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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
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
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)
325 NORTH KIRKWOOD ROAD, SUITE 300, ST. LOUIS, MO 63122
(Address of principal executive offices)
(Zip Code)
314-822-3163
(Registrant's telephone number, including area code)
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 outstanding
common stock as of the date of this report
----------------- -----------------------------
COMMON STOCK, PAR VALUE 16,782,704
$.10 PER SHARE
INDEX
-----
PART I FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet, June 30,
2002 and December 31, 2001 3
Condensed Consolidated Statement of Operations,
Three Months and Six Months Ended June 30, 2002
and June 30, 2001 4
Condensed Consolidated Statement of Cash Flows, Six
Months Ended June 30, 2002 and June 30, 2001 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II OTHER INFORMATION
- ------- -----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
- ----------
2
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
------
DECEMBER 31,
JUNE 30, 2001 (SEE
2002 NOTE BELOW)
----------- ------------
CURRENT ASSETS
- --------------
Cash $ 626,917 $ 378,234
Accounts receivable 1,729,196 1,342,262
Inventories 361,351 285,777
Prepaid expenses 102,232 159,159
Deferred tax asset 343,400 480,000
----------- -----------
TOTAL CURRENT ASSETS 3,163,096 2,645,432
--------------------
PROPERTY AND EQUIPMENT (NET OF ACCUMULATED DEPRECIATION OF
- ----------------------
$683,848 AT JUNE 30, 2002 AND $613,784 AT DECEMBER 31, 2001) 324,102 324,581
OTHER ASSETS (NOTE 3) 2,604,398 2,466,234
- --------------------- ----------- -----------
$ 6,091,596 $ 5,436,247
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Current portion of long-term debt $ 353,868 $ 391,572
Line of credit 50,000 --
Current portion of capitalized lease obligation 6,765 9,889
Accounts payable 122,114 221,921
Accrued expenses 643,312 493,912
----------- -----------
TOTAL CURRENT LIABILITIES 1,176,059 1,117,294
------------------------- ----------- -----------
LONG-TERM LIABILITIES
- ---------------------
Long-term debt 330,059 509,786
Capitalized lease obligation -- 1,724
Deferred tax liability 306,600 72,200
----------- -----------
TOTAL LONG-TERM LIABILITIES 636,659 583,710
--------------------------- ----------- -----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock:
Authorized 100,000,000 shares (20,000,000 at
December 31, 2001) at $0.10 par value; issued
and outstanding 16,782,704 at 6/30/02 and
16,744,024 at 12/31/01 1,678,271 1,674,403
Additional paid-in capital 18,523 14,896
Retained earnings 2,582,084 2,045,944
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,278,878 3,735,243
-------------------------- ----------- -----------
$ 6,091,596 $ 5,436,247
=========== ===========
NOTE: The balance sheet at December 31, 2001 has been taken from the
audited financial statements at that date and condensed. See
accompanying notes to unaudited condensed consolidated financial
statements.
3
SIBONEY CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES $ 4,941,821 $ 4,419,732 $3,073,591 $2,418,432
COST OF PRODUCT SALES 1,066,698 610,682 634,477 312,371
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,940,897 2,491,907 1,555,738 1,286,986
----------- ----------- ---------- ----------
INCOME FROM OPERATIONS 934,226 1,317,143 883,376 819,075
----------- ----------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest Expense (28,690) (51,717) (21,930) (30,088)
Miscellaneous 1,604 2,260 633 2,001
----------- ----------- ---------- ----------
TOTAL OTHER EXPENSE (27,086) (49,457) (21,297) (28,087)
----------- ----------- ---------- ----------
PROVISION FOR INCOME TAXES 371,000 -- 371,000 --
----------- ----------- ---------- ----------
NET INCOME $ 536,140 $ 1,267,686 $ 491,079 $ 790,988
=========== =========== ========== ==========
EARNINGS PER COMMON SHARE - BASIC $0.03 $0.08 $0.03 $0.05
===== ===== ===== =====
EARNINGS PER COMMON SHARE - DILUTED $0.03 $0.07 $0.03 $0.05
===== ===== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 16,775,717 16,670,850 16,782,671 16,676,514
=========== =========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED 17,495,827 17,234,939 17,467,924 17,280,942
=========== =========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SIBONEY CORPORATION AND SUBSIDIARIES
------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
-----------------------------------------------
2002 2001
---- ----
CASH FLOWS FROM OPERATIONS
- --------------------------
Net income $ 536,140 $ 1,267,686
Adjustments to reconcile net income to net cash
provided by continuing operations:
Depreciation 70,064 61,956
Amortization 280,410 207,548
Deferred income tax 371,000 --
Change in assets and liabilities:
Increase in accounts receivable (386,934) (883,930)
Increase in inventories (75,574) (64,189)
(Increase) decrease in prepaid expenses & deposits 9,608 (14,555)
Increase (decrease) in accounts payable
and accrued expenses 49,593 (3,937)
--------- -----------
NET CASH PROVIDED BY OPERATIONS 854,307 570,579
- ------------------------------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Payments for equipment (69,585) (101,733)
Payments for capitalized software development cost (340,853) (202,056)
Payments for assets of unrelated entity (30,402) (1,136,799)
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (440,840) (1,440,588)
- ------------------------------------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Proceeds from issuance of common stock 7,495 4,478
Proceeds from long-term debt -- 725,000
Line of credit borrowing 50,000 --
Payments on capital leases (4,848) (11,749)
Principal payments on long-term debt (217,431) (110,907)
--------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (164,784) 606,822
- --------------------------------------------------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 248,683 (263,187)
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 378,234 626,554
- ----------------------------------------------- --------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 626,917 $ 363,367
- ----------------------------------------- ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ------------------------------------------------
Interest paid $ 22,892 $ 55,123
--------- -----------
See accompanying notes to unaudited condensed consolidated financial statements.
5
SIBONEY CORPORATION AND SUBSIDIARIES
------------------------------------
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
JUNE 30, 2002 AND 2001
----------------------
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
The condensed consolidated balance sheet as of June 30, 2002, the
condensed consolidated statement of operations for the six-month and the
three-month periods ended June 30, 2002 and 2001 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, 2002 and for all periods reported 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 Company's Annual
Report on Form 10-K for the year ended December 31, 2001. The results of
operations for the period ended June 30, 2002 are not necessarily
indicative of the operating results for the full year.
Accounting Changes
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). SFAS 142 requires that goodwill and certain intangibles
no longer be amortized, but instead tested for impairment at least
annually. There was no impairment of goodwill upon adoption of SFAS 142.
Net income and income per share for the six months and three months ended
June 30, 2001 adjusted to exclude amortization expense was as follows:
SIX MONTHS THREE MONTHS
---------- ------------
ENDED JUNE 30, 2001 ENDED JUNE 30, 2001
------------------- -------------------
NET INCOME:
Net income as reported $1,267,686 $790,988
Goodwill amortization 86,864 51,644
---------- --------
Adjusted net income $1,354,550 $842,632
BASIC AND DILUTED INCOME PER SHARE:
Net income per share, basic, as reported $ 0.08 $ 0.05
Net income per share, diluted, as reported $ 0.07 $ 0.05
Goodwill amortization, basic and diluted $ 0.01 $ 0.00
Adjusted net income per share, basic $ 0.09 $ 0.05
Adjusted net income per share, diluted $ 0.08 $ 0.05
6
2. INVENTORIES
-----------
Inventories consist of the following:
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Raw materials $252,438 $ 196,512
Finished goods 108,913 89,265
-------- ---------
$361,351 $ 285,777
======== =========
3. OTHER ASSETS
------------
Other assets consist of:
JUNE 30, 2002 DECEMBER 31, 2001
------------- -----------------
Software development costs $2,005,973 $1,665,120
Goodwill 1,186,616 1,156,214
Covenants not to compete 300,000 300,000
Deposits 51,442 4,123
---------- ----------
3,544,031 3,125,457
Less: Accumulated Amortization 939,633 659,223
---------- ----------
$2,604,398 $2,466,234
========== ==========
The Company capitalizes costs associated with the development of
computer software for sale. Costs are capitalized at the point the
Company determines that it is technologically feasible to produce the
software title. Such costs are amortized on a modified declining balance
method over a period of four years.
Goodwill represents the purchase price of an acquired company's assets
in excess of the fair value of those net assets at the date of
acquisition and, prior to January 1, 2002, was being amortized on a
straight-line basis over five years.
Covenants not to compete are being amortized on a straight-line basis
over two years, which is the life of the covenant agreements.
Amortization expense charged against earnings amounted to:
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2002 2001 2002 2001
---- ---- ---- ----
Software development costs $205,409 $ 66,517 $115,465 $ 33,010
Goodwill -- 86,864 -- 51,644
Covenants not to compete 75,001 54,167 37,501 29,167
-------- -------- -------- --------
$280,410 $207,548 $152,966 $113,821
======== ======== ======== ========
7
SIBONEY CORPORATION AND SUBSIDIARIES
------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
OVERVIEW
The Company's principal subsidiary, Siboney Learning Group, Inc. ("SLG"),
publishes and distributes educational software, primarily for schools. The
Company has 57 full-time employees.
The Company has served the educational market for more than 35 years. Since
1986, the Company's main business has been publishing educational software
in reading, language arts, math, science and English as a Second Language
for students and teachers in levels kindergarten through adult. The Company
is best known for its software which is designed to motivate students to
master key skills and keep track of student progress for teachers to review.
The Company's growing portfolio of products now includes more than 170
active titles that focus on teaching basic skills and new concepts while
meeting the different learning needs of all students through time-on-task
instruction. Popular titles include Math Concepts, Phonics Mastery, Reading
Concepts, Touchdown Math, Diascriptive Reading and Process Writing.
Siboney Learning Group currently offers five distinct product categories
which are developed, marketed and supported by the same core team: GAMCO
Educational Software; Orchard Teacher's Choice Software; Teacher Support
Software; Educational Activities Software; and Journey. These products allow
the Company to offer a comprehensive product selection to schools and adult
education centers at a variety of budget levels.
GAMCO Educational Software ("GAMCO"), the Company's original product,
provides schools with single titles and series which the Company believes
are highly motivating. GAMCO products are sold through the major national
and regional school software dealers, the Company's inside sales force and
its direct catalog and promotions. All GAMCO titles include management
features that track student progress and allow teachers to modify the
instruction to meet individual learning needs.
In 1996, the Company launched Orchard Teacher's Choice Software ("Orchard").
Orchard offers schools and school districts a comprehensive curriculum-based
solution with universal management and assessment. Orchard is sold through a
network of dealers and direct and independent representatives who actively
call on schools to sell larger curriculum- and technology-based learning
solutions. Orchard includes universal management which tracks student
progress across all programs, as well as pre- and post-test assessment that
identifies problem areas and measures instructional gain. The Company
believes that Orchard has become a recognized competitor in the growing
Integrated Learning Systems market as a result of its motivating and
balanced content, strong correlation to major national tests and state
objectives, and its cost-effective pricing structure. The Company believes
that its new Orchard For Your State ("OFYS") versions will help maintain
Orchard's consistent growth in sales as schools look for proven ways to meet
the new federal mandate for accountability in all states provided in the
recently passed No Child Left Behind Act of 2001. Orchard For Your State
offers schools and school districts state-specific versions of Orchard that
are directly correlated to each state's educational standards. The No Child
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Left Behind Act of 2001 will require all students in grades three to eight
in all states to take important tests based upon each state's standards.
Orchard For Your State is a direct response to, and solution for, the
emerging critical need for state-specific accountability and instruction.
The Company has recently released 18 state-specific versions of OFYS and is
planning to release 12 additional versions during the remainder of 2002.
In July 2000, the Company purchased the software assets of Teacher Support
Software ("TSS"). TSS is a 20-year-old software publisher best known for its
popular tools for teachers, including Worksheet Magic, and its effective and
comprehensive reading programs, including WordWorks. TSS products are sold
through all of the Company's sales channels as single-title solutions and as
part of comprehensive Orchard solutions. The Company has actively upgraded
older TSS products to be compatible with the computers and networks found in
schools today.
In January 2001, the Company purchased the stock of Activity Records, Inc.
and in so doing acquired Educational Activities, Inc.'s software products
which are now called Educational Activities Software ("EAS"). EAS has been a
leading publisher of software for the middle-school to adult learner market
for over 20 years. Best known for its Diascriptive(R) Reading series, EAS
has traditionally sold its products to schools, community colleges, adult
learning centers and correctional facilities through a network of
independent representatives. EAS is the Company's primary product offering
for the adult learning market and allows the Company to achieve incremental
sales growth in a growing market for instruction in basic skills for adults.
In addition, the Company sells selected EAS titles to its K-12 school
customers and has released a new comprehensive solution with universal
management called Real Achievement based upon EAS titles and appropriate
titles from the Company's portfolio of other software.
In May 2001, the Company purchased the publishing assets of The Denali
Project, L.L.C. ("Denali") based in Lansing, Michigan. This development
team, now known as Siboney Learning Group Lansing, had developed a
comprehensive and structured instructional software program in reading and
math for grades three through eight. Their original product had never been
actively marketed to schools. The Company has invested considerable time and
resources into upgrading this product, now called Journey, which is being
sold through the same channels that currently sell Orchard. The Company
believes that Journey will be an attractive complementary product for
Orchard due to its structure and sequencing of content, as well as the
Company's first web-enabled product for K-12 school customers, when it is
launched to meet demand for web-based delivery of instructional software.
The Company also has generated sales of select products through a
direct-to-the-home marketer of educational software. This alliance allows
the Company to reach families in their homes without relying on expensive
retail distribution.
The Company also has certain natural resources interests, including coal,
oil and gas, through Siboney Coal Company, Inc. and several other
subsidiaries. These interests presently are not material to the Company's
results of operations or financial condition.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
RESULTS OF OPERATIONS
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, 2002 COMPARED TO JUNE 30, 2001
Total revenues increased 27.1% or $655,159 during the three-month period
ended June 30, 2002 compared to the second quarter of 2001, reflecting higher
sales at Siboney Learning Group. Sales of the Company's Orchard Teacher's
Choice Software increased 80% during the second quarter compared to the
second quarter of 2001. The Company believes that Orchard's market success
has been attributable to its comprehensive offering of 140 titles and
curriculum bundles which combine state-correlated assessment with targeted
and effective instruction, delivered at costs which compare favorably to
other integrated learning systems. In addition, Orchard sales increased as a
result of the release of 18 state-specific versions of Orchard For Your
State ("OFYS"). An additional 12 versions are expected to be released during
the remainder of 2002.
Cost of product sales increased 103.1% or $322,106 during the second quarter
of 2002 compared to the second quarter of the previous year. This increase
reflected greater royalty expenses from sales of licensed products and
increased amortization of development expenses. As a result, cost of product
sales as a percentage of revenue increased from 12.9% for the second quarter
of 2001 to 20.6% for the second quarter of 2002.
Selling, general and administrative expenses increased 20.9% or $268,752
during the quarter ended June 30, 2002 compared to the second quarter of
2001, primarily due to higher selling related expenses and higher salary,
commission and other compensation-related expenses. The Company has
increased staffing in both its sales department and product development
group. In addition, more support staff was hired to market and support its
growing number of products.
Interest expense, net of interest income, decreased 27.8% or $8,833 during
the quarter ended June 30, 2002 compared to the second quarter of 2001. This
decrease was primarily the result of an overall decline in the average
outstanding debt balances during the quarter and a shift in debt balances
from higher interest to lower interest obligations.
The provision for income taxes of $371,000 recognized in the second quarter
of 2002 represented the Company's current realization of its net deferred
tax asset which relates primarily to the carryforward of net operating
losses incurred in prior years. The Company expects its available net
operating loss carryforwards will be sufficient to offset any obligation to
pay federal income taxes through 2002. The Company did not report a
provision for income taxes in 2001 as its utilization of the prior years'
net operating losses in those periods was offset by a reduction in the
deferred tax asset valuation allowance.
The Company's net income for the second quarter of 2002, primarily for the
reasons above, was $491,079, a decrease of 37.9% or $299,909 compared to net
income of $790,988 for the second quarter of 2001.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO JUNE 30, 2001
Total revenues increased 11.8% or $522,089 during the six-month period ended
June 30, 2002 compared to the corresponding period of 2001, reflecting higher
sales at Siboney Learning Group. Sales of the Company's Orchard Teacher's
Choice Software increased 58% during the six-month period compared to the
corresponding period of 2001. The Company believes that Orchard's market
success has been attributable to its comprehensive offering of 140 titles
and curriculum bundles which combine state-correlated assessment with
targeted and effective instruction, delivered at costs which compare
favorably to other integrated learning systems. In addition, Orchard sales
increased as a result of the release of 18 state-specific versions of
Orchard For Your State ("OFYS"). An additional 12 versions are expected to
be released during the remainder of 2002.
During the six-month period ended June 30, 2002, there was no mining activity
on property owned by Siboney Coal Company and, therefore, the Company received
no royalty payments during the period compared to $96,330 received during the
corresponding period of 2001.
Cost of product sales increased 74.7% or $456,016 during the six-month
period of 2002 compared to the first six months of 2001. This increase
reflected greater royalty expenses from sales of licensed products and
increased amortization of development expenses. As a result, cost of product
sales as a percentage of revenue increased from 13.8% for the first half of
2001 to 21.6% for the corresponding period of 2002.
Selling, general and administrative expenses increased 18% or $448,990
during the six-month period ended June 30, 2002 compared to the
corresponding period of 2001, primarily due to higher selling related
expenses and higher salary, commission and other compensation-related
expenses. The Company has increased staffing in both its sales department
and product development group. In addition, more support staff was hired to
market and support its growing number of products.
Interest expense, net of interest income, decreased 44.3% or $24,423 during
the period ended June 30, 2002 compared to the first six months of 2001.
This decrease was primarily the result of an overall decline in the average
outstanding debt balances during the period and a shift in debt balances
from higher interest to lower interest obligations.
The provision for income taxes of $371,000 recognized in the second half
of 2002 represented the Company's current realization of its net
deferred tax asset which relates primarily to the carryforward of net
operating losses incurred in prior years. The Company expects its
available net operating loss carryforwards will be sufficient to offset
any obligation to pay federal income taxes through 2002. The Company
did not report a provision for income taxes in 2001 as its utilization
of the prior years' net operating losses in those periods was offset by
a reduction in the deferred tax asset valuation allowance.
The Company's net income for the six months ended June 30, 2002, primarily
for the reasons above, was $536,140, a decrease of 57.7% or $731,546
compared to net income of $1,267,686 for the corresponding period of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its business primarily with cash generated from
operating activities, accessing its bank revolving line of credit and
purchase money financing provided by the sellers of companies acquired. The
line of credit agreement, which matures in November 2002, provides for
maximum borrowings of $1.0 million and is secured by the Company's accounts
receivable, equipment and inventory. The loan agreement requires the Company
to maintain a net worth of at least $2.5 million. As of June 30, 2002, the
Company reported a net worth of $4.3 million and a balance due of $50,000
under the Company's line of credit. The Company believes that it will be
able to renew its line of credit and that its available capital resources
are adequate to support its current business levels.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
The Company presently does not use any derivative financial instruments to
hedge its exposure to adverse fluctuations in interest rates, foreign
exchange rates, fluctuations in commodity prices or other market risks, nor
does the Company invest in speculative financial instruments. Borrowings
with the bank bear interest at prime rate and 0.25% above prime rate.
Due to the nature of the Company's borrowings, it has concluded that there
is no material market risk exposure and, therefore, no quantitative tabular
disclosures are required.
***
This report contains "forward-looking statements" as that term is defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Any forward-looking statements are necessarily subject
to significant uncertainties and risks. When used in this Report, the words
"believes," "anticipates," "intends," "expects" and similar expressions are
intended to identify forward-looking statements. Actual results could be
materially different as a result of various possibilities. Readers are
cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
12
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The Company's annual meeting of stockholders was held on May 16, 2002. At
the annual meeting, shareholders of the Company voted to (a) elect five
directors, (b) approve an amendment to the Company's Amended and Restated
Articles of Incorporation to increase the total number of authorized shares
of stock from 21,366,694 to 101,366,694 and to increase the authorized
number of shares of common stock from 20,000,000 to 100,000,000 and (c)
approve an amendment to the Siboney Corporation 1997 Incentive Stock Option
Plan to increase the number of shares available for grants of options.
With respect to the election of directors, the following votes were cast:
Nominee Votes in favor Votes withheld Broker non-votes
------- -------------- -------------- ----------------
Rebecca M. Braddock 10,584,518 66,137 2,148,318
Alan G. Johnson 10,588,985 66,870 2,148,318
Ernest R. Marx 10,584,318 66,537 2,148,318
Lewis B. Shepley 10,589,485 66,370 2,148,318
Timothy J. Tegeler 10,584,368 66,487 2,148,318
Directors are elected by a plurality of the votes cast at the meeting. This
means that the individuals who receive the largest number of votes are
elected as directors up to the maximum number of directors to be chosen at
the meeting. There were no nominees for director other than management's
nominees identified above. Accordingly, each such nominee received a
plurality of the votes cast and, therefore, was elected.
With respect to the amendment to the Company's Amended and Restated Articles
of Incorporation, the following votes were cast:
Votes in favor Votes against Abstentions Broker non-votes
-------------- ------------- ----------- ----------------
10,639,324 527,250 137,552 2,148,318
With respect to the amendment to the Siboney Corporation 1997 Incentive
Stock Option Plan, the following votes were cast:
Votes in favor Votes against Abstentions Broker non-votes
-------------- ------------- ----------- ----------------
10,595,143 622,116 160,018 2,148,318
The amendment to the Company's Amended and Restated Articles of
Incorporation and the amendment to the Siboney Corporation 1997 Incentive
Stock Option Plan each required the affirmative vote of the holders of a
majority of the issued and outstanding shares of common stock. As of the
record date of the annual meeting, there were 16,781,704 shares of common
stock issued and outstanding. Accordingly, each proposal was approved at the
annual meeting.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits: None.
(b) Reports on Form 8-K: A Report on Form 8-K was filed
by the Registrant under Item 5 on May 14, 2002 announcing
the release of the Company's financial results for the
quarter ended March 31, 2002.
A Report on Form 8-K was filed by the Registrant under Item 5
on May 17, 2002 announcing stockholder approval of an
amendment to the Company's Articles of Incorporation and
approval of an amendment to the Company's Incentive Stock
Option Plan.
SIGNATURES
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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 26, 2002 By: /s/ Timothy J. Tegeler
-------------------------------------
Timothy J. Tegeler
Chief Executive Officer and
Chief Financial Officer
14