##### 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, 2006
 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. Condensed Consolidated Financial Statements (Unaudited):
    
    
    3Condensed Consolidated Balance Sheets as of October 31, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Income Statements for the Three and Nine Months Ended
October 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October
31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II  OTHER INFORMATION
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37SIGNATURE
    
    
    38EXHIBIT INDEX
    
    
    39EX-10.1 Loan and Security Agreement, dated 7/23/04EX-10.2 2002 Share Option Plan, as amendedEX-10.3 1996 Supplemental Stock Plan, as amendedEX-10.4 2001 Outside Director Option Plan, as amended.EX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.
  2




---



##### Table of Contents



OCTOBER 31,
    
    
    JANUARY 31,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    50,393
    
    
    $
    51,937Short-term investments
    
    
    52,453
    
    
    
    21,632Restricted cash
    
    
    4,704
    
    
    
    5,039Accounts receivable, net
    
    
    47,641
    
    
    
    85,681Prepaid expenses and other current assets
    
    
    13,705
    
    
    
    22,006Total current assets
    
    
    168,896
    
    
    
    186,295Property and equipment, net
    
    
    9,742
    
    
    
    10,231Intangible assets, net
    
    
    3,268
    
    
    
    8,711Goodwill
    
    
    85,092
    
    
    
    93,929Long-term investments
    
    
    4,017
    
    
    
    Deferred tax assets, net
    
    
    694
    
    
    
    694Other assets
    
    
    375
    
    
    
    42Total assets
    
    $
    272,084
    
    
    $
    299,902LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,453
    
    
    $
    3,819Accrued expenses
    
    
    41,449
    
    
    
    53,795Deferred revenue
    
    
    98,077
    
    
    
    136,699Total current liabilities
    
    
    142,979
    
    
    
    194,313Long term liabilities
    
    
    2,694
    
    
    
    3,317Commitments and contingencies (Note 11)Shareholders equity:Ordinary shares, 0.11 par value: 250,000,000
shares authorized; 108,521,751 and 107,344,243
shares issued at October 31, 2006 and January 31,
2006, respectively
    
    
    11,934
    
    
    
    11,773Additional paid-in capital
    
    
    570,117
    
    
    
    562,052Treasury shares, at cost, 6,533,884 ordinary shares
    
    
    (24,524
    )
    
    
    (24,524
    )Deferred compensation
    
    
    
    
    
    
    (465
    )Accumulated deficit
    
    
    (429,853
    )
    
    
    (445,814
    )Accumulated other comprehensive loss
    
    
    (1,263
    )
    
    
    (750
    )Total shareholders equity
    
    
    126,411
    
    
    
    102,272Total liabilities and shareholders equity
    
    $
    272,084
    
    
    $
    299,902
  3




---



##### Table of Contents



THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOctober 31,
    
    
    October 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    57,135
    
    
    $
    53,901
    
    
    $
    167,521
    
    
    $
    160,833Cost of revenue (1)
    
    
    6,846
    
    
    
    6,509
    
    
    
    19,962
    
    
    
    18,662Gross profit
    
    
    50,289
    
    
    
    47,392
    
    
    
    147,559
    
    
    
    142,171Operating expenses:Research and development (1)
    
    
    10,047
    
    
    
    9,169
    
    
    
    29,913
    
    
    
    29,321Selling and marketing (1)
    
    
    21,983
    
    
    
    20,546
    
    
    
    68,375
    
    
    
    65,641General and administrative (1)
    
    
    6,844
    
    
    
    5,504
    
    
    
    20,948
    
    
    
    18,531Legal settlements/(insurance
recoveries)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,500
    )Amortization of intangible assets
    
    
    1,152
    
    
    
    2,285
    
    
    
    5,443
    
    
    
    6,838Restructuring
    
    
    25
    
    
    
    226
    
    
    
    47
    
    
    
    813Restatement  SEC investigation
    
    
    114
    
    
    
    507
    
    
    
    434
    
    
    
    1,591Total operating expenses
    
    
    40,165
    
    
    
    38,237
    
    
    
    125,160
    
    
    
    103,235Operating income
    
    
    10,124
    
    
    
    9,155
    
    
    
    22,399
    
    
    
    38,936Other (expense)/income, net
    
    
    (35
    )
    
    
    341
    
    
    
    (67
    )
    
    
    727Interest income
    
    
    1,137
    
    
    
    511
    
    
    
    3,011
    
    
    
    1,213Interest expense
    
    
    (69
    )
    
    
    (243
    )
    
    
    (205
    )
    
    
    (341
    )Loss on sale of assets, net
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    (608
    )Income before provision for income
taxes
    
    
    11,157
    
    
    
    9,837
    
    
    
    25,138
    
    
    
    39,927Provision for income taxes
    
    
    4,073
    
    
    
    4,154
    
    
    
    9,176
    
    
    
    8,833Net income
    
    $
    7,084
    
    
    $
    5,683
    
    
    $
    15,962
    
    
    $
    31,094Net income per share (Note 9):Basic
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.16
    
    
    $
    0.30Basic weighted average shares
outstanding
    
    
    101,763,654
    
    
    
    100,663,757
    
    
    
    101,446,427
    
    
    
    103,055,159Diluted
    
    $
    0.07
    
    
    $
    0.06
    
    
    $
    0.15
    
    
    $
    0.30Diluted weighted average shares
outstanding
    
    
    104,724,685
    
    
    
    101,540,690
    
    
    
    103,887,852
    
    
    
    103,726,562
 
 (1)
    
    Share-based compensation included in cost of revenue and operating expenses: THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOctober 31,
    
    October 31,2006
    
    2005
    
    2006
    
    2005Cost of revenue
    
    $
    14
    
    
    $
    
    
    
    $
    31
    
    
    $
    Research and development
    
    
    151
    
    
    
    47
    
    
    
    818
    
    
    
    140Selling and marketing
    
    
    269
    
    
    
    164
    
    
    
    1,646
    
    
    
    511General and administrative
    
    
    404
    
    
    
    8
    
    
    
    1,657
    
    
    
    24
  4




---



##### Table of Contents



NINE MONTHS ENDEDOCTOBER 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    15,962
    
    
    $
    31,094Adjustments to reconcile net income to net cash provided by operating activities -Share-based compensation
    
    
    4,152
    
    
    
    675Depreciation and amortization
    
    
    4,502
    
    
    
    3,790Amortization of intangible assets
    
    
    5,443
    
    
    
    6,838Recovery of bad debts reserves
    
    
    (477
    )
    
    
    (772
    )Loss on disposition
    
    
    
    
    
    
    608Provision for income tax  non-cash
    
    
    8,245
    
    
    
    7,853Changes in current assets and liabilities:Accounts receivable
    
    
    39,354
    
    
    
    41,381Prepaid expenses and other current assets
    
    
    8,794
    
    
    
    6,815Accounts payable
    
    
    (403
    )
    
    
    (2,644
    )Accrued expenses, including long-term liabilities
    
    
    (13,190
    )
    
    
    (22,570
    )Deferred revenue
    
    
    (40,043
    )
    
    
    (36,547
    )Net cash provided by operating activities
    
    
    32,339
    
    
    
    36,521Cash flows from investing activities:Deferred acquisition costs
    
    
    (296
    )
    
    
    Purchases of property and equipment
    
    
    (3,989
    )
    
    
    (4,157
    )Capitalized software development costs
    
    
    
    
    
    
    (1,247
    )Purchases of investments
    
    
    (74,843
    )
    
    
    (14,848
    )Maturity of investments
    
    
    39,810
    
    
    
    21,844Release/(designation) of restricted cash
    
    
    335
    
    
    
    (4,415
    )Net cash used in investing activities
    
    
    (38,983
    )
    
    
    (2,823
    )Cash flows from financing activities:Exercise of share options
    
    
    1,977
    
    
    
    550Proceeds from employee share purchase plan
    
    
    2,561
    
    
    
    2,210Payments to acquire treasury shares
    
    
    
    
    
    
    (22,000
    )Net cash provided by / (used in) financing activities
    
    
    4,538
    
    
    
    (19,240
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    562
    
    
    
    (1,305
    )Net (decrease)/increase in cash and cash equivalents
    
    
    (1,544
    )
    
    
    13,153Cash and cash equivalents, beginning of period
    
    
    51,937
    
    
    
    34,906Cash and cash equivalents, end of period
    
    $
    50,393
    
    
    $
    48,059
  5




---



##### Table of Contents



®
        6




---



##### Table of Contents



®
 ®
        7




---



##### Table of Contents



8




---



##### Table of Contents



THREE MONTHS
    
    
    NINE MONTHSENDED OCTOBER 31,
    
    
    ENDED OCTOBER 31,2005
    
    
    2005Net income As reported
    
    $
    5,683
    
    
    $
    31,094Add: Share-based compensation
expense recognized under Opinion
25
    
    
    219
    
    
    
    675Less: Total share-based
compensation expense determined
under fair value based method
for all awards
    
    
    (4,063
    )
    
    
    (13,069
    )Pro forma net income
    
    $
    1,839
    
    
    $
    18,700Basic and diluted net income per share As reported
    
    $
    0.06
    
    
    $
    0.30Pro forma
    
    $
    0.02
    
    
    $
    0.18
    THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    OCTOBER 31,2006
    
    2005
    
    2006
    
    2005Risk-free
interest rates
    
    
    4.56%-4.59
    %
    
    
    3.86% - 4.06
    %
    
    
    4.58% - 5.03
    %
    
    
    3.86% - 4.33
    %Expected dividend
yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volatility factor
    
    
    60
    %
    
    
    65
    %
    
    
    60
    %
    
    
    71
    %Expected lives
    
    4 years
    

    
    7 years
    

    
    4 years
    

    
    7 yearsWeighted average
fair value of
options granted
    
    $
    3.19
    
    
    $
    2.60
    
    
    $
    3.02
    
    
    $
    2.65Weighted average
remaining
contractual life of
options
outstanding
    
    5.30 years
    

    
    6.10 years
    

    
    5.30 years

    

    
    6.10 years
 9




---



##### Table of Contents



WeightedAverage
    
    AggregateWeighted
    
    Remaining
    
    IntrinsicAverage
    
    Contractual
    
    ValueShare Options
    
    Shares
    
    Exercise Price
    
    Term (Years)
    
    (in thousands)Outstanding, January 31, 2006
    
    
    16,239,090
    
    
    $
    7.73
    
    
    
    5.99Granted
    
    
    1,034,000
    
    
    
    5.98Exercised
    
    
    (554,513
    )
    
    
    3.57Cancelled
    
    
    (583,536
    )
    
    
    11.27Outstanding, October 31, 2006
    
    
    16,135,041
    
    
    $
    7.63
    
    
    
    5.30
    
    
    $
    20,597Exercisable, October 31, 2006
    
    
    15,035,041
    
    
    $
    7.75
    
    
    
    5.19
    
    
    $
    20,088Vested and Expected to Vest, October 31, 2006 (1)
    
    
    15,940,227
    
    
    $
    7.65
    
    
    
    5.28
    
    
    $
    20,513
 
 (1)
    
    This represents the number of vested options as of October 31, 2006 plus the number of
unvested options as of October 31, 2006 expected to vest adjusted for an estimated forfeiture
rate of 11.6%. The company recognizes expense incurred under SFAS 123(R) on a straight line
basis. Due to the Companys vesting schedule, expense is incurred on options that have not yet
vested but which are expected to vest in a future period. The options for which expense has
been incurred but have not yet vested are included above as options expected to vest.   10




---



##### Table of Contents



EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2006
    
    $
    1,186
    
    
    $
    3,457
    
    
    $
    169
    
    
    $
    4,812Payments made during the nine months ended
October 31, 2006
    
    
    (346
    )
    
    
    (1,154
    )
    
    
    (46
    )
    
    
    (1,546
    )Adjustments made to accrual during the nine
months ended October 31, 2006
    
    
    
    
    
    
    238
    
    
    
    
    
    
    
    238Merger and exit accrual October 31, 2006
    
    $
    840
    
    
    $
    2,541
    
    
    $
    123
    
    
    $
    3,504Long-term obligation
    
    $
    
    
    
    $
    1,570
    
    
    $
    
    
    
    $
    1,570Current obligation
    
    $
    840
    
    
    $
    971
    
    
    $
    123
    
    
    $
    1,934
  Year ended January 31,2007 (remaining 3 months)
    
    $
    1,9022008
    
    
    5512009
    
    
    4932010
    
    
    5182011
    
    
    40Total
    
    $
    3,504
   FACILITY LEASEOBLIGATIONSTotal restructuring accrual as of January 31, 2006
    
    $
    1,987Payments made during the nine months ended October 31, 2006
    
    
    (362
    )Restructuring credits incurred during the nine months ended October 31, 2006
    
    
    (191
    )Total restructuring accrual as of October 31, 2006
    
    $
    1,434Long-term obligation
    
    $
    874Current obligation
    
    $
    560
   OCTOBER 31, 2006
    
    
    JANUARY 31, 2006GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally
developed software/
courseware
    
    $
    28,257
    
    
    $
    27,618
    
    
    $
    639
    
    
    $
    28,257
    
    
    $
    23,414
    
    
    $
    4,843Customer contracts
    
    
    13,018
    
    
    
    11,289
    
    
    
    1,729
    
    
    
    13,018
    
    
    
    10,055
    
    
    
    2,963Trademarks and
trade names
    
    
    905
    
    
    
    5
    
    
    
    900
    
    
    
    905
    
    
    
    
    
    
    
    90542,180
    
    
    
    38,912
    
    
    
    3,268
    
    
    
    42,180
    
    
    
    33,469
    
    
    
    8,711Goodwill
    
    
    85,092
    
    
    
    
    
    
    
    85,092
    
    
    
    93,929
    
    
    
    
    
    
    
    93,929$
    127,272
    
    
    $
    38,912
    
    
    $
    88,360
    
    
    $
    136,109
    
    
    $
    33,469
    
    
    $
    102,640
 11




---



##### Table of Contents



TotalGross carrying amount of goodwill, January 31, 2006
    
    $
    93,929Utilization of tax benefit
    
    
    (8,245
    )Other
    
    
    (592
    )Gross carrying amount of goodwill, October 31, 2006
    
    $
    85,092
  AmortizationFiscal Year
    
    Expense2007
    
    $
    6312008
    
    
    1,6252009
    
    
    112Total
    
    $
    2,368
    THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Comprehensive income:Net income
    
    $
    7,084
    
    
    $
    5,683
    
    
    $
    15,962
    
    
    $
    31,094Other comprehensive income/(loss) Foreign currency adjustment
    
    
    (147
    )
    
    
    (360
    )
    
    
    (613
    )
    
    
    187Unrealized holding gains/(losses)
    
    
    74
    
    
    
    30
    
    
    
    100
    
    
    
    (9
    )Comprehensive income
    
    $
    7,011
    
    
    $
    5,353
    
    
    $
    15,449
    
    
    $
    31,272
  OCTOBER 31,
    
    
    JANUARY 31,2006
    
    
    2006Unrealized holding gains/(losses)
    
    $
    85
    
    
    $
    (15
    )Foreign currency adjustment
    
    
    (1,348
    )
    
    
    (735
    )Total accumulated other comprehensive loss
    
    $
    (1,263
    )
    
    $
    (750
    )
   12




---



##### Table of Contents



THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    OCTOBER 31,2006
    
    2005
    
    2006
    
    2005Basic weighted
average shares
outstanding
    
    
    101,763,654
    
    
    
    100,663,757
    
    
    
    101,446,427
    
    
    
    103,055,159Effect of dilutive
shares outstanding
    
    
    2,961,031
    
    
    
    876,933
    
    
    
    2,441,425
    
    
    
    671,403Weighted average
shares outstanding,
as adjusted
    
    
    104,724,685
    
    
    
    101,540,690
    
    
    
    103,887,852
    
    
    
    103,726,562
  THREE MONTHS ENDED
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    OCTOBER 31,2006
    
    2005
    
    2006
    
    2005Options to
purchase shares
    
    
    13,174,010
    
    
    
    16,469,825
    
    
    
    13,693,616
    
    
    
    16,675,354
        13




---



##### Table of Contents



Three Months Ended October 31, 2006Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    55,888
    
    
    $
    1,247
    
    
    $
    57,135Net income
    
    $
    7,063
    
    
    $
    21
    
    
    $
    7,084
 Three Months Ended October 31, 2005Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    51,005
    
    
    $
    2,896
    
    
    $
    53,901Net income
    
    $
    5,568
    
    
    $
    115
    
    
    $
    5,683
 Nine Months Ended October 31, 2006Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    163,018
    
    
    $
    4,503
    
    
    $
    167,521Net income
    
    $
    15,834
    
    
    $
    128
    
    
    $
    15,962
 14




---



##### Table of Contents



Nine Months Ended October 31, 2005Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    148,762
    
    
    $
    12,071
    
    
    $
    160,833Net income/(loss)
    
    $
    32,138
    
    
    $
    (1,044
    )
    
    $
    31,094
  THREE MONTHS ENDED
    
    
    NINE MONTHS ENDEDOCTOBER 31,
    
    
    OCTOBER 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:United States
    
    $
    44,689
    
    
    $
    42,798
    
    
    $
    131,155
    
    
    $
    126,378United Kingdom (UK)
    
    
    6,651
    
    
    
    5,284
    
    
    
    18,972
    
    
    
    16,562Canada
    
    
    2,347
    
    
    
    2,400
    
    
    
    7,062
    
    
    
    6,787Europe, excluding UK
    
    
    491
    
    
    
    1,214
    
    
    
    1,532
    
    
    
    4,122Australia/New Zealand
    
    
    2,177
    
    
    
    1,940
    
    
    
    6,473
    
    
    
    5,621Other
    
    
    780
    
    
    
    265
    
    
    
    2,327
    
    
    
    1,363Total revenue
    
    $
    57,135
    
    
    $
    53,901
    
    
    $
    167,521
    
    
    $
    160,833
    OCTOBER 31, 2006
    
    
    JANUARY 31, 2006Accrued compensation and benefits
    
    $
    9,074
    
    
    $
    15,984Course development fees
    
    
    1,544
    
    
    
    1,170Professional fees
    
    
    2,915
    
    
    
    2,989Accrued payables
    
    
    385
    
    
    
    1,254Accrued miscellaneous taxes
    
    
    273
    
    
    
    395Accrued merger related costs*
    
    
    1,934
    
    
    
    2,977Sales tax payable/VAT payable
    
    
    3,116
    
    
    
    4,193Accrued royalties
    
    
    3,599
    
    
    
    3,129Accrued litigation settlements
    
    
    15,250
    
    
    
    17,040Accrued restructuring
    
    
    560
    
    
    
    810Other accrued liabilities
    
    
    2,799
    
    
    
    3,854Total accrued expenses
    
    $
    41,449
    
    
    $
    53,795
 
 *
    
    Includes $1,238 and $1,584 of accrued payroll taxes in October 31, 2006 and January 31, 2006,
respectively.   15




---



##### Table of Contents



Fair Value Measurements
 16




---



##### Table of Contents



17




---



##### Table of Contents



18




---



##### Table of Contents



DOLLAR
    
    
    THREE MONTHS ENDED OCTOBER 31,INCREASE/(DECREASE)
    
    
    PERCENT CHANGE2005/2006
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2005/2006
    
    
    2006
    
    
    2005Revenue
    
    $
    3,234
    
    
    
    6
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    337
    
    
    
    5
    %
    
    
    12
    %
    
    
    12
    %Gross margin
    
    
    2,897
    
    
    
    6
    %
    
    
    88
    %
    
    
    88
    %Operating expenses:Research and
development
    
    
    878
    
    
    
    10
    %
    
    
    18
    %
    
    
    17
    %Selling and marketing
    
    
    1,437
    
    
    
    7
    %
    
    
    38
    %
    
    
    38
    %General and
administrative
    
    
    1,340
    
    
    
    24
    %
    
    
    12
    %
    
    
    10
    %Amortization of
intangible assets
    
    
    (1,133
    )
    
    
    (50
    %)
    
    
    2
    %
    
    
    4
    %Restructuring
    
    
    (201
    )
    
    
    (89
    %)
    
    
    
    
    
    
    Restatement  SEC
investigation
    
    
    (393
    )
    
    
    (78
    %)
    
    
    
    
    
    
    1
    %Total operating expenses
    
    
    1,928
    
    
    
    5
    %
    
    
    70
    %
    
    
    71
    %
 19




---



##### Table of Contents



DOLLAR
    
    
    THREE MONTHS ENDED OCTOBER 31,INCREASE/(DECREASE)
    
    
    PERCENT CHANGE2005/2006
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2005/2006
    
    
    2006
    
    
    2005Operating income
    
    
    969
    
    
    
    11
    %
    
    
    18
    %
    
    
    17
    %Other
income/(expense) ,
net
    
    
    (376
    )
    
    
    *
    
    
    
    
    
    
    
    1
    %Interest income
    
    
    626
    
    
    
    123
    %
    
    
    2
    %
    
    
    1
    %Interest expense
    
    
    174
    
    
    
    (72
    %)
    
    
    
    
    
    
    Loss on sale of
assets, net
    
    
    (73
    )
    
    
    *
    
    
    
    
    
    
    
    Income before provision
for income taxes
    
    
    1,320
    
    
    
    13
    %
    
    
    20
    %
    
    
    18
    %Provision for income
taxes
    
    
    (81
    )
    
    
    (2
    %)
    
    
    7
    %
    
    
    8
    %Net income
    
    $
    1,401
    
    
    
    25
    %
    
    
    12
    %
    
    
    11
    %
 
 *
    
    Not meaningful
    
    Does not add due to rounding  THREE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    55,888
    
    
    $
    51,005
    
    
    $
    4,883Retail Certification
    
    
    1,247
    
    
    
    2,896
    
    
    
    (1,649
    )Total
    
    $
    57,135
    
    
    $
    53,901
    
    
    $
    3,234
  THREE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:United States
    
    $
    44,689
    
    
    $
    42,798
    
    
    $
    1,891International
    
    
    12,446
    
    
    
    11,103
    
    
    
    1,343Total
    
    $
    57,135
    
    
    $
    53,901
    
    
    $
    3,234
   20




---



##### Table of Contents



21




---



##### Table of Contents



DOLLAR
    
    
    NINE MONTHS ENDED OCTOBER 31,INCREASE/(DECREASE)
    
    
    PERCENT CHANGE2005/2006
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2005/2006
    
    
    2006
    
    
    2005Revenue
    
    $
    6,688
    
    
    
    4
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    1,300
    
    
    
    7
    %
    
    
    12
    %
    
    
    12
    %Gross margin
    
    
    5,388
    
    
    
    4
    %
    
    
    88
    %
    
    
    88
    %Operating expenses:Research and development
    
    
    592
    
    
    
    2
    %
    
    
    18
    %
    
    
    18
    %Selling and marketing
    
    
    2,734
    
    
    
    4
    %
    
    
    41
    %
    
    
    41
    %General and administrative
    
    
    2,417
    
    
    
    13
    %
    
    
    13
    %
    
    
    12
    %Amortization of intangible
assets
    
    
    (1,395
    )
    
    
    (20
    %)
    
    
    3
    %
    
    
    4
    %(Insurance recoveries)
    
    
    19,500
    
    
    
    *
    
    
    
    
    
    
    
    (12
    %)Restructuring
    
    
    (766
    )
    
    
    (94
    %)
    
    
    
    
    
    
    1
    %Restatement 
SEC investigation
    
    
    (1,157
    )
    
    
    (73
    %)
    
    
    
    
    
    
    1
    %Total operating expenses
    
    
    21,925
    
    
    
    21
    %
    
    
    75
    %
    
    
    64
    %Operating income
    
    
    (16,537
    )
    
    
    (42
    %)
    
    
    13
    %
    
    
    24
    %Other income/(expense) , net
    
    
    (794
    )
    
    
    *
    
    
    
    
    
    
    
    Interest income
    
    
    1,798
    
    
    
    148
    %
    
    
    2
    %
    
    
    1
    %Interest expense
    
    
    136
    
    
    
    (40
    %)
    
    
    
    
    
    
    Loss on sale of assets, net
    
    
    608
    
    
    
    *
    
    
    
    
    
    
    
    Income before provision for
income taxes
    
    
    (14,789
    )
    
    
    (37
    %)
    
    
    15
    %
    
    
    25
    %Provision for income taxes
    
    
    343
    
    
    
    4
    %
    
    
    5
    %
    
    
    5
    %Net income
    
    $
    (15,132
    )
    
    
    (49
    %)
    
    
    10
    %
    
    
    19
    %
 
 *
    
    Not meaningful.
    
    Does not add due to rounding  NINE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    163,018
    
    
    $
    148,762
    
    
    $
    14,256Retail Certification
    
    
    4,503
    
    
    
    12,071
    
    
    
    (7,568
    )Total
    
    $
    167,521
    
    
    $
    160,833
    
    
    $
    6,688
  NINE MONTHS ENDED OCTOBER 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:United States
    
    $
    131,155
    
    
    $
    126,378
    
    
    $
    4,777International
    
    
    36,366
    
    
    
    34,455
    
    
    
    1,911Total
    
    $
    167,521
    
    
    $
    160,833
    
    
    $
    6,688
     22




---



##### Table of Contents



23




---



##### Table of Contents



24




---



##### Table of Contents



Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating Lease Obligations
    
    $
    20,244
    
    
    $
    5,062
    
    
    $
    6,652
    
    
    $
    2,213
    
    
    $
    6,317
      25




---



##### Table of Contents



26




---



##### Table of Contents



27




---



##### Table of Contents



28




---



##### Table of Contents




    
    the size and timing of new/renewal agreements and upgrades;
    
    royalty rates;
    
    the announcement, introduction and acceptance of new products, product enhancements and technologies by us and our
competitors;
    
    the mix of sales between our field sales force, our other direct sales channels and our telesales channels;
    
    general conditions in the U.S. or the international economy;
    
    the loss of significant customers;
    
    delays in availability of new products;
    
    product or service quality problems;
    
    seasonality  due to the budget and purchasing cycles of our customers, we expect our revenue and operating results will
generally be strongest in the second half of our fiscal year and weakest in the first half of our fiscal year;
    
    the spending patterns of our customers;
    
    litigation costs and expenses, 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.
    29




---



##### Table of Contents




    
    difficulties in integrating the technologies, operations, financial
controls and personnel of the acquired company;
    
    difficulties in transitioning customers of the acquired company;
    
    diversion of management time and focus;
    
    the incurrence of unanticipated expenses associated with the
acquisition or the assumption of unknown liabilities or unanticipated
financial, accounting or other problems of the acquired company; and
    
    accounting charges related to the acquisition, including restructuring
charges, write-offs of in-process research and development costs, and
subsequent impairment charges relating to goodwill or other intangible
assets acquired in the transaction.
      
    
    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
 30




---



##### Table of Contents




    
    value-added resellers and network integrators.
        31




---



##### Table of Contents



32




---



##### Table of Contents



33




---



##### 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;
 34




---



##### Table of Contents




    
    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.
    
   35




---



##### Table of Contents



Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    3
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    108,254,090
    
    
    
    9,251
    
    
    
    5,535
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    3
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    108,215,288
    
    
    
    43,253
    
    
    
    10,335
   Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    3
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    108,253,827
    
    
    
    12,251
    
    
    
    2,798
  
 Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    3
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    94,074,982
    
    
    
    14,186,151
    
    
    
    7,743
 36




---



##### Table of Contents



Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    108,147,066
    
    
    
    74,405
    
    
    
    47,405
  Votes FOR
    
    AGAINST
    
    ABSTAINOrdinary Shareholders
    
    
    4
    
    
    
    0
    
    
    
    0ADS Holders
    
    
    104,197,512
    
    
    
    4,022,095
    
    
    
    49,269
 
   
   37




---



##### Table of Contents



SKILLSOFT PUBLIC LIMITED COMPANYDate: December 8, 2006
    
    By:
    
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer
 38




---



##### Table of Contents



2.1
    
    Stock and Asset Purchase Agreement among T.N.H. France SARL, T.N.H. Holdings GmbH, The
Thomson Corporation (Australia) Pty Ltd, Thomson Information and Solutions Limited, Thomson
Global Resources, Thomson Learning Inc., Thomson Learning Inc., SkillSoft PLC and SkillSoft
Corporation, dated October 25, 2006 (Incorporated by reference to Exhibit 2.1 to SkillSoft
PLCs Current Report on Form 8-K as filed with the Securities and Exchange Commission on
October 26, 2006 (File No. 000-25674)).10.1
    
    Loan and Security Agreement, dated July 23, 2004, as amended, by and between Silicon Valley
Bank, SkillSoft Corporation, SmartCertify Direct Inc. and Books24x7.com, Inc.10.2
    
    2002 Share Option Plan, as amended.10.3
    
    1996 Supplemental Stock Plan, as amended.10.4
    
    2001 Outside Director Option Plan, as amended.31.1
    
    Certification of SkillSoft PLCs Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15(d)-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of SkillSoft PLCs Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15(d)-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of SkillSoft PLCs Chief Executive Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) under the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of SkillSoft PLCs Chief Financial Officer pursuant to Rule 13a-14(b)/Rule
15d-14(b) under the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 39