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 June 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)
8135 Forsyth Blvd., Ste 206, 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
1
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet, June 30,
1998 and December 31, 1997 3
Condensed Consolidated Statement Of Operations,
Three Months and Six Months Ended June 30, 1998 and
June 30, 1997 4
Condensed Consolidated Statement Of Cash Flows, Six
Months Ended June 30, 1998 and June 30, 1997 5
Notes To Condensed Consolidated Financial 6
Statements
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
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
------
DECEMBER 31,
June 30, 1997 (SEE
1998 NOTE BELOW)
-------- ------------
Current Assets
- --------------
Cash and cash equivalents $ 212,107 $ 289,752
Investment 23,000 27,500
Accounts and notes receivable 427,306 206,682
Inventories (Note 2) 187,835 169,274
Prepaid expenses and deposits 89,648 106,646
----------- -------------
Total Current Assets 939,896 799,854
--------------------
Property, Plant and Equipment (Net of 185,378 133,989
- -----------------------------
accumulated depreciation of $541,691 at
June 30, 1998 and $510,186 at December
31, 1997)
Investments in Natural Resources 5,101 5,101
- -------------------------------- ----------- -------------
$ 1,130,375 $ 938,944
=========== =============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
- -------------------
Note payable (Note 3) $ 94,000 $ --
Accounts payable 70,976 76,634
Accrued expenses 108,909 111,683
Current Portion Long Term Debt 12,588 --
------------ ------------
Total Current Liabilities 286,473 188,317
-------------------------
Long Term Debt 32,821 --
- -------------- ------------ ------------
Total Liabilities 319,294 188,317
-----------------
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 holding gain on investment 23,000 27,500
Additional paid-in capital 300 300
Retained earnings (deficit) (864,054) (929,008)
------------ ------------
Total Stockholders' Equity 811,081 750,627
-------------------------- ------------ ------------
$ 1,130,375 $ 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.
3
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<TABLE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,322,326 1,149,222 800,644 618,599
Cost of Product Sales 176,239 177,372 100,584 88,169
Selling, General and
Administrative Expenses 1,066,791 1,120,881 537,638 528,694
----------- ----------- ----------- -----------
Income (Loss) from
Operations 79,296 (149,031) 162,422 (1,736)
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Income
(Expense) - Net (3,418) 8,676 (3,020) 3,880
Miscellaneous (10,924) (17,128) (9,646) (8,535)
--------- ----------- ----------- -----------
Total Other Income
(Expense) (14,342) (8,452) (12,666) (4,655)
----------- ----------- ----------- -----------
Net Income (Loss) $ 64,954 $ (157,483) $ 149,756 $ (2,919)
----------- =========== =========== ===========
Weighted Average Shares
Outstanding 16,517,193 15,978,108 16,517,193 15,978,108
=========== =========== =========== ===========
Basic and Diluted Income
(Loss) per Common Share $ .004 $ (.010) $ .009 $ .000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<TABLE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operations
Net income (loss) from continuing operations $ 64,954 $(157,483)
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
continuing operations:
Depreciation 31,505 30,371
Change in assets and liabilities:
Increase in accounts and notes (220,624) (131,428)
receivable
(Increase) decrease in inventory (18,561) 4,568
Decrease in prepaid expenses
and deposits 16,998 11,345
Decrease in accounts payable
and accrued expenses (8,432) (46,843)
---------- ----------
Net Cash Used in Operations (134,160) (289,470)
---------- ----------
Cash Flows from Investing Activities
Payments for equipment (29,544) (10,001)
---------- ----------
Cash Flows from Financing Activities
Borrowing under line-of-credit agreement 94,000 --
Proceeds from issuance of common stock -- 19,593
Repayment on leases (7,941) --
---------- ----------
Net Cash Provided by Financing Activities 86,059 19,593
---------- ----------
Net Decrease in Cash and Cash Equivalents (77,645) (279,878)
Cash and Cash Equivalents - Beginning of Period 289,752 775,830
---------- ----------
Cash and Cash Equivalents - End of Period $ 212,107 $ 495,952
========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 5,625 $ ---
---------- ---------
Non cash investing activities for the 6 months
ended June 30, 1998 included a capital lease for
equipment of $53,350
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 1998, the condensed
consolidated statement of operations for the six-month and the three-month
periods ended June 30, 1998 and 1997 and the condensed consolidated
statement of cash flows for the six-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 June 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 June 30, 1998 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
Inventories consist of the following:
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
Raw materials $ 92,009 $ 104,561
Finished goods 95,826 64,713
------- --------
$187,835 $ 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, 1998. The agreement,
secured by accounts receivable, equipment and inventory, requires monthly
interest payments on the outstanding balance at 0.75% above the lender's
prime rate. As of June 30, 1998 there was $94,000 outstanding under the
line of credit agreement. As of December 31, 1997 no loan was outstanding
under the agreement. Subsequent to the end of the quarter, the Company has
repaid the line-of-credit balance in full.
6
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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 drastically accelerated its product development through internal
development and through licensing transactions. During the first six months of
1998, the Company has released 28 new Windows titles, 1 new Macintosh title and
33 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 product offerings in two
curricular areas which are growing in importance. In March the Company signed a
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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.
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.
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 JUNE 30, 1998 vs. JUNE 30, 1997
Total revenues increased 29.4% during the three month period ended June 30,1998
compared to the same period in 1997, reflecting higher sales at the Siboney
Learning Group/Gamco division. Sixty percent of Siboney Learning Group's sales
were generated by products developed in the past year. In addition, sales were
favorably impacted by new distribution channels and the establishment of an
Inside Sales force.
Cost of product sales increased during the quarter compared to the previous
year's quarter due to higher revenues; however, as a percentage of revenue, cost
of product sales was reduced to 12.6% compared to 14.4% in the prior year.
Siboney Learning Group/Gamco is selling more expensive high-margin licenses
versus single title products and expects to continue to do so in the future. In
addition, the Company has ceased selling low-margin nonproprietary products.
The Company's net income for the second quarter of 1998, primarily for the
reasons above, was $149,756, compared to a loss of $2,919 in the second quarter
of 1997.
SIX MONTHS ENDED JUNE 30, 1998 vs. JUNE 30, 1997
Revenues increased 18.8% during the six month period ended June 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 twelve 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 curriculum-based
solutions in addition to the single program titles historically sold by the
Company through catalogs.
Coal lease royalties earned by Siboney Coal Company decreased during the six
months ended June 30, 1998 compared to the same period in 1997.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 six months ended June 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
title products. 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 16.4% in the prior
period.
Selling, general and administrative expenses decreased during the six month
period ended June 30, 1998 compared to the same period in 1997, primarily due to
lower costs associated with outsourcing product conversion.
The Company's net income for the six month period ended June 30, 1998 was
$64,954 compared to a loss of $157,483 for the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased at June 30, 1998, compared to December 31, 1997. This was
primarily the result of a higher level of accounts receivable at the end of the
second quarter of 1998, due to larger sales volume at Siboney Learning
Group/Gamco during May and June 1998, compared with November and December 1997.
This was consistent with Siboney Learning Group/Gamco's experience in the
previous year.
Note payable increased at June 30, 1998 compared to December 31, 1997 as a
result of the Company drawing down on its line-of-credit to meet increased
working capital requirements associated with higher sales during the second
quarter. The Company has repaid the line-of-credit in full since the end of the
second quarter.
Long-term debt increased at June 30, 1998 compared to December 31, 1997 due to a
lease incurred for new computer equipment, accounting software and a new
telephone system.
The net worth of the Company at June 30, 1998 was $811,081 compared to $750,627
at December 31, 1997, as a result of the retention of earnings during the six
month period.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits, rather than four, to define the applicable year. As a result, when
moving from the year 1999 to 2000, without adjustment, such programs will assume
the year 1900 rather than 2000, with various potential adverse effects.
Consequently, most computer programs must be adjusted to assure that they will
go forward and not backward.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Since 1996, the Company has been in the process of converting its educational
products from old software programs to new programs or designing and introducing
new programs. In doing so, it has taken the Year 2000 Issue into consideration.
Therefore, the Company does not believe that the Year 2000 Issue will pose
significant problems for the Company's products.
With respect to the Company's operating and accounting computer systems, the
Company is presently converting its systems to new software systems. As a
result, the Company also does not believe that the Year 2000 Issue will pose
significant operating or accounting problems for the Company.
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 June 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: July 31, 1998 By: /s/ Timothy J. Tegeler
-----------------------------------
Timothy J. Tegeler
President, Chief Executive
Officer and Chief Financial
Officer
10
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ----------- ----
27(a) Financial Data Schedule
(Filed in EDGAR version only) 12
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 212,107
<SECURITIES> 23,000
<RECEIVABLES> 479,237
<ALLOWANCES> 51,931
<INVENTORY> 187,835
<CURRENT-ASSETS> 939,896
<PP&E> 727,069
<DEPRECIATION> 541,691
<TOTAL-ASSETS> 1,130,375
<CURRENT-LIABILITIES> 286,473
<BONDS> 0
0
0
<COMMON> 1,651,835
<OTHER-SE> 23,300
<TOTAL-LIABILITY-AND-EQUITY> 1,130,375
<SALES> 1,291,337
<TOTAL-REVENUES> 1,322,326
<CGS> 176,239
<TOTAL-COSTS> 176,239
<OTHER-EXPENSES> 1,066,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,625
<INCOME-PRETAX> 64,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 64,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,954
<EPS-PRIMARY> .004
<EPS-DILUTED> .004
</TABLE>
