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 March 31, 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 March 31,
1998 and December 31, 1997 3
Condensed Consolidated Statement Of Operations
Three Months Ended March 31, 1998 and March 31, 1997 4
Condensed Consolidated Statement Of Cash Flows Three
Months Ended March 31,1998 and March 31, 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
------
DECEMBER 31,
MARCH 31, 1997 (SEE
1998 NOTE BELOW)
Current Assets
Cash and cash equivalents $ 149,648 $ 289,752
Investment 24,000 27,500
Accounts and notes receivable 345,191 206,682
Inventories (Note 2) 176,155 169,274
Prepaid expenses and deposits 136,759 106,646
----------- ------------
Total Current Assets 831,753 799,854
Property, Plant and Equipment (Net of 193,954 133,989
accumulated depreciation of $524,593 at
March 31, 1998 and $510,186 at December
31, 1997)
Investments in Natural Resources 5,101 5,101
----------- ------------
$ 1,030,808 $ 938,944
=========== ============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Note payable (Note 3) $ 44,000 $ --
Accounts payable 166,881 76,634
Accrued expenses 109,174 111,683
Current Portion Long Term Debt 12,381 --
---------- -----------
Total Current Liabilities 332,436 188,317
Long Term Debt 36,047 --
---------- -----------
Total Liabilities 368,483 188,317
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 24,000 27,500
Additional paid-in capital 300 300
Retained earnings (deficit) (1,013,810) (929,008)
------------ ----------
Total Stockholders' Equity 662,325 750,627
------------ ----------
$ 1,030,808 $ 938,944
============ ===========
NOTE: The balance sheet at December 31, 1996 has been taken from the audited
financial statements at that date and condensed.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
1998 1997
---- ----
Revenues 521,682 530,623
Cost of Product Sales 75,655 89,203
Selling, General and
Administrative Expenses 529,153 592,187
---------- ----------
Loss from Operations
(83,126) (150,767)
----------- -----------
Other Income (Expense)
Interest Income (Expense) - Net (398) 4,796
Miscellaneous Expense (1,278) (8,593)
--------- -----------
Total Other Income (Expense) (1,676) (3,797)
----------- -----------
Net Loss $ (84,802) $ (154,564)
=========== ===========
Weighted Average Shares
Outstanding 16,432,844 15,766,694
=========== ===========
Basic and Diluted Loss per
Common Share $ (.005) $ (.010)
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operations
Net loss from continuing operations $ (84,802) $(154,564)
Adjustments to reconcile net loss from continuing
operations to net cash provided by continuing
operations:
Depreciation 14,407 15,766
Change in assets and liabilities:
Increase in accounts and notes (138,509) (124,716)
receivable
Increase in inventory (6,881) (7,188)
Increase in prepaid expenses
and deposits (30,113) (56,514)
Increase (decrease) in accounts
payable and accrued expenses 87,738 (8,968)
---------- ----------
Net Cash Used in Operations (158,160) (336,184)
---------- ----------
Cash Flows from Investing Activities
Payments for equipment (21,022) (6,958)
---------- ----------
Cash Flows from Financing Activities
Borrowing under line-of-credit agreement 44,000 --
Repayment on leases (4,922) --
--------- ---------
Net Cash Provided by Financing Activities 39,078 --
---------- ----------
Net Decrease in Cash and Cash Equivalents (140,104) (343,142)
Cash and Cash Equivalents - Beginning of Period 289,752 775,830
---------- ---------
Cash and Cash Equivalents - End of Period $ 149,648 $ 432,688
========== =========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 1,900 $ ---
---------- ---------
Non cash investing activities for the 3 months
ended March 31, 1998 include a capital lease for
equipment of $53,350
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 1998, the
condensed consolidated statement of operations for the three-month periods
ended March 31, 1998 and 1997 and the condensed consolidated statement of
cash flows for the three-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 March 31, 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 March 31, 1998 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
Inventories consist of the following:
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
Raw materials $ 95,145 $ 104,562
Finished goods 81,010 64,713
------- --------
$176,155 $ 169,275
======== ========
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 June 1, 1998. The agreement,
secured by accounts receivable, equipment and inventory, requires monthly
interest payments on the outstanding balance at 0.75% above the lender's
prime rate. As of March 31, 1998 there was $44,000 outstanding under the
line of credit agreement. As of December 31, 1997 no loan was outstanding
under the agreement.
6
<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, Discover Time,
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
In 1997, Siboney Learning Group expanded its distribution and product offering
by launching Orchard: Teacher's Choice Software through a network of 25 dealers
to complement its traditional distribution strategy of single title sales
through dealer catalogs and its own catalogs. Orchard is a comprehensive
instructional software solution for students who are struggling to master key
skills. It provides schools with a universal management system that tracks
student progress across all of the Company's titles and a variety of
instructional approaches that motivate students to learn. Orchard allows the
Company to compete in the market for integrated learning systems which offer
larger and more expensive curriculum-based software packages to schools needing
to remediate their students.
In late 1997, the Company relocated five of its six person inside sales force to
St. Louis and hired a new manager. The inside sales group focuses on selling the
Company's proprietary software to more than 10,000 school customers and 30,000
additional school prospects.
During 1997, Siboney Learning Group/Gamco accelerated its conversion of titles
to the Windows, Macintosh and CD-ROM platforms, which are now the predominant
systems used in schools. The Company released its first titles for Windows in
June 1997 and launched its first CD-ROM title in September. During the first
four months of 1998, the Company has converted an additional 21 products for
Windows, 1 title for Macintosh and produced 26 new CD-ROM titles.
Also in 1997, the Company entered into a licensing agreement with Intentional
Educations to publish 12 early reading educational software titles in a hybrid
multimedia CD-ROM format and commenced the sale of such products. The Company is
continuing its efforts to obtain additional licensing agreements in 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
As a result, the Company's total educational software product offerings and the
breadth of its educational coverage expanded significantly during 1997 and has
continued to do so in 1998. Siboney Learning Group will use Gamco's established
distribution channels, as well as new distribution programs, to sell these new
and improved software programs.
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 MARCH 31, 1998 vs. MARCH 31, 1997
Revenues decreased slightly during the three month period ended March 31,1998
compared to the same period in 1997. Sales at Siboney Learning Group/Gamco
increased for the three month period but such increase was offset by a decrease
in coal lease royalties earned by Siboney Coal Company for the first quarter.
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 during the quarter compared to the previous
year's quarter. Siboney Learning Group/Gamco is selling more expensive
high-margin licenses versus single title products. The Company expects to
continue 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 15.4% compared
to 18.9% in the prior year.
Selling, general and administrative expenses decreased during the quarter
compared to the same period in 1997 primarily due to lower catalog advertising
expenses and lower costs associated with outsourcing product conversion.
The Company's loss for the first quarter of 1998, primarily for the reasons
above, was $84,802. For the first quarter of 1997, the Company reported a loss
of $154,564.
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased at March 31, 1998 compared to December 31, 1997 due to the impact
of expenses exceeding income and due to higher levels of accounts receivable,
prepaid expenses and inventories.
The increase in accounts receivable at the end of the first quarter of 1998 was
due to larger sales volume at Siboney Learning Group/Gamco during February and
March 1998 compared with November and December 1997, which was consistent with
Siboney Learning Group/Gamco's experience in the previous year. In addition,
Siboney Coal had a receivable for the annual minimum royalty payment, which was
received after the close of the first quarter of fiscal 1998, consistent with
the terms of the coal lease.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Prepaid expenses increased at March 31, 1998, primarily due to the cost of
catalog mailings during February 1998.
Notes payable increased at March 31, 1998 compared to December 31, 1997 as a
result of the Company drawing down on its line-of-credit.
Accounts payable increased at March 31, 1998, primarily due to outstanding
invoices for the printing and mailing of the Company's Annual Report and the
printing of catalogs.
Long-term debt increased at March 31, 1998 compared to December 31, 1997 due to
a lease incurred for new computer equipment, accounting software and telephone
system.
The Company's available cash and cash equivalents decreased from $432,688 at
March 31, 1997 to $149,648 at March 31, 1998. Cash and cash equivalents at
December 31, 1997 were $289,752.
The net worth of the Company at March 31, 1998 was $662,325. The Company failed
to meet the minimum net worth covenant in its credit agreement of $750,000 at
March 31, 1998. The Company has obtained a waiver of such breech and a reduction
of the minimum net worth covenant to $600,000 through July 1, 1998.
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits, rather than four, to define the applicable year. As a result, when
moving from the year 1999 to 2000, without adjustment, such programs will assume
the year 1900 rather than 2000, with various potential adverse effects.
Consequently, most computer programs must be adjusted to assure that they will
go forward and not backward.
Since 1996, the Company has been in the process of converting its educational
products from old software programs to new programs or designing and introducing
new programs. In doing so, it has taken the Year 2000 Issue into consideration.
Therefore, the Company does not believe that the Year 2000 Issue will pose
significant problems for the Company's products.
With respect to the Company's operating and accounting computer systems, the
Company is presently converting its systems to new software systems. As a
result, the Company also does not believe that the Year 2000 Issue will pose
significant operating or accounting problems for the Company.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index on page 11 hereof.
b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Registrant during the quarter ended March 31, 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: May 15,1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 149,648
<SECURITIES> 24,000
<RECEIVABLES> 396,072
<ALLOWANCES> 50,881
<INVENTORY> 176,155
<CURRENT-ASSETS> 831,753
<PP&E> 718,547
<DEPRECIATION> 524,593
<TOTAL-ASSETS> 1,030,808
<CURRENT-LIABILITIES> 332,436
<BONDS> 0
0
0
<COMMON> 1,651,835
<OTHER-SE> (989,510)
<TOTAL-LIABILITY-AND-EQUITY> 1,030,808
<SALES> 491,035
<TOTAL-REVENUES> 521,682
<CGS> 75,655
<TOTAL-COSTS> 75,655
<OTHER-EXPENSES> 529,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,900
<INCOME-PRETAX> (84,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,802)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> (.005)
</TABLE>
