##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED JULY 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM ___________ TO
_____________
 COMMISSION
FILE NUMBER 000-25674
 SKILLSOFT PUBLIC LIMITED COMPANY
  REPUBLIC OF IRELAND
    
    N/A(STATE OR OTHER JURISDICTION OF
    
    (I.R.S. EMPLOYERINCORPORATION OR ORGANIZATION)
    
    IDENTIFICATION NO.)
 107 NORTHEASTERN BOULEVARD
    
    03062NASHUA, NEW HAMPSHIRE(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
    
    (ZIP CODE)
  
 þ o
 þ o
 o þ




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PAGE NO.PART I  FINANCIAL INFORMATIONItem 1. Condensed Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets as of July 31, 2005 and January 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended July 31,
2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    32Item 4. Controls and Procedures
    
    
    33PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    33Item 3. Defaults Upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    34SIGNATURES
    
    
    34EX-10.1 RELEASE AND SETTLEMENT AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
  2




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July 31,
    
    
    January 31,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,277
    
    
    $
    34,906Short-term investments
    
    
    25,911
    
    
    
    20,021Restricted cash
    
    
    5,823
    
    
    
    994Accounts receivable, net
    
    
    48,893
    
    
    
    87,030Prepaid expenses and other current assets
    
    
    18,474
    
    
    
    22,659Total current assets
    
    
    138,378
    
    
    
    165,610Property and equipment, net
    
    
    10,033
    
    
    
    9,137Intangible assets, net
    
    
    12,866
    
    
    
    16,171Goodwill
    
    
    98,962
    
    
    
    103,576Long-term investments
    
    
    209
    
    
    
    8,943Other assets
    
    
    56
    
    
    
    60Total Assets
    
    $
    260,504
    
    
    $
    303,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,317
    
    
    $
    5,361Accrued expenses
    
    
    48,942
    
    
    
    66,995Deferred revenue
    
    
    110,962
    
    
    
    140,008Total current liabilities
    
    
    163,221
    
    
    
    212,364Long term liabilities
    
    
    4,440
    
    
    
    6,214Commitments and contingencies (Note 11)Stockholders equity:Ordinary Shares, E0.11 par value: 250,000,000
shares authorized;
106,859,101 and 106,207,818 shares
issued and outstanding at July 31, 2005
and January 31, 2005, respectively
    
    
    11,709
    
    
    
    11,617Additional paid-in capital
    
    
    560,752
    
    
    
    559,052Treasury stock, at cost, 6,103,184 and
443,757 ordinary shares at July 31,
2005 and January 31, 2005, respectively
    
    
    (22,767
    )
    
    
    (2,523
    )Accumulated deficit
    
    
    (455,618
    )
    
    
    (481,029
    )Deferred compensation
    
    
    (901
    )
    
    
    (1,358
    )Accumulated other comprehensive loss
    
    
    (332
    )
    
    
    (840
    )Total stockholders equity
    
    
    92,843
    
    
    
    84,919Total Liabilities and Stockholders Equity
    
    $
    260,504
    
    
    $
    303,497
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THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    53,604
    
    
    $
    50,625
    
    
    $
    106,931
    
    
    $
    103,442Cost of revenue
    
    
    6,318
    
    
    
    5,257
    
    
    
    12,152
    
    
    
    10,335Gross profit
    
    
    47,286
    
    
    
    45,368
    
    
    
    94,779
    
    
    
    93,107Operating expenses:Research and development
    
    
    10,190
    
    
    
    12,639
    
    
    
    20,059
    
    
    
    22,083Selling and marketing
    
    
    20,718
    
    
    
    22,664
    
    
    
    44,748
    
    
    
    47,026General and administrative
    
    
    6,735
    
    
    
    6,182
    
    
    
    13,011
    
    
    
    12,236Legal
settlements/(insurance recoveries)
    
    
    (19,500
    )
    
    
    
    
    
    
    (19,500
    )
    
    
    Amortization of intangible assets
    
    
    2,307
    
    
    
    2,390
    
    
    
    4,553
    
    
    
    4,812Amortization of stock-based compensation (1)
    
    
    220
    
    
    
    300
    
    
    
    457
    
    
    
    648Restructuring
    
    
    (116
    )
    
    
    175
    
    
    
    587
    
    
    
    322Restatement:SEC investigation
    
    
    834
    
    
    
    779
    
    
    
    1,084
    
    
    
    1,103Other professional fees
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    250Total operating expenses
    
    
    21,388
    
    
    
    45,265
    
    
    
    64,999
    
    
    
    88,480Operating income
    
    
    25,898
    
    
    
    103
    
    
    
    29,780
    
    
    
    4,627Other income/(expense), net
    
    
    495
    
    
    
    (32
    )
    
    
    385
    
    
    
    (211
    )Interest income, net
    
    
    310
    
    
    
    241
    
    
    
    605
    
    
    
    364Loss on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    (681
    )
    
    
    Income before provision for income taxes
    
    
    26,703
    
    
    
    312
    
    
    
    30,089
    
    
    
    4,780Provision
for/(benefit from) income taxes
    
    
    3,759
    
    
    
    (1,045
    )
    
    
    4,678
    
    
    
    220Net income
    
    $
    22,944
    
    
    $
    1,357
    
    
    $
    25,411
    
    
    $
    4,560Net income per share (Note 9):Basic
    
    $
    0.22
    
    
    $
    0.01
    
    
    $
    0.24
    
    
    $
    0.04Basic weighted average common shares outstanding
    
    
    103,796,060
    
    
    
    105,421,510
    
    
    
    104,362,838
    
    
    
    104,304,852Diluted
    
    $
    0.22
    
    
    $
    0.01
    
    
    $
    0.24
    
    
    $
    0.04Diluted weighted average common shares outstanding
    
    
    104,222,841
    
    
    
    110,555,106
    
    
    
    104,895,595
    
    
    
    110,647,070
 
 (1)
    
    The following summarizes the departmental allocation of the stock-based compensation THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Research and development
    
    $
    46
    
    
    $
    79
    
    
    $
    94
    
    
    $
    158Selling and marketing
    
    
    166
    
    
    
    208
    
    
    
    347
    
    
    
    464General and administrative
    
    
    8
    
    
    
    13
    
    
    
    16
    
    
    
    26$
    220
    
    
    $
    300
    
    
    $
    457
    
    
    $
    648
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SIX MONTHS ENDEDJuly 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    25,411
    
    
    $
    4,560Adjustments to reconcile net income to net cash provided by / (used in) operating activities Stock-based compensation
    
    
    457
    
    
    
    648Depreciation and amortization
    
    
    2,596
    
    
    
    2,385Amortization of intangible assets
    
    
    4,553
    
    
    
    4,812Provision for bad debts
    
    
    (623
    )
    
    
    34Loss on sale of assets
    
    
    681
    
    
    
    Provision for income tax  non-cash
    
    
    4,002
    
    
    
    158Changes in current assets and liabilities:Accounts receivable, net
    
    
    38,117
    
    
    
    30,421Prepaid expenses and other current assets
    
    
    3,755
    
    
    
    7,762Accounts payable
    
    
    (2,685
    )
    
    
    (1,663
    )Accrued expenses
    
    
    (17,447
    )
    
    
    (41,115
    )Deferred revenue
    
    
    (27,990
    )
    
    
    (20,884
    )Net cash provided by / (used in) operating activities
    
    
    30,827
    
    
    
    (12,882
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (3,628
    )
    
    
    (4,682
    )Capitalized software development costs
    
    
    (1,247
    )
    
    
    Purchases of investments
    
    
    (11,948
    )
    
    
    (21,768
    )Maturity of investments
    
    
    14,673
    
    
    
    26,208(Designation) / release of restricted cash, net
    
    
    (4,840
    )
    
    
    24,600Net cash (used in) / provided by investing activities
    
    
    (6,990
    )
    
    
    24,358Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    457
    
    
    
    17,112Proceeds from employee stock purchase plan
    
    
    1,336
    
    
    
    1,675Payments to acquire treasury stock
    
    
    (20,244
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (18,451
    )
    
    
    18,787Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,015
    )
    
    
    (313
    )Net increase in cash and cash equivalents
    
    
    4,371
    
    
    
    29,950Cash and cash equivalents, beginning of period
    
    
    34,906
    
    
    
    42,866Cash and cash equivalents, end of period
    
    $
    39,277
    
    
    $
    72,816
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THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rates
    
    
    3.86% - 4.06
    %
    
    
    4.11% - 4.35
    %
    
    
    3.86% - 4.33
    %
    
    
    3.31% - 4.35
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volatility factor
    
    
    71
    %
    
    
    89
    %
    
    
    73
    %
    
    
    90
    %Expected lives
    
    7 years
    
    7 years
    
    7 years
    
    7 yearsWeighted average fair value of options granted
    
    $
    2.61
    
    
    $
    7.50
    
    
    $
    2.66
    
    
    $
    9.44Weighted average remaining contractual life of options outstanding
    
    6.35 years
    
    7.31 years
    
    6.35 years
    
    7.31 years
  THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income As reported
    
    $
    22,944
    
    
    $
    1,357
    
    
    $
    25,411
    
    
    $
    4,560Add: Stock-based employee compensation
expense recognized under APB No. 25
    
    
    220
    
    
    
    300
    
    
    
    457
    
    
    
    648Less: Total stock-based employee
compensation expense determined under fair
value based method for all awards
    
    
    (4,197
    )
    
    
    (6,640
    )
    
    
    (9,006
    )
    
    
    (12,573
    )Pro forma net income/(loss)
    
    $
    18,967
    
    
    $
    (4,983
    )
    
    $
    16,862
    
    
    $
    (7,365
    )Basic and diluted net income/(loss) per share As reported
    
    $
    0.22
    
    
    $
    0.01
    
    
    $
    0.24
    
    
    $
    0.04Pro forma net income/(loss)
    
    $
    0.18
    
    
    $
    (0.05
    )
    
    $
    0.16
    
    
    $
    (0.07
    )
  8




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EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2005
    
    $
    1,955
    
    
    $
    6,552
    
    
    $
    334
    
    
    $
    8,841Payments and other adjustments
    
    
    (351
    )
    
    
    (2,538
    )
    
    
    (109
    )
    
    
    (2,998
    )Merger and exit accrual July 31, 2005
    
    $
    1,604
    
    
    $
    4,014
    
    
    $
    225
    
    
    $
    5,843
  Year ended January 31,2006
    
    $
    1,8212007
    
    
    1,3742008
    
    
    1,0932009
    
    
    816Thereafter
    
    
    739Total
    
    $
    5,843
   9




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EMPLOYEESEVERANCEAND RELATED
    
    
    CONTRACTUALCOSTS
    
    
    OBLIGATIONS
    
    
    TOTALRestructuring accrual January 31, 2005
    
    $
    624
    
    
    $
    8,744
    
    
    $
    9,368Payments and other adjustments
    
    
    (887
    )
    
    
    (6,170
    )
    
    
    (7,057
    )Restructuring charge
    
    
    353
    
    
    
    350
    
    
    
    703Restructuring accrual July 31, 2005
    
    $
    90
    
    
    $
    2,924
    
    
    $
    3,014
    JULY 31, 2005
    
    
    JANUARY 31, 2005GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally developed software/courseware
    
    $
    27,857
    
    
    $
    19,936
    
    
    $
    7,921
    
    
    $
    26,610
    
    
    $
    16,476
    
    
    $
    10,134Customer contracts
    
    
    13,018
    
    
    
    8,973
    
    
    
    4,045
    
    
    
    13,018
    
    
    
    7,881
    
    
    
    5,137Trademarks and trade name
    
    
    900
    
    
    
    
    
    
    
    900
    
    
    
    900
    
    
    
    
    
    
    
    90041,775
    
    
    
    28,909
    
    
    
    12,866
    
    
    
    40,528
    
    
    
    24,357
    
    
    
    16,171Goodwill
    
    
    98,962
    
    
    
    
    
    
    
    98,962
    
    
    
    103,576
    
    
    
    
    
    
    
    103,576$
    140,737
    
    
    $
    28,909
    
    
    $
    111,828
    
    
    $
    144,104
    
    
    $
    24,357
    
    
    $
    119,747
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SIX MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31, 2005
    
    JULY 31, 2004Internally developed software/courseware
    
    
    $3,461
    
    
    
    $3,454Customer contracts
    
    
    1,092
    
    
    
    1,358$4,553
    
    
    
    $4,812
  FISCAL YEAR
    
    AMORTIZATION EXPENSE2006
    
    $
    9,1122007
    
    
    5,9692008
    
    
    1,4252009
    
    
    13
    THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Comprehensive income:Net income
    
    $
    22,944
    
    
    $
    1,357
    
    
    $
    25,411
    
    
    $
    4,560Other comprehensive income/(loss) -Foreign currency adjustment
    
    
    560
    
    
    
    (243
    )
    
    
    547
    
    
    
    77Unrealized holding losses
    
    
    (12
    )
    
    
    (58
    )
    
    
    (39
    )
    
    
    (62
    )Comprehensive income
    
    $
    23,492
    
    
    $
    1,056
    
    
    $
    25,919
    
    
    $
    4,575
   11




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THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average shares outstanding
    
    
    103,796,060
    
    
    
    105,421,510
    
    
    
    104,362,838
    
    
    
    104,304,852Effect of dilutive shares outstanding
    
    
    426,781
    
    
    
    5,133,596
    
    
    
    532,757
    
    
    
    6,342,218Weighted average common shares outstanding, as adjusted
    
    
    104,222,841
    
    
    
    110,555,106
    
    
    
    104,895,595
    
    
    
    110,647,070
  THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Options excluded
    
    
    17,308,246
    
    
    
    14,207,391
    
    
    
    17,202,269
    
    
    
    12,998,769
         12




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Three Months Ended July 31, 2005Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    49,707
    
    
    $
    3,897
    
    
    $
    53,604Net income
    
    $
    22,867
    
    
    $
    77
    
    
    $
    22,944Three Months Ended July 31, 2004Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    45,848
    
    
    $
    4,777
    
    
    $
    50,625Net income
    
    $
    1,237
    
    
    $
    120
    
    
    $
    1,357Six Months Ended July 31, 2005Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    97,756
    
    
    $
    9,175
    
    
    $
    106,931Net income/(loss)
    
    $
    26,569
    
    
    $
    (1,158
    )
    
    $
    25,411
 13




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Six Months Ended July 31, 2004Multi-Modal
    
    
    Retail Certification
    
    
    Combined(In thousands)Revenue
    
    $
    94,081
    
    
    $
    9,361
    
    
    $
    103,442Net income
    
    $
    4,344
    
    
    $
    216
    
    
    $
    4,560
  THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:United States
    
    $
    41,609
    
    
    $
    40,014
    
    
    $
    83,581
    
    
    $
    80,936United Kingdom
    
    
    5,690
    
    
    
    4,071
    
    
    
    11,277
    
    
    
    8,351Canada
    
    
    2,214
    
    
    
    1,881
    
    
    
    4,386
    
    
    
    3,917Europe, excluding UK
    
    
    1,570
    
    
    
    2,214
    
    
    
    2,908
    
    
    
    4,677Australia/New Zealand
    
    
    1,811
    
    
    
    1,532
    
    
    
    3,681
    
    
    
    3,279Other
    
    
    710
    
    
    
    913
    
    
    
    1,098
    
    
    
    2,282Total revenue
    
    $
    53,604
    
    
    $
    50,625
    
    
    $
    106,931
    
    
    $
    103,442
    JULY 31, 2005
    
    
    JANUARY 31, 2005Accrued compensation and benefits
    
    $
    10,677
    
    
    $
    20,415Course development fees
    
    
    2,476
    
    
    
    2,205Professional fees
    
    
    3,662
    
    
    
    2,788Accrued payables
    
    
    935
    
    
    
    1,798Accrued miscellaneous taxes
    
    
    265
    
    
    
    238Accrued merger related costs*
    
    
    3,291
    
    
    
    5,271Sales tax payable/VAT payable
    
    
    2,866
    
    
    
    3,864Accrued royalties
    
    
    2,979
    
    
    
    2,422Accrued litigation settlements
    
    
    15,400
    
    
    
    15,250Accrued restructuring
    
    
    1,553
    
    
    
    8,005Other accrued liabilities
    
    
    4,838
    
    
    
    4,739Total accrued expenses
    
    $
    48,942
    
    
    $
    66,995
 
 *
    
    Includes $1,571 and $1,684 of accrued income taxes at July 31, 2005 and January 31, 2005,
respectively.   14




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DOLLARINCREASE/(DECREASE)
    
    
    PERCENT CHANGE2004/2005
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2004/2005
    
    
    2005
    
    
    2004Revenue
    
    $
    2,979
    
    
    
    6
    %Cost of revenue
    
    
    1,061
    
    
    
    20
    %
    
    
    12
    %
    
    
    10
    %Gross profit
    
    
    1,918
    
    
    
    4
    %
    
    
    88
    %
    
    
    90
    %Research and development
    
    
    (2,449
    )
    
    
    (19
    %)
    
    
    19
    %
    
    
    25
    %Selling and marketing
    
    
    (1,946
    )
    
    
    (9
    %)
    
    
    39
    %
    
    
    45
    %General and administrative
    
    
    553
    
    
    
    9
    %
    
    
    13
    %
    
    
    12
    %Legal
settlements/(insurance recoveries)
    
    
    (19,500
    )
    
    
    (100
    %)
    
    
    (36
    %)
    
    
    0
    %Amortization of intangible assets
    
    
    (83
    )
    
    
    (3
    %)
    
    
    4
    %
    
    
    5
    %Amortization of stock-based compensation
    
    
    (80
    )
    
    
    (27
    %)
    
    
    0
    %
    
    
    1
    %Restructuring
    
    
    (291
    )
    
    
    (166
    %)
    
    
    0
    %
    
    
    0
    %Restatement:SEC investigation
    
    
    55
    
    
    
    7
    %
    
    
    2
    %
    
    
    2
    %Other professional fees
    
    
    (136
    )
    
    
    (100
    %)
    
    
    0
    %
    
    
    0
    %Total operating expenses
    
    
    (23,877
    )
    
    
    (53
    %)
    
    
    40
    %
    
    
    89
    %Operating income
    
    
    25,795
    
    
    
    25,044
    %
    
    
    48
    %
    
    
    0
    %Other income/(expense), net
    
    
    527
    
    
    
    1,647
    %
    
    
    1
    %
    
    
    0
    %Interest income, net
    
    
    69
    
    
    
    29
    %
    
    
    1
    %
    
    
    0
    %Income before provision for income taxes
    
    
    26,391
    
    
    
    8,459
    %
    
    
    50
    %
    
    
    1
    %Provision for/(benefit from) income taxes
    
    
    4,804
    
    
    
    460
    %
    
    
    7
    %
    
    
    (2
    %)Net income
    
    $
    21,587
    
    
    
    1,591
    %
    
    
    43
    %
    
    
    3
    %
   QUARTERS ENDED JULY 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:United States
    
    $
    41,609
    
    
    $
    40,014
    
    
    $
    1,595International
    
    
    11,995
    
    
    
    10,611
    
    
    
    1,384Total
    
    $
    53,604
    
    
    $
    50,625
    
    
    $
    2,979
  QUARTERS ENDED JULY 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    49,707
    
    
    $
    45,848
    
    
    $
    3,859Retail Certification
    
    
    3,897
    
    
    
    4,777
    
    
    
    (880
    )Total
    
    $
    53,604
    
    
    $
    50,625
    
    
    $
    2,979
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DOLLARINCREASE/(DECREASE)
    
    
    PERCENT CHANGE2004/2005
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2004/2005
    
    
    2005
    
    
    2004Revenue
    
    $
    3,489
    
    
    
    3
    %Cost of revenue
    
    
    1,817
    
    
    
    18
    %
    
    
    11
    %
    
    
    10
    %Gross profit
    
    
    1,672
    
    
    
    2
    %
    
    
    89
    %
    
    
    90
    %Research and development
    
    
    (2,024
    )
    
    
    (9
    %)
    
    
    19
    %
    
    
    21
    %Selling and marketing
    
    
    (2,278
    )
    
    
    (5
    %)
    
    
    42
    %
    
    
    45
    %General and administrative
    
    
    775
    
    
    
    6
    %
    
    
    12
    %
    
    
    12
    %Legal
settlements/(insurance recoveries)
    
    
    (19,500
    )
    
    
    (100
    %)
    
    
    (18
    %)
    
    
    0
    %Amortization of intangible assets
    
    
    (259
    )
    
    
    (5
    %)
    
    
    4
    %
    
    
    5
    %Amortization of stock-based compensation
    
    
    (191
    )
    
    
    (29
    %)
    
    
    0
    %
    
    
    1
    %Restructuring
    
    
    265
    
    
    
    82
    %
    
    
    1
    %
    
    
    0
    %Restatement:SEC investigation
    
    
    (19
    )
    
    
    (2
    %)
    
    
    1
    %
    
    
    1
    %Other professional fees
    
    
    (250
    )
    
    
    (100
    %)
    
    
    0
    %
    
    
    0
    %Total operating expenses
    
    
    (23,481
    )
    
    
    (27
    %)
    
    
    61
    %
    
    
    86
    %Operating income
    
    $
    25,153
    
    
    
    544
    %
    
    
    28
    %
    
    
    4
    %Other income/(expense), net
    
    
    596
    
    
    
    282
    %
    
    
    0
    %
    
    
    0
    %Interest income, net
    
    
    241
    
    
    
    66
    %
    
    
    1
    %
    
    
    0
    %Loss on sale of component, net
    
    
    (681
    )
    
    
    100
    %
    
    
    (1
    %)
    
    
    0
    %Income before provision for income taxes
    
    
    25,309
    
    
    
    529
    %
    
    
    28
    %
    
    
    5
    %Provision for/(benefit from) income taxes
    
    
    4,458
    
    
    
    2,026
    %
    
    
    4
    %
    
    
    0
    %Net income
    
    
    20,851
    
    
    
    457
    %
    
    
    24
    %
    
    
    4
    %
   22




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SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:United States
    
    $
    83,581
    
    
    $
    80,936
    
    
    $
    2,645International
    
    
    23,350
    
    
    
    22,506
    
    
    
    844Total
    
    $
    106,931
    
    
    $
    103,442
    
    
    $
    3,489
  SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    97,756
    
    
    $
    94,081
    
    
    $
    3,675Retail Certification
    
    
    9,175
    
    
    
    9,361
    
    
    
    (186
    )Total
    
    $
    106,931
    
    
    $
    103,442
    
    
    $
    3,489
           23




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Payments Due by PeriodLessThan
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating lease obligations
    
    $
    34,516
    
    
    $
    5,486
    
    
    $
    9,548
    
    
    $
    4,683
    
    
    $
    14,799Litigation settlement
    
    
    15,250
    
    
    
    15,250
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    49,766
    
    
    $
    20,736
    
    
    $
    9,548
    
    
    $
    4,683
    
    
    $
    14,799
       25




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
    
    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, including the costs related to the restatement of the SmartForce financial statements;
    
    non-recurring charges related to acquisitions;
    
    growing competition that may result in price reductions; and
    
    currency fluctuations.
    27




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
    
    third-party suppliers of instructor-led information technology, business, management and
professional skills education and training;
    
    suppliers of computer-based training and e-learning solutions;
    
    internal education and training departments of potential customers; and
    
    value-added resellers and network integrators.
      28




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
    
    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;
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
    
    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.
    
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(c)
    
    (d)Total Number of
    
    Maximum Number (orShares (or Units)
    
    Approximate Dollar(a)
    
    (b)
    
    Purchased as Part
    
    Value) of Shares (orTotal Number of
    
    Average Price
    
    of Publicly
    
    Units) that May Yet BeShares (or Units)
    
    Paid per Share (or
    
    Announced Plans
    
    Purchased Under thePeriod
    
    Purchased (1)
    
    Unit) $
    
    or Programs (2)
    
    Plans or ProgramsMay 1,
2005 through May 31, 2005
    
    
    606,294
    
    
    $
    3.77
    
    
    
    606,294
    
    
    
    4,108,435June 1,
2005 through June 30, 2005
    
    
    1,554,700
    
    
    
    3.74
    
    
    
    1,554,700
    
    
    
    2,553,735July 1,
2005 through July 31, 2005
    
    
    1,656,919
    
    
    
    3.61
    
    
    
    1,656,919
    
    
    
    896,816Total
    
    
    3,817,913
    
    
    $
    3.69
    
    
    
    3,817,913
    
    
    
    896,816
 
 (1)
    
    Through July 31, 2005, we repurchased an aggregate of 6,103,184 ADSs pursuant to our
shareholder approved repurchase program that we publicly announced on September 27, 2004 (the
Program).(2)
    
    Our Board of Directors and shareholder approved the repurchase by us of up to an aggregate
of 7,000,000 ADSs at a per share purchase price which complies with the requirements of Rule 10b-18
pursuant to the Program. Unless terminated earlier by resolution of our Board of Directors, the
Program will expire on March 24, 2006 or when we have repurchased all shares authorized for
repurchase thereunder. 
   
   
   
   
   SKILLSOFT PUBLIC LIMITED COMPANYDate: September 9, 2005By:
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer 34




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10.1
    
    Release and Settlement Agreement, dated as of July 4, 2005, by and among SkillSoft PLC, AIG
Europe (Ireland) Limited, David Drummond, Patrick Murphy, Ronald C. Conway, John M. Grillos,
James S. Krzywicki, Patrick J. McDonagh, Dr. Ferdinand von Prondzynski, Gregory M. Priest and
John P. Hayes.31.1
    
    Certification of the Companys CEO pursuant to Rule 13a-14 under the Securities Exchange Act
of 1934.31.2
    
    Certification of the Companys CFO pursuant to Rule 13a-14 under the Securities Exchange Act
of 1934.32.1
    
    Certification of the Companys CEO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Companys CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
 35