##### 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 OCTOBER 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 BOULEVARD 
NASHUA, 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 October 31, 2007 and January 31, 2007
    
    3Condensed Consolidated Income Statements for the Three and Nine Months Ended October 31,
2007 and 2006
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31,
2007 and 2006
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    32Item 4. Controls and Procedures
    
    33PART II  OTHER INFORMATION
    
    33Item 1. Legal Proceedings
    
    33Item 1A. Risk Factors
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    42Item 3. Defaults Upon Senior Securities
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    42Item 5. Other Information
    
    43Item 6. Exhibits
    
    43SIGNATURE
    
    44EXHIBIT INDEX
    
    45Ex-10.1 2001 Outside Director Option Plan, as amendedEx-31.1 Section 302 Certification of the C.E.O.Ex-31.2 Section 302 Certification of the C.F.O.Ex-32.1 Section 906 Certification of the C.E.O.Ex-32.2 Section 906 Certification of the C.F.O.
  2




---



##### Table of Contents



OCTOBER 31,
    
    
    JANUARY 31,2007
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    30,363
    
    
    $
    48,612Short-term investments
    
    
    20,202
    
    
    
    55,505Restricted cash
    
    
    3,919
    
    
    
    20,095Accounts receivable, net
    
    
    94,249
    
    
    
    94,343Prepaid expenses and other current assets
    
    
    24,134
    
    
    
    22,215Total current assets
    
    
    172,867
    
    
    
    240,770Property and equipment, net
    
    
    8,033
    
    
    
    9,672Intangible assets, net
    
    
    34,909
    
    
    
    2,638Goodwill
    
    
    316,301
    
    
    
    83,171Long-term investments
    
    
    
    
    
    
    3,598Deferred tax assets, net
    
    
    45,376
    
    
    
    159Other assets
    
    
    9,205
    
    
    
    2,962Total assets
    
    $
    586,691
    
    
    $
    342,970LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    2,000
    
    
    $
    Accounts payable
    
    
    3,186
    
    
    
    3,327Accrued compensation
    
    
    16,441
    
    
    
    17,870Accrued expenses
    
    
    46,349
    
    
    
    35,427Deferred revenue
    
    
    140,598
    
    
    
    146,012Total current liabilities
    
    
    208,574
    
    
    
    202,636Long term debt
    
    
    197,500
    
    
    
    Other long term liabilities
    
    
    4,176
    
    
    
    2,405Total long term liabilities
    
    
    201,676
    
    
    
    2,405Commitments and contingencies (Note 12)Shareholders equity:Ordinary shares, Euro 0.11 par value: 250,000,000
shares authorized; 111,515,993 and 109,255,366
shares issued at October 31, 2007 and January 31,
2007, respectively
    
    
    12,374
    
    
    
    12,039Additional paid-in capital
    
    
    588,124
    
    
    
    573,394Treasury stock, at cost, 6,533,884 ordinary shares
    
    
    (24,524
    )
    
    
    (24,524
    )Accumulated deficit
    
    
    (395,961
    )
    
    
    (421,661
    )Accumulated other comprehensive loss
    
    
    (3,572
    )
    
    
    (1,319
    )Total shareholders equity
    
    
    176,441
    
    
    
    137,929Total liabilities and shareholders equity
    
    $
    586,691
    
    
    $
    342,970
  3
    Table of Contents  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOctober 31,
    
    
    October 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue
    
    $
    75,124
    
    
    $
    57,135
    
    
    $
    203,733
    
    
    $
    167,521Cost of revenue  amortization of
intangible assets
    
    
    1,740
    
    
    
    740
    
    
    
    3,683
    
    
    
    4,203Cost of revenue (1)
    
    
    8,282
    
    
    
    6,846
    
    
    
    23,827
    
    
    
    19,962Gross profit
    
    
    65,102
    
    
    
    49,549
    
    
    
    176,223
    
    
    
    143,356Operating expenses:Research and development (1)
    
    
    13,710
    
    
    
    10,047
    
    
    
    35,315
    
    
    
    29,913Selling and marketing (1)
    
    
    25,227
    
    
    
    21,983
    
    
    
    71,489
    
    
    
    68,375General and administrative (1)
    
    
    9,449
    
    
    
    6,844
    
    
    
    25,572
    
    
    
    20,948Amortization of intangible assets
    
    
    3,634
    
    
    
    412
    
    
    
    7,955
    
    
    
    1,240Merger and integration related
expenses
    
    
    2,616
    
    
    
    
    
    
    
    11,110
    
    
    
    Restructuring
    
    
    
    
    
    
    25
    
    
    
    34
    
    
    
    47Restatement  SEC investigations
    
    
    105
    
    
    
    114
    
    
    
    1,328
    
    
    
    434Total operating expenses
    
    
    54,741
    
    
    
    39,425
    
    
    
    152,803
    
    
    
    120,957Operating income
    
    
    10,361
    
    
    
    10,124
    
    
    
    23,420
    
    
    
    22,399Other expense, net
    
    
    (642
    )
    
    
    (35
    )
    
    
    (1,026
    )
    
    
    (67
    )Interest income
    
    
    654
    
    
    
    1,137
    
    
    
    2,990
    
    
    
    3,011Interest expense
    
    
    (3,927
    )
    
    
    (69
    )
    
    
    (7,741
    )
    
    
    (205
    )Income
before provision / (benefit) for
income taxes from continuing operations
    
    
    6,446
    
    
    
    11,157
    
    
    
    17,643
    
    
    
    25,138Provision / (benefit) for income taxes
    
    
    270
    
    
    
    4,073
    
    
    
    (7,886
    )
    
    
    9,176Income from continuing operations
    
    
    6,176
    
    
    
    7,084
    
    
    
    25,529
    
    
    
    15,962(Loss) / income from operations of
businesses to be disposed, net of
income tax benefit / (expense) of
$311 and ($76) for the three and nine
months ended October 31, 2007,
respectively
    
    
    (351
    )
    
    
    
    
    
    
    173
    
    
    
    Net income
    
    $
    5,825
    
    
    $
    7,084
    
    
    $
    25,702
    
    
    $
    15,962Net income / (loss) per share (see Note
10):Basic  continuing operations
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.25
    
    
    $
    0.16Basic  discontinued operations
    
    $
    (0.00
    )
    
    $
    
    
    
    $
    0.00
    
    
    $
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.25
    
    
    $
    0.16Basic weighted average shares
outstanding
    
    
    104,789,720
    
    
    
    101,763,654
    
    
    
    104,165,555
    
    
    
    101,446,427Diluted  continuing operations
    
    $
    0.06
    
    
    $
    0.07
    
    
    $
    0.24
    
    
    $
    0.15Diluted  discontinued operations
    
    $
    (0.00
    )
    
    $
    
    
    
    $
    0.00
    
    
    $
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.24
    
    
    $
    0.15Diluted weighted average shares
outstanding
    
    
    108,552,456
    
    
    
    104,724,685
    
    
    
    108,018,673
    
    
    
    103,887,852
 
 (1)
    
    Share-based compensation included in cost of revenue and operating expenses: THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOctober 31,
    
    October 31,2007
    
    2006
    
    2007
    
    2006Cost of revenue
    
    $
    54
    
    
    $
    14
    
    
    $
    119
    
    
    $
    31Research and development
    
    
    226
    
    
    
    151
    
    
    
    659
    
    
    
    818Selling and marketing
    
    
    442
    
    
    
    269
    
    
    
    1,309
    
    
    
    1,646General and administrative
    
    
    657
    
    
    
    404
    
    
    
    1,921
    
    
    
    1,657
  4
    Table of Contents  NINE MONTHS ENDEDOCTOBER 31,2007
    
    
    2006Cash flows from operating activities from continuing operations:Net income, continuing operations
    
    $
    25,529
    
    
    $
    15,962Adjustments to reconcile net income from continuing operations to net cash
provided by operating activities:Share-based compensation
    
    
    4,008
    
    
    
    4,152Depreciation and amortization
    
    
    5,481
    
    
    
    4,502Amortization of intangible assets
    
    
    11,638
    
    
    
    5,443Provision for / (recovery of) bad debts
    
    
    470
    
    
    
    (477
    )Non-cash interest expense
    
    
    481
    
    
    
    (Benefit) / provision for income tax  non-cash
    
    
    (8,986
    )
    
    
    8,245Realized loss on sale of assets, net
    
    
    (58
    )
    
    
    Changes in current assets and liabilities, net of acquisitions:Accounts receivable
    
    
    36,344
    
    
    
    39,354Prepaid expenses and other current assets
    
    
    14,145
    
    
    
    8,498Accounts payable
    
    
    (1,313
    )
    
    
    (403
    )Accrued expenses, including long-term liabilities
    
    
    (45,563
    )
    
    
    (13,190
    )Deferred revenue
    
    
    (33,707
    )
    
    
    (40,043
    )Net cash provided by operating activities from continuing operations
    
    
    8,469
    
    
    
    32,043Cash flows from investing activities from continuing operations:Purchases of property and equipment
    
    
    (2,321
    )
    
    
    (3,989
    )Cash used in purchase of businesses, net of cash acquired
    
    
    (278,923
    )
    
    
    Purchases of investments
    
    
    (9,575
    )
    
    
    (74,843
    )Maturity of investments
    
    
    48,378
    
    
    
    39,810Release of restricted cash
    
    
    16,183
    
    
    
    335Net cash used in investing activities from continuing operations
    
    
    (226,258
    )
    
    
    (38,687
    )Cash flows from financing activities from continuing operations:Borrowings under long-term debt, net of debt financing costs
    
    
    194,133
    
    
    
    Principal payment on long-term debt
    
    
    (500
    )
    
    
    Exercise of share options
    
    
    8,280
    
    
    
    1,977Proceeds from employee share purchase plan
    
    
    2,776
    
    
    
    2,561Net cash provided by financing activities from continuing operations
    
    
    204,689
    
    
    
    4,538Change in cash from discontinued operations
    
    
    (7,013
    )
    
    
    Effect of exchange rate changes on cash and cash equivalents
    
    
    1,864
    
    
    
    562Net decrease in cash and cash equivalents
    
    
    (18,249
    )
    
    
    (1,544
    )Cash and cash equivalents, beginning of period
    
    
    48,612
    
    
    
    51,937Cash and cash equivalents, end of period
    
    $
    30,363
    
    
    $
    50,393
  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, January 31, 2007
    
    
    20,188,177
    
    
    $
    7.48
    
    
    
    5.47Granted
    
    
    90,000
    
    
    
    9.31Exercised
    
    
    (1,780,554
    )
    
    
    4.65Cancelled
    
    
    (1,835,446
    )
    
    
    14.81Outstanding, October 31, 2007
    
    
    16,662,177
    
    
    $
    7.06
    
    
    
    4.96
    
    
    $
    49,380Exercisable, October 31, 2007
    
    
    11,114,666
    
    
    $
    7.38
    
    
    
    4.40
    
    
    $
    35,250Vested and Expected to Vest, October 31, 2007 (1)
    
    
    15,903,230
    
    
    $
    7.09
    
    
    
    4.91
    
    
    $
    47,452
 
 (1)
    
    This represents the number of vested options as of October 31, 2007 plus the number of
unvested options as of October 31, 2007 that are expected to vest 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 8
    Table of Contents  period. The options for which expense has been incurred but have not yet vested are included
above as options expected to vest.    (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
    
    $
    44,137Deferred tax asset
    
    
    10,194Property and equipment
    
    
    1,470Goodwill
    
    
    255,692Amortizable intangible assets
    
    
    43,050Current liabilities*
    
    
    (52,071
    )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 non-contractual 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
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands except per share data)Revenue
    
    $
    75,124
    
    
    $
    72,011
    
    
    $
    266,233
    
    
    $
    256,780Net
income / (loss)
    
    
    5,978
    
    
    
    6,152
    
    
    
    (18,647
    )
    
    
    (25,114
    )Net
income / (loss) per share  basic
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    (0.18
    )
    
    $
    (0.25
    )Net
income / (loss) per share  diluted
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    (0.17
    )
    
    $
    (0.24
    )
  (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
    
    
    10,176
    
    
    
    2,038
    
    
    
    4,654
    
    
    
    16,868Payments made during the nine months
ended October 31, 2007
    
    
    (7,082
    )
    
    
    (727
    )
    
    
    (13
    )
    
    
    (7,822
    )Merger and exit accrual October 31, 2007
    
    $
    3,972
    
    
    $
    3,589
    
    
    $
    4,762
    
    
    $
    12,323
  Year ended January 31,2008 (remaining 3 months)
    
    $
    10,3822009
    
    
    7792010
    
    
    3842011
    
    
    778Total
    
    $
    12,323
 Accounting for Costs Associated with Exit or
Disposal Activities,
   Accounting for the
Impairment or Disposal of Long-Lived Assets.
  12
    Table of Contents  THREE MONTHS
    
    
    NINE MONTHSENDED OCTOBER
    
    
    ENDED OCTOBER31, 2007
    
    
    31, 2007Revenue from discontinued operations
    
    $
    0
    
    
    $
    9Loss from discontinued operations before income taxes
    
    
    (187
    )
    
    
    (531
    )Income tax
(benefit)
    
    
    (106
    )
    
    
    (236
    )Loss from discontinued operations
    
    $
    (81
    )
    
    $
    (295
    )
    THREE MONTHS
    
    
    NINE MONTHSENDED OCTOBER
    
    
    ENDED OCTOBER31, 2007
    
    
    31, 2007Revenue from discontinued operations
    
    $
    2,158
    
    
    $
    3,874Income from discontinued operations before income taxes
    
    
    257
    
    
    
    408Income tax provision
    
    
    111
    
    
    
    163Income from discontinued operations
    
    $
    146
    
    
    $
    245
   THREE MONTHS
    
    
    NINE MONTHSENDED OCTOBER
    
    
    ENDED OCTOBER31, 2007
    
    
    31, 2007Revenue from discontinued operations
    
    $
    452
    
    
    $
    656Income / (loss) from discontinued operations before income taxes
    
    
    52
    
    
    
    (0
    )Income tax
provision / (benefit)
    
    
    22
    
    
    
    (1
    )Income / (loss) from discontinued operations
    
    $
    30
    
    
    $
    (1
    )
 13
    Table of Contents  THREE MONTHS
    
    
    NINE MONTHSENDED OCTOBER
    
    
    ENDED OCTOBER31, 2007
    
    
    31, 2007Revenue from discontinued operations
    
    $
    524
    
    
    $
    2,221Income / (loss) from discontinued operations before income taxes
    
    
    (784
    )
    
    
    373Income tax (benefit) / provision
    
    
    (338
    )
    
    
    150(Loss) / income from discontinued operations
    
    $
    (446
    )
    
    $
    224
    FACILITY LEASEOBLIGATIONSTotal restructuring accrual as of January 31, 2007
    
    $
    1,421Payments made during the nine months ended October 31, 2007
    
    
    (461
    )Restructuring charges incurred during the nine months ended October 31, 2007
    
    
    527Total restructuring accrual as of October 31, 2007
    
    $
    1,487
   OCTOBER 31, 2007
    
    
    JANUARY 31, 2007GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally
developed software/
courseware
    
    $
    38,716
    
    
    $
    31,518
    
    
    $
    7,198
    
    
    $
    28,257
    
    
    $
    27,836
    
    
    $
    421Customer contracts
    
    
    36,848
    
    
    
    17,594
    
    
    
    19,254
    
    
    
    13,018
    
    
    
    11,701
    
    
    
    1,317Non-compete
    
    
    6,900
    
    
    
    1,380
    
    
    
    5,520
    
    
    
    
    
    
    
    
    
    
    
    Trademarks and
trade names
    
    
    3,625
    
    
    
    688
    
    
    
    2,937
    
    
    
    905
    
    
    
    5
    
    
    
    90086,089
    
    
    
    51,181
    
    
    
    34,909
    
    
    
    42,180
    
    
    
    39,542
    
    
    
    2,638Goodwill
    
    
    316,301
    
    
    
    
    
    
    
    316,301
    
    
    
    83,171
    
    
    
    
    
    
    
    83,171$
    402,390
    
    
    $
    51,181
    
    
    $
    351,209
    
    
    $
    125,351
    
    
    $
    39,542
    
    
    $
    85,809
  TotalGross carrying amount of goodwill, January 31, 2007
    
    $
    83,171Utilization of tax benefit
    
    
    (25,784
    )Acquisition of TLC
    
    
    3,382Acquisition of NETg
    
    
    255,692Other
    
    
    (160
    )Gross carrying amount of goodwill, October 31, 2007
    
    $
    316,301
 14
    Table of Contents  AmortizationFiscal Period
    
    ExpenseThree month period ending January 31, 2008
    
    $
    5,022Year ending January 31, 2009
    
    
    16,415Year ending January 31,2010
    
    
    8,245Year ending January 31,2011
    
    
    3,712Year ending January 31,2012
    
    
    615Total
    
    $
    34,090
  Reporting Comprehensive Income
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Comprehensive income:Net income
    
    $
    5,825
    
    
    $
    7,084
    
    
    $
    25,702
    
    
    $
    15,962Other comprehensive income/(loss)  Foreign
currency adjustment
    
    
    (701
    )
    
    
    (147
    )
    
    
    (1,116
    )
    
    
    (613
    )Change in fair value of interest rate hedge
    
    
    (842
    )
    
    
    
    
    
    
    (1,074
    )
    
    
    Unrealized holding gains/(losses)
    
    
    22
    
    
    
    74
    
    
    
    (65
    )
    
    
    100Comprehensive income
    
    $
    4,304
    
    
    $
    7,011
    
    
    $
    23,447
    
    
    $
    15,449
  OCTOBER 31,
    
    
    JANUARY 31,2007
    
    
    2007Unrealized holding (losses)/gains on available for sale securities
    
    $
    2
    
    
    $
    67Change in fair value of interest rate hedge
    
    
    (1,074
    )
    
    
    Foreign currency adjustment
    
    
    (2,500
    )
    
    
    (1,386
    )Total accumulated other comprehensive loss
    
    $
    (3,572
    )
    
    $
    (1,319
    )
   THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic weighted average shares
outstanding
    
    
    104,789,720
    
    
    
    101,763,654
    
    
    
    104,165,555
    
    
    
    101,446,427Effect of dilutive shares outstanding
    
    
    3,762,736
    
    
    
    2,961,031
    
    
    
    3,853,118
    
    
    
    2,441,425Weighted average shares outstanding,
as adjusted
    
    
    108,552,456
    
    
    
    104,724,685
    
    
    
    108,018,673
    
    
    
    103,887,852
 15
    Table of Contents  THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    OCTOBER 31,2007
    
    2006
    
    2007
    
    2006Options to purchase
shares
    
    
    12,899,442
    
    
    
    13,174,010
    
    
    
    12,809,058
    
    
    
    13,693,616
     Deferred Taxes
 Accounting for Income Taxes
  Accounting for Uncertainty in
Income Taxes
 16
    Table of Contents  17
    Table of Contents  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:United States
    
    $
    59,076
    
    
    $
    44,689
    
    
    $
    160,161
    
    
    $
    131,155United Kingdom (UK)
    
    
    8,234
    
    
    
    6,651
    
    
    
    22,493
    
    
    
    18,972Canada
    
    
    2,726
    
    
    
    2,347
    
    
    
    7,855
    
    
    
    7,062Europe, excluding UK
    
    
    1,036
    
    
    
    491
    
    
    
    2,055
    
    
    
    1,532Australia/New Zealand
    
    
    3,290
    
    
    
    2,177
    
    
    
    9,128
    
    
    
    6,473Other
    
    
    762
    
    
    
    780
    
    
    
    2,041
    
    
    
    2,327Total revenue
    
    $
    75,124
    
    
    $
    57,135
    
    
    $
    203,733
    
    
    $
    167,521
    OCTOBER 31, 2007
    
    
    JANUARY 31, 2007Course development fees
    
    $
    1,848
    
    
    $
    1,860Professional fees
    
    
    6,676
    
    
    
    2,639Accrued payables
    
    
    483
    
    
    
    415Accrued miscellaneous taxes
    
    
    662
    
    
    
    385Accrued merger related costs*
    
    
    10,805
    
    
    
    1,892Sales tax payable/VAT payable
    
    
    4,952
    
    
    
    4,405Accrued royalties
    
    
    7,766
    
    
    
    3,693Accrued interest
    
    
    1,510
    
    
    
    Accrued litigation settlements
    
    
    
    
    
    
    15,250Accrued restructuring
    
    
    522
    
    
    
    659Other accrued liabilities
    
    
    11,125
    
    
    
    4,229Total accrued expenses
    
    $
    46,349
    
    
    $
    35,427
 
 *
    
    Includes $1,460 and $1,188 of accrued payroll taxes in October 31, 2007 and January 31, 2007,
respectively. 18
    Table of Contents  19
    Table of Contents  Accounting for Derivative Instruments and
Hedging Activities
      20
    Table of Contents  Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115.
 
      21
    Table of Contents  Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed
         22
    Table of Contents  ®
    23
    Table of Contents  Three Months Ended October 31,Dollar
    
    
    Percent ChangeIncrease/(Decrease)
    
    
    Increase/(Decrease)
    
    
    Percentage of Revenue2006/2007
    
    
    2006/2007
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    17,989
    
    
    
    31
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue  amortization of
intangible assets
    
    
    1,000
    
    
    
    135
    %
    
    
    2
    %
    
    
    1
    %Cost of revenue
    
    
    1,436
    
    
    
    21
    %
    
    
    11
    %
    
    
    12
    %Gross profit
    
    
    15,553
    
    
    
    31
    %
    
    
    87
    %
    
    
    87
    %Research and development
    
    
    3,663
    
    
    
    36
    %
    
    
    18
    %
    
    
    18
    %Selling and marketing
    
    
    3,244
    
    
    
    15
    %
    
    
    34
    %
    
    
    38
    %General and administrative
    
    
    2,605
    
    
    
    38
    %
    
    
    13
    %
    
    
    12
    %Amortization of intangible assets
    
    
    3,222
    
    
    
    782
    %
    
    
    5
    %
    
    
    1
    %Merger related integration expenses
    
    
    2,616
    
    
    
    *
    
    
    
    3
    %
    
    
    Restructuring
    
    
    (25
    )
    
    
    (100
    )%
    
    
    
    
    
    
    Restatement  SEC investigation
    
    
    (9
    )
    
    
    (8
    )%
    
    
    
    
    
    
    Total operating expenses
    
    
    15,316
    
    
    
    39
    %
    
    
    73
    %
    
    
    69
    %Operating income
    
    
    237
    
    
    
    2
    %
    
    
    14
    %
    
    
    18
    %Other income/(expense) , net
    
    
    (607
    )
    
    
    1,734
    %
    
    
    (1
    )%
    
    
    Interest income
    
    
    (483
    )
    
    
    (42
    )%
    
    
    1
    %
    
    
    2
    %Interest expense
    
    
    (3,858
    )
    
    
    5,591
    %
    
    
    (5
    )%
    
    
    Income before (benefit) / provision
for income taxes from continuing
operations
    
    
    (4,711
    )
    
    
    (42
    )%
    
    
    9
    %
    
    
    20
    %Provision for income taxes
    
    
    (3,803
    )
    
    
    (93
    )%
    
    
    
    
    
    
    7
    %Income from continuing operations
    
    
    (908
    )
    
    
    (13
    )%
    
    
    8
    %
    
    
    12
    %(Loss)/income from operations of
businesses to be disposed, net
of income tax
    
    
    (351
    )
    
    
    *
    
    
    
    
    
    
    
    Net income
    
    $
    (1,259
    )
    
    
    (18
    )%
    
    
    8
    %
    
    
    12
    %
 
 *
    
    Not meaningful
    
    Does not add due to rounding.  THREE MONTHS ENDED OCTOBER 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:Multi-Modal Learning
    
    $
    75,124
    
    
    $
    55,888
    
    
    $
    19,236Retail Certification
    
    
    
    
    
    
    1,247
    
    
    
    (1,247
    )Total
    
    $
    75,124
    
    
    $
    57,135
    
    
    $
    17989
   24
    Table of Contents  THREE MONTHS ENDED OCTOBER 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:United States
    
    $
    59,076
    
    
    $
    44,689
    
    
    $
    14,387International
    
    
    16,048
    
    
    
    12,446
    
    
    
    3,602Total
    
    $
    75,124
    
    
    $
    57,135
    
    
    $
    17,989
        25
    Table of Contents  26
    Table of Contents ' Nine Months Ended October 31,Dollar
    
    
    Percent ChangeIncrease/(Decrease)
    
    
    Increase/(Decrease)
    
    
    Percentage of Revenue2006/2007
    
    
    2006/2007
    
    
    2007
    
    
    2006(In thousands)Revenue
    
    $
    36,212
    
    
    
    22
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue  amortization of
intangible assets
    
    
    (520
    )
    
    
    (12
    )%
    
    
    2
    %
    
    
    3
    %Cost of revenue
    
    
    3,865
    
    
    
    19
    %
    
    
    12
    %
    
    
    12
    %Gross profit
    
    
    32,867
    
    
    
    23
    %
    
    
    86
    %
    
    
    86
    %Research and development
    
    
    5,402
    
    
    
    18
    %
    
    
    17
    %
    
    
    18
    %Selling and marketing
    
    
    3,114
    
    
    
    5
    %
    
    
    35
    %
    
    
    41
    %General and administrative
    
    
    4,624
    
    
    
    22
    %
    
    
    13
    %
    
    
    13
    %Amortization of intangible assets
    
    
    6,715
    
    
    
    542
    %
    
    
    4
    %
    
    
    1
    %Merger related integration expenses
    
    
    11,110
    
    
    
    *
    
    
    
    5
    %
    
    
    Restructuring
    
    
    (13
    )
    
    
    (28
    )%
    
    
    
    
    
    
    Restatement  SEC investigation
    
    
    894
    
    
    
    206
    %
    
    
    1
    %
    
    
    Total operating expenses
    
    
    31,846
    
    
    
    26
    %
    
    
    75
    %
    
    
    72
    %Operating income
    
    
    1,021
    
    
    
    5
    %
    
    
    11
    %
    
    
    13
    %Other income/(expense) , net
    
    
    (959
    )
    
    
    1,431
    %
    
    
    (1
    )%
    
    
    Interest income
    
    
    (21
    )
    
    
    (1
    )%
    
    
    1
    %
    
    
    2
    %Interest expense
    
    
    (7,536
    )
    
    
    3,676
    %
    
    
    (4
    )%
    
    
    Income before (benefit) / provision for
income taxes from continuing operations
    
    
    (7,495
    )
    
    
    (30
    )%
    
    
    9
    %
    
    
    15
    %(Benefit) / provision for income taxes
    
    
    (17,062
    )
    
    
    (186
    )%
    
    
    (4
    )%
    
    
    5
    %Income from continuing operations
    
    
    9,567
    
    
    
    60
    %
    
    
    13
    %
    
    
    10
    %Income from operations of businesses
to be disposed, net of income tax
    
    
    173
    
    
    
    *
    
    
    
    
    
    
    
    Net income
    
    $
    9,740
    
    
    
    61
    %
    
    
    13
    %
    
    
    10
    %
 
 *
    
    Not meaningful.
    
    Does not add due to rounding.  NINE MONTHS ENDED OCTOBER 31,2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:Multi-Modal Learning
    
    $
    203,520
    
    
    $
    163,018
    
    
    $
    40,502Retail Certification
    
    
    213
    
    
    
    4,503
    
    
    
    (4,290
    )Total
    
    $
    203,733
    
    
    $
    167,521
    
    
    $
    36,212
   NINE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2007
    
    
    2006
    
    
    CHANGE(In thousands)Revenue:United States
    
    $
    160,161
    
    
    $
    131,155
    
    
    $
    29,006International
    
    
    43,572
    
    
    
    36,366
    
    
    
    7,206Total
    
    $
    203,733
    
    
    $
    167,521
    
    
    $
    36,212
 27
    Table of Contents  28
    Table of Contents  29
    Table of Contents  Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating Lease Obligations
    
    $
    22,834
    
    
    $
    7,745
    
    
    $
    6,538
    
    
    $
    2,060
    
    
    $
    6,491Debt Obligations
    
    
    199,500
    
    
    
    2,000
    
    
    
    4,000
    
    
    
    4,000
    
    
    
    189,500Total Obligations
    
    $
    222,334
    
    
    $
    9,745
    
    
    $
    10,538
    
    
    $
    6,060
    
    
    $
    195,991
   30
    Table of Contents  31
    Table of Contents  32
    Table of Contents  33
    Table of Contents  34
    Table of Contents  
    
    the size and timing of new/renewal agreements and upgrades;
 35
    Table of Contents  
    
    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.
    
    
    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
 36
    Table of Contents  
    
    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.
        
    
    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.
  37
    Table of Contents  38
    Table of Contents  39
    Table of Contents  40
    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;
    
    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.
    41
    Table of Contents  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,956,979
    
    
    
    4,075
    
    
    
    3,432
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,815,852
    
    
    
    133,718
    
    
    
    14,916
  42
    Table of Contents  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    103,837,950
    
    
    
    6,112,070
    
    
    
    14,466
   Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,640,395
    
    
    
    319,157
    
    
    
    4,934
  
 Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,422,049
    
    
    
    209,050
    
    
    
    333,387
    
 Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    75,123,205
    
    
    
    30,998,444
    
    
    
    3,842,837
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,687,824
    
    
    
    239,089
    
    
    
    37,573
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    109,915,101
    
    
    
    18,468
    
    
    
    30,917
 
   
   43
    Table of Contents  SKILLSOFT PUBLIC LIMITED COMPANYDate: December 10, 2007
    By:
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer 44
    Table of Contents  10.1
    
    2001 Outside Director Option Plan, as amended31.1
    
    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.
 45