##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JULY 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 FOR THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER 000-25674
 SKILLSOFT PUBLIC LIMITED COMPANY
  REPUBLIC OF IRELAND
(STATE OR OTHER JURISDICTION OF 
INCORPORATION OR ORGANIZATION)
    
    N/A
(I.R.S. EMPLOYER
IDENTIFICATION NO.)107 NORTHEASTERN BOULEVARDNASHUA, NEW HAMPSHIRE
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    03062
(ZIP CODE)
  
 þ o
  o þ o
 o þ




---



##### 



PAGE NO.PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Unaudited Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets as of July 31, 2007 and January 31, 2007
    
    
    3Condensed Consolidated Income Statements for the Three and Six Months Ended July
31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31,
2007 and 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II  OTHER INFORMATION
    
    
    34Item 1. Legal Proceedings
    
    
    34Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. Submission of Matters to a Vote of Security Holders
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    44SIGNATURE
    
    
    45EXHIBIT INDEX
    
    
    46Ex-31.1 Section 302 Certification of the Chief Executive OfficerEx-31.2 Section 302 Certification of the Chief Financial OfficerEx-32.1 Section 906 Certification of the Chief Executive OfficerEx-32.2 Section 906 Certification of the Chief Financial Officer
  2




---



##### Table of Contents



JULY 31,
    
    
    JANUARY 31,2007
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    35,550
    
    
    $
    48,612Short-term investments
    
    
    22,042
    
    
    
    55,505Restricted cash
    
    
    4,009
    
    
    
    20,095Accounts receivable, net
    
    
    86,250
    
    
    
    94,343Assets held for sale
    
    
    8,007
    
    
    
    Prepaid expenses and other current assets
    
    
    21,749
    
    
    
    22,215Total current assets
    
    
    177,607
    
    
    
    240,770Property and equipment, net
    
    
    9,038
    
    
    
    9,672Intangible assets, net
    
    
    40,285
    
    
    
    2,638Goodwill
    
    
    304,007
    
    
    
    83,171Long-term investments
    
    
    
    
    
    
    3,598Deferred tax assets, net
    
    
    56,183
    
    
    
    159Other assets
    
    
    6,069
    
    
    
    2,962Total assets
    
    $
    593,189
    
    
    $
    342,970LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,553
    
    
    $
    3,327Accrued compensation
    
    
    21,201
    
    
    
    17,870Accrued expenses
    
    
    51,459
    
    
    
    35,427Current maturities of long-term debt
    
    
    2,000
    
    
    
    Liabilities of asset groups held for sale
    
    
    1,838
    
    
    
    Deferred revenue
    
    
    143,720
    
    
    
    146,012Total current liabilities
    
    
    223,771
    
    
    
    202,636Long term debt
    
    
    198,000
    
    
    
    Other long term liabilities
    
    
    2,507
    
    
    
    2,405Total long term liabilities
    
    
    200,507
    
    
    
    2,405Commitments and contingencies (Note 12)Shareholders equity:Ordinary shares, Euro 0.11 par value: 250,000,000
shares authorized; 111,207,193 and 109,255,366
shares issued at July 31, 2007 and January 31,
2007, respectively
    
    
    12,326
    
    
    
    12,039Additional paid-in capital
    
    
    584,947
    
    
    
    573,394Treasury stock, at cost, 6,533,884 ordinary shares
    
    
    (24,524
    )
    
    
    (24,524
    )Accumulated deficit
    
    
    (401,784
    )
    
    
    (421,661
    )Accumulated other comprehensive loss
    
    
    (2,054
    )
    
    
    (1,319
    )Total shareholders equity
    
    
    168,911
    
    
    
    137,929Total liabilities and shareholders equity
    
    $
    593,189
    
    
    $
    342,970
  3




---



##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    71,469
    
    
    $
    55,734
    
    
    $
    128,609
    
    
    $
    110,387Cost of revenue  amortization of intangible
assets
    
    
    1,744
    
    
    
    1,732
    
    
    
    1,942
    
    
    
    3,463Cost of revenue (1)
    
    
    8,718
    
    
    
    6,665
    
    
    
    15,546
    
    
    
    13,116Gross profit
    
    
    61,007
    
    
    
    47,337
    
    
    
    111,121
    
    
    
    93,808Operating expenses:Research and development (1)
    
    
    11,364
    
    
    
    9,901
    
    
    
    21,605
    
    
    
    19,866Selling and marketing (1)
    
    
    23,714
    
    
    
    23,136
    
    
    
    46,262
    
    
    
    46,392General and administrative (1)
    
    
    8,998
    
    
    
    6,846
    
    
    
    16,126
    
    
    
    14,127Amortization of intangible assets
    
    
    3,741
    
    
    
    411
    
    
    
    4,320
    
    
    
    828Merger and integration related expenses
    
    
    8,493
    
    
    
    
    
    
    
    8,528
    
    
    
    Restatement  SEC investigations
    
    
    351
    
    
    
    69
    
    
    
    1,223
    
    
    
    321Total operating expenses
    
    
    56,661
    
    
    
    40,363
    
    
    
    98,064
    
    
    
    81,534Operating income
    
    
    4,346
    
    
    
    6,974
    
    
    
    13,057
    
    
    
    12,274Other
expense, net
    
    
    (251
    )
    
    
    (41
    )
    
    
    (383
    )
    
    
    (31
    )Interest income
    
    
    728
    
    
    
    1,069
    
    
    
    2,336
    
    
    
    1,874Interest expense
    
    
    (3,762
    )
    
    
    (70
    )
    
    
    (3,814
    )
    
    
    (136
    )Income before (benefit) / provision for income taxes from
continuing operations
    
    
    1,061
    
    
    
    7,932
    
    
    
    11,196
    
    
    
    13,981(Benefit) / provision for income taxes
    
    
    (10,803
    )
    
    
    3,107
    
    
    
    (8,157
    )
    
    
    5,103Income from continuing operations
    
    
    11,864
    
    
    
    4,825
    
    
    
    19,353
    
    
    
    8,878Income from operations of businesses to be
disposed, net of income tax of $387
    
    
    524
    
    
    
    
    
    
    
    524
    
    
    
    Net income
    
    $
    12,388
    
    
    $
    4,825
    
    
    $
    19,877
    
    
    $
    8,878Net income per share (Note 10):Basic  continuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.09Basic  discontinued operations
    
    $
    0.01
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    $
    0.12
    
    
    $
    0.05
    
    
    $
    0.19
    
    
    $
    0.09Basic weighted average shares outstanding
    
    
    104,400,895
    
    
    
    101,524,912
    
    
    
    103,848,299
    
    
    
    101,285,185Diluted  continuing operations
    
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.09Diluted  discontinued operations
    
    $
    0.00
    
    
    $
    
    
    
    $
    0.00
    
    
    $
    $
    0.11
    
    
    $
    0.05
    
    
    $
    0.18
    
    
    $
    0.09Diluted weighted average shares outstanding
    
    
    108,423,593
    
    
    
    104,050,160
    
    
    
    107,739,609
    
    
    
    103,460,319
 
 (1)
    
    Share-based compensation included in cost of revenue and operating expenses: THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJuly 31,
    
    July 31,2007
    
    2006
    
    2007
    
    2006Cost of revenue
    
    $
    48
    
    
    $
    11
    
    
    $
    65
    
    
    $
    17Research and development
    
    
    225
    
    
    
    284
    
    
    
    433
    
    
    
    667Selling and marketing
    
    
    369
    
    
    
    608
    
    
    
    867
    
    
    
    1,377General and administrative
    
    
    631
    
    
    
    630
    
    
    
    1,264
    
    
    
    1,253
  4




---



##### Table of Contents



SIX MONTHS ENDEDJULY 31,2007
    
    
    2006Cash flows from operating activities from continuing operations:Net income, continuing operations
    
    $
    19,353
    
    
    $
    8,878Adjustments to reconcile net income from continuing operations to net cash
provided by operating activities:Share-based compensation
    
    
    2,629
    
    
    
    3,314Depreciation and amortization
    
    
    4,009
    
    
    
    3,032Amortization of intangible assets
    
    
    6,262
    
    
    
    4,291Provision for/(recovery of) bad debts
    
    
    54
    
    
    
    (363
    )Non-cash interest expense
    
    
    226
    
    
    
    (Benefit)/provision for income tax  non-cash
    
    
    (9,164
    )
    
    
    4,446Changes in current assets and liabilities, net of acquisitions:Accounts receivable
    
    
    41,818
    
    
    
    38,802Prepaid expenses and other current assets
    
    
    4,942
    
    
    
    5,867Accounts payable
    
    
    (50
    )
    
    
    (1,150
    )Accrued expenses, including long-term liabilities
    
    
    (29,610
    )
    
    
    (12,642
    )Deferred revenue
    
    
    (30,463
    )
    
    
    (28,156
    )Net cash provided by operating activities from continuing operations
    
    
    10,006
    
    
    
    26,319Cash flows from investing activities from continuing operations:Purchases of property and equipment
    
    
    (1,888
    )
    
    
    (2,855
    )Cash used in purchase of businesses, net of cash acquired
    
    
    (278,923
    )
    
    
    Purchases of investments
    
    
    (1,000
    )
    
    
    (53,484
    )Maturity of investments
    
    
    37,973
    
    
    
    22,245Release of restricted cash
    
    
    16,090
    
    
    
    316Net cash used in investing activities from continuing operations
    
    
    (227,748
    )
    
    
    (33,778
    )Cash flows from financing activities from continuing operations:Borrowings under long-term debt, net of debt financing costs
    
    
    194,133
    
    
    
    Exercise of share options
    
    
    8,122
    
    
    
    1,301Proceeds from employee share purchase plan
    
    
    1,088
    
    
    
    1,703Net cash provided by financing activities from continuing operations
    
    
    203,343
    
    
    
    3,004Change in cash from discontinued operations
    
    
    240
    
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    1,097
    
    
    
    490Net decrease in cash and cash equivalents
    
    
    (13,062
    )
    
    
    (3,965
    )Cash and cash equivalents, beginning of period
    
    
    48,612
    
    
    
    51,937Cash and cash equivalents, end of period
    
    $
    35,550
    
    
    $
    47,972
  5




---



##### Table of Contents



Accounting for
Certain Investments in Debt and Equity Securities
 6




---



##### Table of Contents



Software Revenue Recognition,
 ®
       7




---



##### Table of Contents



Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred
      WeightedAverage
    
    AggregateWeighted
    
    Remaining
    
    IntrinsicAverage
    
    Contractual
    
    ValueShare Options
    
    Shares
    
    Exercise Price
    
    Term (Years)
    
    (in thousands)Outstanding, April 30, 2007
    
    
    19,173,432
    
    
    $
    7.61
    
    
    
    5.23Granted
    
    
    90,000
    
    
    
    9.31Exercised
    
    
    (763,981
    )
    
    
    5.26Cancelled
    
    
    (420,546
    )
    
    
    15.34Outstanding, July 31, 2007
    
    
    18,078,905
    
    
    $
    7.60
    
    
    
    5.02
    
    
    $
    43,965Exercisable, July 31, 2007
    
    
    12,425,559
    
    
    $
    8.14
    
    
    
    4.41
    
    
    $
    32,015Vested and Expected to Vest, July 31, 2007 (1)
    
    
    17,164,965
    
    
    $
    7.67
    
    
    
    4.95
    
    
    $
    42,042
 
 (1)
    
    This represents the number of vested options as of July 31, 2007 plus the number of unvested
options as of July 31, 2007 that are expected to vest as adjusted based on an estimated
forfeiture rate of 11.6%. The Company recognizes expense incurred under SFAS 123(R) on a
straight line basis. Due to the Companys vesting schedule, expense is incurred on options
that have not yet vested but which are expected to vest in a future period. The options for
which expense has been incurred but have not yet vested are included above as options expected
to vest.  8




---



##### Table of Contents



(a) NETg
  Business
Combinations
 Cash paid
    
    $
    269,738Transaction costs incurred
    
    
    7,249Total purchase price
    
    $
    276,987
 Accounting for Contingent Consideration Paid to the Shareholders of and Acquired Enterprise
in a Purchase Business Combination
  Description
    
    AmountCurrent assets
    
    $
    48,494Property and equipment
    
    
    4,639Goodwill
    
    
    254,590Amortizable intangible assets
    
    
    43,050Current liabilities*
    
    
    (48,301
    )Deferred revenue
    
    
    (25,485
    )Total
    
    $
    276,987
 
 
    
    Includes exit costs of $15.8 million 9




---



##### Table of Contents



Description
    
    Amount
    
    
    LifeNon-compete agreement
    
    $
    6,900
    
    
    2.5 yearsTrademark/tradename
    
    
    2,700
    
    
    2 yearsDeveloped software/courseware
    
    
    9,950
    
    
    1.5 yearsCustomer contractual relationships
    
    
    1,000
    
    
    1 yearCustomer noncontractual relationships
    
    
    22,500
    
    
    4 years$
    43,050
    Accounting in a Business Combination for Deferred Revenue
of an Acquiree
 Recognition of Liabilities in Connection
with a Purchase Business Combination
  10




---



##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands except per share data)Revenue
    
    $
    102,719
    
    
    $
    92,925
    
    
    $
    191,109
    
    
    $
    184,769Net loss
    
    
    (7,684
    )
    
    
    (17,426
    )
    
    
    (24,625
    )
    
    
    (31,266
    )Net loss per share  basic
    
    $
    (0.07
    )
    
    $
    (0.17
    )
    
    $
    (0.24
    )
    
    $
    (0.31
    )Net loss per share  diluted
    
    $
    (0.07
    )
    
    $
    (0.17
    )
    
    $
    (0.23
    )
    
    $
    (0.30
    )
  (b) Targeted Learning Corporation
    Recognition of
Liabilities in Connection with Purchase Business Combinations
   11




---



##### Table of Contents



EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2007
    
    $
    878
    
    
    $
    2,278
    
    
    $
    121
    
    
    $
    3,277Provision for merger and exit costs as of
the date of acquisition of NETg (May 14,
2007) accounted for in the allocation of
purchase price
    
    
    9,335
    
    
    
    1,836
    
    
    
    4,657
    
    
    
    15,828Payments made during the six months ended
July 31, 2007
    
    
    (6,057
    )
    
    
    (348
    )
    
    
    (95
    )
    
    
    (6,500
    )Merger and exit accrual July 31, 2007
    
    $
    4,156
    
    
    $
    3,766
    
    
    $
    4,683
    
    
    $
    12,605
  Year ended January 31,2008 (remaining 6 months)
    
    $
    11,1292009
    
    
    4932010
    
    
    3322011
    
    
    651Total
    
    $
    12,605
 Accounting for Costs Associated
with Exit or Disposal Activities,
   Accounting for the Impairment or Disposal of
Long-Lived Assets
  Balance Sheet
    
    JULY 31, 2007Current assets:Accounts receivable, net
    
    $
    2,112Inventory
    
    
    2,357Fixed assets
    
    
    3,353Other current assets
    
    
    185
 12




---



##### Table of Contents



JULY 31, 2007Total current assets
    
    $
    8,007Current liabilities:Accounts payable and accruals
    
    $
    812Deferred revenue
    
    
    1,026Total current liabilities
    
    $
    1,838
 Income Statement
    
    THREE AND SIXMONTHSENDED JULY31, 2007Revenue from discontinued operations
    
    $
    3,629Income from discontinued operations before income taxes
    
    
    911Income taxes
    
    
    387Income from discontinued operations
    
    $
    524
   FACILITY LEASEOBLIGATIONSTotal restructuring accrual as of January 31, 2007
    
    $
    1,421Payments made during the six months ended July 31, 2007
    
    
    (506
    )Restructuring charges incurred during the six months ended July 31, 2007
    
    
    228Total restructuring accrual as of July 31, 2007
    
    $
    1,143
   JULY 31, 2007
    
    
    JANUARY 31, 2007GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally
developed software/
courseware
    
    $
    38,716
    
    
    $
    29,778
    
    
    $
    8,938
    
    
    $
    28,257
    
    
    $
    27,836
    
    
    $
    421Customer contracts
    
    
    36,848
    
    
    
    14,988
    
    
    
    21,860
    
    
    
    13,018
    
    
    
    11,701
    
    
    
    1,317Non-compete
    
    
    6,900
    
    
    
    690
    
    
    
    6,210
    
    
    
    
    
    
    
    
    
    
    
    Trademarks and
trade names
    
    
    3,625
    
    
    
    348
    
    
    
    3,277
    
    
    
    905
    
    
    
    5
    
    
    
    90086,089
    
    
    
    45,804
    
    
    
    40,285
    
    
    
    42,180
    
    
    
    39,542
    
    
    
    2,638Goodwill
    
    
    304,007
    
    
    
    
    
    
    
    304,007
    
    
    
    83,171
    
    
    
    
    
    
    
    83,171$
    390,096
    
    
    $
    45,804
    
    
    $
    344,292
    
    
    $
    125,351
    
    
    $
    39,542
    
    
    $
    85,809
  TotalGross carrying amount of goodwill, January 31, 2007
    
    $
    83,171Utilization of tax benefit
    
    
    (36,829
    )Acquisition of TLC
    
    
    3,233Acquisition of NETg
    
    
    254,590
 13




---



##### Table of Contents



TotalOther
    
    
    (158
    )Gross carrying amount of goodwill, July 31, 2007
    
    $
    304,007
   AmortizationFiscal Year
    
    Expense2008
    
    $
    10,3972009
    
    
    16,4152010
    
    
    8,2452011
    
    
    3,7122012
    
    
    616Total
    
    $
    39,385
   THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Comprehensive income:Net income
    
    $
    12,388
    
    
    $
    4,825
    
    
    $
    19,877
    
    
    $
    8,878Other comprehensive income/(loss) 
Foreign currency adjustment
    
    
    (263
    )
    
    
    (167
    )
    
    
    (415
    )
    
    
    (465
    )Change in fair value of interest rate hedge
    
    
    (232
    )
    
    
    
    
    
    
    (232
    )
    
    
    Unrealized holding gains/(losses)
    
    
    (8
    )
    
    
    (49
    )
    
    
    (86
    )
    
    
    26Comprehensive income
    
    $
    11,885
    
    
    $
    4,609
    
    
    $
    19,144
    
    
    $
    8,439
  SIX MONTHS
    
    
    YEAR ENDEDENDED JULY 31,
    
    
    JANUARY 31,2007
    
    
    2007Unrealized holding (losses)/gains on available for sale securities
    
    $
    (22
    )
    
    $
    67Change in fair value of interest rate hedge
    
    
    (232
    )
    
    
    Foreign currency adjustment
    
    
    (1,800
    )
    
    
    (1,386
    )Total accumulated other comprehensive loss
    
    $
    (2,054
    )
    
    $
    (1,319
    )
   14




---



##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic weighted
average shares
outstanding
    
    
    104,400,895
    
    
    
    101,524,912
    
    
    
    103,848,299
    
    
    
    101,285,185Effect of dilutive
shares outstanding
    
    
    4,022,698
    
    
    
    2,525,248
    
    
    
    3,891,310
    
    
    
    2,175,134Weighted average
shares outstanding,
as adjusted
    
    
    108,423,593
    
    
    
    104,050,160
    
    
    
    107,739,609
    
    
    
    103,460,319
  THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2007
    
    2006
    
    2007
    
    2006Options to
purchase shares
    
    
    14,056,207
    
    
    
    14,005,126
    
    
    
    14,187,595
    
    
    
    14,355,240
    Accounting for Income Taxes
  Deferred Taxes
  15




---



##### Table of Contents



16




---



##### Table of Contents



THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:United States
    
    $
    57,261
    
    
    $
    43,603
    
    
    $
    101,080
    
    
    $
    86,466United Kingdom (UK)
    
    
    7,319
    
    
    
    6,260
    
    
    
    14,259
    
    
    
    12,321Canada
    
    
    2,575
    
    
    
    2,354
    
    
    
    5,129
    
    
    
    4,716Europe, excluding UK
    
    
    626
    
    
    
    518
    
    
    
    1,024
    
    
    
    1,041Australia/New Zealand
    
    
    3,077
    
    
    
    2,058
    
    
    
    5,838
    
    
    
    4,296Other
    
    
    611
    
    
    
    941
    
    
    
    1,279
    
    
    
    1,547Total revenue
    
    $
    71,469
    
    
    $
    55,734
    
    
    $
    128,609
    
    
    $
    110,387
    17




---



##### Table of Contents



JULY 31, 2007
    
    
    JANUARY 31, 2007Course development fees
    
    $
    1,472
    
    
    $
    1 ,860Professional fees
    
    
    5,917
    
    
    
    2,639Accrued payables
    
    
    2,395
    
    
    
    415Accrued miscellaneous taxes
    
    
    485
    
    
    
    385Account payable other
    
    
    8,355
    
    
    
    Accrued merger related costs*
    
    
    11,242
    
    
    
    1,892Sales tax payable/VAT payable
    
    
    4,649
    
    
    
    4,405Accrued royalties
    
    
    7,846
    
    
    
    3,693Accrued interest
    
    
    1,499
    
    
    
    Accrued litigation settlements
    
    
    
    
    
    
    15,250Accrued restructuring
    
    
    504
    
    
    
    659Other accrued liabilities
    
    
    7,095
    
    
    
    4,229Total accrued expenses
    
    $
    51,459
    
    
    $
    35,427
 
 *
    
    Includes $1,431 and $1,188 of accrued payroll taxes in July 31, 2007 and January 31, 2007,
respectively.     18




---



##### Table of Contents



Accounting for Derivative Instruments and
Hedging Activities
   19




---



##### Table of Contents



20




---



##### Table of Contents



21




---



##### Table of Contents



The Fair
Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB
Statement No. 115.
 
        22




---



##### Table of Contents



Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed
          23




---



##### Table of Contents



®
      24




---



##### Table of Contents



Three Months Ended July 31,Dollar
    
    
    Percent ChangeIncrease/(Decrease)
    
    
    Increase/(Decrease)
    
    
    Percentage of Revenue2006/2007
    
    
    2006/2007
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    15,735
    
    
    
    28
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue  amortization of
intangible assets
    
    
    12
    
    
    
    1
    %
    
    
    2
    %
    
    
    3
    %Cost of revenue
    
    
    2,053
    
    
    
    31
    %
    
    
    12
    %
    
    
    12
    %Gross profit
    
    
    13,670
    
    
    
    29
    %
    
    
    85
    %
    
    
    85
    %Research and development
    
    
    1,463
    
    
    
    15
    %
    
    
    16
    %
    
    
    18
    %Selling and marketing
    
    
    578
    
    
    
    3
    %
    
    
    33
    %
    
    
    42
    %General and administrative
    
    
    2,152
    
    
    
    31
    %
    
    
    13
    %
    
    
    12
    %Amortization of intangible assets
    
    
    3,330
    
    
    
    810
    %
    
    
    5
    %
    
    
    1
    %Merger related integration expenses
    
    
    8,493
    
    
    
    *
    
    
    
    11
    %
    
    
    Restatement  SEC investigation
    
    
    282
    
    
    
    409
    %
    
    
    1
    %
    
    
    Total operating expenses
    
    
    16,298
    
    
    
    40
    %
    
    
    79
    %
    
    
    72
    %Operating income
    
    
    (2,628
    )
    
    
    (38
    )%
    
    
    6
    %
    
    
    13
    %Other income/(expense) , net
    
    
    (210
    )
    
    
    512
    %
    
    
    
    
    
    
    Interest income
    
    
    (341
    )
    
    
    (32
    )%
    
    
    1
    %
    
    
    2
    %Interest expense
    
    
    (3,692
    )
    
    
    5,274
    %
    
    
    (5
    )%
    
    
    Income before (benefit) / provision for income taxes from continuing operations
    
    
    (6,871
    )
    
    
    (87
    )%
    
    
    1
    %
    
    
    14
    %(Benefit) / provision for income taxes
    
    
    (13,910
    )
    
    
    *
    
    
    
    (15
    )%
    
    
    6
    %Income from continuing operations
    
    
    7,039
    
    
    
    146
    %
    
    
    17
    %
    
    
    9
    %Income from operations of businesses to be disposed, net of income tax
    
    
    524
    
    
    
    *
    
    
    
    1
    %
    
    
    Net income
    
    $
    7,563
    
    
    
    157
    %
    
    
    17
    %
    
    
    9
    %
 
 *
    
    Not meaningful  THREE MONTHS ENDED JULY 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:Multi-Modal Learning
    
    $
    71,469
    
    
    $
    54,210
    
    
    $
    17,259Retail Certification
    
    
    
    
    
    
    1,524
    
    
    
    (1,524
    )Total
    
    $
    71,469
    
    
    $
    55,734
    
    
    $
    15,735
   25




---



##### Table of Contents



THREE MONTHS ENDED JULY 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:United States
    
    $
    57,261
    
    
    $
    43,603
    
    
    $
    13,658International
    
    
    14,208
    
    
    
    12,131
    
    
    
    2,077Total
    
    $
    71,469
    
    
    $
    55,734
    
    
    $
    15,735
        26




---



##### Table of Contents



27




---



##### Table of Contents



Six Months Ended July 31,Dollar
    
    
    Percent ChangeIncrease/(Decrease)
    
    
    Increase/(Decrease)
    
    
    Percentage of Revenue2006/2007
    
    
    2006/2007
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    18,222
    
    
    
    17
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue  amortization of
intangible assets
    
    
    (1,521
    )
    
    
    (44
    )%
    
    
    2
    %
    
    
    3
    %Cost of revenue
    
    
    2,430
    
    
    
    19
    %
    
    
    12
    %
    
    
    12
    %Gross profit
    
    
    17,313
    
    
    
    18
    %
    
    
    86
    %
    
    
    85
    %Research and development
    
    
    1,739
    
    
    
    9
    %
    
    
    17
    %
    
    
    18
    %Selling and marketing
    
    
    (130
    )
    
    
    
    
    
    
    36
    %
    
    
    42
    %General and administrative
    
    
    1,999
    
    
    
    14
    %
    
    
    13
    %
    
    
    13
    %Amortization of intangible assets
    
    
    3,492
    
    
    
    422
    %
    
    
    3
    %
    
    
    1
    %Merger related integration expenses
    
    
    8,528
    
    
    
    *
    
    
    
    7
    %
    
    
    Restatement  SEC investigation
    
    
    902
    
    
    
    281
    %
    
    
    1
    %
    
    
    Total operating expenses
    
    
    16,530
    
    
    
    20
    %
    
    
    76
    %
    
    
    74
    %Operating income
    
    
    783
    
    
    
    6
    %
    
    
    10
    %
    
    
    11
    %Other income/(expense), net
    
    
    (352
    )
    
    
    1,135
    %
    
    
    
    
    
    
    Interest income
    
    
    462
    
    
    
    25
    %
    
    
    2
    %
    
    
    2
    %Interest expense
    
    
    (3,678
    )
    
    
    2,704
    %
    
    
    (3
    )%
    
    
    Income
before (benefit) / provision for income taxes from continuing
operations
    
    
    (2,785
    )
    
    
    (20
    )%
    
    
    9
    %
    
    
    13
    %(Benefit) / provision for income taxes
    
    
    (13,260
    )
    
    
    *
    
    
    
    (6
    )%
    
    
    5
    %Income from
continuing operations
    
    
    10,475
    
    
    
    118
    %
    
    
    15
    %
    
    
    8
    %Income from
operations of businesses to be disposed, net of income tax
    
    
    524
    
    
    
    *
    
    
    
    
    
    
    
    Net income
    
    $
    10,999
    
    
    
    124
    
    
    
    15
    %
    
    
    8
    %
 
 *
    
    Not meaningful.  SIX MONTHS ENDED JULY 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:Multi-Modal Learning
    
    $
    128,396
    
    
    $
    107,131
    
    
    $
    21,265Retail Certification
    
    
    213
    
    
    
    3,256
    
    
    
    (3,043
    )Total
    
    $
    128,609
    
    
    $
    110,387
    
    
    $
    18,222
   SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:United States
    
    $
    101,080
    
    
    $
    86,467
    
    
    $
    14,613International
    
    
    27,529
    
    
    
    23,920
    
    
    
    3,609Total
    
    $
    128,609
    
    
    $
    110,387
    
    
    $
    18,222
 28




---



##### Table of Contents



29




---



##### Table of Contents



30




---



##### Table of Contents



Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating Lease Obligations
    
    $
    23,875
    
    
    $
    8,099
    
    
    $
    7,263
    
    
    $
    2,364
    
    
    $
    6,149Debt Obligations
    
    
    200,000
    
    
    
    2,000
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    190,000Total Obligations
    
    $
    223,875
    
    
    $
    10,099
    
    
    $
    11,263
    
    
    $
    6,364
    
    
    $
    196,149
   31




---



##### Table of Contents



32




---



##### Table of Contents



33




---



##### Table of Contents



34




---



##### Table of Contents



35




---



##### Table of Contents



36




---



##### Table of Contents




    
    the size and timing of new/renewal agreements and upgrades;
    
    royalty rates;
    
    the announcement, introduction and acceptance of new products, product enhancements and
technologies by us and our competitors;
    
    the mix of sales between our field sales force, our other direct sales channels and our telesales channels;
    
    general conditions in the U.S. or the international economy;
    
    the loss of significant customers;
    
    delays in availability of new products;
    
    product or service quality problems;
    
    seasonality  due to the budget and purchasing cycles of our customers, we expect our
revenue and operating results will generally be strongest in the second half of our fiscal
year and weakest in the first half of our fiscal year;
    
    the spending patterns of our customers;
    
    litigation costs and expenses;
    
    non-recurring charges related to acquisitions;
    
    growing competition that may result in price reductions; and
    
    currency fluctuations.
  37




---



##### Table of Contents




    
    difficulties in integrating the technologies, operations, financial controls and
personnel of the acquired company;
    
    difficulties in retaining or transitioning customers and employees of the acquired company;
    
    diversion of management time and focus;
    
    the incurrence of unanticipated expenses associated with the acquisition or the
assumption of unknown liabilities or unanticipated financial, accounting or other problems
of the acquired company; and
    
    accounting charges related to the acquisition, including restructuring charges,
write-offs of in-process research and development costs, and subsequent impairment charges
relating to goodwill or other intangible assets acquired in the transaction.
     38




---



##### Table of Contents




    
    third-party suppliers of instructor-led information technology, business, management
and professional skills education and training;
    
    technology companies that offer learning courses covering their own technology products;
    
    suppliers of computer-based training and e-learning solutions;
    
    internal education, training departments and HR outsourcers of potential customers; and
    
    value-added resellers and network integrators.
      39




---



##### Table of Contents



40




---



##### Table of Contents



41




---



##### Table of Contents




    
    difficulties or delays in developing and supporting non-English language versions of
our products and services;
    
    political and economic conditions in various jurisdictions;
    
    difficulties in staffing and managing foreign subsidiary operations;
 42




---



##### Table of Contents




    
    longer sales cycles and account receivable payment cycles;
    
    multiple, conflicting and changing governmental laws and regulations;
    
    foreign currency exchange rate fluctuations;
    
    protectionist laws and business practices that may favor local competitors;
    
    difficulties in finding and managing local resellers;
    
    potential adverse tax consequences; and
    
    the absence or significant lack of legal protection for intellectual property rights.
    
    
    our need to educate potential customers about the benefits of our products;
    
    competitive evaluations by customers;
    
    the customers internal budgeting and approval processes;
    
    the fact that many customers view training products as discretionary spending, rather
than purchases essential to their business; and
    
    the fact that we target large companies, which often take longer to make purchasing
decisions due to the size and complexity of the enterprise.
       43




---



##### Table of Contents



44




---



##### Table of Contents



SKILLSOFT PUBLIC LIMITED COMPANYDate: September 10, 2007
    By:
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer 45




---



##### Table of Contents



31.1
    
    Certification of SkillSoft PLCs Chief Executive Officer pursuant to
Rule 13a-14(a)/Rule 15(d)-14(a) under the Securities Exchange Act of
1934.31.2
    
    Certification of SkillSoft PLCs Chief Financial Officer pursuant to
Rule 13a-14(a)/Rule 15(d)-14(a) under the Securities Exchange Act of
1934.32.1
    
    Certification of SkillSoft PLCs Chief Executive Officer pursuant to
Rule 13a-14(b)/Rule 15d-14(b) under the Securities Exchange Act of
1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.32.2
    
    Certification of SkillSoft PLCs Chief Financial Officer pursuant to
Rule 13a-14(b)/Rule 15d-14(b) under the Securities Exchange Act of
1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 46