**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**  **March
      31,
      2006**








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 [  ]





Indicate
      by check
      mark whether the Registrant is a large accelerated filer, an accelerated filer,
      or a non-accelerated filer. See definition of “accelerated filer and large
      accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large
      accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer
      [X]





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





Title
                of
                class of
            Number
                of
                shares outstandingcommon
                stock
            as
                of the
                date of this report**Common
                stock, par value**
            **16,930,419****$.10
                per share**









**INDEX**





**PART
                I   FINANCIAL
                INFORMATION****Item
                1.**
            **Unaudited
                Financial Statements**Consolidated
                Balance Sheet, March 31, 2006 and
                December 31, 2005
            3Consolidated
                Statement of Operations, Three
                Months Ended March 31, 2006 and March 31, 2005
            4Consolidated
                Statement of Cash Flows, Three Months Ended
                March 31, 2006 and March 31, 2005
            5Notes
              to Unaudited Consolidated Financial
              Statements
            6**Item
                2.**
            **Management's
                Discussion and Analysis of Financial****Condition
                and Results of Operations**
            11**Item****3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**
            13**Item
                4.**
            **Controls
                and Procedures**
            13**PART
                II   OTHER
                INFORMATION****Item
                5.**
            **Other
                Information**
            14**Item
                6.**
            **Exhibits**
            14**SIGNATURES**
            15**INDEX
                TO EXHIBITS**
            16








2


**PART
        I - FINANCIAL INFORMATION**
  ITEM
        1.  UNAUDITED FINANCIAL STATEMENTS





**SIBONEY
                CORPORATION AND SUBSIDIARIES CONSOLIDATED
                BALANCE SHEET****Assets****March
                31,**
            
            **December
                31,****2006**
              **(Unaudited)**
            
            **2005****Current
                Assets**Cash
            
            $
            149,546
            
            $
            270,987Accounts
                receivable, net
            
            
            1,048,532
            
            
            833,916Inventories,
                net
            
            
            382,607
            
            
            349,773Refundable
                income taxes
            
            
            11,765
            
            
            21,665Prepaid
                expenses and other assets
            
            
            120,083
            
            
            164,840Deferred
                tax
                asset
            
            
            201,000
            
            
            191,000**Total
                Current Assets**
            
            
            1,913,533
            
            
            1,832,181**Property
                and Equipment, Net**
            
            
            263,527
            
            
            304,294**Capitalized
                Software, Net**
            
            
            2,262,406
            
            
            2,214,901**Goodwill**
            
            
            1,045,015
            
            
            1,045,015**Deferred
                Tax Asset**
            
            
            507,000
            
            
            274,000**Other
                Assets**
            
            
            30,164
            
            
            35,694**Total
                Assets**
            
            $
            6,021,645
            
            $
            5,706,085**Liabilities
                and Stockholders' Equity****Current
                Liabilities**Notes
                payable
            
            $
            2,025,000
            
            $
            1,200,000Current
                portion of capitalized lease obligation
            
            
            4,476
            
            
            11,116Accounts
                payable
            
            
            230,492
            
            
            387,516Accrued
                expenses
            
            
            464,885
            
            
            455,930**Total
                Current Liabilities**
            
            
            2,724,853
            
            
            2,054,562**Commitments
                and Contingencies (Note 7)****Stockholders'
                Equity**Common
                stock:Authorized
                100,000,000 shares at $0.10 par value; issued andoutstanding
                16,930,419 at March 31, 2006 and December 31, 2005
            
            
            1,693,042
            
            
            1,693,042Additional
                paid-in capital
            
            
            11,397
            
            
            —Retained
                earnings
            
            
            1,592,353
            
            
            1,958,481**Total
                Stockholders' Equity**
            
            
            3,296,792
            
            
            3,651,523**Total
                Liabilities and Stockholders' Equity**
            
            $
            6,021,645
            
            $
            5,706,085Note:
                The
                balance sheet at December 31, 2005 has been derived from the audited
                financial statements at that date.


See
        accompanying
        notes to consolidated financial statements.




3





**SIBONEY
                CORPORATION AND SUBSIDIARIES****CONSOLIDATED
                STATEMENT OF OPERATIONS
                (Unaudited)****For
                the Three Months Ended March 31,****2006**
            
            **2005****Revenues**
            
            $
            1,495,404
            
            $
            1,773,875**Cost
                of Product Sales**
            
            
            433,272
            
            
            443,153**Gross
                Profit**
            
            
            1,062,132
            
            
            1,330,722**Selling,
                  General and Administrative Expenses**
            
            
            1,641,772
            
            
            2,192,322**Loss
                From Operations**
            
            
            (579,640
            )
            
            (861,600
            )**Other
                Income (Expense)**Interest
                expense, net
            
            
            (28,254
            )
            
            (2,691
            )Loss
                on sale
                and disposition of assets
            
            
            (1,441
            )
            
            —Miscellaneous
            
            
            207
            
            
            988**Total
                Other Expense**
            
            
            (29,488
            )
            
            (1,703
            )**Loss
                Before Income Taxes**
            
            
            (609,128
            )
            
            (863,303
            )**Income
                Tax Benefit**
            
            
            243,000
            
            
            502,000**Net
                Loss**
            
            $
            (366,128
            )
            $
            (361,303
            )**Loss
                Per Common Share - Basic**
            
            $
            (0.02
            )
            $
            (0.02
            )**Loss
                Per Common Share - Diluted**
            
            $
            (0.02
            )
            $
            (0.02
            )**Weighted
                Average Number of Common****Shares
                Outstanding - Basic and Diluted**
            
            
            17,094,350
            
            
            17,357,266See
                accompanying notes to consolidated financial statements.




4




**SIBONEY
                CORPORATION AND SUBSIDIARIES****CONSOLIDATED
                STATEMENT OF CASH FLOWS
                (Unaudited)****For
                the Three Months Ended March 31,****2006**
            
            **2005****Cash
                Flows From Operating Activities**Net
                loss
            
            $
            (366,128
            )
            $
            (361,303
            )Adjustments
                to reconcile net loss to netcash
                used in
                operating activities:Depreciation
            
            
            52,556
            
            
            57,451Amortization
            
            
            164,846
            
            
            135,002Deferred
                income taxes
            
            
            (243,000
            )
            
            (422,000
            )Allowance
                for
                doubtful accounts, sales credits and returns
            
            
            12,431
            
            
            8,700Reserve
                for
                obsolescence
            
            
            9,000
            
            
            7,500Loss
                on
                disposition of assets
            
            
            1,441
            
            
            —Stock-based
                compensation
            
            
            11,397
            
            
            —Change
                in
                assets and liabilities:Accounts
                receivable
            
            
            (227,047
            )
            
            12,692Inventories
            
            
            (41,834
            )
            
            (40,096
            )Refundable
                income taxes
            
            
            9,900
            
            
            (80,000
            )Prepaid
                expenses and other assets
            
            
            50,287
            
            
            (9,728
            )Accounts
                payable and accrued expenses
            
            
            (148,069
            )
            
            132,762**Net
                Cash Used In Operating Activities**
            
            
            (714,220
            )
            
            (559,020
            )**Cash
                Flows From Investing Activities**Payments
                for
                equipment
            
            
            (13,730
            )
            
            (20,703
            )Payments
                for
                software development costs
            
            
            (212,351
            )
            
            (281,645
            )Proceeds
                from
                sale of assets
            
            
            500
            
            
            —**Net
                Cash Used In Investing Activities**
            
            
            (225,581
            )
            
            (302,348
            )**Cash
                Flows From Financing Activities**Borrowings
                on
                line of credit
            
            
            900,000
            
            
            450,000Payments
                under stock buy back program
            
            
            —
            
            
            (26,056
            )Principal
                payments on capital lease obligation
            
            
            (6,640
            )
            
            (6,293
            )Principal
                payments on debt
            
            
            (75,000
            )
            
            (6,771
            )**Net
                Cash Provided By Financing Activities**
            
            
            818,360
            
            
            410,880**Net
                Decrease In Cash**
            
            
            (121,441
            )
            
            (450,488
            )**Cash
                - Beginning of Period**
            
            
            270,987
            
            
            686,642**Cash
                - End of Period**
            
            $
            149,546
            
            $
            236,154**Supplemental
                Disclosure of Cash Flow Information**Interest
                paid
            
            $
            28,289
            
            $
            5,853Income
                taxes
                paid
            
            $
            1,300
            
            $
            —See
                accompanying notes to consolidated financial statements.




5





**SIBONEY
      CORPORATION AND SUBSIDIARIES**





**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL
      STATEMENTS**





**MARCH
      31,
      2006 AND 2005**





**1.
      BASIS OF
      PRESENTATION**





Our
      consolidated
      balance sheet as of December 31, 2005 was derived from the Company’s audited
      balance sheet as of that date, as set forth in our Annual Report on Form 10-K
      for the year ended December 31, 2005. All other financial statements contained
      herein are unaudited and, in the opinion of management, contain all adjustments
      considered necessary for a fair presentation.





Certain
      information
      and footnote disclosures normally included in financial statements prepared
      in
      accordance with generally accepted accounting principles have been omitted.
      These unaudited consolidated financial statements should be read in conjunction
      with the consolidated financial statements and notes thereto included in the
      Company's Annual Report on Form 10-K for the year ended December 31, 2005.
      The
      results of operations for the three months ended March 31, 2006 are not
      necessarily indicative of the operating results for the full year.





Certain
      prior
      period balance sheet and cash flow amounts have been reclassified to conform
      to
      current year presentation.





**2.
      REVENUE
      RECOGNITION**





The
      Company follows
      specific and detailed guidelines in determining the proper amount of revenue
      to
      be recorded. The Company recognizes revenues in accordance with Statement of
      Position (“SOP”) 97-2 (Software Revenue Recognition) as amended by SOP 98-9
      (Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
      Transactions). Revenue from software license agreements is recognized when
      persuasive evidence of an agreement exists, delivery of the software has
      occurred, the fee is fixed or determinable, and collectibility is probable.
      In
      software arrangements that include more than one element, the Company allocates
      the total arrangement fee among the elements based on the vendor-specific
      objective evidence (“VSOE”) of the relative fair value of each deliverable,
      using the price charged when that element is sold separately. For software
      arrangements in which the Company does not have VSOE for undelivered elements,
      revenue is deferred until the earlier of when VSOE is determined for the
      undelivered elements or when all elements for which the Company does not have
      VSOE have been delivered.





The
      Company also
      generates revenue by providing professional services which consist of
      consulting, training and implementation support. The revenue for these services
      is recognized as the services are performed. Consulting, training and
      implementation services are not essential to the functionality of our software
      products. Accordingly, revenues from these services are recognized
      separately.





**3. ACCOUNTS
      RECEIVABLE**





Accounts
      receivable
      consist of:




**March
                31, 2006**
            **December
                31, 2005**Accounts
                receivable
            
            $
            1,285,354
            
            $
            1,065,108Allowance
                for
                doubtful accounts, salescredits
                and
                returns
            
            
            (236,822
            )
            
            (231,192
            )$
            1,048,532
            
            $
            833,916








6





**4.
      INVENTORIES**





Inventories
      consist
      of:





**March
                31, 2006**
            **December
                31, 2005**Raw
                materials
            
            $
            178,957
            
            $
            244,178Finished
                goods
            
            
            244,150
            
            
            161,924Reserve
                for
                obsolescence
            
            
            (40,500
            )
            
            (56,329
            )$
            382,607
            
            $
            349,773







**5.
      CAPITALIZED SOFTWARE DEVELOPMENT COSTS**




Capitalized
      software development costs consist of:





**March
                31, 2006**
            ******December
                31, 2005**Software
                development in progress
            
            $
            719,229
            
            $
            987,575Capitalized
                software development costs
            
            
            4,285,330
            
            
            3,804,633Accumulated
                amortization
            
            
            (2,742,153
            )
            
            (2,577,307
            )$
            2,262,406
            
            $
            2,214,901





Software
      development costs are capitalized at the point the Company determines that
      it is
      technologically feasible to produce the software title. The majority of our
      product development costs qualify for capitalization due to the concentration
      of
      our development efforts on the content of our courseware. The Company ceases
      capitalizing costs when the product is released for sale to our customers,
      at
      which time amortization of the capitalized costs begins. Capitalized software
      development costs are amortized on a product-by-product basis at the greater
      of
      the ratio that current gross revenue for a product for the period involved
      bears
      to the total of current and anticipated future gross revenues for the product
      or
      the straight-line method over the estimated economic life of the products,
      which
      is generally estimated to be 48 months.





On
      an annual basis,
      the Company reviews each capitalized project to determine if the unamortized
      balance exceeds its estimated net realizable value. Estimated net realizable
      value requires us to use judgment in projecting future revenues. Actual amounts
      realized could differ materially from those estimated. Future events such as
      market conditions, customer demand or technological obsolescence could cause
      us
      to conclude that the carrying value of the software at a given point in time
      is
      impaired, and the amount of the impairment so determined would be required
      to be
      written off against the carrying value of the asset and charged as an expense
      against operations at the time such determination is made.





Amortization
      expense related to capitalized software charged against earnings totaled
      $164,846 and $135,002 for the three months ended March 31, 2006 and 2005,
      respectively.





**6.
      SHARE
      BASED COMPENSATION**





The
      Company’s 1997
      Incentive Stock Option Plan, as amended (the “1997 Plan”), provides for granting
      to key employees of the Company or its subsidiaries options to purchase a
      maximum of 2,400,000 shares of the Company’s common stock. The 1997 Plan
      provides for the granting of options which qualify as incentive stock options,
      within the meaning of Section 422 of the Internal Revenue Code. All options
      granted under the 1997 Plan must have an exercise price of not less than 100%
      of
      the fair market value of the common stock on the date of grant. The 1997 Plan
      has a maximum term of ten years.





The
      Board of
      Directors of the Company may, in its sole discretion, amend, discontinue or
      terminate the 1997 Plan at any time, provided, however, that it may not, without
      stockholder approval, change the maximum number of shares for which options
      may
      be granted under the 1997 Plan.





7


The
      Company also
      has a non-qualified stock option plan (the “1987 Plan”) which provides for
      granting to eligible employees, directors, consultants and contractors of the
      Company or its subsidiaries, options to purchase authorized but unissued or
      reacquired shares of the Company’s common stock. The Board of Directors has full
      authority and discretion in fixing the purchase price of the stock subject
      to
      each option granted. The term of each option granted pursuant to the 1987 Plan
      shall not be more than five years from the date of grant.





On
      January 1, 2006,
      the Company adopted Statement of Financial Accounting Standards (“SFAS”) No.
      123(R), “Accounting for Stock-Based Compensation,” which establishes accounting
      for equity instruments exchanged for employee services. SFAS 123(R) is a
      revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123),
      and supercedes Accounting Principles Board (“APB”) Opinion No. 25 “Accounting
      for Stock Issued to Employees” (APB 25). Under the provisions of SFAS 123(R),
      share-based compensation cost is measured at the date of grant, based on the
      estimated fair value of the award, and is recognized as expense on a straight
      line basis over the employee’s requisite service period.





Prior
      to January 1,
      2006, the Company accounted for stock-based compensation to employees under
      the
      intrinsic value method in accordance with APB 25, as permitted by SFAS 123.
      Under this method, the Company did not recognize compensation cost for
      stock-option awards to employees because options were issued at exercise prices
      equal to the market value of the stock on the date of grant.





The
      Company adopted
      SFAS 123(R) using the modified prospective application method and accordingly,
      no prior periods have been restated. Under this method, the Company will
      recognize expense including (a) compensation cost for all share-based payments
      granted prior to, but not yet vested as of January 1, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of SFAS 123,
      and (b) compensation cost for all share-based payments granted subsequent to
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with
      SFAS 123(R). For the three months ended March 31, 2006, the Company recognized
      approximately $11,400 in compensation expense related to options granted prior
      to January 1, 2006. There were no options granted during the three months ended
      March 31, 2006.





The
      following table
      illustrates the effect on net loss and loss per share if the Company had applied
      the fair value recognition provisions of SFAS 123 to stock-based employee
      compensation for the three months ended March 31, 2005:







**Three
                Months Ended March 31, 2005**Net
                loss, as
                reported
            
            
            
            $
            (361,303
            )Deduct:
                total
                stock-based employee compensationexpense
                determined under the fair value-based methodfor
                all
                awards, net of related tax effects
            
            
            
            
            (23,163
            )Pro
                forma net
                loss
            
            
            
            $
            (384,466
            )Loss
                per
                share (basic and diluted):As
                reported
            
            
            
            $
            (0.02
            )Pro
                forma
            
            
            
            $
            (0.02
            )







8


The
      fair value of
      each option granted is estimated on the date of grant using the Black-Scholes
      option-pricing model. The following table presents the weighted-average
      assumptions used in the option pricing model for the three months ended March
      31, 2006 and 2005. The expected life of the options represents the period of
      time the options are expected to be outstanding based on historical trends.
      The
      risk-free interest rate is determined using the rates for U.S. Treasury bonds
      with maturities similar to the expected life of the options at the time the
      options are granted. Estimated volatility is measured using historical weekly
      price changes of the stock over the expected life of the options.




**March
                31, 2006**
            **March
                31, 2005****Actual**
            **Pro
                forma**Expected
                option life
            3.0
                years
            3.1
                yearsRisk-free
                interest rate
            3.51%
            3.45%Expected
                volatility
            63.45%
            102%Expected
                dividend yield
            —
            —





A
      summary of option activity is presented below:


**Weighted****Average****Number
                of**
            
            **Range
                of Exercise**
            
            **Exercise****Options**
            
            **Shares**
            
            **Prices**
            
            **Price**Outstanding
                at December 31, 2005
            
            
            3,055,080
            
            
            $0.20
                - $0.655
            
            
            $0.38Granted
            
            
            ─
            
            
            ─
            
            
            ─Forfeited/Expired
            
            
            (227,200
            )
            
            $0.2875
                - $0.30
            
            
            $0.29**Outstanding
                at March 31, 2006**
            
            
            2,827,880
            
            
            $0.20
                - $0.655
            
            
            $0.32**Exercisable
                at March 31, 2006**
            
            
            2,076,396
            
            
            $0.20
                - $0.655
            
            
            $0.35





As
      of March 31,
      2006, there was $105,045 of total unrecognized compensation cost related to
      nonvested share-based compensation awards, net of estimated forfeitures, which
      the Company expects to recognize over a weighted average period of approximately
      3.1 years. The estimated forfeiture rate is based on historical forfeiture
      patterns. There was no intrinsic value of any options outstanding at March
      31,
      2006.





A
      summary of the status of the Company’s nonvested stock options as of March 31,
      2006 and the activity for the three months ended March 31, 2006 is presented
      below:





**Nonvested
                Shares**
            **Number
                of Shares**
            **********Weighted
                Average**
              **Grant-Date**
              **Fair
                Value****Nonvested
                at December 31, 2005**
            
            
            1,053,019
            
            
            $0.27Granted
            
            
            ─
            
            
            ─Vested
            
            
            (50,052
            )
            
            $0.40Forfeited
            
            
            (227,200
            )
            
            $0.26**Nonvested
                at March 31, 2006**
            
            
            775,767
            
            
            $0.26








The
      total fair
      value of stock options vested during the three months ended March 31, 2006
      and
      2005 was $19,924 and $19,721, respectively.





9


The
      following table
      summarizes information about stock options outstanding at March 31,
      2006:


**Outstanding
                  Options**
              **Exercisable
                  Options****Range
                  Of**
                **Exercise**
                **Prices**
              **Number
                  Of**
                **Options**
              **Weighted
                  Average**
                **Remaining
                  Years**
                **Of
                  Contractual Life**
              **Weighted**
                **Average**
                **Exercise
                  Price**
              **Number
                  Of**
                **Options**
              **Weighted**
                **Average**
                **Exercise
                  Price**$0.200
                  -
                  $0.3163
              1,871,960
              3.8
              $0.24
              1,207,456
              $0.24$0.380
                  -
                  $0.5665
              755,920
              2.1
              0.44
              668,940
              0.45$0.620
                  -
                  $0.6550
              200,000
              1.0
              0.66
              200,000
              0.66$0.200
                  -
                  $0.6550
              2,827,880
              3.5
              $0.32
              2,076,396
              $0.35


**7.
      COMMITMENTS AND 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 the Company’s former President
      (collectively “Siboney”). In the lawsuit, Merit alleged, among other things,
      copyright infringement and breach of contract. In September 2004, Siboney
      recorded a $615,000 litigation settlement accrual. In December 2004, **** Siboney
      entered
      into a definitive agreement with Merit to settle all claims in the lawsuit.
      The
      principal terms of the settlement agreement included: none of the parties
      admitted liability for any of the claims; Siboney’s software licensing agreement
      with Merit terminated as of December 31, 2005; Siboney agreed to pay royalties
      due under the licensing agreement through its termination; Siboney paid to
      Merit
      $465,000 upon execution of the settlement agreement; Merit returned
      approximately $50,000 of the royalty payments previously made by Siboney; and
      Siboney paid to Merit $100,000 in September 2005. The Company will pay the
      final
      payment of $100,000 in September 2006. In accordance with the settlement
      agreement, all claims were dismissed with prejudice on January 18, 2005.





**8.
      DEBT**





The
      Company has a
      $1,500,000 revolving line of credit agreement and a $1,125,000 promissory note
      with a bank. As of March 31, 2006, the Company had a balance of $900,000
      outstanding under the line of credit.  The
      line of credit
      agreement and promissory note require monthly interest payments on the
      outstanding balance at a variable rate based on the prime rate, currently 8%
      per
      annum. Both the line of credit agreement and the promissory note mature on
      July
      31, 2006. The Company expects to enter into a new credit agreement with its
      existing bank effective July 31, 2006. The terms of such an agreement may be
      less favorable than those historically extended to the Company.





**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 standards-based
      educational software products for reading, language, mathematics, science,
      writing and English as a Second Language, primarily for K-12 students and adult
      learners. The Company publishes two comprehensive software product lines ─
Orchard Software for Your State and Journey ─ and three titles-based product
      lines ─ GAMCO Educational Software, Teacher Support Software and Educational
      Activities Software. The Company believes that these products position it to
      appeal to the different budgets and spending patterns found in classrooms,
      schools, school districts and adult learning centers.





The
      passage and
      implementation of the No Child Left Behind Act (“NCLB”) in 2002 placed higher
      standards for accountability, research-based products, instructional improvement
      and data-driven decision-making upon all public schools in the United States.
      As
      a result, the Company has focused on the development, upgrading, selling and
      marketing of its Orchard Software for Your State (“Orchard”) product line.
      The




10




Company
      believes
      that Orchard is a cost-effective solution for schools facing growing pressures
      to demonstrate Adequate Yearly Progress and instructional improvement as
      mandated by NCLB.





NCLB
      requires every
      public school to conduct annual assessments in reading and math based upon
      each
      state’s academic standards for every student in grades three through eight. Each
      school must meet state-specific annual mandates for Adequate Yearly Progress
      or
      be classified as a failing school. Failing schools face serious consequences,
      from losing accreditation to relinquishing administrative control. NCLB requires
      100% proficiency in reading and math for all public school students in grades
      three through eight by school year 2013-2014, which places increasingly
      difficult demands upon schools for instructional improvement and satisfactory
      progress towards 100% proficiency.





Orchard
      integrates
      the results of subject specific assessment tests which are based upon state
      standards, with individualized instruction from over 160 Skill Trees (i.e.,
      software programs) in K-12 reading, language, mathematics and science. Orchard’s
      assessment identifies areas of academic weakness for each student within his/her
      state’s grade-specific standards of learning. Orchard then prescribes an
      individualized learning path for each student as students interact with a wide
      variety of motivating instructional approaches that appeal to different learning
      styles. Orchard’s management system tracks student progress for teachers and
      administrators who are facing increasing pressure for data-driven decision
      making as mandated by NCLB. Interim assessment tools can be used to measure
      educational gains and to prepare students for their high-stakes state
      tests.





Approximately
      8,000
      schools use Orchard in computer labs, learning centers and classrooms to
      supplement core instruction. Unlike many competitive comprehensive solutions,
      Orchard’s solution is delivered as an unlimited network/site license with no
      required recurring fees. Orchard’s scalable product configurations allow schools
      with limited budgets to make a modest initial investment by purchasing
      individual Skill Trees and then to grow their Orchard solution with future
      purchases of larger curriculum bundles.





As
      of March 31,
      2006, the Company employed approximately 16 people in its product development
      team who develop new instructional content, upgrade product features, ensure
      compatibility with new hardware and network operating systems and test for
      quality assurance. The Company released a new version of Orchard in 2005 -
      Orchard Gold Star - with significantly improved options for interim formative
      assessment and curriculum mapping, upgraded management and progress reports,
      upgraded content and content sequencing and a Structured Query Language (“SQL”)
      database foundation that provides improved performance and scalability within
      schools and school districts.





Orchard
      is sold
      through a network of independent dealer representatives, direct field and inside
      sales representatives who actively call on schools to sell comprehensive
      curriculum- and technology-based learning solutions. A majority of the Company’s
      Orchard business is repeat business from schools or school districts that
      benefit from Orchard’s scalability by acquiring additional skill trees
      (individual programs) or bundles. The Company believes that Orchard has become
      a
      recognized competitor in the comprehensive instructional software market as
      a
      result of its motivating and research-based instructional content, its strong
      correlations to state objectives and tests, and its cost-effective and scalable
      pricing structures. Orchard contributed 76.8% and 70.4% of the Company’s revenue
      for the three months ended March 31, 2006 and 2005, respectively.





In
      addition to
      Orchard Software for Your State, the Company publishes four other instructional
      software product lines:





GAMCO
      Educational
      Software (“GAMCO”), the Company's original software product line, provides
      schools with single titles and curriculum solutions which the Company believes
      are highly motivating and engaging. GAMCO products are sold through the major
      national and regional school software catalog dealers, the Company's inside
      sales force, its direct catalogs and direct promotions. All GAMCO titles include
      management features that track student progress and allow teachers to modify
      the
      instruction to meet individual learning needs. Popular titles include Touchdown
      Math, Math Concepts, Language Concepts and Phonics. The Company is expecting
      to
      release its new software titles along with an improved version of the GAMCO
      manager in the second quarter of 2006.





The
      Teacher Support
      Software (“TSS”) product line is best known for its popular tools for teachers,
      including Worksheet Magic, and its reading programs, including WordWorks. TSS
      products are sold through all of the




11




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 has been a leading publisher of
      software for the middle school to adult learner market for more than 20 years.
      Best known for its Diascriptive 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 through this market. In addition,
      the Company has developed a series of bundled EAS titles named Real
      Achievement which includes a robust student management and reporting system.
      The
      Company plans to focus programming resources on upgrading and enhancing these
      titles as a result of a perceived increase in demand for adult learner and
      remedial products.





Journey
      has been
      upgraded to make it more competitive with other prescriptive self-branching
      integrated learning systems. The Company is in the process of enhancing Journey
      and developing an online version.





The
      Company
      generates sales from titles which have been revised for the home market and
      are
      sold through a direct-to-the-home marketer of educational software. This
      alliance allows the Company to achieve incremental sales in the home market
      without incurring the costs of expensive retail distribution.





The
      Company also
      has certain natural resources interests, including coal, oil and gas, through
      Siboney Coal Company, Inc. and other subsidiaries which are not believed to
      be
      material to the Company’s ongoing results of operations or financial
      condition.





**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 consolidated financial
      statements.





**Three
      Months Ended March 31, 2006 Compared To March 31, 2005**





Total
      revenues
      decreased 15.7% or $278,471 to $1,495,404 from $1,773,875 during the first
      quarter of 2006 compared to the first quarter of 2005. This decrease was
      attributable to overall decreased educational funding levels which led to
      decreased sales for Siboney Learning Group, specifically in the direct sales
      channel.





Cost
      of product
      sales decreased 2.2% or $9,881 to $433,272 from $443,153 during the first
      quarter of 2006 compared to the first quarter of 2005. This decrease was
      attributable to lower material expense due to lower sales partially offset
      by
      higher software amortization incurred in connection with the release of the
      Gold
      Star product in the second quarter of 2005.





Selling,
      general
      and administrative expenses decreased 25.1% or $550,550 to $1,641,772 from
      $2,192,322 during the first quarter of 2006 compared to the first quarter of
      2005. This decrease was due to cost reduction initiatives which resulted in
      lower professional fees and sales and marketing expenses in the first quarter
      of
      2006 and severance expenses recorded in the first quarter of 2005.





The
      Company’s net
      loss for the first quarter of 2006, primarily for the reasons described above,
      was $366,128 after income tax benefit of $243,000 compared to net loss of
      $361,303 after income tax benefit of $502,000 for the first quarter of
      2005.





**Liquidity
      and Capital Resources**





Cash
      decreased
      $121,441 or 44.8% to $149,546 at March 31, 2006 compared to $270,987 at December
      31, 2005 primarily reflecting the increase in accounts receivable and the
      unfavorable change in operating results.





12





Accounts
      receivable
      increased $214,616 or 25.7% to $1,048,532 at March 31, 2006 compared to $833,916
      at December 31, 2005 primarily due to a significant amount of the sales
      occurring at the end of the first quarter.





Short-term
      debt
      increased $825,000 or 68.8% to $2,025,000 at March 31, 2006 from $1,200,000
      at
      December 31, 2005 primarily due to seasonal borrowing on the line of credit.





Working
      capital
      (deficit) decreased $588,939 or 265% to $(811,320) at March 31, 2006 from
      $(222,381) at December 31, 2005 primarily due to the increase in short-term
      debt, partially offset by the increase in accounts receivable.





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. Under
      this program, the Company has repurchased a cumulative total of 587,500 shares
      of the Company’s common stock. On May 11, 2005, the Board of Directors
      authorized the purchase of up to an additional 1,000,000 shares of the Company’s
      common stock from time to time in the open market or in privately negotiated
      transactions. No shares will be purchased under the 2005 program until the
      2004
      program is completed. During the first three months of 2006, the Company did
      not
      purchase any shares of common stock of the Company.





The
      Company has
      financed its business primarily with cash generated from operating activities,
      accessing its bank revolving line of credit and promissory note. The line of
      credit agreement provides for maximum borrowings of $1,500,000 and is secured
      by
      the Company’s accounts receivable, equipment and inventory. As
      of March 31,
      2006, the Company had a balance of $900,000 outstanding under the line of
      credit.





On
      March 31, 2006,
      the Company borrowed $1,125,000 evidenced by a promissory note in favor of
      a
      bank. The loan bears interest at a variable rate based on the prime rate,
      currently 8% per annum. A final payment of the remaining principal amount and
      accrued interest is due on July 31, 2006. The Company expects to enter into
      a
      new loan arrangement on or before the maturity of this loan and the line of
      credit on July 31, 2006. The Company believes that its available capital
      resources are adequate to support its current business levels, however, failure
      to enter into a renewal of its bank credit agreement would have a material
      adverse effect on the Company’s financial condition and results of
      operations.





**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 a variable rate based on the prime rate, currently 8% per annum.
      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.




**ITEM
      4. CONTROLS AND PROCEDURES**





Based
      on their
      evaluation as of March 31, 2006, Timothy J. Tegeler, the Company’s Chief
      Executive Officer and William D. Edwards, Jr., the Company’s Chief Financial
      Officer, have 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.





*
      * * *
      *





**FORWARD-LOOKING
      STATEMENTS**





This
      report
      contains certain statements regarding future results, performance, expectations
      or intentions that may be considered “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




13




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 uncertainties.





Factors
      that could
      cause actual results to differ materially from the forward-looking statements
      include, but are not limited to, the following: (1) risks related to our
      customers’ dependence on government funding to purchase the Company’s products;
      (2) risks associated with our ability to compete with well-established and
      well-funded competitors; (3) risks associated with the constant changes in
      the
      technologies used to build and deliver the Company’s products; (4) the Company’s
      ability to retain key personnel; (5) the Company’s ability to motivate its
      independent dealer representatives to sell the Company’s products; (6) changes
      in market acceptance and demand for curriculum-based educational software;
      (7)
      risks associated with acceptance of statistical studies; and (8) risks
      associated with our ability to access capital to finance our
      business.





No
      assurances can
      be given that the results contemplated in any forward-looking statements will
      be
      achieved or will be achieved in any particular timeframe. 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.





**PART
      II- OTHER INFORMATION**





**ITEM
      5.OTHER INFORMATION**





On
      March 31, 2006,
      the Company replaced its existing loans with Southwest Bank by executing a
      new
      promissory note in favor of the bank with a principal amount of $1,125,000
      and a
      new line of credit providing for maximum borrowings of $1,500,000. Both the
      promissory note and the line of credit bear interest at a variable rate based
      on
      the prime rate, currently 8 **%** per annum. The
      Company makes monthly interest payments on the outstanding principal amounts
      under the note and the line of credit beginning April 30, 2006. A final payment
      of the principal amount and accrued interest on the note and the line of credit
      is due on July 31, 2006. As of March 31, 2006, the Company had a balance of
      $900,000 outstanding under the line of credit. The Company expects to enter
      into
      a new loan arrangement on or before the maturity of the promissory note and
      the
      line of credit, each of which expire on July 31, 2006.





**ITEM
      6. EXHIBITS**





Exhibits
      required
      as part of this report are listed in the index appearing on page 16.







14


**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/
William
                D.
                Edwards,
                Jr.William
                D.
                Edwards, Jr.Executive
                Vice President, Chief Operating Officer and Chief Financial
                Officer(Authorized
                officer and principal financial officer)May
                15,
                2006








15
 
  **Index
        to Exhibits**





**Exhibits**





10.1
            Promissory
                Note executed in favor of Southwest Bank of St. Louis by Siboney
                Learning
                Group Inc. and Siboney Corporation dated March 31, 200610.2
            Promissory
                Note executed in favor of Southwest Bank of St. Louis by Siboney
                Learning
                Group Inc. and Siboney Corporation dated March 31, 200631.1
            Certification
                by Chief Executive Officer pursuant to Rule 13a - 14(a) or Rule 15d
                -
                14(a) of the Securities Exchange Act of 193431.2
            Certification
                by Chief Financial Officer pursuant to Rule 13a - 14(a) or Rule 15d
                -
                14(a) of the Securities Exchange Act of 193432.1
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 200232.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002






16