##### 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 1934
 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2005
 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
    
    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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##### Table of Contents



PAGE NO.PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets as of October 31, 2005 and January 31, 2005
    
    
    3Condensed Consolidated Statements of Income for the Three and Nine Months Ended October 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 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
    
    

    33Item 4. Controls and Procedures
    
    

    33PART II  OTHER INFORMATION
    
    

    34Item 1. Legal Proceedings
    
    

    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    

    34Item 3. Defaults Upon Senior Securities
    
    

    34Item 4. Submission of Matters to a Vote of Security Holders
    
    

    34Item 5. Other Information
    
    

    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    36Ex-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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October 31,
    
    
    January 31,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    48,059
    
    
    $
    34,906Short-term investments
    
    
    21,656
    
    
    
    20,021Restricted cash
    
    
    5,409
    
    
    
    994Accounts receivable, net
    
    
    44,741
    
    
    
    87,030Prepaid expenses and other current assets
    
    
    16,213
    
    
    
    22,659Total current assets
    
    
    136,078
    
    
    
    165,610Property and equipment, net
    
    
    9,376
    
    
    
    9,137Intangible assets, net
    
    
    10,581
    
    
    
    16,171Goodwill
    
    
    94,217
    
    
    
    103,576Long-term investments
    
    
    221
    
    
    
    8,943Other assets
    
    
    454
    
    
    
    60Total Assets
    
    $
    250,927
    
    
    $
    303,497LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,258
    
    
    $
    5,361Accrued expenses
    
    
    43,231
    
    
    
    66,995Deferred revenue
    
    
    102,639
    
    
    
    140,008Total current liabilities
    
    
    149,128
    
    
    
    212,364Long term liabilities
    
    
    4,173
    
    
    
    6,214Commitments and contingencies (Note 11)Stockholders equity:Ordinary
Shares,  0.11 par value: 250,000,000 shares authorized;
107,227,094 and 106,207,818 shares
issued and outstanding at October
31, 2005 and January 31, 2005,
respectively
    
    
    11,758
    
    
    
    11,617Additional paid-in capital
    
    
    561,672
    
    
    
    559,052Treasury stock, at cost, 6,533,884
and 443,757 ordinary shares at
October 31, 2005 and January 31,
2005, respectively
    
    
    (24,524
    )
    
    
    (2,523
    )Accumulated deficit
    
    
    (449,935
    )
    
    
    (481,029
    )Deferred compensation
    
    
    (682
    )
    
    
    (1,358
    )Accumulated other comprehensive loss
    
    
    (663
    )
    
    
    (840
    )Total stockholders equity
    
    
    97,626
    
    
    
    84,919Total Liabilities and Stockholders Equity
    
    $
    250,927
    
    
    $
    303,497
  3




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THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    53,901
    
    
    $
    52,507
    
    
    $
    160,833
    
    
    $
    155,949Cost of revenue
    
    
    6,509
    
    
    
    5,597
    
    
    
    18,662
    
    
    
    15,932Gross profit
    
    
    47,392
    
    
    
    46,910
    
    
    
    142,171
    
    
    
    140,017Operating expenses:Research and development
    
    
    9,122
    
    
    
    10,505
    
    
    
    29,181
    
    
    
    32,587Selling and marketing
    
    
    20,382
    
    
    
    22,441
    
    
    
    65,130
    
    
    
    69,467General and administrative
    
    
    5,496
    
    
    
    6,388
    
    
    
    18,507
    
    
    
    18,625Legal settlements/ (insurance recoveries)
    
    
    
    
    
    
    
    
    
    
    (19,500
    )
    
    
    Amortization of intangible assets
    
    
    2,285
    
    
    
    2,390
    
    
    
    6,838
    
    
    
    7,202Amortization of stock-based compensation (1)
    
    
    219
    
    
    
    296
    
    
    
    675
    
    
    
    944Restructuring
    
    
    226
    
    
    
    (7
    )
    
    
    813
    
    
    
    315Restatement:SEC investigation
    
    
    507
    
    
    
    803
    
    
    
    1,591
    
    
    
    1,905Other professional fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250Total operating expenses
    
    
    38,237
    
    
    
    42,816
    
    
    
    103,235
    
    
    
    131,295Operating income
    
    
    9,155
    
    
    
    4,094
    
    
    
    38,936
    
    
    
    8,722Other income/(expense), net
    
    
    341
    
    
    
    75
    
    
    
    727
    
    
    
    (164
    )Interest income, net
    
    
    268
    
    
    
    88
    
    
    
    872
    
    
    
    481Gain/(loss) on sale of assets, net
    
    
    73
    
    
    
    
    
    
    
    (608
    )
    
    
    Income before provision for income taxes
    
    
    9,837
    
    
    
    4,257
    
    
    
    39,927
    
    
    
    9,039Provision for income taxes
    
    
    4,154
    
    
    
    142
    
    
    
    8,833
    
    
    
    363Net income
    
    $
    5,683
    
    
    $
    4,115
    
    
    $
    31,094
    
    
    $
    8,676Net income per share (Note 9):Basic
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.30
    
    
    $
    0.08Basic weighted average common shares outstanding
    
    
    100,663,757
    
    
    
    105,935,620
    
    
    
    103,055,159
    
    
    
    104,851,577Diluted
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.30
    
    
    $
    0.08Diluted weighted average common shares
outstanding
    
    
    101,540,690
    
    
    
    108,941,334
    
    
    
    103,726,562
    
    
    
    109,974,424
 
 (1)
    
    The following summarizes the departmental allocation of the stock-based compensation THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Research and development
    
    $
    47
    
    
    $
    66
    
    
    $
    140
    
    
    $
    224Selling and marketing
    
    
    164
    
    
    
    219
    
    
    
    511
    
    
    
    683General and administrative
    
    
    8
    
    
    
    11
    
    
    
    24
    
    
    
    37$
    219
    
    
    $
    296
    
    
    $
    675
    
    
    $
    944
  4




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NINE MONTHS ENDEDOctober 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    31,094
    
    
    $
    8,676Adjustments to reconcile net income to net cash provided by / (used in) operating activities Stock-based compensation
    
    
    675
    
    
    
    944Depreciation and amortization
    
    
    3,790
    
    
    
    3,439Amortization of intangible assets
    
    
    6,838
    
    
    
    7,202Provision/(recovery) for bad debts
    
    
    (772
    )
    
    
    (1
    )Loss on sale of assets
    
    
    608
    
    
    
    Provision for income tax  non-cash
    
    
    7,853
    
    
    
    226Changes in current assets and liabilities:Accounts receivable, net
    
    
    41,381
    
    
    
    26,903Prepaid expenses and other current assets
    
    
    6,815
    
    
    
    10,706Accounts payable
    
    
    (2,644
    )
    
    
    (2,917
    )Accrued expenses
    
    
    (22,570
    )
    
    
    (58,900
    )Deferred revenue
    
    
    (36,547
    )
    
    
    (29,907
    )Net cash provided by / (used in) operating activities
    
    
    36,521
    
    
    
    (33,629
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (4,157
    )
    
    
    (6,423
    )Capitalized software development costs
    
    
    (1,247
    )
    
    
    Purchases of investments
    
    
    (14,848
    )
    
    
    (40,481
    )Maturity of investments
    
    
    21,844
    
    
    
    35,258(Designation) / release of restricted cash, net
    
    
    (4,415
    )
    
    
    24,600Net cash (used in) / provided by investing activities
    
    
    (2,823
    )
    
    
    12,954Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    550
    
    
    
    20,553Proceeds from employee stock purchase plan
    
    
    2,210
    
    
    
    Purchase of treasury stock
    
    
    (22,000
    )
    
    
    Net cash (used in)/provided by financing activities
    
    
    (19,240
    )
    
    
    20,553Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,305
    )
    
    
    359Net increase in cash and cash equivalents
    
    
    13,153
    
    
    
    237Cash and cash equivalents, beginning of period
    
    
    34,906
    
    
    
    42,866Cash and cash equivalents, end of period
    
    $
    48,059
    
    
    $
    43,103
  5




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Accounting for Certain Investments in
Debt and Equity Securities
   Software Revenue Recognition
  6




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Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred
   Accounting for Stock Issued to Employees
 7




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Accounting for
Stock-Based Compensation
 Share-Based Payment
 Accounting for Stock-Based Compensation-Transition and Disclosure
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rates
    
    
    4.08%  4.38
    %
    
    
    3.75%  3.90
    %
    
    
    3.86%  4.38
    %
    
    
    3.31%  4.35
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volatility factor
    
    
    65
    %
    
    
    84
    %
    
    
    73
    %
    
    
    88
    %Expected lives
    
    7 years
    
    7 years
    
    7 years
    
    7 yearsWeighted average fair value of options granted
    
    $
    2.60
    
    
    $
    4.55
    
    
    $
    2.65
    
    
    $
    9.12Weighted average remaining contractual life of
options outstanding
    
    6.09 years
    
    7.03 years
    
    6.09 years
    
    7.03 years
  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income As reported
    
    $
    5,683
    
    
    $
    4,115
    
    
    $
    31,094
    
    
    $
    8,676Add: Stock-based employee
compensation expense recognized
under APB No. 25
    
    
    219
    
    
    
    296
    
    
    
    675
    
    
    
    944Less: Total stock-based employee
compensation expense determined
under fair value based method for
all employee awards
    
    
    (4,063
    )
    
    
    (6,677
    )
    
    
    (13,069
    )
    
    
    (19,644
    )Pro forma net income/(loss)
    
    $
    1,839
    
    
    $
    (2,266
    )
    
    $
    18,700
    
    
    $
    (10,024
    )Basic and diluted net income/(loss) per share As reported
    
    $
    0.06
    
    
    $
    0.04
    
    
    $
    0.30
    
    
    $
    0.08Pro forma net income/(loss)
    
    $
    0.02
    
    
    $
    (0.02
    )
    
    $
    0.18
    
    
    $
    (0.10
    )
    Recognition of Liabilities in Connection with
Purchase Business Combinations
  8




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Accounting for Contingencies Business Combinations
  EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2005
    
    $
    1,955
    
    
    $
    6,552
    
    
    $
    334
    
    
    $
    8,841Payments
    
    
    (767
    )
    
    
    (2,969
    )
    
    
    (110
    )
    
    
    (3,846
    )Adjustments
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    187Merger and exit accrual October 31, 2005
    
    $
    1,188
    
    
    $
    3,770
    
    
    $
    224
    
    
    $
    5,182
  Year ended January 31,2006
    
    $
    5172007
    
    
    2,7422008
    
    
    1,0272009
    
    
    564Thereafter
    
    
    332Total
    
    $
    5,182
     9




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EMPLOYEESEVERANCEAND RELATED
    
    
    CONTRACTUALCOSTS
    
    
    OBLIGATIONS
    
    
    TOTALRestructuring accrual January 31, 2005
    
    $
    624
    
    
    $
    8,744
    
    
    $
    9,368Payments and other adjustments
    
    
    (968
    )
    
    
    (6,577
    )
    
    
    (7,545
    )Restructuring charge
    
    
    349
    
    
    
    277
    
    
    
    626Restructuring accrual October 31, 2005
    
    $
    5
    
    
    $
    2,444
    
    
    $
    2,449
    OCTOBER 31, 2005
    
    
    JANUARY 31, 2005GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally
developed
software/courseware
    
    $
    27,857
    
    
    $
    21,675
    
    
    $
    6,182
    
    
    $
    26,610
    
    
    $
    16,476
    
    
    $
    10,134Customer contracts
    
    
    13,018
    
    
    
    9,519
    
    
    
    3,499
    
    
    
    13,018
    
    
    
    7,881
    
    
    
    5,137Trademarks and trade name
    
    
    900
    
    
    
    
    
    
    
    900
    
    
    
    900
    
    
    
    
    
    
    
    90041,775
    
    
    
    31,194
    
    
    
    10,581
    
    
    
    40,528
    
    
    
    24,357
    
    
    
    16,171Goodwill
    
    
    94,217
    
    
    
    
    
    
    
    94,217
    
    
    
    103,576
    
    
    
    
    
    
    
    103,576$
    135,992
    
    
    $
    31,194
    
    
    $
    104,798
    
    
    $
    144,104
    
    
    $
    24,357
    
    
    $
    119,747
 Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed.
  10




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NINE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31, 2005
    
    
    OCTOBER 31, 2004Internally developed software/courseware
    
    $
    5,200
    
    
    $
    5,168Customer contracts
    
    
    1,638
    
    
    
    2,034$
    6,838
    
    
    $
    7,202
  FISCAL YEAR
    
    
    AMORTIZATION EXPENSE2006
    
    
    $
    9,1122007
    
    
    
    5,9692008
    
    
    
    1,4252009
    
    
    
    13
   Reporting Comprehensive Income
 THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Comprehensive income:Net income
    
    $
    5,683
    
    
    $
    4,115
    
    
    $
    31,094
    
    
    $
    8,676Other comprehensive income/(loss) -Foreign currency adjustment
    
    
    (360
    )
    
    
    (720
    )
    
    
    187
    
    
    
    (643
    )Unrealized holding gains/(losses)
    
    
    30
    
    
    
    4
    
    
    
    (9
    )
    
    
    (58
    )Comprehensive income
    
    $
    5,353
    
    
    $
    3,399
    
    
    $
    31,272
    
    
    $
    7,975
   THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average shares
outstanding
    
    
    100,663,757
    
    
    
    105,935,620
    
    
    
    103,055,159
    
    
    
    104,851,577Effect of dilutive shares outstanding
    
    
    876,933
    
    
    
    3,005,714
    
    
    
    671,403
    
    
    
    5,122,847Weighted average common shares
outstanding, as adjusted
    
    
    101,540,690
    
    
    
    108,941,334
    
    
    
    103,726,562
    
    
    
    109,974,424
  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Options excluded
    
    
    16,469,825
    
    
    
    16,335,273
    
    
    
    16,675,354
    
    
    
    14,218,140
 11




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12




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Disclosures About Segments of an Enterprise
and Related Information
  Three Months Ended October 31, 2005Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    51,005
    
    
    $
    2,896
    
    
    $
    53,901Net income
    
    $
    5,568
    
    
    $
    115
    
    
    $
    5,683
 Three Months Ended October 31, 2004Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    47,241
    
    
    $
    5,266
    
    
    $
    52,507Net income/(loss)
    
    $
    4,127
    
    
    $
    (12
    )
    
    $
    4,115
 Nine Months Ended October 31, 2005Multi-Modal
    
    
    Retail Certification
    
    
    Consolidated(In thousands)Revenue
    
    $
    148,762
    
    
    $
    12,071
    
    
    $
    160,833Net income/(loss)
    
    $
    32,138
    
    
    $
    (1,044
    )
    
    $
    31,094
 Nine Months Ended October 31, 2004Multi-Modal
    
    
    Retail Certification
    
    
    Combined(In thousands)Revenue
    
    $
    141,322
    
    
    $
    14,627
    
    
    $
    155,949Net income
    
    $
    8,471
    
    
    $
    205
    
    
    $
    8,676
 13




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THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:United States
    
    $
    42,798
    
    
    $
    40,946
    
    
    $
    126,378
    
    
    $
    121,882United Kingdom
    
    
    5,284
    
    
    
    5,207
    
    
    
    16,562
    
    
    
    13,558Canada
    
    
    2,400
    
    
    
    2,040
    
    
    
    6,787
    
    
    
    5,957Europe, excluding UK
    
    
    1,214
    
    
    
    1,897
    
    
    
    4,122
    
    
    
    6,574Australia/New Zealand
    
    
    1,940
    
    
    
    1,811
    
    
    
    5,621
    
    
    
    5,090Other
    
    
    265
    
    
    
    606
    
    
    
    1,363
    
    
    
    2,888Total revenue
    
    $
    53,901
    
    
    $
    52,507
    
    
    $
    160,833
    
    
    $
    155,949
    OCTOBER 31, 2005
    
    
    JANUARY 31, 2005Accrued compensation and benefits
    
    $
    8,402
    
    
    $
    20,415Course development fees
    
    
    1,487
    
    
    
    2,205Professional fees
    
    
    3,651
    
    
    
    2,788Accrued payables
    
    
    203
    
    
    
    1,798Accrued miscellaneous taxes
    
    
    307
    
    
    
    238Accrued merger related costs*
    
    
    2,717
    
    
    
    5,271Sales tax payable/VAT payable
    
    
    3,031
    
    
    
    3,864Accrued royalties
    
    
    3,096
    
    
    
    2,422Accrued litigation settlements
    
    
    15,415
    
    
    
    15,250Accrued restructuring
    
    
    1,162
    
    
    
    8,005Other accrued liabilities
    
    
    3,760
    
    
    
    4,739Total accrued expenses
    
    $
    43,231
    
    
    $
    66,995
 
 *
    
    Includes $1,586 and $1,684 of accrued income taxes at October 31, 2005 and January 31, 2005,
respectively.     14




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Share-Based Payment Accounting
for Stock-Based Compensation Accounting for
Stock Issued to Employees Statement of Cash Flows
      Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 
    15




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Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed
     16




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Income Statement
Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred
  18




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Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation
 Share-Based Payment.
  Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts Revenue Recognition
  Business Combinations Accounting for Costs Associated with Exit or
Disposal Activities.
  Accounting for Contingencies
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DOLLARINCREASE/(DECREASE)
    
    
    PERCENT CHANGE2004/2005
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2004/2005
    
    
    2005
    
    
    2004Revenue
    
    $
    1,394
    
    
    
    3
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    912
    
    
    
    16
    %
    
    
    12
    %
    
    
    11
    %Gross profit
    
    
    482
    
    
    
    1
    %
    
    
    88
    %
    
    
    89
    %Research and development
    
    
    (1,383
    )
    
    
    (13
    %)
    
    
    17
    %
    
    
    20
    %Selling and marketing
    
    
    (2,059
    )
    
    
    (9
    %)
    
    
    38
    %
    
    
    43
    %General and administrative
    
    
    (892
    )
    
    
    (14
    %)
    
    
    10
    %
    
    
    12
    %Amortization of intangible
assets
    
    
    (105
    )
    
    
    (4
    %)
    
    
    4
    %
    
    
    4
    %Amortization of stock-based
compensation
    
    
    (77
    )
    
    
    (26
    %)
    
    
    0
    %
    
    
    0
    %Restructuring
    
    
    233
    
    
    
    3,329
    %
    
    
    1
    %
    
    
    1
    %Restatement:SEC investigation
    
    
    (296
    )
    
    
    (37
    %)
    
    
    1
    %
    
    
    1
    %Other professional fees
    
    
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Total operating
expenses
    
    
    (4,579
    )
    
    
    (11
    %)
    
    
    71
    %
    
    
    81
    %Operating income
    
    
    5,061
    
    
    
    124
    %
    
    
    17
    %
    
    
    8
    %Other income/(expense), net
    
    
    266
    
    
    
    355
    %
    
    
    1
    %
    
    
    0
    %Interest income, net
    
    
    180
    
    
    
    205
    %
    
    
    1
    %
    
    
    0
    %Loss on sale of assets, net
    
    
    73
    
    
    
    100
    %
    
    
    0
    %
    
    
    0
    %Income before
provision for
income taxes
    
    
    5,580
    
    
    
    131
    %
    
    
    19
    %
    
    
    8
    %Provision for
income taxes
    
    
    4,012
    
    
    
    2,825
    %
    
    
    8
    %
    
    
    0
    %Net income
    
    $
    1,568
    
    
    
    38
    %
    
    
    11
    %
    
    
    8
    %
   QUARTERS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:United States
    
    $
    42,798
    
    
    $
    40,946
    
    
    $
    1,852International
    
    
    11,103
    
    
    
    11,561
    
    
    
    (458
    )Total
    
    $
    53,901
    
    
    $
    52,507
    
    
    $
    1,394
  QUARTERS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    51,005
    
    
    $
    47,241
    
    
    $
    3,764Retail Certification
    
    
    2,896
    
    
    
    5,266
    
    
    
    (2,370
    )Total
    
    $
    53,901
    
    
    $
    52,507
    
    
    $
    1,394
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DOLLARINCREASE/(DECREASE)
    
    
    PERCENT CHANGE2004/2005
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2004/2005
    
    
    2005
    
    
    2004Revenue
    
    $
    4,884
    
    
    
    3
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    2,730
    
    
    
    17
    %
    
    
    12
    %
    
    
    10
    %Gross profit
    
    
    2,154
    
    
    
    2
    %
    
    
    88
    %
    
    
    90
    %Research and development
    
    
    (3,406
    )
    
    
    (10
    %)
    
    
    18
    %
    
    
    21
    %Selling and marketing
    
    
    (4,337
    )
    
    
    (6
    %)
    
    
    40
    %
    
    
    44
    %General and administrative
    
    
    (118
    )
    
    
    (1
    %)
    
    
    12
    %
    
    
    12
    %Legal settlements/(insurance
recoveries)
    
    
    (19,500
    )
    
    
    (100
    %)
    
    
    (12
    %)
    
    
    0
    %Amortization of intangible assets
    
    
    (364
    )
    
    
    (5
    %)
    
    
    4
    %
    
    
    5
    %Amortization of stock-based
compensation
    
    
    (269
    )
    
    
    (29
    %)
    
    
    0
    %
    
    
    1
    %Restructuring
    
    
    498
    
    
    
    158
    %
    
    
    1
    %
    
    
    0
    %Restatement:SEC investigation
    
    
    (314
    )
    
    
    (16
    %)
    
    
    1
    %
    
    
    1
    %Other professional fees
    
    
    (250
    )
    
    
    (100
    %)
    
    
    0
    %
    
    
    0
    %Total operating expenses
    
    
    (28,060
    )
    
    
    (21
    %)
    
    
    64
    %
    
    
    84
    %Operating income
    
    $
    30,214
    
    
    
    346
    %
    
    
    24
    %
    
    
    6
    %Other income/(expense), net
    
    
    891
    
    
    
    543
    %
    
    
    0
    %
    
    
    0
    %Interest income, net
    
    
    391
    
    
    
    81
    %
    
    
    1
    %
    
    
    0
    %Loss on sale of assets, net
    
    
    (608
    )
    
    
    (100
    %)
    
    
    0
    %
    
    
    0
    %Income before provision
for income taxes
    
    
    30,888
    
    
    
    342
    %
    
    
    25
    %
    
    
    6
    %Provision for income taxes
    
    
    8,470
    
    
    
    2,333
    %
    
    
    6
    %
    
    
    0
    %Net income
    
    
    22,418
    
    
    
    258
    %
    
    
    19
    %
    
    
    6
    %
 22




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NINE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:United States
    
    $
    126,378
    
    
    $
    121,882
    
    
    $
    4,496International
    
    
    34,455
    
    
    
    34,067
    
    
    
    388Total
    
    $
    160,833
    
    
    $
    155,949
    
    
    $
    4,884
  NINE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2005
    
    
    2004
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    148,762
    
    
    $
    141,322
    
    
    $
    7,440Retail Certification
    
    
    12,071
    
    
    
    14,627
    
    
    
    (2,556
    )Total
    
    $
    160,833
    
    
    $
    155,949
    
    
    $
    4,884
        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
    
    $
    31,358
    
    
    $
    5,130
    
    
    $
    8,973
    
    
    $
    3,890
    
    
    $
    13,365Litigation settlement
    
    
    15,250
    
    
    
    15,250
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    46,608
    
    
    $
    20,380
    
    
    $
    8,973
    
    
    $
    3,890
    
    
    $
    13,365
  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;
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
    
    growing competition that may result in price reductions; and
    
    currency fluctuations.
       
    
    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, training departments and HR outsourcers 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;
    
    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 ProgramsAugust 1, 2005 through August 31, 2005
    
    
    430,700
    
    
    $
    4.08
    
    
    
    430,700
    
    
    
    466,116September 1, 2005 through September 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466,116October 1, 2005 through October 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    466,116Total
    
    
    430,700
    
    
    $
    4.08
    
    
    
    430,700
    
    
    
    466,116
 
 (1)
    
    Through October 31, 2005, we repurchased an aggregate of 6,533,884 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. 
   
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Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    3
    
    0
    
    0ADS Holders
    
    106,425,239
    
    12,706
    
    6,017
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    3
    
    0
    
    0ADS Holders
    
    106,357,181
    
    76,714
    
    10,067
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    3
    
    0
    
    0ADS Holders
    
    106,090,762
    
    343,344
    
    9,856
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    3
    
    0
    
    0ADS Holders
    
    106,324,726
    
    113,940
    
    5,296
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    3
    
    0
    
    0ADS Holders
    
    91,173,485
    
    15,201,726
    
    68,751
 
   
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SKILLSOFT PUBLIC LIMITED COMPANYDate: December 9, 2005By:
    
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer
 36




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31.1
    
    Certification of the Companys CEO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of the Companys CFO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of the Companys CEO pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.32.2
    
    Certification of the Companys CFO pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934.
 37