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, 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
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(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
325 North Kirkwood Road, Suite 310, P.O. Box 221029, St. Louis, MO 63122
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(Address of principal executive offices) (Zip Code)
314-822-3163
(Registrant's telephone number, including area code)
34 North Brentwood Blvd., Suite 211, P. O. Box 16184, St. Louis, MO 63105
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(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 16,535,844
$.10 per share
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet, June 30,
2000 and December 31, 1999 3
Condensed Consolidated Statement of Operations,
Three Months and Six Months Ended June 30, 2000
and June 30, 1999 4
Condensed Consolidated Statement of Cash Flows, Six
Months Ended June 30, 2000 and June 30, 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 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, 1999 (SEE
2000 NOTE BELOW)
----------------- -----------
Current Assets
Cash and cash equivalents $ 460,624 $ 383,356
Investment 8,500 6,500
Accounts and notes receivable 1,153,011 352,217
Inventories (Note 2) 201,588 189,008
Prepaid expenses and deposits 69,995 59,246
Deferred tax asset 136,000 136,000
------------ -----------
Total Current Assets 2,029,718 1,126,327
Property, Plant and Equipment
(Net of accumulated depreciation
of $418,323 at June 30, 2000 and
$472,961 at December 31, 1999) 235,883 192,936
Capitalized Software
Development Cost 348,471 202,451
------------ ------------
$ 2,614,072 $ 1,521,714
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of capitalized
lease obligation $ 23,229 $ 22,293
Accounts payable 83,985 77,245
Accrued expenses 297,269 237,546
------------ -----------
Total Current Liabilities 404,483 337,084
------------ -----------
Long Term Portion of Capitalized
Lease Obligation 20,518 34,266
------------ ------------
Total Liabilities 425,001 371,350
Stockholders' Equity
Common stock:
Authorized 20,000,000 shares
at $0.10 par value; issued
and outstanding 16,535,844 at
June 30, 2000 and 16,529,844
at December 31, 1999 1,653,585 1,652,985
Unrealized holding gain
on investment 8,500 6,500
Additional paid-in capital 1,213 853
Retained earnings (deficit) 525,773 (509,974)
------------ ------------
Total Stockholders' Equity 2,189,071 1,150,364
------------ ------------
$ 2,614,072 $ 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
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<TABLE>
<CAPTION>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 2,800,289 1,918,617 1,793,162 1,075,763
Cost of Product Sales 347,844 289,942 214,875 140,825
Selling, General and
Administrative Expenses 1,419,482 1,188,702 717,786 573,375
------------ ----------- ------------ -----------
Income from Operations 1,032,963 439,973 860,501 361,563
------------ ----------- ------------ -----------
Other Income (Expense)
Interest Income
(Expense) (58) (5,690) (521) 4,041
Miscellaneous 2,842 (34,146) 2,480 (29,857)
------------ ------------ ------------- ------------
Total Other Income
(Expense) 2,784 (39,836) 1,959 (33,898)
------------ ------------ ------------- ------------
Net Income $ 1,035,747 $ 400,137 $ 862,460 $ 327,665
============ ============ =========== ===========
Weighted Average
Shares Outstanding 16,530,144 16,519,659 16,530,444 16,520,959
============ ============ ============ ===========
Basic and Diluted
Income per Common Share $ .06 $ .02 $ .05 $ .02
========== =========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
4
</TABLE>
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
2000 1999
----- ----
Cash Flows from Operations
Net income $1,035,747 $ 173,287
Adjustments to reconcile net
income to net cash provided
by continuing operations:
Depreciation 41,316 19,261
Amortization 9,791 3,796
Change in assets and liabilities:
Increase in accounts and notes receivable (800,794) (255,255)
(Increase) decrease in inventory (12,580) 7,892
(Increase) decrease in prepaid expenses
and deposits (10,749) 8,278
Increase (decrease) in accounts payable
and accrued expenses 66,463 (31,022)
---------- -----------
Net Cash Provided by Operations 329,194 32,130
----------- -----------
Cash Flows from Investing Activities
Payments for equipment (84,261) (17,101)
Payments for capitalized software
development cost (155,811) (102,497)
----------- -----------
Net Cash Used in Investing Activities (240,072) (119,598)
----------- -----------
Cash Flows from Financing Activities
Borrowing under line-of-credit agreement -- 155,000
Payment on capital leases (12,814) (8,942)
Proceeds from issuance of common stock 960 893
----------- -----------
Net Cash Provided by (Used in)
Financing Activities (11,854) 146,951
----------- -----------
Net Increase in Cash and Cash Equivalents 77,268 59,483
Cash and Cash Equivalents -
Beginning of Period 383,356 134,387
----------- -----------
Cash and Cash Equivalents -
End of Period $ 460,624 $ 193,870
=========== ==========
Supplemental Disclosure of Cash
Flow Information
Interest Paid $ 2,577 $ 6,602
---------- ----------
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 2000, the condensed
consolidated statement of operations for the six-month and the three-month
periods ended June 30, 2000 and 1999 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, 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 June 30, 2000 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
Inventories consist of the following:
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
Raw materials $ 97,226 $ 137,803
Finished goods 104,362 51,205
--------- --------
$ 201,588 $ 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
$9,791 for the six months ended June 30, 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. Prior to July 1, 2000, Siboney Learning Group
offered two product lines: GAMCO Educational Software ("GAMCO"), which provides
highly motivational curriculum-based single titles and series, and Orchard:
Teacher's Choice Software ("Orchard"), which offers schools a comprehensive
curriculum-based solution with universal management.
On July 31, 2000 the Company purchased the publishing assets and corporate name
of Teacher Support Software ("TSS"). Teacher Support Software is a 20 year old
company which has specialized in publishing educational software programs that
help teachers help struggling students.
Siboney Learning Group will sell the entire TSS product line through its dealer
and direct channels to schools and will include selected TSS titles in its
Orchard product line. TSS 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, TSS offers several successful teacher tool
programs that should appeal to teachers currently using the Company's products.
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, Touchdown Math,
Worksheet Magic and Word Works. The Company publishes over 200 titles for
Windows, Macintosh, DOS and Apple II operating systems.
GAMCO and TSS 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 and some TSS titles include 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, its new assessment options and its cost-effective pricing structure.
During 1999, the Company began the development of a major upgrade of Orchard
which includes pre- and post-test assessment along with computer-generated
assignments. This new upgrade of Orchard was released in June 2000. The Company
has also begun the development of a new early reading comprehension program
based upon the latest research in guided reading. This four-title program for
reading levels one through four is scheduled to be released by September 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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.
The Company also has certain natural resources interests, including coal, oil
and gas, through several subsidiaries.
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, 2000 vs. JUNE 30, 1999
Total revenues increased 66.7% or $717,399 to $1,793,162 from $1,075,763 during
the three month period ended June 30,2000 compared to the same period in 1999,
primarily due to the higher sales of Siboney Learning Group. The increase in
sales was lead by a 147% increase in sales of Orchard: Teachers Choice Software,
a higher margin product. In addition, revenue from Siboney Coal Company was
$109,930 for the quarter ended June 30, 2000 compared to no revenue during the
same period in 1999.
Cost of product sales increased 52.6% or $74,050 to $214,875 from $140,825
during the quarter compared to the previous year's quarter, primarily due to
higher sales. As a percentage of revenue, cost of product sales decreased to
13.6% compared to 15.1% in the prior year primarily due to increased sales of
higher margin licenses. 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 25.2% or $144,441 to
$717,786 from $573,375 during the quarter ended June 30, 2000 compared to the
same quarter in 1999, primarily due to higher salary, commission and marketing
expenses associated with higher sales and higher transfer agent fees.
The Company's net income for the second quarter of 2000, primarily for the
reasons above, was $862,460, an increase of 163.2% over the $327,665 reported
for the second quarter of 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
SIX MONTHS ENDED JUNE 30, 2000 vs. JUNE 30, 1999
Total revenues increased 46% or $881,672 to $2,800,289 from $1,918,617 during
the six month period ended June 30, 2000 compared to the same period in 1999,
primarily due to higher sales at Siboney Learning Group. Sales of Orchard
increased 106% over the same period in 1999. In addition, revenue from Siboney
Coal Company was $146,832, an increase of $116,832 over the same period in 1999.
Cost of product sales increased 20% or $57,902 to $347,844 from $289,942
compared to the six months June 30, 1999, primarily due to higher sales. As a
percentage of revenue, cost of product sales decreased to 14.2% compared to
17.8% in the prior year, primarily due to increased sales of higher margin
licenses. 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 19.4% or $230,780 to
$1,419,482 from $1,188,702 compared to the same six month period in 1999
primarily due to higher salary, commission and marketing expenses associated
with higher sales and higher transfer agent fees.
As a result of the above mentioned reasons, net income for the six months ended
June 30, 2000 was $1,035,747, an increase of 158.8% or $635,610 over last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased at June 30, 2000 to $460,624 compared to $383,356 at December 31,
1999.
Accounts receivable increased 227.4% or $800,794 to $1,153,011 compared to
receivables of $352,217 at December 31, 1999 due to the higher sales volume at
Siboney Learning Group during May and June 2000 compared with November and
December 1999. This was consistent with our experience in the previous year.
The net worth of the Company at June 30, 2000 was $2,189,071 compared to
$1,150,364 at December 31, 1999, as a result of the retention of earnings during
the six 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
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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, 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: July 31, 2000 By: \s\ Timothy J. Tegeler
-----------------------------------
Timothy J. Tegeler
President, Chief Executive
Officer and Chief Financial Officer
10
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EXHIBIT INDEX
Exhibit Number Description Page
-------------- ----------- ----
27(a) Financial Data Schedule
(Filed EDGAR version only) 12
11
