**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,
2005**











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 an accelerated filer (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**
    
    **17,345,419****$.10
      per share**












****INDEX****PART
      I   FINANCIAL INFORMATION****Item
      1.   Unaudited Financial Statements**
    
    ****Consolidated Balance Sheet,
      March 31, 2005 and December 31,
    2004
    
    ****3Consolidated Statement of
      Operations,
      Three Months Ended March 31, 2005 and
      March 31, 2004
    
    ****4Consolidated Statement of Stockholders’
      Equity,
      Three Months Ended March 31,
      2005
    
    ****5Consolidated Statement of Cash Flows,
      Three
      Months Ended March 31, 2005 and March 31,
      2004
    
    ****6Notes to Unaudited Consolidated Financial
      Statements
    
    7**Item 2.   Management’s Discussion and Analysis
      of**
      **Financial** **Condition and Results of
      Operations**
    
    9**Item** **3.  
      Quantitative and Qualitative Disclosures**
      **About Market Risk**
    
    ****
      13**Item 4.   Controls and
      Procedures**
    
    13**PART II   OTHER
      INFORMATION****Item
      1. Legal Proceedings**
    
    14**Item 2. Unregistered Sales of Equity Securities and
      Use of Proceeds**
    
    14**Item
      6.** **Exhibits**
    
    16**SIGNATURES**
    
    16**INDEX TO EXHIBITS**
    
    17**





2




**ITEM
      1. UNAUDITED FINANCIAL STATEMENTS****PART
      I - FINANCIAL INFORMATION****SIBONEY CORPORATION AND SUBSIDIARIES CONSOLIDATED
      BALANCE SHEET****Assets****March
      31,**
    
    **December
      31,****2005
      (Unaudited)**
    
    **2004****Current
      Assets**Cash
    
    $
    236,154
    
    $
    686,642Accounts
      receivable
    
    
    1,357,615
    
    
    1,379,006Inventories
    
    
    347,543
    
    
    314,947Refundable
      income taxes
    
    
    700,769
    
    
    620,769Prepaid
      expenses
    
    
    174,033
    
    
    164,305Deferred tax
      asset
    
    
    185,600
    
    
    116,000**Total
      Current Assets**
    
    
    3,001,714
    
    
    3,281,669**Property
      and Equipment, Net**
    
    
    395,751
    
    
    432,500**Goodwill,
      Net**
    
    
    1,045,015
    
    
    1,045,015**Other
      Assets**
    
    
    1,774,292
    
    
    1,627,648**Total
      Assets**
    
    $
    6,216,772
    
    $
    6,386,832**Liabilities
      And Stockholders’
      Equity****Current
      Liabilities**Notes
      payable
    
    $
    450,000
    
    $
    6,771Current
      portion of capitalized lease obligation
    
    
    25,917
    
    
    25,686Accounts
      payable
    
    
    199,003
    
    
    173,660Accrued
      bonuses
    
    
    52,566
    
    
    88,677Accrued
      commissions
    
    
    68,483
    
    
    36,817Accrued
      vacation
    
    
    87,223
    
    
    87,223Accrued
      royalties
    
    
    102,150
    
    
    311,886Accrued
      severance
    
    
    273,885
    
    
    ―Other accrued
      expenses
    
    
    95,808
    
    
    48,093Accrued
      litigation liability
    
    
    100,000
    
    
    100,000**Total
      Current Liabilities**
    
    
    1,455,035
    
    
    878,813**Long-Term
      Liabilities**Long-term
      litigation liability
    
    
    100,000
    
    
    100,000Capitalized
      lease obligation
    
    
    4,593
    
    
    11,116Deferred tax
      liability
    
    
    7,600
    
    
    360,000**Total
      Long-Term Liabilities**
    
    
    112,193
    
    
    471,116**Commitments
      and Contingencies (Note 5)****Stockholders’ Equity**Common
      stock:Authorized
      100,000,000 shares at $0.10 par value; issued andoutstanding
      17,345,419 at March 31, 2005 and 17,407,919 atDecember 31,
      2004
    
    
    1,734,542
    
    
    1,740,792Retained
      earnings
    
    
    2,915,002
    
    
    3,296,111**Total
      Stockholders’
      Equity**
    
    
    4,649,544
    
    
    5,036,903**Total
      Liabilities and Stockholders’
      Equity**
    
    $
    6,216,772
    
    $
    6,386,832Note: The
      balance sheet at December 31, 2004 has been derived from the audited
      financial statements at that date.See
      accompanying notes to unaudited consolidated financial
      statements.
 
 
 3
 **SIBONEY
      CORPORATION AND SUBSIDIARIES****CONSOLIDATED STATEMENT OF OPERATIONS
      (Unaudited)****For
      The Three Months Ended March 31,****2005**
    
    **2004****Revenues**
    
    $
    1,773,875
    
    $
    2,656,853**Cost
      of Product Sales**
    
    
    443,153
    
    
    536,239**Selling,
      General and Administrative **Expenses****
    
    
    2,192,322
    
    
    1,754,306**Income
      (Loss) From Operations**
    
    
    (861,600
    )
    
    366,308**Other
      Income (Expense)**Interest
      expense, net
    
    
    (2,691
    )
    
    (497
    )Miscellaneous
    
    
    988
    
    
    679**Total
      Other Income (Expense)**
    
    
    (1,703
    )
    
    182**Income
      (Loss) Before Income Taxes**
    
    
    (863,303
    )
    
    366,490**Income
      Tax Benefit (Expense)**
    
    
    502,000
    
    
    (144,290
    )**Net
      Income (Loss)**
    
    $
    (361,303
    )
    $
    222,200**Earnings
      (Loss) Per Common Share - Basic**
    
    $
    (0.02
    )
    $
    0.01**Earnings
      (Loss) Per Common Share - Diluted**
    
    $
    (0.02
    )
    $
    0.01**Weighted
      Average Number of Common****Shares
      Outstanding - Basic**
    
    
    17,357,266
    
    
    17,591,461**Weighted
      Average Number of Common****Shares
      Outstanding - Diluted**
    
    
    17,820,076
    
    
    17,706,704See
      accompanying notes to unaudited consolidated financial
      statements.
 
 4
  **SIBONEY
CORPORATION AND SUBSIDIARIES**
 **CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (Unaudited)**
 **Total****Common
      Stock**
    
    **Retained**
    
    **Stockholders’****Shares**
    
    **Amount**
    
    **Earnings**
    
    **Equity****Balance
      - December 31, 2004**
    
    
    17,407,919
    
    $
    1,740,792
    
    $
    3,296,111
    
    $
    5,036,903**Stock
      Repurchase**
    
    
    (62,500
    )
    
    (6,250
    )
    
    (19,806
    )
    
    (26,056
    )**Net
      Income (Loss)**
    
    
    —
    
    
    —
    
    
    (361,303
    )
    
    (361,303
    )**Balance
      - March 31, 2005**
    
    
    17,345,419
    
    $
    1,734,542
    
    $
    2,915,002
    
    $
    4,649,544See
      accompanying notes to unaudited consolidated financial
      statements.
 
  5
 
 **SIBONEY
      CORPORATION AND SUBSIDIARIES****CONSOLIDATED STATEMENT OF CASH FLOW
      (Unaudited)******
    
    **For The Three Months
      Ended March 31,****2005**
    
    
    **2004****Cash
      Flows From Operating Activities**Net income
      (loss)
    
    $
    (361,303
    )
    $
    222,200Adjustments
      to reconcile net income (loss) to netcash provided
      by (used in) operating activities:Depreciation
    
    
    57,451
    
    
    53,066Amortization
    
    
    135,002
    
    
    155,930Deferred
      income taxes
    
    
    (422,000
    )
    
    87,200Change in
      assets and liabilities:(Increase)
      decrease in accounts receivable
    
    
    21,392
    
    
    (289,489
    )(Increase)
      decrease in inventories
    
    
    (32,596
    )
    
    26,448Increase in
      refundable income taxes
    
    
    (80,000
    )
    
    ―Increase in
      prepaid expenses
    
    
    (9,728
    )
    
    (22,652
    )Increase in
      income tax payable
    
    
    ―
    
    
    32,800Increase
      (decrease) in accounts payable andaccrued
      expenses
    
    
    132,762
    
    
    (56,970
    )**Net
      Cash Provided By (Used In) Operating Activities**
    
    
    (559,020
    )
    
    208,533**Cash
      Flows From Investing Activities**Payments for
      equipment
    
    
    (20,703
    )
    
    (68,520
    )Payments for
      software development costs
    
    
    (281,645
    )
    
    (108,312
    )**Net
      Cash Used In Investing Activities**
    
    
    (302,348
    )
    
    (176,832
    )**Cash
      Flows From Financing Activities**Proceeds from
      issuance of common stock
    
    
    —
    
    
    868Payments
      under stock buy back program
    
    
    (26,056
    )
    
    —Borrowings on
      line-of-credit
    
    
    450,000
    
    
    —Principal
      payments on capital lease obligation
    
    
    (6,293
    )
    
    (6,257
    )Principal
      payments on long-term debt
    
    
    (6,771
    )
    
    (89,015
    )**Net
      Cash Provided By (Used In) Financing Activities**
    
    
    410,880
    
    
    (94,404
    )**Net
      Decrease In Cash**
    
    
    (450,488
    )
    
    (62,703
    )**Cash
      - Beginning of Period**
    
    
    686,642
    
    
    1,102,608**Cash
      - End of Period**
    
    $
    236,154
    
    $
    1,039,905**Supplemental
      Disclosure of Cash Flow Information**Interest
      paid
    
    $
    5,853
    
    $
    2,419Income taxes
      paid
    
    $
    —
    
    $
    24,692See
      accompanying notes to unaudited consolidated financial
      statements.
 
 6





**SIBONEY
CORPORATION AND SUBSIDIARIES**





**NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS**





**MARCH 31,
2004 AND 2005**


****


**1.** **CONSOLIDATED FINANCIAL STATEMENTS**





The consolidated
balance sheet as of March 31, 2005, the consolidated statement of operations for
the three-month periods ended March 31, 2005 and 2004, the consolidated
statement of stockholders’ equity for the three-month period ended March 31,
2005 and the consolidated statement of cash flows for the three-month periods
ended March 31, 2005 and 2004, 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
March 31, 2005 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 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, 2004. The
results of operations for the period ended March 31, 2005 are not necessarily
indicative of the operating results for the full year.





**2.   INVENTORIES**





Inventories consist
of:


**March
      31, 2005**
    **December
      31, 2004**Raw
      materials
    
    $
    264,072
    
    $
    259,998Finished
      goods
    
    
    130,570
    
    
    94,549Reserve for
      obsolescence
    
    
    (47,100
    )
    
    (39,600
    )$
    347,543
    
    $
    314,947





**3.** **OTHER ASSETS**




Other assets
consist of:




**March
      31, 2005**
    ******December
      31, 2004**Software
      development costs, net of accumulated amortization of $1,960,667 in 2005
      and $1,825,665 in 2004
    
    $
    1,763,099
    
    $
    1
      ,616,455Deposits
    
    
    11,193
    
    
    11,193$
    1,774,292
    
    $
    1,627,648










7





The Company
capitalizes costs associated with the development of computer software for sale.
Costs are capitalized at the point the Company determines that it is
technologically feasible to produce the software title. Such costs are amortized
on a straight-line basis over four years .


Amortization expense charged against
earnings amounted to $135,002 and $155,930 in 2005 and 2004,
respectively.


**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.





**Three
      Months Ended March 31,****2005**
    
    
    **2004**Reported net
      income (loss)
    
    $
    (361,303
    )
    $
    222,200Stock-based
      employee compensation expense determined under the fair value based
      method, net of related tax
      effects
    
    
    (23,163
    )
    
    (20,159
    )Pro forma net
      income (loss)
    
    $
    (384,466
    )
    $
    202,041Earnings
      (loss) per share (basic and diluted):
      As
      reported
      Pro
      forma
    
    $
      $
    (0.02
      (0.02
    )
      )
    $
      $
    0.01
      0.01





**5.  
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 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 arose 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 alleged that Siboney had
sold software bundles incorporating certain Merit software under the name
“Orchard Home” outside of the





8


“schools market,”
allegedly breaching the licensing agreement and infringing Merit’s alleged
copyright in its software. The complaint also alleged other miscellaneous
breaches of the licensing agreement, including failing to obtain Merit’s consent
for certain changes to Merit’s software, and disputing the amount of royalties
due. Siboney filed a counterclaim against Merit, seeking damages for breach of
the licensing agreement by Merit and a declaratory judgment of noninfringement
of Merit’s alleged copyright.****In December
2004,****Siboney entered into a definitive agreement with
Merit to settle all claims in the lawsuit. The principal terms of this agreement
are as follows: none of the parties admit liability for any of the claims in the
lawsuit; the software licensing agreement will be terminated as of a future
date; Siboney will pay royalties due under the licensing agreement through its
termination; Siboney paid to Merit $465,000 upon execution of the settlement
agreement and will pay additional payments of $100,000 in each 2005 and 2006;
and Merit returned approximately $50,000 of the royalty payments previously made
by Siboney.





**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 and
English as a Second Language, primarily for K-12 schools and school districts.
The Company publishes five product lines, including 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. This strategy
allows the Company 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
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.





Starting in school
year 2005-2006, the NCLB Act requires that every public school must 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 up to loss of
accreditation and possible take over. NCLB requires 100% minimal 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% minimal
proficiency.





Orchard integrates
assessment based upon standards in 35 states with individualized instruction
from over 150 Skill Trees (i.e., software programs) in K-12 reading,
language,




9





mathematics and
science. Orchard’s assessment identifies specific 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
standards-based 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 test.





Over 6,000 schools
and school districts 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 with multiple titles and state-specific
assessment.





The Company employs
approximately 20 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 has recently released a new version of Orchard –Orchard Gold Star –with significantly improved options for interim formative assessment and
curriculum mapping, upgraded management and progress reports, upgraded content
and content sequencing, a new application that will allow Orchard to aggregate
student data at the school district level, and more advanced technology,
including a Structured Query Language (“SQL”) database foundation that improves
performance and scalability within schools and school districts.





Orchard is sold
through a network of resellers and 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 build up their
Orchard implementation through repeat purchases. The Company believes that
Orchard has become a recognized competitor in the growing 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
70.4% and 72.3% of the Company’s revenue for the three months ended March 31,
2005 and 2004, 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
product line, provides schools with single titles and series which the Company
believes are highly motivating. GAMCO products are sold through the major
national and regional school software 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








10





Math, Math
Concepts, Language Concepts and Phonics.





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 reading programs,
including WordWorks. TSS products are now 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, 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 in
the market for instruction in basic skills for adults. In addition, the Company
sells selected EAS titles to its K-12 school customers and has developed a
comprehensive solution with universal management called Real Achievement based
upon EAS titles and appropriate titles from the Company’s portfolio of other
software products. The Company has committed development resources to upgrading
these products and to web-enable selected titles since the older learner market
appears to be increasingly responsive to software delivered to students over the
Internet.





Journey, the
comprehensive software product line acquired in 2001, has been upgraded to make
it more competitive with other structured comprehensive solutions.





The Company also
has generated sales of selected products which have been revised for the home
market and 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 several 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, 2005 Compared To March 31, 2004**





Total revenues
decreased 33.2% or $882,978 to $1,773,875 from $2,656,853 during the three-month period
ended March 31, 2005 compared to the first quarter of 2004. This decrease was
due primarily to two large district-wide orders which were sold in the first
quarter of 2004 and accounted for $755,318 in revenue during that
quarter.

Cost of product
sales decreased 17.4% or $93,086 to $443,153 from $536,239 during
the





11





first quarter of
2005 compared to the first quarter of the previous year. This decrease was a
result of lower product sales and higher material costs due to increased sales
of lower margin products. Gross profit margin decreased from 80% in the first
quarter of 2004 to 75% in the first quarter of 2005 due to the impact of higher
material costs and the impact of spreading fixed software amortization and
overhead costs over lower revenues.





Selling, general
and administrative expenses increased 25% or $438,016 to $2,192,322 from
$1,754,306 during the quarter ended March 31, 2005 compared to the first quarter
of 2004 primarily due to higher professional fees related to recruiting sales
representatives, increased salary expenses as a result of hiring additional
content development expertise in our Chicago office and $274,000 of accrued
severance expenses recorded in the first quarter of 2005.





The Company’s net
loss for the first quarter of 2005, primarily for the reasons described above,
was $361,303 after income tax benefit of $502,000 compared to net income of
$222,200 after income tax expense of $144,290 for the first quarter of 2004. The
Company's effective tax rate for the first quarter of 2005 is higher than what
would be expected if the statutory rate were applied to income before income
taxes primarily because of certain expenses deductible for financial reporting
purposes that are not deductible for tax purposes. Loss per common share,
basic and diluted, was $0.02 for the first quarter of 2005 compared to income of
$0.01 per share, basic and diluted for the first quarter of 2004.





**Liquidity
and Capital Resources**





Cash decreased
65.5% or $450,488 to $236,154 at March 31, 2005 compared to $686,642 at December
31, 2004 reflecting decreased sales of Siboney Learning Group.





Prepaid expenses
increased 5.9% to $174,033 compared to $164,305 at December 31,
2004.





Short-term debt
increased $443,229 to $450,000 at March 31, 2005 from $6,771 at December 31,
2004 primarily due to seasonal borrowing on the line of credit.





Accounts payable
increased 14.6% or $25,343 to $199,003 from $173,660 primarily due to higher
corporate payables for legal expenses and annual report printing
expenses.





Accrued expenses
increased 18.8% or $107,419 to $680,115 at March 31, 2005 from $572,696
primarily due to accrued severance expenses.





During the first
quarter of 2005, the Company purchased 62,500 shares of common stock of the
Company for a total of $26,057.00. The Company used cash on hand to purchase
these shares.





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 was renewed April 2005, provides for maximum borrowings of $1.5 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 March 31, 2005, the Company reported a net worth of $4.6 million
and had a balance of $450,000 outstanding under the Company’s line of credit.
The Company renewed its line of credit and believes that its available
capital





12





resources are
adequate to support its current business levels.





**ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK**





The Company
presently does not use any derivative financial instruments to hedge its
exposure to adverse fluctuations in interest rates, foreign exchange rates,
fluctuations in commodity prices or other market risks, nor does the Company
invest in speculative financial instruments. Borrowings with the bank bear
interest at prime rate and 0.25% per annum 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.


****


**ITEM 4.   CONTROLS AND
PROCEDURES**





Based on their
evaluation as of March 31, 2005, 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 “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) customers’ dependence on
government funding to purchase the Company’s products; (2) constant changes in
the technologies used to build and deliver the Company’s products; (3)
well-established and well-funded competitors; (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 the market
acceptance and demand for curriculum-based educational software; and (7) the
risks detailed from time to time in the Company’s filings with the Securities
and Exchange Commission (“SEC”).





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


****


**PART II - OTHER INFORMATION**








**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS**





**Issuer
Purchases of Equity Securities**





The following table
presents information with respect to purchases of common stock made during the
three months ended March 31, 2005 by the Company.








**Period**
    **(a)
      Total**
      **Number
      of**
      **Shares**
      **Purchased**
    **(b)**
      **Average**
      **Price
      Paid**
      **per
      Share**
    **(c)
      Total Number**
      **of
      Shares**
      **Purchased
      as**
      **Part
      of Publicly**
      **Announced**
      **Plans
      or**
      **Programs**(1)
    **(d)
      Maximum Number**
      **of
      Shares that May Yet**
      **Be
      Purchased Under**
      **the
      Plans or Programs**Month #1
      (January
      1,
      2005
      -
      January
      31,
      2005)
    40,000
    $0.42
    40,000
    750,000Month
      #2
      (February
      1,
      2005 -
      February
      28,
      2004)
    22,500
    $0.41
    22,500
    727,500Month
      #3
      (March 1,
      2005
      - March
      31,
      2005)
    ―
    ―
    ―
    ―Total
    62,500
    $0.415
    62,500
    727,500(2)





(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.


(2)
    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.








14




**ITEM 6. EXHIBITS**





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























**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 and Chief Financial Officer(Authorized
      officer and principal financial officer)





May 16,
2005








15





**Index to Exhibits**





**Exhibits**





31.1
    Certification
      by Chief Executive Officer pursuant to Rule 13a - 14(a) or Rule 15d -
      14(a) of the Securities Exchange Act of
1934





31.2
    Certification
      by Chief Financial Officer pursuant to Rule 13a - 14(a) or Rule 15d -
      14(a) of the Securities Exchange Act of
1934





32.1
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002





32.2
    Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002