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, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from ____________________ to ____________________
Commission File Number 1-3952
SIBONEY CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 73-0629975
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 N. Brentwood, Suite 211, P.O. Box 16184
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St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-6141
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 12, 1999 was $2,477,752. This value was based on
the average of the bid and asked prices on February 12, 1999. As of February 12,
1999, 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 1999 Annual
Meeting of Shareholders, which involves the election of directors, is
incorporated by reference into Items 10, 11, 12 and 13.
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<PAGE>
INDEX
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PAGE
PART I
Item 1. Business..........................................3 - 6
Item 2. Properties............................................6
Item 3. Legal Proceedings.....................................7
Item 4. Submission of Matters to a Vote of
Security Holders....................................7
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................8
Item 6. Selected Financial Data..........................9 - 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations......................................10 - 12
Item 8. Financial Statements and Supplementary
Data...............................................12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...............12
PART III
Item 10. Directors and Executive Officers of the
Registrant...........................................13
Item 11. Executive Compensation...............................13
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................13
Item 13. Certain Relationships and Related
Transactions.......................................13
PART IV
Item 14. Exhibits, Financial Statements, Financial
Statement Schedule and Reports on Form 8-K....14 - 30
Signatures........................................................31
Exhibit Index.....................................................32
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<PAGE>
PART I
Forward-Looking Statements
Any forward-looking statements set forth in this Report are necessarily subject
to significant uncertainties and risks. When used in this Report, the words
"believes," "anticipates," "intends," "expects," and similar expressions are
intended to identify forward-looking statements. Actual results could be
materially different as a result of various possibilities. Readers are cautioned
not to place undue reliance on forward-looking statements, which speak only as
of the date hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
Item 1 - Business
General
The principal business of the Company is the publishing and distribution of
educational software products.
Description of Business and Properties
Business - General Description and Current Developments -- The Company is
engaged, through its Siboney Learning Group 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. Popular titles include
Money Challenge, Discover Time, the Touchdown Math series, Undersea Reading for
Meaning and new titles including Reading Concepts, Paragraph Power and Reading
for Critical Thinking. The Company publishes over 200 titles for Macintosh,
Windows, DOS and Apple II operating systems.
In 1998, all of Siboney Learning Group's distribution channels increased their
sales of Gamco educational software and Orchard: Teacher's Choice Software to
schools. Gamco titles include highly motivational and skills-focused single
titles and series, which help students master basic skills and key concepts.
Orchard: Teacher's Choice Software, launched in 1997, offers schools a larger
curriculum-based solution with universal management.
Gamco dealers' sales grew 14.4% in 1998, primarily as a result of the release of
34 new hybrid CD-ROM titles with universal management systems that run on both
Windows and Macintosh computers. These dealers reach schools primarily through
catalogs selling popular titles from Gamco and other software publishers.
Orchard dealers' sales grew by over 300% in their first full year of sales of
the Company's new approach to Integrated Learnings Systems. Orchard dealers sell
Orchard's more comprehensive and higher priced curriculum-based software
solutions with management to schools through independent sales representatives.
After almost a full year of development in 1997, Orchard made a major
contribution to the Company's sales growth in 1998. The Company also finalized
the relocation of its inside sales team from Big Spring, Texas to St. Louis,
Missouri early in 1998. These six sales representatives focus on selling the
Company's software to more than 12,000 school customers and 40,000 additional
prospects.
During 1998, Siboney Learning Group accelerated its conversion of titles to the
Windows, Macintosh and Windows/Macintosh CD-ROM platforms, which are now the
predominant systems used in schools. During the year, the Company converted 29
products for Windows, 25 titles for Macintosh and produced 34 new CD-ROM titles.
In 1998, the Company entered into a licensing agreement with the NECTAR
Foundation under which the Company will publish 20 math concepts educational
software titles in a hybrid multimedia CD-ROM format and commenced the promotion
of the products. The Company also entered into a licensing agreement with ELS,
Inc. under which the Company will publish up to nine early reading and language
programs.
The Company also has certain natural resource interests through several
subsidiaries.
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, consisting of approximately 325 surface or fee acres which
include mineral rights and approximately 1,120 acres of mineral rights alone.
Siboney Coal leases the properties to Mountaineer Land Company ("Mountaineer")
under a 25 year lease entered into in 1987. Under 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. The lease calls for annual payments of $30,000 plus
royalties per ton of coal mined. The lease is cancellable on 30 days' notice by
the lessee. Siboney Coal earned $30,000 in 1998, $61,414 in 1997 and $78,033 in
1996 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 (including 1998), and in the future may be, discontinued.
A subsidiary, Siboney Resources - Texas, Inc. ("Siboney Resources"), has royalty
interests in certain oil and gas leases in Texas. Another subsidiary, Axel
Heiberg Oil Company ("Axel"), holds a 2.28% working interest in oil and gas
property rights on 1,843 acres in the Canadian Arctic Islands. Revenues from
such leases and interests are not material. The present value of estimated
future net oil and gas reserves of Axel and Siboney Resources 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, which were expropriated by the Castro regime. The
Company filed claims against the Cuban government with the U.S. Foreign Claims
Settlement Commission, which was authorized to determine the validity and value
of claims of U.S. nationals against the Cuban government for expropriated
properties. The Commission certified the Company's loss as $2,454,000 plus 6%
interest per annum from November 1959. No funds have been appropriated to
satisfy such claims. Accordingly, the Company does not consider the claim to be
probable and cannot determine the possibility or amount of any possible
recovery. In 1996, a new federal law, the "Helms-Burton Act", was passed. It
grants U.S. companies whose Cuban properties were confiscated the right to bring
action in U.S. district courts against foreign nationals that "traffic" in, or
make use of, confiscated properties and makes those companies liable for money
damages to the U.S. company which owns the claim to the confiscated property.
However, the President of the United States has the authority to suspend the
right of potential plaintiffs to file such lawsuits and has done so consistently
since the law was passed.
Sources and Availability of Raw Materials -- Raw materials are generally
available and are purchased from a wide range of suppliers. Shortages are not
anticipated.
Patents, Trademarks and Licenses -- The Company holds various patents,
copyrights and license rights, some of which are considered to be material to
its business. The licensing agreements provide for minimum royalties to be paid
by the Company over a specified number of years.
Seasonality -- The Company typically experiences its highest levels of sales and
accounts receivable in the educational products business at the end of the
school year (April, May, June and July). However, seasonality is not deemed to
have an overall material effect on the Company's operations.
Working Capital Items -- The Company does not engage in unusual practices
relating to working capital items. The Company does not purchase or maintain an
unusually high amount of inventory in advance, although certain materials are
purchased in larger quantities in order to obtain volume discounts. The Company
does not routinely offer extended terms for payment, but historically some
public school districts and public educational institutions have delayed making
payment until appropriated funds become available. Siboney Learning Group/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. Sales of Gamco and Orchard
products are warranted for 90 days. Gamco also maintains a general "satisfaction
guaranteed" policy under which products may be returned within 12 months from
the date of purchase if they do not meet a customer's satisfaction. For the year
1998, approximately 4% of sales was returned.
Dependence on Limited Number of Customers -- In 1998 approximately 13% of the
Company's revenues were generated from catalog sales through one dealer,
Educational Resources, Inc.
Backlog -- The Company traditionally does not have a material backlog of orders.
Government Business -- Sales of Siboney Learning Group/Gamco's computer software
products are substantially dependent upon expenditures of school districts and
individual schools. 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 the
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 $403,000, $440,000 and
$412,000 in 1998, 1997 and 1996, respectively.
The development of Siboney Learning Group/Gamco products resulted in the release
of seven new and improved titles in 1996, 65 in 1997 and 88 in 1998. As a result
of continuing internal product development and the development of newly licensed
software, the Company is expected to release approximately 60 new and improved
titles in 1999.
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. A
number of the Company's competitors are significantly larger and have
substantially greater resources than the Company. Over the last several years,
the consolidation of educational software publishers has resulted in a reduction
of the number of new software titles designed for schools.
Personnel -- As of February 12, 1999, the Company had 25 full-time employees.
The Company's employees are not represented by any union.
Item 2. Properties
The Company leases 660 square feet of corporate office space under a lease which
expires May 31, 2001. The Siboney Learning Group leases 2,148 square feet of
separate office space under a lease which expires May 31, 2001.
Gamco owns a 23,000 square foot building in Big Spring, Texas on 12 acres. A
contract has been entered into to sell the building and plans are being made to
move the Gamco operation to St. Louis, Missouri, at which time the Company
expects to lease approximately 5,000 to 6,000 square feet of warehouse
facilities. The Company does not anticipate unusual difficulty in leasing such
facilities.
Item 3. Legal Proceedings
On October 4, 1985, a subsidiary of the Company, Siboney Communications, Inc.
("SCI"), filed a voluntary petition under Chapter 7 of the federal Bankruptcy
Code in the U.S. Bankruptcy Court for the Northern District of Texas, Dallas
Division. The proceeding remains 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.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Principal Market
The Company's common stock is traded in the over-the-counter market.
(b) Stock Price and Dividend Information
The following table sets forth the high and low bid prices per share of common
stock.
1998 Bid 1997 Bid
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Quarter High Low Quarter High Low
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First $ .19 $ .11 First $ .14 $ .14
Second .16 .11 Second .15 .14
Third .22 .13 Third .12 .12
Fourth .15 .09 Fourth .13 .11
The foregoing market quotations reflect interdealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions.
No cash dividends were paid on the Company's common stock in 1997 or 1998. The
Company intends to continue its historical pattern of utilizing cash generated
by operations to support future growth.
(c) Approximate Number of Holders of Common Stock
The number of holders of record of the Company's common stock as of February 12,
1999 was 16,822.
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<PAGE>
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
Years Ended December 31,
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
Total assets of continuing
operations $ 881,230 $ 938,994 $ 1,440,893 $ 1,696,432 $ 1,875,057
=====================================================================================================================
Revenues from continuing
operations $ 2,406,759 $ 1,957,088 $ 2,014,268 $ 2,359,492 $ 2,306,827
=====================================================================================================================
Income (loss) from continuing
operations $ (124,749) $ (571,688) $ (315,276) $ (98,405) $ 89,272
=====================================================================================================================
Income from discontinued
operations [Note (a)] $ -- $ -- $ -- $ -- $ 60,691
=====================================================================================================================
Cumulative effect on prior
years of change in accounting
principle $ -- $ -- $ -- $ (66,368) $ --
=====================================================================================================================
Net income (loss) $ (124,749) $ (571,688) $ (315,276) $ (164,773) $ 149,963
=====================================================================================================================
Earnings (loss) per common share [Note (b)]:
Continuing operations $ (0.008) $ (0.035) $ (0.020) $ (0.006) $ 0.006
Discontinued operations -- -- -- -- 0.004
Cumulative effect on prior
years of change in
accounting principle -- -- -- (0.004) --
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$ (0.008) $ (0.035) $ (0.020) $ (0.010) $ 0.010
=====================================================================================================================
Weighted average number of common
shares outstanding 16,518,344 16,249,565 15,613,269 15,566,694 15,566,694
=====================================================================================================================
Earnings (loss) per common
share - assuming dilution
[Notes (b) and (c)]
Continuing operation $ (0.008) $ (0.035) $ (0.020) $ (0.006) $ 0.005
Discontinued operations -- -- -- -- 0.004
Cumulative effect on prior
years of change in
accounting principle -- -- -- (0.004) --
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$ (0.008) $ (0.035) $ (0.020) $ (0.010) $ 0.009
=====================================================================================================================
Weighted average number of common
and common equivalent shares
outstanding 16,518,344 16,249,565 15,613,269 15,566,694 16,422,782
=====================================================================================================================
<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.
(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 14 to the consolidated financial statements.
(c) For 1996, 1997 and 1998, options on shares of common stock were not included
in computing diluted earnings per share because their effect was antidilutive.
(d) The Company has paid no cash dividends during the five years ended December
31, 1998.
</FN>
</TABLE>
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, 1998, and comments on the Company's financial position as of
December 31, 1998.
Results Of Operations:
1998 in Comparison with 1997:
1998 was a major turnaround year for Siboney Learning Group as it began to
realize the benefits of investments in distribution and product development made
over the past two years. During 1998, the Company's consolidated revenues
increased 22.9% or $449,671 to $2,406,759. Sales of new titles released in the
past 18 months accounted for 73% of total sales, compared to 32% in 1997. The
new titles are almost all in the Macintosh/Windows CD-ROM format which was
introduced during the second half of 1997. Sales of the Company's Orchard:
Teacher's Choice Software increased approximately $396,000 to $518,063, compared
to $121,992 in 1997.
Cost of product sales increased only $29,211 to $349,052. Gross profit
percentage increased from 83.1% to 85.3%. The reasons for the increase in gross
profit percentage were the ongoing implementation of management's plan to
eliminate low margin nonproprietary products and the sale of higher priced
product licenses.
Selling, general and administrative expenses remained relatively constant
compared to 1997.
The Company's loss from operations for 1998 was $129,222, much less than the
$590,816 in 1997. The improved results from operations were primarily for the
reasons stated above.
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<PAGE>
1997 in Comparison with 1996:
During 1997, the Company's consolidated revenues decreased 2.8% or $57,180 to
$1,957,088. Approximately one-third of the Company's revenues in 1997 occurred
as a result of sales of new products and product distribution strategies
compared to minimal new product sales in 1996. 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 as a result of the Company's decision to eliminate sales of low margin
products not produced by the Company), 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. The Company also continued to
expand through licensing agreements.
Cost of product sales 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
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.
Liquidity and Capital Resources
The Company considers its cash position and line of credit availability adequate
to fund its anticipated operations and capital expenditures on a short-term and
a long-term basis based on anticipated continued improvements in the level and
nature of revenues and continued control of expenses. However, if such increased
revenues and reduced losses or profitable operations do not continue, the
Company's available line of credit could become subject to restriction,
including the effect of the covenant therein to maintain the Company's net worth
at not less than $500,000. Under such circumstances, the Company could be forced
to reduce its operations.
Year 2000 Issue
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits, rather than four, to define the applicable year. As a result,
when moving from the year 1999 to 2000, without adjustment, such programs 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.
The Company utilizes computer technologies throughout its business to carry on
its day to day operations. Computer technologies include hardware and software
used by the Company both in developing its products and in operating its
business. The Company has recently converted its operating and accounting system
to software which has been warranted to be Y2K compliant.
The Company is initiating communications and developing a monitoring program
with all of its significant suppliers to determine Y2K compliance. While the
Company is not presently aware of any significant exposure, there can be no
assurance that the systems of third parties on which the Company relies will be
converted in a timely manner, or that failure to convert by another company
would not have a material adverse effect on the Company. Management anticipates
that the most reasonably likely worst-case scenario would involve a temporary
interruption of certain operations.
The cost of determining the Company's exposure to risks associated with Y2K
compliance and correction is estimated to be less than $1,000 and is not deemed
material to its results of operations for the fiscal year.
Educational software produced by the Company is used in conjunction with popular
operating systems, namely DOS, Macintosh and the Windows series. The Company
produces single title programs and multiple title programs. Single title
programs which are operated in DOS have no dates in their management systems.
Single title programs which the Company produces for Macintosh or Windows
operating systems record student performance by raw score percentage followed by
date entered, which is automatically provided by the underlying operating
system. Dates used by the Company's single title programs are displayed in two
digit (i.e., 07-10-98) configuration. Storage of this information is by most
recent entry and is only displayed and retrieved on a "last information entered,
first displayed" basis. It is not sorted on a date basis and therefore is not
subject to the Y2K problem. Multiple title programs use a management system
which displays dates in a four digit (i.e., 07-10-1998) configuration and thus
are not subject to Y2K issues.
<PAGE>
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.
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<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 1999 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 1999 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 1999 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 1999 annual meeting of stockholders, which involves the
election of directors, is incorporated herein by this reference.
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<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..............................................15
Consolidated Balance Sheet at December 31, 1998 and
1997............................................................16
Consolidated Statement of Stockholders' Equity for
the Years Ended December 31, 1998, 1997 and 1996................17
Consolidated Statement of Operations for the Years
Ended December 31, 1998, 1997 and 1996..........................18
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996..........................19
Notes to Consolidated Financial Statements.................20 - 29
(a) (2) Financial Statement Schedule:
Schedule V - Valuation and Qualifying Accounts -- 1998, 1997
and 1996........................................................30
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...................................................32
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 1998.
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<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, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 14. These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Siboney
Corporation and subsidiaries as of December 31, 1998 and 1997 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles, and the supporting schedule presents fairly the
information required to be set forth therein.
St. Louis, Missouri /s/ RUBIN, BROWN, GORNSTEIN & CO. LLP
February 12, 1999
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
Assets
December 31,
------------------------------
1998 1997
------------------------------
Current Assets
Cash and cash equivalents $ 134,387 $ 289,752
Investment (Note 4) 8,500 27,500
Accounts receivable (Notes 5 and 8) 274,204 206,682
Inventories (Notes 6 and 8) 187,545 169,274
Prepaid expenses and deposits 77,774 106,646
- -------------------------------------------------------------------------------
Total Current Assets 682,410 799,854
Property, Plant and Equipment (Notes 7, 8 and 9) 198,820 139,090
- -------------------------------------------------------------------------------
$ 881,230 $ 938,944
===============================================================================
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capitalized lease
obligation (Note 9) 11,828 --
Accounts payable 85,508 76,634
Accrued expenses 148,579 111,683
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Total Current Liabilities 245,915 188,317
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Long-Term Portion of Capitalized Lease
Obligation (Note 9) 28,437 --
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Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at $0.10
par value; issued and outstanding
16,518,344 in 1998 and 1997 1,651,835 1,651,835
Additional paid-in capital 300 300
Unrealized holding gain on investment 8,500 27,500
Retained earnings (deficit) (1,053,757) (929,008)
- ------------------------------------------------------------------------------
Total Stockholders' Equity 606,878 750,627
- ------------------------------------------------------------------------------
$ 881,230 $ 938,944
===============================================================================
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See the accompanying notes to consolidated financial statements.
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
Additional Unrealized Retained Total
Common Stock Paid-In Holding Earnings Stockholders'
---------------------------
Shares Amount Capital Gain (Deficit) Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 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
Net Loss -- -- -- -- (124,749) (124,749)
Net Depreciation on
Investment -- -- -- (19,000) -- (19,000)
- -----------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 16,518,344 $ 1,651,835 $ 300 $ 8,500 $ (1,053,757) $ 606,878
=======================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See the accompanying notes to consolidated financial statements.
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Revenues 2,406,759 $ 1,957,088 $ 2,014,268
Cost of Product Sales 349,052 319,841 455,895
=======
Selling, General and Administrative
Expenses 2,186,929 2,228,063 2,198,419
- -------------------------------------------------------------------------------
Loss from Operations (129,222) (590,816) (640,046)
- -------------------------------------------------------------------------------
Other Income
Interest income 3,331 17,964 25,042
Gain on sale and disposition
of assets -- -- 294,542
Miscellaneous 1,142 1,164 5,186
- -------------------------------------------------------------------------------
Total Other Income 4,473 19,128 324,770
- -------------------------------------------------------------------------------
Provision for Income Tax (Note 11) -- -- --
- -------------------------------------------------------------------------------
Net Loss $ (124,749) $ (571,688) $ (315,276)
===============================================================================
Basic and Diluted Loss Per
Common Share $ (0.008) $ (0.035) $ (0.020)
===============================================================================
- --------------------------------------------------------------------------------
See the accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For The Years Ended December 31,
------------------------------------------
1998 1997 1996
------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operations
Net loss $ (124,749) $ (571,688) $ (315,276)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation 62,743 58,244 117,651
(Gain) loss on sales and disposition of assets 57 -- (294,542)
Change in assets and liabilities:
(Increase) decrease in accounts
receivable (67,522) (54,245) 25,712
(Increase) decrease in inventories (18,271) 5,665 55,297
Decrease in prepaid expenses and
deposits 28,872 53,387 146,390
Increase in accounts payable and
accrued expenses 45,770 21,846 55,237
- ------------------------------------------------------------------------------------------------------
Net Cash Used in Operations (73,100) (486,791) (209,531)
- ------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Payments for equipment (69,180) (19,680) (38,560)
Proceeds from sale of assets, net of related
selling expenses -- -- 419,497
- ------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities (69,180) (19,680) 380,937
- ------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of common stock -- 20,393 5,500
Net repayments under line-of-credit agreement -- -- (1,000)
Principal payments on capital lease (13,085) -- --
- ------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (13,085) 20,393 4,500
- ------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (155,365) (486,078) 175,906
Cash and Cash Equivalents - Beginning of Year 289,752 775,830 599,924
- ------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents - End of Year $ 134,387 $ 289,752 $ 775,830
======================================================================================================
Supplemental Disclosure of Cash
Flow Information (Note 12):
Interest paid $ 7,093 $ 327 $ 94
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
See the accompanying notes to consolidated financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Continued)
SIBONEY CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Siboney Corporation and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
Cash and Cash Equivalents
The Company considers all investment instruments purchased with a maturity of
three months or less to be cash equivalents. The carrying amount approximates
fair value because of the short maturity of those instruments.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts equal to the estimated
collection losses that will be incurred in the collection of all receivables.
The estimated losses are based on historical experience coupled with a review of
the current status of the existing receivables.
Inventories
Raw materials inventory is valued at the lower of cost (first-in, first-out
method) or market. Finished goods inventory is valued at the lower of cost or
market of raw materials and an allowance for overhead, not in excess of market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated depreciation
computed principally using the straight-line method. Assets are depreciated over
periods ranging from two to thirty-nine years.
When assets are retired or otherwise disposed of, the cost of the assets and the
related accumulated depreciation are removed from the respective accounts and
any gain or loss realized from disposition is reflected in operations.
Advertising
The Company expenses the costs of advertising the first time the advertising
takes place except for direct response advertising, which is capitalized and
amortized over its expected period of future benefits.
Direct response advertising consists primarily of catalog advertising to which
sales orders are directly attributed. The capitalized cost of the advertising is
amortized over a 12-month period following the issuance of the catalog.
At December 31, 1998, $66,995 of advertising costs were capitalized. Advertising
expense amounted to $393,119 in 1998, $433,640 in 1997 and $531,849 in 1996.
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 maintains an "on approval" policy for most products, under which
goods shipped subject to customer approval are not billed for and can be
returned within 45 days. Invoices are sent after 45 days if the goods are not
returned. The Company also maintains a general "satisfaction guaranteed" policy
under which most products may be returned within 12 months from the date of sale
if the customer is dissatisfied. All conditions for revenue recognition are met
at the time of sale as defined in Statement of Financial Accounting Standards
No. 48 "Revenue Recognition When Right of Return Exists." The Company does not
experience many product returns, and therefore, Company management is of the
opinion that no allowance for sales returns is necessary.
<PAGE>
Research and Development
Research and development costs are expensed in the year incurred and totalled
approximately $403,000, $440,000 and $412,000 in 1998, 1997 and 1996,
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 of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to the SFAS 128 requirements.
Stock Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123") in 1997. As permitted by
SFAS 123, the Company continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic method prescribed by
APB No. 25, "Accounting for Stock Issued to Employees" and has provided in Note
13 pro forma disclosures of the effect on net income (loss) and earnings per
share as if the fair value-based method prescribed by SFAS 123 had been applied
in measuring compensation expense.
Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due, if any, plus deferred
taxes relating to operating losses and tax credits that are available to offset
future taxable income. The Company accounts for investment tax credits using the
flow-through method and thus reduces income tax expense in the year the related
assets are placed in service or qualified progress payments are made.
2. Operations
The Company's operations consist of 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.
The Company also holds interests in certain coal, oil and gas natural resources.
3. Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements. Based on the definition of an
"operating segment" and on materiality levels, both of which are defined by SFAS
131, management has determined that it is unnecessary to disclose segment data.
The adoption of SFAS 131 did not affect consolidated results of operations,
financial position or cash flows of the Company, but did result in a reduction
in the disclosure of segment data.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company has determined that the adoption of SFAS 130 on the Company's
consolidated results of operations, financial position or cash flows is not
significant.
<PAGE>
4. Investment
In accordance with Statement of Financial Standards No. 115, the investment is
classified as available for sale and is carried at fair value with the net
unrealized gain reflected as a component of stockholders' equity until realized.
The investment listed was the result of a settlement in a bankruptcy, where
prior to 1997 the Company had previously expensed the amount as a bad debt;
therefore the investment is carried at no cost. The stock received in the
settlement had a fair market value at December 31, 1997 of $27,500 and $8,500 at
December 31, 1998.
5. Accounts Receivable
Accounts receivable consist of:
1998 1997
-------------------------------
Accounts receivable $ 284,671 $ 256,513
Less: Allowance for doubtful accounts 10,467 49,831
- ----------------------------------------------------------------------------
$ 274,204 $ 206,682
============================================================================
Accounts receivable are pledged as collateral for notes payable (see Note 8).
6. Inventories
Inventories are summarized as follows:
1998 1997
------------------------------
Raw materials $ 128,727 $ 104,561
Finished goods 58,818 64,713
- ---------------------------------------------------------------------------
$ 187,545 $ 169,274
===========================================================================
Inventories are pledged as collateral for notes payable (see Note 8).
Inventories are net of reserve for obsolescence of $39,068 and $22,441 in 1998
and 1997, respectively.
7. Property, Plant and Equipment
Property, plant and equipment consist of:
1998 1997
--------------------------------
Land and improvements $ 29,098 $ 29,098
Building and improvements 163,397 163,397
Machinery and equipment 281,474 172,877
Office equipment, furniture and fixtures 294,500 283,904
- ---------------------------------------------------------------------------
768,469 649,276
Less: Accumulated depreciation 569,649 510,186
- ---------------------------------------------------------------------------
$ 198,820 $ 139,090
===========================================================================
Depreciation charged against income amounted to $62,743 in 1998, $58,244 in 1997
and $117,651 in 1996.
The building and certain equipment are pledged as collateral for notes payable
(see Note 8).
8. Notes Payable
The Company has a $500,000 revolving line of credit agreement with a bank. The
outstanding debt is due on demand, and if no demand is made, then due on August
1, 1999. 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, 1998 and 1997 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 $500,000.
The weighted average interest rate was 9.17%, 9.25% and 8.90% for the years
ended December 31, 1998, 1997 and 1996, respectively.
9. Capital Leases
During 1998, the Company leased computer equipment with a cost of $53,350, under
a capital lease. The lease provides for interest at 6.6%, payable in monthly
installments of $1,268, with final payment due in November 2001.
The future minimum annual lease payments under the capital lease are:
Year Amount
- ------------------------------------------------------------------
1999 $ 15,216
2000 15,216
2001 13,948
- ------------------------------------------------------------------
44,380
Less: Amount representing
interest 4,115
- ------------------------------------------------------------------
$ 40,265
==================================================================
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 $33,656 in
1998, $24,600 in 1997 and $26,246 in 1996.
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:
1998 1997 1996
------------------------------------------------
Deferred tax asset $ 1,801,500 $ 1,765,000 $ 1,555,000
Deferred tax asset valuation
allowance (1,801,500) (1,765,000) (1,555,000)
- -------------------------------------------------------------------------------
$ -- $ -- $ --
===============================================================================
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 $6,000,000 at December 31, 1998 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 financed, through a capital lease, the purchase of equipment in the
amount of $53,350 in 1998.
The Company had no significant noncash investing or financing activities for the
years ended December 31, 1997 and 1996.
13. 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 1998,
the Company granted options to purchase 600,000 shares to directors of the
Company.
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 to acquire 310,000 shares. During 1998, the Company granted employees
options to purchase 460,000 shares. These options expire five years from the
date granted or upon cessation of employment, which ever occurs earlier.
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:
1998 1997 1996
-----------------------------------------------
Net Loss
As reported $ (124,749) $ (571,688) $ (315,276)
Pro forma (301,622) (597,240) (342,522)
Net Loss Per Common Share
As reported $ (0.008) $ (0.035) $ (0.020)
Pro forma $ (0.018) $ (0.037) $ (0.022)
The weighted-average fair value of options at date of grant for options granted
during 1998, 1997 and 1996 was $0.124, $0.062 and $0.027 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.
1998 1997 1996
--------------------------------------------
Expected life 5.0 3.0 1.7
Interest rate 8.5% 8.5% 8.5%
Volatility 134.72% 43.22% 83.03%
Dividend Yield -- -- --
A summary of stock option activity for 1998, 1997 and 1996 is as follows:
Weighted
Average
Number Price Per Exercise
Of Shares Share Price
---------- ---------------------------------
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 $0.1207
- -------------------------------------------- ---------------------------------
Balance - December 31, 1997 410,000 $0.16 - $0.165 $0.1624
Granted 1,060,000 $0.1275 - $0.145 $0.1295
Exercised -- -- --
Forfeited/Expired (40,000) $0.1275 - $0.16 $0.1478
- -------------------------------------------- ---------------------------------
Balance - December 31, 1998 1,430,000 $ 0.1275 - $0.165 $0.1384
============================================ =================================
14. Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share ("EPS") is computed by dividing net
income (loss) by the weighted average number of common shares outstanding of
16,518,344 in 1998, 16,249,565 in 1997 and 15,613,269 in 1996.
For 1996, 1997 and 1998, options on shares of common stock were not included in
computing diluted EPS because their effect was antidilutive in each year.
15. 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.
In March 1998, the Company entered into a licensing agreement with an
educational software developer. The agreement provides for the Company to pay
minimum royalties of $16,000 per year starting in 1999 and ending in 2002.
In May 1998, the Company entered into a licensing agreement with an educational
software publisher. The agreement provides for the Company to pay minimum
royalties of $30,000 in 1999, $60,000 in 2000 and $90,000 in 2001. Earned
royalties can be credited against the applicable guaranteed amount. Subsequent
to 2001, the agreement is automatically renewable based upon royalties earned of
at least $30,000 per year.
- --------------------------------------------------------------------------------
<PAGE>
SIBONEY CORPORATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997 and 1996
Additions Deductions
------------------- --------------------------------
Balance at Charged to Charges for Balance at
Beginning Costs and Which Reserve End
Description of Period Expenses Was Created of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserves deducted in the balance sheet from the
assets to which they apply:
Accounts receivable allowance
for doubtful accounts
1996 $ 47,130 $ 3,417 $ (844) $ 49,703
1997 49,703 4,154 (4,026) 49,831
1998 49,831 -- (39,364) 10,467
Inventory valuation account
1996 53,775 21,547 8,703 66,619
1997 66,619 -- 44,178 22,441
1998 22,441 18,673 2,046 39,068
Investments in natural resources
allowance for depreciation and
cost depletion of natural resources
1996 145,821 -- -- 145,821
1997 145,821 -- -- 145,821
1998 145,821 -- -- 145,821
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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 29, 1999 BY: /s/ Timothy J. Tegeler
------------------- -------------------------------------
Timothy J. Tegeler
President and Chief Executive
and Financial Officer and
Principal Accounting Officer
Date: March 29, 1999 BY: /s/ Timothy J. Tegeler
------------------- -------------------------------------
Timothy J. Tegeler, Director
Date: BY:
------------------- -------------------------------------
Thomas G. Keeton, Director
Date: March 29, 1999 BY: /s/ Rebecca M. Braddock
------------------- -------------------------------------
Rebecca M. Braddock, Director
Date: March 29, 1999 BY: /s/ Alan G. Johnson
------------------- -------------------------------------
Alan G. Johnson, Director
Date: March 29, 1999 BY: /s/ Ernest R. Marx
------------------- -------------------------------------
Ernest R. Marx, Director
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit No. Description
- ----------- -----------
3(a) Amended and Restated Articles of Incorporation, filed as
Exhibit 3(a) to the Company's Report on Form 10-K for the year
ended December 31, 1986 (the "1986 10-K") and incorporated
herein by this reference
3(b) Bylaws, filed as Exhibit 3(b) to the 1986 10-K and
incorporated herein by this reference
4(a) Siboney Corporation 1997 Incentive Stock Option Plan, filed as
Exhibit 4.1 to the Company's Form S-8 Registration Statement
(Commission file no. 333-35247, and incorporated herein by
this reference.)
10(a) Line of Credit Note, as amended, between the Company and
Southwest Bank of St. Louis dated June 12, 1997, filed as
Exhibit 10(a) to the Company's Report on Form 10-K for the
year ended December 31, 1997 (the "1997 10-K") and
incorporated herein by this reference.
10(b) Restated and Amended Coal Lease between the Company and
Mountaineer Land Company dated May 15, 1987, filed as Exhibit
10(b) to the 1997 10-K and incorporated herein by this
reference.
10(c) Software Distribution and License Agreement between the
Company and Merit Audio Visual, Inc. dated September 4, 1996,
filed as Exhibit 10(c) to the 1997 10-K and incorporated
herein by this reference.
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)
- --------------------------------------------------------------------------------
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
The following are wholly-owned subsidiaries of the Company at December 31, 1998:
Year of
Industry Segment Subsidiary Incorporation Organization
- --------------------------------------------------------------------------------
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
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Siboney Corporation
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Number 333-35247) of our report dated February 12,
1999, relating to the consolidated financial statements of Siboney Corporation
appearing in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
/s/ RUBIN, BROWN, GORNSTEIN & CO., LLP
St. Louis, Missouri
February 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K for the year ended December 31, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 134,387
<SECURITIES> 8,500
<RECEIVABLES> 284,671
<ALLOWANCES> 10,467
<INVENTORY> 226,613
<CURRENT-ASSETS> 682,410
<PP&E> 763,368
<DEPRECIATION> 569,649
<TOTAL-ASSETS> 881,230
<CURRENT-LIABILITIES> 245,915
<BONDS> 0
0
0
<COMMON> 1,651,835
<OTHER-SE> 8,800
<TOTAL-LIABILITY-AND-EQUITY> 881,230
<SALES> 2,374,977
<TOTAL-REVENUES> 2,406,759
<CGS> 349,052
<TOTAL-COSTS> 349,052
<OTHER-EXPENSES> 2,186,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,093
<INCOME-PRETAX> (124,749)
<INCOME-TAX> 0
<INCOME-CONTINUING> (124,749)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (124,749)
<EPS-PRIMARY> (0.008)
<EPS-DILUTED> (0.008)
</TABLE>
