SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(X) Quarterly report for the quarterly period ended September 30, 1998
OR
( ) Transition Report Pursuant To Section 13 Or 15(d) of The Securities
Exchange Act of 1934
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 I.D. No.)
incorporation or organization)
34 N. Brentwood Blvd., Ste 211, P.O. Box 16184, St. Louis, MO 63105
(Address of principal executive offices)
(Zip Code)
314-725-6141
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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 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 [ ]
Title of class of Number of Shares
common stock outstanding as of this Report Date
----------------- ----------------------------------
Common stock, par value 16,518,344
$.10 per share
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet, September 30,
1998 and December 31, 1997 3
Condensed Consolidated Statement of Operations,
Three Months and Nine Months Ended September 30, 1998
and September 30, 1997 4
Condensed Consolidated Statement of Cash Flows,
Nine Months Ended September 30, 1998 and
September 30, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
Exhibit Index 11
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
DECEMBER 31,
September 30, 1997 (SEE
1998 NOTE BELOW)
Current Assets ------------- ------------
- --------------
Cash and cash equivalents $ 196,576 $ 289,752
Investment 8,500 27,500
Accounts and notes receivable 364,622 206,682
Inventories (Note 2) 193,042 169,274
Prepaid expenses and deposits 112,683 106,646
----------- ------------
Total Current Assets 875,423 799,854
--------------------
Property, Plant and Equipment (Net of 193,375 133,989
- -----------------------------
accumulated depreciation of $556,482 at
September 30, 1998 and $510,186 at
December 31, 1997)
Investments in Natural Resources 5,101 5,101
- -------------------------------- ----------- ------------
$ 1,073,899 $ 938,944
=========== ============
Liabilities and Stockholders' Equity
Current Liabilities
- -------------------
Accounts payable $ 134,363 76,634
Accrued expenses 117,178 111,683
Current Portion Long Term Debt 12,805 --
----------- -----------
Total Current Liabilities 264,346 188,317
-------------------------
Long Term Debt 29,548 --
- -------------- ----------- -----------
Total Liabilities 293,894 188,317
-----------------
Stockholders' Equity
- --------------------
Common stock:
Authorized 20,000,000 shares
at $0.10 par value; issued
and outstanding 16,518,344 shares 1,651,835 1,651,835
Unrealized gain on investment 8,500 27,500
Additional paid-in capital 300 300
Retained earnings (deficit) (880,630) (929,008)
------------ ------------
Total Stockholders' Equity 780,005 750,627
-------------------------- ------------ -----------
$ 1,073,899 $ 938,944
============ ===========
NOTE: The balance sheet at December 31, 1997 has been taken from the audited
financial statements at that date and condensed.
See accompanying notes to condensed consolidated financial statements
<PAGE>
<TABLE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,918,734 1,561,480 596,408 412,258
Cost of Product Sales 260,708 261,103 84,469 83,731
Selling, General and
Administrative Expenses 1,589,080 1,639,361 522,289 518,480
----------- ----------- ----------- ----------
Income (Loss) from
Operations 68,946 (338,984) (10,350) (189,953)
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Income (Expense) (3,592) 13,120 (174) 4,444
Miscellaneous (16,976) (24,107) (6,052) (6,979)
--------- ----------- ----------- -----------
Total Other Income (Expense) (20,568) (10,987) (6,226) (2,535)
----------- ----------- ----------- -----------
Net Income (Loss) $ 48,378 $ (349,971) $ (16,576) $ (192,488)
========== =========== =========== ===========
Weighted Average Shares
Outstanding 16,518,344 16,168,756 16,518,344 16,168,756
=========== =========== =========== ==========
Basic and Diluted Income
(Loss) per Common Share $ .003 $ (.022) $ (.001) $ (.012)
=========== =========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
---- ----
Cash Flows from Operations
Net income (loss) from continuing operations $ 48,378 $(349,971)
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
continuing operations:
Depreciation 46,296 44,253
Change in assets and liabilities:
Increase in accounts and notes (157,940) (64,572)
receivable
Increase in inventory (23,768) (37)
Increase in prepaid expenses
and deposits (6,037) (4,553)
Increase (decrease) in accounts payable
and accrued expenses 63,224 (38,754)
--------- ----------
Net Cash Used in Operations (29,847) (336,126)
---------- ----------
Cash Flows from Investing Activities
Payments for equipment (52,332) (10,964)
---------- ----------
Cash Flows from Financing Activities
Proceeds from issuance of common stock -- 20,383
Principal payments on long-term debt (10,997) --
---------- ----------
Net Cash Provided by Financing Activities (10,997) 20,383
---------- ----------
Net Decrease in Cash and Cash Equivalents (93,176) (326,707)
Cash and Cash Equivalents - Beginning of Period 289,752 775,830
--------- ---------
Cash and Cash Equivalents - End of Period $ 196,576 $ 449,123
========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 6,408 $ --
---------- ----------
Non cash investing activities for the 9 months
ended September 30, 1998 included a capital lease
for equipment of $53,350
See accompanying notes to condensed consolidated financial statements
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1998, the
condensed consolidated statement of operations for the nine-month and the
three-month periods ended September 30, 1998 and 1997 and the condensed
consolidated statement of cash flows for the nine-month periods then ended
have been prepared by the Company, without audit. In the opinion of
management, all adjustments (which include only recurring adjustments)
necessary to present fairly the financial position and results of operations
at September 30, 1998 and for all periods have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997. The results of operations
for the period ended September 30, 1998 are not necessarily indicative of
the operating results for the full year.
2. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
Raw materials $ 89,261 $ 104,561
Finished goods 103,781 64,713
------- --------
$193,042 $ 169,274
======== ========
3. NOTE PAYABLE
The Company has a revolving line of credit agreement with a bank which
provides funds based on 75% of eligible receivables, as defined by the
agreement, with a maximum of $500,000. The outstanding debt is due on
demand, and if no demand is made, then 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 September 30, 1998 and December 31, 1997 no loan was
outstanding under the agreement.
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's continuing operations for the periods presented consist of the
following two segments:
1) 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. Siboney Learning
Group/Gamco sells through a network of independent distributors throughout
the United States as well as through its own catalogs and sales force.
Popular Gamco software titles include Money Challenge, Reading Concepts,
Paragraph Power, Undersea Reading for Meaning and the Touchdown Math
series. Siboney Learning Group/Gamco publishes over 100 titles for Windows,
Macintosh, DOS and Apple II operating systems.
2) The holding of interests in certain natural resources, including coal, oil
and gas, through several subsidiaries.
OVERVIEW OF THE COMPANY
Since its inception in 1995, the Siboney Learning Group Division has focused on
two priorities: 1) increasing distribution channels to schools for its
instructional software titles and 2) accelerating product development of new
proprietary titles and new versions of existing proprietary titles for new
computer platforms.
In addition to selling its GAMCO software to K-12 schools through the leading
national software catalog dealers, other school software dealers and through its
own direct catalogs, the Company has set up two new channels to reach schools
more effectively and aggressively. Orchard Teacher's Choice Software, which
offers a comprehensive curricular solution with universal management, is sold
through a network of thirty dealers with protected or exclusive territories
whose sales representatives call on schools. These dealers sell the more
expensive Orchard packaged product to schools and to school districts looking
for an integrated learning system.
The Company has also built an Inside Sales force of six sales representatives
who focus on selling software titles to the Company's 12,000 school customers
and 30,000 additional school prospects.
The Company has substantially accelerated its product development through
internal development and through licensing transactions. During the first nine
months of 1998, the Company has released 30 new Windows titles, 1 new Macintosh
title and 34 new CD-ROMs that can be used on Macintosh and Windows computers. In
addition, the Company has signed two new licensing agreements with outside
developers that will allow the Company to offer new and tested products in two
curricular areas which are growing in importance. In March the Company signed a
licensing agreement with ELS, Inc. to enhance and publish its Memory Master
series of software titles that teach phonics, sight words and spelling to young
learners. In May, the Company signed a licensing agreement with NECTAR
Foundation to revise and distribute its highly successful series of innovative
math titles that reflect the National Council of Teachers of Mathematics'
Standards. These two new series will be released in the fourth quarter of 1998
and first quarter of 1999.
The Company's revenue growth and success in 1998 can be directly attributed to
its increased distribution to schools and its constant stream of new titles and
new versions which are meeting schools' needs for quality content on new
computer platforms.
<PAGE>
RESULTS OF OPERATION
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods covered by the accompanying condensed consolidated
financial statements.
THREE MONTHS ENDED SEPTEMBER 30, 1998 vs. SEPTEMBER 30, 1997
Total revenues increased 44.7% during the three month period ended September
30,1998 compared to the same period in 1997, reflecting higher sales at the
Siboney Learning Group/Gamco division of more expensive high- margin licenses
versus single computer licenses. Increased sales of Orchard Teachers' Choice
Software accounted for the majority of this increase. Of Siboney Learning
Group's total sales, 77% was generated by products developed in the past 15
months.
Cost of product sales remained constant during the quarter compared to the
previous year's quarter; however, as a percentage of revenue, cost of product
sales was reduced to 14.2% compared to 20.3% in the prior year. The Company
expects to continue to emphasize the sale of higher-margin licenses in the
future. As a part of its strategy, the Company has ceased selling low-margin
non-proprietary products.
The Company's net loss for the third quarter of 1998 narrowed to $16,576,
compared to a loss of $192,488 in the third quarter of 1997 primarily as a
result of the sales strategy referred to above.
NINE MONTHS ENDED SEPTEMBER 30, 1998 vs. SEPTEMBER 30, 1997
Revenues increased 22.9% during the nine month period ended September 30, 1998
compared to the same period in 1997. Higher sales at Siboney Learning
Group/Gamco were the result of new products released in the past 15 months and
new school distribution strategies. The Company has repositioned itself to
deliver new titles and new formats perceived to be desirable by the school
educators it serves. Siboney Learning Group's newly established network of
Orchard dealers is producing stronger sales of more expensive broader
curriculum-based solutions in addition to the single Gamco program titles
historically sold by the Company through catalogs.
Coal lease royalties earned by Siboney Coal Company decreased during the nine
months ended September 30, 1998 compared to the same period in 1997. Revenues
from its coal lease are dependent on third party mining operations, which are
temporarily suspended from time to time.
Cost of product sales decreased slightly during the nine months ended September
30, 1998 compared to the same period in 1997. As noted above, Siboney Learning
Group/Gamco has begun to sell more expensive high-margin licenses versus single
computer licenses. The Company expects to continue this trend toward selling
more high margin versions of its software. In addition, the Company has stopped
selling low-margin non-proprietary products. As a result, cost of product sales
as a percentage of revenue was reduced to 13.6% compared to 16.7% in the prior
year period.
Selling, general and administrative expenses decreased during the nine month
period ended September 30, 1998 compared to the same period in 1997. While
general expenses at Siboney Corporation were somewhat lower, the overall
decrease was primarily due to Siboney Learning Group/Gamco's decreased catalog
expenses and lower costs associated with outsourcing product conversion.
The Company's net income for the nine month period ended September 30, 1998 was
$48,378 compared to a loss of $349,971 for the same period in 1997, primarily
for the reasons cited above.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased at September 30, 1998, compared to December 31, 1997. This was
primarily the result of a higher level of accounts receivable at the end of the
third quarter of 1998, due to larger sales volume at Siboney Learning
Group/Gamco during August and September 1998, compared with November and
December 1997. This was consistent with Siboney Learning Group/Gamco's
experience in the previous year.
Long-term debt increased at September 30, 1998 compared to December 31, 1997 due
to a capitalized lease incurred for new computer equipment, accounting software
and a new telephone system.
The net worth of the Company at September 30, 1998 was $780,005 compared to
$750,627 at December 31, 1997, as a result of the retention of earnings during
the nine month period.
<PAGE>
YEAR 2000 ISSUE
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 product and 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.
The cost of determining the Company's exposure to risks associated with Y2K
compliance is estimated to be less than $1,000 and not deemed material to its
results of operations for the current quarter or fiscal year.
Software produced by the Company's educational software division 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index on page 11.
b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Registrant during the quarter ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIBONEY CORPORATION
Date: November 12, 1998 By: /s/ Timothy J. Tegeler
------------------------------------------
Timothy J. Tegeler
President, Chief Executive Officer and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description Page
- -------------- ----------- ----
27(a) Financial Data Schedule
(Filed in EDGAR version only)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 196,576
<SECURITIES> 8,500
<RECEIVABLES> 392,413
<ALLOWANCES> 27,791
<INVENTORY> 193,042
<CURRENT-ASSETS> 875,423
<PP&E> 749,857
<DEPRECIATION> 556,482
<TOTAL-ASSETS> 1,073,899
<CURRENT-LIABILITIES> 264,346
<BONDS> 0
0
0
<COMMON> 1,651,835
<OTHER-SE> 8,800
<TOTAL-LIABILITY-AND-EQUITY> 1,073,899
<SALES> 1,887,350
<TOTAL-REVENUES> 1,918,734
<CGS> 260,708
<TOTAL-COSTS> 260,708
<OTHER-EXPENSES> 1,589,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,408
<INCOME-PRETAX> 48,378
<INCOME-TAX> 0
<INCOME-CONTINUING> 48,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,378
<EPS-PRIMARY> .003
<EPS-DILUTED> .003
</TABLE>
