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, 2000
OR
( ) Transition Report Pursuant To Section 13 Or 15(d) of The Securities
Exchange Act of 1934
Commission file number 1-3952
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SIBONEY CORPORATION
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(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
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(Registrant's telephone number, including area code)
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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 16,658,344
$.10 per share
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet, September 30,
2000 and December 31, 1999 3
Condensed Consolidated Statement of Operations,
Three Months and Nine Months Ended September 30,
2000 and September 30, 1999 4
Condensed Consolidated Statement of Cash Flows, Nine
Months Ended September 30, 2000 and September 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 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,
SEPTEMBER 30, 1999 (SEE
2000 NOTE BELOW)
------------- -------------
Current Assets
Cash and cash equivalents $ 560,225 $ 383,356
Accounts and notes receivable 912,705 352,217
Inventories (Note 2) 322,278 189,008
Other current assets 212,895 201,746
------------- ------------
Total Current Assets 2,008,103 1,126,327
Property, Plant and Equipment (Net of
accumulated depreciation of $442,808 at
September 30, 2000 and $472,961 at
December 31, 1999) 271,737 192,936
Capitalized Software Development
Cost (Note 3) 608,038 202,451
Other Assets (Note 4) 411,734 --
------------ -----------
$ 3,299,612 $ 1,521,714
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long term debt $ 115,831 $ 22,293
Accounts payable 177,808 77,245
Accrued expenses 304,632 237,546
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Total Current Liabilities 598,271 337,084
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Long Term Debt 215,170 34,266
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Total Liabilities 813,441 371,350
------------ -----------
Stockholders' Equity
Common stock:
Authorized 20,000,000 shares at
$0.10 par value; issued and
outstanding 16,658,344 at
September 30, 2000 and
16,529,844 at December 31, 1999 1,665,835 1,652,985
Unrealized holding gain on investment 6,000 6,500
Additional paid-in capital 8,332 853
Retained earnings (deficit) 806,004 (509,974)
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Total Stockholders' Equity 2,486,171 1,150,364
------------ ------------
$ 3,299,612 $ 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
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------------------------------------------
2000 1999 2000 1999
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ 4,292,409 $2,647,766 $1,492,120 $729,149
Cost of Product Sales 603,059 401,287 255,215 111,345
Selling, General and
Administrative Expenses 2,376,929 1,775,524 957,447 586,822
----------- ----------- ------------ ------------
Income from Operations 1,312,421 470,955 279,458 30,982
----------- ----------- ------------ ------------
Other Income (Expense)
Gain on Sale of Assets -- 86,759 -- 86,759
Interest Income (Expense) 621 (6,745) 679 (1,055)
Miscellaneous 2,936 (42,184) 94 (8,038)
----------- ----------- ------------ ------------
Total Other Income (Expense) 3,557 37,830 773 77,666
----------- ----------- ------------ ------------
Net Income $ 1,315,978 $ 508,785 $ 280,231 $ 108,648
=========== =========== =========== ===========
Weighted Average Shares
Outstanding 16,534,633 16,525,344 16,534,633 16,525,344
=========== =========== =========== ===========
Basic and Diluted Income
per Common Share $ .08 $ .03 $ .02 $ .01
=========== =========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
---------- ------------
Cash Flows from Operations
Net income $1,315,978 $ 508,785
Adjustments to reconcile net income to
net cash provided by continuing
operations:
Depreciation 65,798 44,830
Amortization 57,657 3,746
Gain on Sale of Assets -- (86,759)
Change in assets and liabilities:
Increase in accounts and notes
receivable (560,488) (90,865)
(Increase) decrease in inventory (133,270) 4,746
Increase in other current assets (11,649) (9,176)
Increase in accounts payable
and accrued expenses 167,649 1,479
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Net Cash Provided by Operations 901,675 376,786
----------- -----------
Cash Flows from Investing Activities
Payments for equipment (144,600) (66,577)
Payments for capitalized software
development cost (239,302) (149,732)
Payment for business acquisition (344,659) --
Proceeds from sale of asset --- 156,339
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Net Cash Used in Investing Activities (728,561) (59,970)
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Cash Flows from Financing Activities
Payment on long-term debt -- (14,181)
Payment on capital leases (16,573) --
Proceeds from issuance of common stock 20,328 893
----------- -----------
Net Cash Provided by (Used in)
Financing Activities 3,755 (13,288)
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Net Increase in Cash and Cash Equivalents 176,869 303,528
Cash and Cash Equivalents -
Beginning of Period 383,356 134,387
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Cash and Cash Equivalents -
End of Period $ 560,225 $ 437,915
========== ==========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 4,337 $ 6,602
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Noncash investing activities: The Company acquired certain assets of a business
for a total acquisition price of $635,671 consisting of $344,659 paid in cash
and a note payable amounting to $291,012.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SIBONEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 2000, the condensed
consolidated statement of operations for the nine-month and the three-month
periods ended September 30, 2000 and 1999 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, 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
September 30, 2000 are not necessarily indicative of the operating results for
the full year.
2. INVENTORIES
Inventories consist of the following:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Raw materials $217,394 $ 137,803
Finished goods 104,883 51,205
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$322,277 $ 189,008
======== =========
3. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs associated with the development and purchase 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. Accumulated amortization amounted to $36,263 at September 30, 2000
and $5,820 at December 31,1999.
4. OTHER ASSETS
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
Other Assets consist of:
Goodwill (Net of accumulated
amortization of $14,714) $324,234 $ --
Covenant not to Compete (Net of
accumulated amortization of $12,500) 87,500 --
---------- ------------
$ 411,734 $ --
========== ============
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 1, 2000 the Company purchased the publishing assets and corporate name
of Teacher Support Software ("TSS") for a purchase price of $650,000, plus
certain contingent payments based on annual net sales of the purchased product
line in years 2001, 2002 and 2003. 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 is selling the entire TSS product line through its dealer
and direct channels to schools and have included selected TSS titles in its
Orchard product line. The 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 and assessment which identifies problem areas and
generates student-specific assignments. 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. The Company is continuing to upgrade Orchard with advanced assessment
and management features.
During 2000, the Company released a new early reading comprehension program
based upon the latest research in guided reading. Reading Explorers includes
four titles for reading levels one through four which help students master the
most important reading comprehensive skills. Reading Explorers will be sold
through the Company's GAMCO and Orchard sales channels.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
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 SEPTEMBER 30, 2000 vs. SEPTEMBER 30, 1999
Total revenues increased 104.6% or $762,971 to $1,492,120 from $729,149 during
the three month period ended September 30,2000 compared to the same period in
1999, primarily due to the higher sales of Siboney Learning Group. Orchard
Teachers Choice Software sales accounted for 88.73% of the increase in revenues.
Cost of product sales increased 129.2% or $143,870 to $255,215 from $111,345
during the quarter compared to the previous year's quarter, primarily due to
higher sales. As a percentage of revenue, cost of product sales increased to
17.1% compared to 15.3% in the prior year, primarily due to a royalty advance
payment made to a publisher for its state standards content which will be
integral to the Company's new version of Orchard. Cost of product sales would
have been slightly lower than the same period in 1999 without this advance
royalty payment.
Selling, general and administrative expenses increased 63.2% or $370,625 to
$957,447 from $586,822 during the quarter ended September 30, 2000 compared to
the same quarter in 1999, primarily due to increased catalog advertising costs
associated with the Teacher Support Software acquisition, increased amortization
of TSS acquisition costs, higher Orchard related expenses for the expansion of
the dealer network and the annual Orchard dealer meeting, higher salary,
commission and marketing expenses associated with higher sales.
As a net result of the increased sales and other reasons mentioned above, the
Company's net income for the third quarter of 2000 was $280,231, an increase of
157.9% over the $108,648 reported for the third quarter of 1999.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
NINE MONTHS ENDED SEPTEMBER 30, 2000 vs. SEPTEMBER 30, 1999
Total revenues increased 62.1% or $1,644,643 to $4,292,409 from $2,647,766
during the nine month period ended September 30, 2000 compared to the same
period in 1999, primarily due to higher sales at Siboney Learning Group. Orchard
sales increased 159% over the same period in 1999. In addition, revenue from
Siboney Coal Company was $180,561, an increase of $150,561 over the same period
in 1999.
Cost of product sales increased 50.3% or $201,772 to $603,059 from $401,287
during the nine months ended September 30, 1999, primarily due to higher sales.
As a percentage of revenue, cost of product sales decreased to 14.1% compared to
15.2% in the prior year, primarily due to increased sales of higher margin
licenses.
Selling, general and administrative expenses increased 33.9% or $601,405 to
$2,376,929 from $1,775,524 compared to the same period in 1999, primarily due to
increased catalog advertising costs associated with the Teacher Support Software
acquisition, increased amortization of TSS acquisition costs, higher Orchard
related expenses for the expansion of the dealer network and the annual Orchard
dealer meeting, higher salary, commission and marketing expenses associated with
higher sales.
As a result of the above mentioned reasons, net income for the nine months ended
September 30, 2000 was $1,315,978, an increase of 158.7% or $807,193 over last
year.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased at September 30, 2000 to $560,225 compared to $383,356 at
December 31, 1999.
Accounts receivable increased 159.1% or $560,488 to $912,705 compared to
receivables of $352,217 at December 31, 1999 due to the higher sales volume at
Siboney Learning Group during August and September 2000 compared with November
and December 1999. This was consistent with our experience in previous years.
Inventories increased 70.5% or $133,270 to $322,278 to support increased sales.
Certain items are bought in quantity in order to receive lower pricing.
Plant, property and equipment increased as a result of the Company's move to a
new location and the purchase of new furniture. In addition, new equipment was
acquired as new employees were hired.
Capitalized software development cost increased 200.34% or $405,587 to $608,038
as a result of the allocation of purchased software from the TSS acquisition and
the ongoing development of new software titles.
Other assets increased $411,734 at September 30, 2000 compared to December 31,
1999 as a result of goodwill and other assets related to the TSS acquisition.
Current portion of long term debt increased $93,538 to $115,831 at September 30,
2000 compared to December 31, 1999 as a result of the financing of the TSS
acquisition.
9
<PAGE>
Accounts payable and accrued expenses increased $314,791 at September 30, 2000
compared to December 31, 1999 primarily due to higher royalties due as a result
of increased sales.
Long term debt increased $180,904 at September 30, 2000 compared to December 31,
1999 as a result of the financing of the TSS acquisition.
The net worth of the Company at September 30, 2000 was $2,486,171compared to
$1,150,364 at December 31, 1999, as a result of the retention of earnings during
the nine 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 experienced no significant expense or problems, and does not
anticipate any ongoing expense or problems, related to the Y2K issue.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index on page 12.
b) Reports on Form 8-K: The Company filed a Report on Form 8-K on July
27, 2000, as amended by Form 8-KA filed September 13, 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: November 13, 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(a) Financial Data Schedule
(Filed EDGAR version only) 13
12
