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, 2000
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 S. 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 16,529,844
$.10 per share
1
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet, March 31,
2000 and December 31, 1999 3
Condensed Consolidated Statement of Operations,
Three Months Ended March 31, 2000 and March 31, 1999 4
Condensed Consolidated Statement of Cash Flows, Three
Months Ended March 31, 2000 and March 31, 1999 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 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Exhibit Index 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
Assets
DECEMBER 31,
MARCH 31, 1999 (SEE
2000 NOTE BELOW)
-------------- -----------
Current Assets
Cash and cash equivalents $ 150,900 $ 383,356
Investment 14,000 6,500
Accounts and notes receivable 607,472 352,217
Inventories (Note 2) 181,116 189,008
Prepaid expenses and deposits 95,752 59,246
Deferred tax asset 136,000 136,000
------------- ------------
Total Current Assets 1,185,240 1,126,327
Property, Plant and Equipment
(Net of accumulated
depreciation of $403,346 at
March 31, 2000 and $472,961 at
December 31, 1999) 199,537 192,936
Capitalized Software Development Cost 276,952 202,451
------------- ------------
$ 1,661,729 1,521,714
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capitalized
lease obligation $ 22,824 $ 22,293
Accounts payable 68,381 77,245
Accrued expenses 212,894 237,546
------------ -----------
Total Current Liabilities 304,099 337,084
------------ -----------
Long Term Portion of Capitalized
Lease Obligation 26,479 34,266
-------------- ------------
Total Liabilities 330,578 371,350
-----------------
Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at
$0.10 par value; issued
and outstanding 16,529,844 1,652,985 1,652,985
Unrealized holding gain on investment 14,000 6,500
Additional paid-in capital 853 853
Retained earnings (deficit) (336,687) (509,974)
------------- ------------
Total Stockholders' Equity 1,331,151 1,150,364
-------------------------- ------------- ------------
$ 1,661,729 $ 1,521,714
============ ===========
NOTE: The balance sheet at December 31, 1999 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,
---------------------------------------
2000 1999
---- ----
Revenues 1,007,127 842,854
Cost of Product Sales 132,969 149,117
Selling, General and
Administrative Expenses 701,696 615,327
-------------- -------------
Income from Operations 172,462 78,410
-------------- -------------
Other Income (Expense)
Interest Income (Expense) 463 (1,649)
Miscellaneous 362 (4,289)
-------------- -------------
Total Other Income (Expense) 825 (5,938)
-------------- -------------
Net Income $ 173,287 $ 72,472
============== =============
Weighted Average Shares Outstanding 16,529,844 16,518,344
============== =============
Basic and Diluted Income
per Common Share $ .011 $ .004
============== =============
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, 2000 AND 1999
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operations
Net income $ 173,287 $ 72,472
Adjustments to reconcile net income
to net cash provided by continuing
operations:
Depreciation 19,261 11,813
Amortization 3,796 --
Change in assets and liabilities:
Increase in accounts and notes receivable ( 255,255) (271,144)
(Increase) decrease in inventory 7,892 (31,274)
Increase in prepaid expenses
and deposits (36,506) (66,789)
Increase (decrease) in accounts payable
and accrued expenses (33,516) 141,621
----------- -----------
Net Cash Used in Operations (121,041) (143,301)
----------- -----------
Cash Flows from Investing Activities
Payments for equipment (25,862) (3,946)
Payments for capitalized software development cost (78,297) -
----------- -----------
Net Cash Used in Investing Activities (104,159) (3,946)
----------- -----------
Cash Flows from Financing Activities
Borrowing under line-of-credit agreement -- 115,000
Payment on capital leases (7,256) (3,155)
Net advances from note payable -- 11,097
----------- -----------
Net Cash Provided by (Used in) Financing Activities (7,256) 122,942
----------- -----------
Net Decrease in Cash and Cash Equivalents (232,456) (24,305)
Cash and Cash Equivalents - Beginning of Period 383,356 134,387
----------- -----------
Cash and Cash Equivalents - End of Period $ 150,900 $ 110,082
=========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 1,298 $ 2,064
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of March 31, 2000, the condensed
consolidated statement of operations for the three-month periods ended March 31,
2000 and 1999 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, 2000 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, 1999. The results of operations for the period ended March
31, 2000 are not necessarily indicative of the operating results for the full
year.
2. INVENTORIES
Inventories consist of the following:
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Raw materials $ 93,960 $ 137,803
Finished goods 87,156 51,205
-------- ---------
$181,116 $ 189,008
======== =========
3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs associated with the development of computer
software for sale. Costs are capitalized at the point at which the Company
determines that it is technologically feasible to produce the software title.
Such costs are amortized on a declining balance method over a period of four
years. Amortization expense charged against earnings amounted to $3,796 for the
three months ended March 31, 2000 and $5,820 for the year ended December
31,1999.
6
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is engaged, through Siboney Learning Group, Inc. ("SLG"), a
wholly-owned subsidiary, in the publishing and distribution of educational
software, primarily for schools. Siboney Learning Group offers two product
lines: GAMCO Educational Software ("GAMCO") which provides highly motivational
single titles and series and Orchard: Teacher's Choice Software ("Orchard")
which offers schools a comprehensive curriculum-based solution with universal
management.
The Company has served the educational market for more than 35 years. The
Company's main business is publishing educational software in math, reading and
language arts for students and teachers in kindergarten through grade 12. This
software motivates students to master key skills and concepts which are stressed
on standardized tests and in textbooks. Popular titles include Math Concepts,
Phonics Mastery, Reading Concepts, Reading for Critical Thinking, Process
Writing, Money Challenge, Undersea Reading for Meaning and Touchdown Math. The
Company publishes over 200 titles for Windows, Macintosh, DOS and Apple II
operating systems.
GAMCO titles are sold primarily through large national catalog dealers, direct
catalogs and the Company's inside sales force. These titles are known for their
effective blend of time-on-task learning with motivational games. In addition,
each GAMCO title includes a management program that tracks student progress and
allows teachers to modify the instruction to meet individual learning needs.
Orchard solutions are sold through a network of territorial dealers who actively
call on schools to sell larger curriculum- and technology-based solutions.
Orchard includes universal management which tracks student progress across all
programs used by students. The Company believes that Orchard is now a recognized
competitor in the growing Integrated Learning Systems market as a result of its
motivational approach, strong correlation to major national tests and state
objectives, and its cost- effective pricing structure.
During 1999, the Company began the development of a major upgrade of Orchard
which will include pre- and post-test assessment along with computer-generated
assignments. This new upgrade of Orchard is expected to be released in 2000. The
Company has also begun the development of a new early reading comprehensive
program based upon the latest research in guided reading. This four-title
program for reading levels one through four is also expected to be released in
2000.
Also during 1999, the Company entered into a licensing agreement under which the
Company has agreed to publish four science concepts educational software titles
in a hybrid multimedia CD-ROM format in 2000.
The Company generated special sales of its products starting in 1999 and
continuing in 2000 through a direct-to-the-home marketer of educational
software. This alliance allows the Company to reach families in their homes
without going through expensive retail distribution. The Company is considering
other special consumer sales opportunities, including the Internet, to leverage
its strong skills-based content through new sales channels.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company also has certain natural resources interests, including coal, oil
and gas, through several subsidiaries.
On May 5, 2000 Siboney Learning Group signed a letter of intent to purchase the
publishing assets and corporate name of Teacher Support Software. The Company
expects to sign a definitive agreement shortly and anticipates closing the
transaction on or about July 1, 2000, subject to fulfillment of customary
conditions.
Teacher Support Software is a twenty year old company based in Gainesville,
Florida which has specialized in publishing curriculum-based educational
software programs that help teachers help struggling students. Best known for
its Worksheet Magic tool program and its Word Works vocabulary program, Teacher
Support Software has earned a solid reputation in the school software industry
for developing reading and writing programs that provide teachers with practical
and effective solutions. Its revenues for the 12 months ended April 30, 2000
were $634,540.
Siboney Learning Group will sell the entire Teacher Support Software product
line through its dealer and direct sales channels to schools and will include
selected Teacher Support Software titles in its Orchard product line. Teacher
Support Software's titles provide a strong complement to Siboney Learning
Group's titles and add depth to the Company's growing line of elementary reading
and writing programs. In addition, Teacher Support Software offers several
successful teacher tool programs that will appeal to teachers currently using
the Company's products.
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, 2000 vs. MARCH 31, 1999
Total revenues increased 19.5% or $164,273 during the three month period ended
March 31,2000 compared to the same period in 1999, reflecting higher sales of
Siboney Learning Group. Sales of Orchard: Teachers Choice Software increased
49.5% while sales of Gamco's software increased 9.4%.
Cost of product sales decreased 10.8% or $16,148 during the quarter compared to
the previous year's quarter, primarily due to lower royalty and material costs.
As a percentage of revenue, cost of product sales decreased to 13.2% compared to
17.7% in the prior year, primarily due to the above mentioned lower royalties
and material costs. The Company expects the cost of sales as a percentage of
revenue to remain lower compared to 1999 as the Company continues to sell higher
margin licenses. This decrease, however, could be offset in part by possible
increased royalties payable on newly released products.
Selling, general and administrative expenses increased 14% or $86,369 during the
quarter ended March 31, 2000 compared to the same quarter in 1999, primarily due
to higher salary, commission and marketing expenses associated with higher
sales.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
The Company's net income for the first quarter of 2000, primarily for the
reasons above, was $173,287, an increase of 139% over the $78,410 reported for
the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Sales at Siboney Learning Group increased during February and March 2000,
compared with November and December 1999, consistent with our experience in the
previous year. As a result, cash decreased at March 31, 2000, compared to
December 31, 1999, in order to pay the increased level of expenses (including
increased prepaid expenses, primarily due to the cost of catalog mailings during
February 2000) associated with higher sales and to fund the resultant higher
level of accounts receivable at March 31, 2000.
The Company anticipates that it will fund its acquisition of the publishing
assets of Teacher Support Software by a combination of cash on hand and an
advance under the Company's $500,000 credit facility, under which no loans were
outstanding at March 31, 2000 or are currently outstanding.
The net worth of the Company at March 31, 2000 was $1,331,151 compared to
$1,150,364 at December 31, 1999, as a result of the retention of earnings during
the three month period.
YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue resulted from 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 assumed the
year 1900 rather than 2000, with various potential adverse effects.
Consequently, most computer programs had to be adjusted to assure that they
would go forward and not backward.
The Company has experienced no significant expense or problems, and does not
anticipate any ongoing expense or problems, related to the Y2K issue.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Siboney Learning Group, the Company's wholly owned subsidiary, has signed a
letter of intent to purchase the publishing assets and corporate name of Teacher
Support Software.
Teacher Support Software, based in Gainesville, Florida, is a twenty year old
company with a strong reputation in the school software industry for publishing
educational software that helps teachers help struggling students. Best known
for its Worksheet Magic tool program and its Word Works vocabulary program,
Teacher Support Software's product line complements current titles offered in
Siboney Learning Group's growing line of reading and writing educational
software titles for K-12 schools and adds a new product line category of teacher
tool products. Teacher Support Software's revenues for the 12 months ended April
30, 2000 were $634,540.
The Teacher Support Software line of products will become the third product line
in Siboney Learning Group's portfolio of educational software products. The
Company's GAMCO product line provides highly motivating and managed single
titles and series sold through school software dealers and a direct sales force.
The Company's Orchard: Teacher's Choice Software product line offers schools a
comprehensive curriculum-based solution with universal management which is sold
through a network of territorial dealers. Siboney Learning Group will retain the
Teacher Support Software name and sell its titles through all of its sales
channels to schools.
Siboney Corporation expects to sign a definitive agreement shortly and
anticipates the closing on or about July 1, 2000, subject to the fulfillment of
customary conditions.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index on page 12.
b) Reports on Form 8-K: No reports on Form 8-K were filed by the
Registrant during the quarter ended March 31, 2000.
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, 2000 By: /s/ Timothy J. Tegeler
------------------------------------
Timothy J. Tegeler
President, Chief Executive
Officer and Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ----------- ----
27 Financial Data Schedule
(Filed in EDGAR version only) 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 150,900
<SECURITIES> 14,000
<RECEIVABLES> 619,282
<ALLOWANCES> 11,810
<INVENTORY> 181,116
<CURRENT-ASSETS> 1,185,240
<PP&E> 602,883
<DEPRECIATION> 403,346
<TOTAL-ASSETS> 1,661,729
<CURRENT-LIABILITIES> 304,099
<BONDS> 0
0
0
<COMMON> 1,652,985
<OTHER-SE> 14,853
<TOTAL-LIABILITY-AND-EQUITY> 1,661,729
<SALES> 969,197
<TOTAL-REVENUES> 1,007,127
<CGS> 132,969
<TOTAL-COSTS> 132,969
<OTHER-EXPENSES> 701,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,298
<INCOME-PRETAX> 172,462
<INCOME-TAX> 0
<INCOME-CONTINUING> 172,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,287
<EPS-BASIC> .011
<EPS-DILUTED> .011
</TABLE>
