UNITED STATES

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, 2004

Commission file number:
1-3952

SIBONEY CORPORATION
(Exact name of registrant as specified in its charter)

| |                                                                       
| | ----------------------------------------------------------------------
| | Maryland(State or other jurisdiction of
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 [  ]

Indicate by check mark whether the
Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]

| |                                        
| | ---------------------------------------
| | Title of class of          common stock
|
| | Common stock, par value$.10 per share  



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INDEX

PART I  FINANCIAL INFORMATION

|                                                                  | 
|----------------------------------------------------------------- | 
|Item 1.  Unaudited Financial Statements                           | 
|                                                                 
|Condensed Consolidated Balance Sheet, June 30,                    | 
|2004 and December 31, 2003                                        | 
|                                                                 
|Condensed Consolidated Statement of Operations,                   | 
|Three Months and Six Months Ended June 30, 2004 and June 30, 2003 | 
|                                                                 
|Condensed Consolidated Statement of Stockholders Equity,         | 
|June 30, 2004 and December 31, 2003                               | 
|                                                                 
|Condensed Consolidated Statement of Cash Flows, Six               | 
|Months Ended June 30, 2004 and June 30, 2003                      | 
|                                                                 
|Notes to Unaudited Condensed Consolidated Financial Statements    | 
|                                                                 
|Item 2.  Managements Discussion and Analysis of                  | 
|Financial Condition and Results of Operations                     | 
|                                                                 
|Item 3.  Quantitative and Qualitative Disclosures                 | 
|About Market Risk                                                 | 
|                                                                 
|Item 4.  Controls and Procedures                                  | 
|                                                                 
|PART II  OTHER INFORMATION                                       
|                                                                 
|Item 1.  Legal Proceedings                                        | 
|                                                                 
|Item 2.  Issuer Purchases of Equity Securities                    | 
|                                                                 
|Item 4.  Submission of Matters to a Vote of Security Holders      | 
|                                                                 
|Item 6.  Exhibits and Reports on Form 8-K                         | 
|                                                                 
|SIGNATURES                                                        | 

2

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PART I - FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

SIBONEY CORPORATION AND SUBSIDIARIES
                                                 CONDENSED CONSOLIDATED BALANCE SHEET
                                                              (Unaudited)Assets

|                                                                | June 30,2004 |              | December 31,2003 (SeeNote Below)
|--------------------------------------------------------------- | ------------ | ------------ | --------------------------------
|                                                                |              |              |                                 
|Current Assets                                                  |              |              |                                 
|Cash                                                            |              | $1,958,305   |                                 
|Accounts receivable                                             |              | 1,792,836    |                                 
|Inventories                                                     |              | 314,969      |                                 
|Prepaid expenses                                                |              | 185,843      |                                 
|Prepaid income taxes                                            |              | 94,187       |                                 
|Deferred tax asset                                              |              |             |                                 
|                                                                |              |              |                                 
|Total Current Assets                                            |              | 4,346,140    |                                 
|                                                               
|Property and Equipment (Net of accumulated depreciation         |             
|of $970,607 at June 30, 2004 and $862,942 at December 31, 2003) |              | 439,708      |                                 
|                                                               
|Other Assets                                                    |              | 2,606,069    |                                 
|                                                                |              |              |                                 
|                                                                |              | $7,391,917   |                                 
|                                                                |              |              |                                 
|                                                               
|Liabilities and Stockholders Equity                           
|Current Liabilities                                             |             
|Current portion of long-term debt                               |              | $     47,396 |                                 
|Current portion of capitalized lease obligation                 |              | 25,006       |                                 
|Accounts payable                                                |              | 179,098      |                                 
|Accrued expenses                                                |              | 636,838      |                                 
|                                                                |              |              |                                 
|Total Current Liabilities                                       |              | 888,338      |                                 
|                                                                |              |              |                                 
|Long-Term Liabilities                                           |             
|Long-term debt                                                  |              |             |                                 
|Capitalized lease obligation                                    |              | 24,132       |                                 
|Deferred tax liability                                          |              | 345,000      |                                 
|                                                                |              |              |                                 
|Total Long-Term Liabilities                                     |              | 369,132      |                                 
|                                                                |              |              |                                 
|                                                               
|Contingencies                                                   |             
|                                                               
|Stockholders Equity                                            |             
|Common stock:                                                   |             
|Authorized 100,000,000 shares at $0.10 par value; issued        |             
|and outstanding 17,587,919 at June 30, 2004 and 17,591,079      |             
|at December 31, 2003                                            |              | 1,758,792    |                                 
|Additional paid-in capital                                      |              | 44,137       |                                 
|Retained earnings                                               |              | 4,331,518    |                                 
|                                                                |              |              |                                 
|Total Stockholders Equity                                      |              | 6,134,447    |                                 
|                                                                |              |              |                                 
|                                                               
|                                                                |              | $7,391,917   |                                 
|                                                                |              |              |                                 

NOTE: The balance sheet at December
31, 2003 has been derived from the audited financial statements at that date and
condensed.
See accompanying notes to unaudited condensed consolidated financial statements.

3

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SIBONEY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(Unaudited)

|                                                             | Three Months EndedJune 30, |                | Six Months EndedJune 30,
|------------------------------------------------------------ | -------------------------- | -------------- | ------------------------
|                                                             |                           
|
|                                                            
|Revenues                                                     |                            | $   3,648,784  |                         
|                                                            
|Cost of Product Sales                                        |                            | 689,477        |                         
|                                                            
|Selling, General and                                         |                           
|Administrative Expenses                                      |                            | 1,702,207      |                         
|                                                             |                            |                |                         
|                                                            
|Income from Operations                                       |                            | 1,257,100      |                         
|                                                             |                            |                |                         
|Other Income (Expense)
 Interest income (expense), net       |                            | 359            |                         
|Gain on sale of asset                                        |                            | 219,780        |                         
|Miscellaneous                                                |                            | 156            |                         
|                                                             |                            |                |                         
|Total Other Income (Expense)                                 |                            | 220,295        |                         
|                                                             |                            |                |                         
|                                                            
|Income Before Income Taxes                                   |                            | 1,477,395      |                         
|                                                             |                            |                |                         
|                                                            
|Income Tax Expense                                           |                            | (573,229       | )                       
|                                                             |                            |                |                         
|                                                            
|Net Income                                                   |                            | $      904,166 |                         
|                                                             |                            |                |                         
|Earnings per Common Share - Basic                            |                            | $0.05          |                         
|                                                             |                            |                |                         
|Earnings per Common Share - Diluted                          |                            | $0.05          |                         
|                                                             |                            |                |                         
|                                                            
|Weighted Average Number of
Common Shares Outstanding - Basic |                            | 17,595,007     |                         
|                                                             |                            |                |                         
|Weighted Average Number of                                   |                           
|Common Shares Outstanding - Diluted                          |                            | 18,086,423     |                         
|                                                             |                            |                |                         

See accompanying notes to unaudited
condensed consolidated financial statements.

4

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SIBONEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY(Unaudited)

|                           | Common Stock
|-------------------------- | ------------
|                           |             
|
|                           |             
|Balance -December 31, 2003 |             
|                          
|Issuance of CommonStock    |             
|                          
|Stock Repurchase           |             
|                          
|Net Income                 |             
|                           |             
|Balance -June 30, 2004     |             
|                           |             

See accompanying notes to unaudited
condensed consolidated financial statements.

5

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SIBONEY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW(Unaudited)

|                                                                        | Six Months Ended June 30,
|----------------------------------------------------------------------- | -------------------------
|                                                                       
|
|                                                                       
|Cash Flows from Operations                                              |                          
|Net income                                                              |                          
|Adjustments to reconcile net income to net cash provided by operations:
|Depreciation                                                            |                          
|Amortization                                                            |                          
|Deferred income tax                                                     |                          
|Change in assets and liabilities:                                       |                          
|Increase in accounts receivable                                         |                          
|Decrease in inventories                                                 |                          
|(Increase) decrease in prepaid expenses & deposits                      |                          
|Increase in prepaid income taxes                                        |                          
|Increase (decrease) in income taxes payable                             |                          
|Increase (decrease) in accounts payable and accrued expenses            |                          
|                                                                        |                          
|                                                                       
|Net Cash Provided by Operations                                         |                          
|                                                                        |                          
|                                                                       
|Cash Flows from Investing Activities                                    |                          
|Payments for equipment                                                  |                          
|Payments for capitalized software development cost                      |                          
|Payments for assets of unrelated entity                                 |                          
|                                                                        |                          
|Net Cash Used in Investing Activities                                   |                          
|                                                                        |                          
|                                                                       
|Cash Flows from Financing Activities                                    |                          
|                                                                       
|Proceeds from issuance of common stock                                  |                          
|Retirement of common stock                                              |                          
|Payments on capital leases                                              |                          
|Principal payments on long-term debt                                    |                          
|                                                                        |                          
|Net Cash Used in Financing Activities                                   |                          
|                                                                        |                          
|                                                                       
|Net Increase in Cash                                                    |                          
|                                                                       
|Cash - Beginning of Period                                              |                          
|                                                                        |                          
|                                                                       
|Cash - End of Period                                                    |                          
|                                                                        |                          
|                                                                       
|Supplemental Disclosure of Cash Flow Information                        |                          
|                                                                       
|Interest paid                                                           |                          
|Income taxes paid                                                       |                          

See accompanying notes to unaudited
condensed consolidated financial statements.

6

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SIBONEY CORPORATION AND
SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2004 AND 2003

|1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The
condensed consolidated balance sheet as of June 30, 2004, the condensed consolidated
statement of operations for the six-month and three-month periods ended June 30, 2004 and
2003, the condensed consolidated statement of stockholders equity for the six-month
and the three-month periods ended June 30, 2004 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 normal
recurring adjustments) necessary to present fairly the financial position at June 30, 2004
and the results of operations for all of the 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, 2003. The results of operations for the period
ended June 30, 2004 are not necessarily indicative of the operating results for the full
year.
|  
|2. | INVENTORIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   | Inventories consist of:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|   |                                | June 30, 2004 | December 31, 2003
|-- | ------------------------------ | ------------- | -----------------
|   | Raw materials                  |               | $224,343         
|   | Finished goods                 |               | 90,626           
|   |                                |               |                  
|   |                                |               | $314,969         
|   |                                |               |                  
|3. | OTHER ASSETS                  
|
|  
|   | Other assets consist of:      
|
|   | Software development costs     |               | $3,096,378       
|   | Goodwill                       |               | 1,045,015        
|   | Deposits                       |               | 3,600            
|   |                                |               |                  
|   |                                |               | 4,144,993        
|  
|   | Less: Accumulated amortization |               | 1,538,924        
|   |                                |               |                  
|   |                                |               | $2,606,069       
|   |                                |               |                  

7

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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 at the greater of the amount computed using (a)
the ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for the product or (b) the straight-line method over the
remaining estimated economic life of the product. Amortization begins when the product is
available for general release to customers.

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.

Covenants not to compete were
amortized on a straight-line basis over two years, which was the life of the covenant
agreements.

Amortization expense charged against
earnings amounted to:

| |                            |  | Six Months Ended June 30,
| | -------------------------- |  | -------------------------
|
| | Software development costs |  | $235,052                 
| | Covenants not to compete   |  |                         
| |                            |  |                          
| |                            |  | $235,052                 
| |                            |  |                          

4.  STOCK BASED COMPENSATION

The Company applies APB Opinion No.
25 and related interpretations in accounting for all its stock option plans. Accordingly,
no compensation cost has been recognized under these plans. The Company has adopted the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, and SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which was released in December 2002 as an
amendment to SFAS No. 123. The following table illustrates the effect on net income and
earnings per share if the fair value based method had been applied to all awards.

|                                              | Six Months Ended June 30,
|--------------------------------------------- | -------------------------
|
|Reported net income                           |                          
|                                             
|Stock-based employee compensation expense     |                          
|determined under the fair value based method, |                          
|net of related tax effects                    |                          
|                                              |                          
|Pro forma net income                          |                          
|                                              |                          
|                                             
|Earnings per share (basic and diluted):       |                          
|As reported                                   |                          
|Pro forma                                     |                          

8

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5.  CONTINGENCIES

On June 25, 2004, Merit Audio Visual,
Inc. d/b/a Merit Software (Merit) filed a lawsuit in the Federal District
Court for the Eastern District of Missouri against Siboney Corporation, Siboney Learning
Group, Inc., and Ernest R. Marx (collectively Siboney), alleging copyright
infringement and breach of contract and seeking damages of $3,450,000, injunctive relief,
attorneys fees, and costs. The lawsuit arises from a long-term relationship between
the parties established in 1996 with a licensing agreement which grants Siboney the right
to create, market, sell, lease and distribute in the schools market software
products which incorporate certain Merit software. The complaint alleges that Siboney has
sold software bundles incorporating certain Merit software under the name Orchard
Home outside of the schools market, allegedly breaching the licensing
agreement and infringing Merits alleged copyright in its software. The complaint
also alleges other miscellaneous breaches of the licensing agreement, including failing to
obtain Merits consent for certain changes to Merits software and calculating
the royalties due incorrectly. In order to facilitate a complete and orderly investigation
of the underlying facts, Merits claims and Siboneys potential counterclaims,
with minimal business impact, Siboney agreed without admitting any liability not to
incorporate any Merit software allegedly covered by Merits copyright registrations
into Siboneys Orchard Home software bundles, effective July 16, 2004.
Siboney has not yet filed its answer to Merits complaint but intends to defend this
lawsuit vigorously.

ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company's principal subsidiary, Siboney Learning Group, Inc., publishes
and distributes educational software, primarily for schools. The Company has
61 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 190 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: Orchard Teachers Choice Software; Teacher Support Software;
Educational Activities Software; Journey; and GAMCO Educational Software. These products
allow the Company to offer a wide range of product selection to schools and adult
education centers at a variety of budget levels.

Orchard Teachers Choice
Software (Orchard) offers schools and school districts a broad
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

9

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ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

become a recognized competitor in the
growing Integrated Learning Systems market as a result of its motivating and balanced
content designed for instructional improvement, 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 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 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 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 starting in 2005. Orchard For Your
State is a direct response to, and solution for, the emerging critical need for
state-specific accountability and instructional improvement. The Company has released 33
state-specific versions of Orchard For Your State and is planning to release seven
additional versions during the remainder of 2004.

The Teacher Support Software
(TSS) product line, which was acquired in 2000, is 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.

The Companys Educational
Activities Software (EAS) line, which was acquired in 2001, is best known for
its Diascriptive Reading series, which is sold through a network of independent
representatives to schools, community colleges, adult learning centers and correctional
facilities. This line 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. The Company has committed software
development resources to web enable selected EAS titles since the older learner market
appears to be increasingly responsive to software delivered to students over the Internet.
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.

Journey, the comprehensive software
product line acquired in 2001, is being upgraded to be competitive with other structured
comprehensive solutions. The Company believes that Journey is an attractive complementary
product for Orchard due to its structured and sequenced content that adapts to individual
learning needs. The Company is presently web-enabling Journey and the new web-enabled
version is planned for release in 2004.

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 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.

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

10

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ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

During the first half of 2004, the
Company became aware that a new residential subdivision being developed in Johnson County,
Kentucky encroaches on property owned by Siboney Coal Company, a subsidiary. The Company
has negotiated a settlement agreement with the developer and signed a Quitclaim Deed
transferring approximately 82 acres to the developers of the subdivision in return for
$220,000 which was recognized as gain on the sale of an asset in the Companys income
statements for the three- and six-months ended June 30, 2004.

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, 2004 Compared To June 30, 2003

Total revenues increased 9.4% or
$312,855 to $3,648,784 from $3,335,929 during the three-month period ended June 30, 2004
compared to the second quarter of 2003, reflecting increased sales of Siboney Learning
Group. Sales of the Companys Orchard Software increased 12% during the second
quarter of 2004 compared to the second quarter of 2003 while sales of the Companys
other product categories decreased slightly compared to the same period in 2003.

Cost of product sales increased 9.5%
or $59,645 to $689,477 from $629,832 during the second quarter of 2004 compared to the
second quarter of the previous year. This increase was primarily due to increased sales of
Siboney Learning Group. Cost of product sales as a percentage of revenue was 19% for both
periods.

Selling, general and administrative
expenses increased 21% or $295,405 to $1,702,207 from $1,406,802 during the quarter ended
June 30, 2004 compared to the second quarter of 2003, primarily due to increased salary
and payroll-related expenses and increased commissions paid as the result of increased
sales.

During the second quarter of 2004,
the Company became aware that a new residential subdivision being developed in Johnson
County, Kentucky encroaches on property owned by Siboney Coal Company, a subsidiary. The
Company has negotiated a settlement agreement with the developer and signed a Quitclaim
Deed transferring approximately 82 acres to the developers of the subdivision in return
for $219,780 which was recognized as gain on the sale of an asset.

The Companys net income for the
second quarter of 2004, primarily for the reasons described above, was $904,166 after
income tax expense of $573,229 compared to a net income of $793,027 after income tax
expense of $500,000 for the second quarter of 2003 representing an increase of 14%.
Earnings per common share, basic and diluted, were $0.05 for the second quarter of 2004
and 2003.

11

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ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Six Months Ended June 30,
2004 Compared To June 30, 2003

Total revenues increased 29.6% or
$1,440,280 to $6,305,637 from $4,865,357 during the six-month period ended June 30, 2004
compared to the first half of 2003, reflecting increased sales of Siboney Learning Group.
Sales of the Companys Orchard Software increased 32% during the six-month period of
2004 compared to the same period of 2003 while sales of the Companys other product
categories increased 4% compared to the corresponding period of 2003. Two large
district-wide orders for Orchard For Your State were primarily responsible for the
increase in Orchard sales. The Company believes Orchards success in improving
student achievement in individual school buildings has led to district-wide orders in
school districts facing increasing demands for Adequate Yearly Progress as mandated by the
No Child Left Behind Act.

Cost of product sales increased 21.6%
or $217,750 to $1,225,716 from $1,007,966 during the six-month period of 2004 compared to
the corresponding period of the previous year. This increase was primarily due to
increased sales at Siboney Learning Group. Cost of product sales as a percentage of
revenue decreased from 20.7% for the period ended June 30, 2003 to 19.4% due to increased
sales of higher margin Orchard Software during the second quarter of 2004.

Selling, general and administrative
expenses increased 17.5% or $513,733 to $3,456,513 from $2,942,780 during the period ended
June 30, 2004 compared to the corresponding period of 2003, primarily due to increased
salary and payroll-related expenses and increased commissions paid as the result of
increased sales.

During the first half of 2004, the
Company became aware that a new residential subdivision being developed in Johnson County,
Kentucky encroaches on property owned by Siboney Coal Company, a subsidiary. The Company
has negotiated a settlement agreement with the developer and signed a Quitclaim Deed
transferring approximately 82 acres to the developers of the subdivision in return for
$219,780 which was recognized as gain on the sale of an asset.

The Companys net income for the
six-month period of 2004, primarily for the reasons above, was $1,128,458 after income tax
expense of $715,427 compared to net income of $551,041 after income tax expense of
$350,000 for the same period of 2003 representing an increase of 104%. Earnings per common
share, basic and diluted, was $0.06 for the six-month period of 2004 compared to $0.03 per
common share, basic and diluted, for the same period of 2003.

Liquidity and Capital
Resources

Cash increased 77.6% or $855,697 at
June 30, 2004 compared to December 31, 2003 reflecting increased sales of Siboney Learning
Group and the sale of real estate by Siboney Coal Company.

Accounts receivable increased 16.8%
or $258,289 at June 30, 2004 compared to December 31, 2003 due to increased sales during
May and June 2004 compared to November and December 2003.

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 April 2005 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, 2004, the Company reported a net worth of $6.1 million and
there

12

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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.

Based on his evaluation as of the end
of the period covered by this report, Timothy J. Tegeler, the Companys Chief
Executive Officer and Chief Financial Officer, has concluded that the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) are effective. There have been no changes in
internal controls over financial reporting during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

***

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.

Factors that could cause actual
results to differ materially from the forward-looking statements include, but are not
limited to, the following: (1) the Companys ability to enhance its existing products
and introduce new products; (2) a delay or reduction in school purchases of the
Companys products due to governmental budgetary and funding constraints resulting in
a reduction in the funds available to the Companys school customers; (3) acceptance
and demand for new educational products; (4) an overall decline in sales of the
Companys Orchard product category, which accounts for a significant portion of the
Companys revenue; (5) the impact of competitive products and pricing; (6) the
Companys ability to establish and protect its copyrights, licenses and other
intellectual property rights, including the resolution of disputes regarding licensed
software; (7) seasonal variations due to, among other things, the budget and school year
cycles of the Companys school customers; and (8) the risks detailed from time to
time in the Companys filings with the Securities and Exchange Commission.

No assurances can be given that the
results contemplated in any forward-looking statements will be achieved or will be
achieved in any particular timetable. The Company assumes no obligation to publicly
correct or update any forward-looking statements as a result of events or developments
subsequent to the date of this report. The reader is advised, however, to consult any
further disclosures
the Company makes on related subjects in reports to the SEC.

13

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PART II - OTHER
INFORMATION

On June 25, 2004, Merit Audio Visual,
Inc. d/b/a Merit Software (Merit) filed a lawsuit in the Federal District
Court for the Eastern District of Missouri against Siboney Corporation, Siboney Learning
Group, Inc., and Ernest R. Marx (collectively Siboney), alleging copyright
infringement and breach of contract and seeking damages of $3,450,000, injunctive relief,
attorneys fees, and costs. The lawsuit arises from a long-term relationship between
the parties established in 1996 with a licensing agreement which grants Siboney the right
to create, market, sell, lease and distribute in the schools market software
products which incorporate certain Merit software. The complaint alleges that Siboney has
sold software bundles incorporating certain Merit software under the name Orchard
Home outside of the schools market, allegedly breaching the licensing
agreement and infringing Merits alleged copyright in its software. The complaint
also alleges other miscellaneous breaches of the licensing agreement, including failing to
obtain Merits consent for certain changes to Merits software and calculating
the royalties due incorrectly. In order to facilitate a complete and orderly investigation
of the underlying facts, Merits claims and Siboneys potential counterclaims,
with minimal business impact, Siboney agreed without admitting any liability not to
incorporate any Merit software allegedly covered by Merits copyright registrations
into Siboneys Orchard Home software bundles, effective July 16, 2004.
Siboney has not yet filed its answer to Merits complaint but intends to defend this
lawsuit vigorously.

ISSUER PURCHASES OF
EQUITY SECURITIES

|                             
|-----------------------------
|
|                             
|Month #1
(April 1 - April 30)
|                             
|Month #2
(May 1 - May 31)    
|                             
|Month #3
(June 1 - June 30)  
|                             

---

(1)  
          On March 8, 2004, the Board of Directors authorized a stock repurchase program
          under which the Company may purchase up to 1,000,000 shares of the
          Companys common stock from time to time in the open market or in privately
          negotiated transactions.

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Companys annual meeting of
stockholders was held on May 14, 2003. At the annual meeting, shareholders of the Company
voted to elect six directors.

With respect to the election of
directors, the following votes were cast:

|Nominee                 | Votes in Favor | Votes Withheld | Broker Non-votes
|----------------------- | -------------- | -------------- | ----------------
|                       
|Rebecca M. Braddock     |                | 12,596,070     |                 
|                       
|William D. Edwards, Jr. |                | 12,481,420     |                 
|                       
|Alan G. Johnson         |                | 12,596,020     |                 
|                       
|Ernest R. Marx          |                | 12,596,320     |                 
|                       
|Lewis B. Shepley        |                | 12,597,538     |                 
|                       
|Timothy J. Tegeler      |                | 12,597,020     |                 

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.

The second proposal on the ballot was an amendment of the Siboney  Corporation  1997 Incentive Stock Option Plan (Plan),  as amended,
to increase the number of shares available for grants under the Plan.  The voting for this amendment was as follows:

|                 | 
|---------------- | 
|                
|Votes in Favor   | 
|                
|Votes Against    | 
|                
|Broker Non-Votes | 
|                

This proposal did not receive the
affirmative votes of holders of a majority of the outstanding voting stock and, in
accordance with the Companys Articles of Incorporation, as amended, failed to be
adopted.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  
          Exhibits: Exhibits required as part of this report are listed in the index
          appearing on page 17.

(b)  
          Reports on Form 8-K: None.

15

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SIGNATURES

Pursuant to the requirements 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
 
 
 
By: /s/ Timothy J. Tegeler
       Timothy J. Tegeler
       Chief Executive Officer and
       Chief Financial Officer
       (Authorized officer and principal financial officer)
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

August 16, 2004

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Index to Exhibits

Exhibit

|31 |  | Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|-- |  | ----------------------------------------------------------------------------------------------------------------------
|  
|32 |  | Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

17

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