December 31, 1996, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
Option
Year Year Exercise
Granted Expiring Price 1996 1995 1994
- -------------------------------------------------- -------------------------------------------
<C> <C> <C> <C> <C> <C>
1995 2000 0.165 200,000 200,000 --
1992 1997 0.0275 775,000 975,000 975,000
1992 1997 0.05 25,000 25,000 25,000
-------------------------------------------
Outstanding options - end of year 1,000,000 1,200,000 1,000,000
===========================================
</TABLE>
During the year ended December 31, 1996, options for 200,000 shares were
exercised at $.0275 per share.
No options were exercised in 1995 or 1994.
The proforma effects of applying Statement of Financial Accounting Standards No.
123, for options granted in 1995 are not deemed material.
14. Discontinued Operations
In 1994, income from discontinued operations arose from an adjustment to a
previously established liability reserve relating to SCI which management
determined to be no longer necessary.
15. 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.
Page 29
<PAGE>
Notes To Financial Statements (Continued)
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, 1996, $140,352 of advertising costs were capitalized.
Advertising expense amounted to $531,849 in 1996, $547,850 in 1995 and $498,167
in 1994.
16. 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.
Page 30
<PAGE>
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1996, 1995 And 1994
<TABLE>
<CAPTION>
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
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserves deducted in the balance sheet
from the assets to which they apply:
Accounts receivable allowance
for doubtful accounts
1994 $ 52,901 $ 2,474 $-- $ 2,605 $ 52,770
1995 52,770 (1,945) -- (3,695) 47,130
1996 47,130 3,417 -- (844) 49,703
Inventory valuation account
1994 62,119 23,094 -- 33,247 51,966
1995 51,966 7,001 -- 5,192 53,775
1996 53,775 21,547 -- 8,703 66,619
Investments in natural resources
allowance for depreciation and
cost depletion of natural resources
1994 145,821 -- -- -- 145,821
1995 145,821 -- -- -- 145,821
1996 145,821 -- -- -- 145,821
</TABLE>
Page 31
<PAGE>
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: March 17, 1997 BY: /s/ Timothy J. Tegeler
Timothy J. Tegeler
President and Chief Executive
and Financial Officer and
Principal Accounting Officer
Date: March 17, 1997 BY: /s/ Timothy J. Tegeler
Timothy J. Tegeler, Director
Date: BY:
Thomas G. Keeton, Director
Date: March 17, 1997 BY: /s/ Rebecca M. Braddock
Rebecca M. Braddock, Director
Date: March 17, 1997 BY: /s/ Alan G. Johnson
Alan G. Johnson, Director
Date: March 20, 1997 BY: /s/ James P. Connaughton
James P. Connaughton, Director
Date: March 20, 1997 BY: /s/ Ernest R. Marx
Ernest R. Marx, Director
Page 32
<PAGE>
EXHIBIT INDEX
Exhibit No. 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................................N/A
3(b) Bylaws, filed as Exhibit 3(b) to
the 1986 10-K and incorporated
herein by this reference.........................N/A
21 Subsidiaries of the Company, filed
herewith.........................................34
27 Financial Data Schedule (filed in EDGAR
version only)......................................35
Page 33
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following are wholly-owned subsidiaries of the Company at December 31, 1996:
<TABLE>
<CAPTION>
Year Of
Industry Segment Subsidiary Incorporation Organization
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Continuing Operations:
Educational Products 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
Page 34
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K for the year ended December 31, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<CASH> 775,830
<SECURITIES> 0
<RECEIVABLES> 202,140
<ALLOWANCES> 49,703
<INVENTORY> 174,939
<CURRENT-ASSETS> 1,263,239
<PP&E> 624,495
<DEPRECIATION> 451,942
<TOTAL-ASSETS> 1,440,893
<CURRENT-LIABILITIES> 166,471
<BONDS> 0
0
0
<COMMON> 1,576,670
<OTHER-SE> 13,028
<TOTAL-LIABILITY-AND-EQUITY> 1,440,893
<SALES> 1,933,458
<TOTAL-REVENUES> 2,014,268
<CGS> 455,895
<TOTAL-COSTS> 455,895
<OTHER-EXPENSES> 2,198,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> 315,276
<INCOME-TAX> 0
<INCOME-CONTINUING> 315,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,276
<EPS-PRIMARY> (0.019)
<EPS-DILUTED> (0.019)
</TABLE>
