##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JULY 31, 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




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##### 



PAGE NO.PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Condensed Consolidated Financial Statements:
    
    
    3Condensed Consolidated Balance Sheets as of July 31, 2006 and January 31, 2006
    
    
    3Condensed Consolidated Income Statements for the Three and Six Months Ended July 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2006 and 2005
    
    
    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
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II  OTHER INFORMATION
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURE
    
    
    33EXHIBIT INDEX
    
    
    34EX-10.1 Loan and Security Agreement, dated 7/23/04EX-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




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JULY 31,
    
    
    JANUARY 31,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    47,972
    
    
    $
    51,937Short-term investments
    
    
    49,084
    
    
    
    21,632Restricted cash
    
    
    4,723
    
    
    
    5,039Accounts receivable, net
    
    
    47,883
    
    
    
    85,681Prepaid expenses and other current assets
    
    
    16,622
    
    
    
    22,006Total current assets
    
    
    166,284
    
    
    
    186,295Property and equipment, net
    
    
    10,078
    
    
    
    10,231Intangible assets, net
    
    
    4,420
    
    
    
    8,711Goodwill
    
    
    88,912
    
    
    
    93,929Long-term investments
    
    
    3,517
    
    
    
    Deferred tax assets, net
    
    
    694
    
    
    
    694Other assets
    
    
    44
    
    
    
    42Total assets
    
    $
    273,949
    
    
    $
    299,902LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,703
    
    
    $
    3,819Accrued expenses
    
    
    41,808
    
    
    
    53,795Deferred revenue
    
    
    109,572
    
    
    
    136,699Total current liabilities
    
    
    154,083
    
    
    
    194,313Long term liabilities
    
    
    2,837
    
    
    
    3,317Commitments and contingencies (Note 11)Shareholders equity:Ordinary shares, E0.11 par value: 250,000,000
shares authorized; 108,122,290 and 107,344,243
shares issued at July 31, 2006 and January 31,
2006, respectively
    
    
    11,882
    
    
    
    11,773Additional paid-in capital
    
    
    567,797
    
    
    
    562,052Treasury share, at cost, 6,533,884 ordinary shares
    
    
    (24,524
    )
    
    
    (24,524
    )Deferred compensation
    
    
    
    
    
    
    (465
    )Accumulated deficit
    
    
    (436,937
    )
    
    
    (445,814
    )Accumulated other comprehensive loss
    
    
    (1,189
    )
    
    
    (750
    )Total shareholders equity
    
    
    117,029
    
    
    
    102,272Total liabilities and shareholders equity
    
    $
    273,949
    
    
    $
    299,902
  3




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THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    55,734
    
    
    $
    53,604
    
    
    $
    110,387
    
    
    $
    106,931Cost of revenue (1)
    
    
    6,665
    
    
    
    6,318
    
    
    
    13,116
    
    
    
    12,152Gross profit
    
    
    49,069
    
    
    
    47,286
    
    
    
    97,271
    
    
    
    94,779Operating expenses:Research and development (1)
    
    
    9,901
    
    
    
    10,236
    
    
    
    19,866
    
    
    
    20,153Selling and marketing (1)
    
    
    23,136
    
    
    
    20,884
    
    
    
    46,393
    
    
    
    45,095General and administrative (1)
    
    
    6,824
    
    
    
    6,743
    
    
    
    14,104
    
    
    
    13,027Legal settlements/(insurance recoveries)
    
    
    
    
    
    
    (19,500
    )
    
    
    
    
    
    
    (19,500
    )Amortization of intangible assets
    
    
    2,143
    
    
    
    2,307
    
    
    
    4,291
    
    
    
    4,553Restructuring
    
    
    22
    
    
    
    (116
    )
    
    
    22
    
    
    
    587Restatement  SEC investigation
    
    
    69
    
    
    
    834
    
    
    
    321
    
    
    
    1,084Total operating expenses
    
    
    42,095
    
    
    
    21,388
    
    
    
    84,997
    
    
    
    64,999Operating income
    
    
    6,974
    
    
    
    25,898
    
    
    
    12,274
    
    
    
    29,780Other (expense)/income, net
    
    
    (41
    )
    
    
    495
    
    
    
    (31
    )
    
    
    385Interest income
    
    
    1,069
    
    
    
    347
    
    
    
    1,874
    
    
    
    703Interest expense
    
    
    (70
    )
    
    
    (37
    )
    
    
    (136
    )
    
    
    (98
    )Loss on sale of assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (681
    )Income before provision for income taxes
    
    
    7,932
    
    
    
    26,703
    
    
    
    13,981
    
    
    
    30,089Provision for income taxes
    
    
    3,107
    
    
    
    3,759
    
    
    
    5,103
    
    
    
    4,678Net income
    
    $
    4,825
    
    
    $
    22,944
    
    
    $
    8,878
    
    
    $
    25,411Net income per share (Note 9):Basic
    
    $
    0.05
    
    
    $
    0.22
    
    
    $
    0.09
    
    
    $
    0.24Basic weighted average shares outstanding
    
    
    101,524,912
    
    
    
    103,796,060
    
    
    
    101,285,185
    
    
    
    104,362,838Diluted
    
    $
    0.05
    
    
    $
    0.22
    
    
    $
    0.09
    
    
    $
    0.24Diluted weighted average shares outstanding
    
    
    104,050,160
    
    
    
    104,222,841
    
    
    
    103,460,319
    
    
    
    104,895,595
 
 (1)
    
    Share-based compensation included in cost of revenue and operating expenses: THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJuly 31,
    
    
    July 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Cost of revenue
    
    $
    11
    
    
    $
    
    
    
    $
    17
    
    
    $
    Research and development
    
    
    284
    
    
    
    46
    
    
    
    667
    
    
    
    94Selling and marketing
    
    
    608
    
    
    
    166
    
    
    
    1,377
    
    
    
    347General and administrative
    
    
    630
    
    
    
    8
    
    
    
    1,253
    
    
    
    16$
    1,533
    
    
    $
    220
    
    
    $
    3,314
    
    
    $
    457
  4




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SIX MONTHS ENDEDJULY 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    8,878
    
    
    $
    25,411Adjustments to reconcile net income to net cash provided by operating activities -Share-based compensation
    
    
    3,314
    
    
    
    457Depreciation and amortization
    
    
    3,032
    
    
    
    2,596Amortization of intangible assets
    
    
    4,291
    
    
    
    4,553Recovery of bad debts
    
    
    (363
    )
    
    
    (623
    )Loss on disposition
    
    
    
    
    
    
    681Provision for income tax  non-cash
    
    
    4,446
    
    
    
    4,002Changes in current assets and liabilities:Accounts receivable
    
    
    38,802
    
    
    
    38,117Prepaid expenses and other current assets
    
    
    5,867
    
    
    
    3,755Accounts payable
    
    
    (1,150
    )
    
    
    (2,685
    )Accrued expenses, including long-term liabilities
    
    
    (12,642
    )
    
    
    (17,447
    )Deferred revenue
    
    
    (28,156
    )
    
    
    (27,990
    )Net cash provided by operating activities
    
    
    26,319
    
    
    
    30,827Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,855
    )
    
    
    (3,628
    )Capitalized software development costs
    
    
    
    
    
    
    (1,247
    )Purchases of investments
    
    
    (53,484
    )
    
    
    (11,948
    )Maturity of investments
    
    
    22,245
    
    
    
    14,673Release/(designation) of restricted cash
    
    
    316
    
    
    
    (4,840
    )Net cash used in by investing activities
    
    
    (33,778
    )
    
    
    (6,990
    )Cash flows from financing activities:Exercise of share options
    
    
    1,301
    
    
    
    457Proceeds from employee share purchase plan
    
    
    1,703
    
    
    
    1,336Payments to acquire treasury share
    
    
    
    
    
    
    (20,244
    )Net cash provided by / (used in) financing activities
    
    
    3,004
    
    
    
    (18,451
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    490
    
    
    
    (1,015
    )Net (decrease)/increase in cash and cash equivalents
    
    
    (3,965
    )
    
    
    4,371Cash and cash equivalents, beginning of period
    
    
    51,937
    
    
    
    34,906Cash and cash equivalents, end of period
    
    $
    47,972
    
    
    $
    39,277
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®
        ®
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®
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THREE MONTHS
    
    
    SIX MONTHSENDED JULY 31,
    
    
    ENDED JULY 31,2005
    
    
    2005Net income As reported
    
    $
    22,944
    
    
    $
    25,411Add: Share-based compensation expense recognized under Opinion 25
    
    
    220
    
    
    
    457Less: Total share-based compensation expense determined under
fair value based method for all awards
    
    
    (4,197
    )
    
    
    (9,006
    )Pro forma net income
    
    $
    18,967
    
    
    $
    16,862Basic and diluted net income per share As reported
    
    $
    0.22
    
    
    $
    0.24Pro forma
    
    $
    0.18
    
    
    $
    0.16
 8




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THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2006
    
    2005
    
    2006
    
    2005Risk-free interest rates
    
    
    4.96
    %
    
    
    3.86% - 4.06
    %
    
    
    4.96% - 5.03
    %
    
    
    3.86% - 4.33
    %Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volatility factor
    
    
    60
    %
    
    
    71
    %
    
    
    60
    %
    
    
    73
    %Expected lives
    
    4 years
    
    
    7 years
    
    
    4 years
    
    
    7 yearsWeighted average fair value of options granted
    
    
    $3.02
    
    
    
    $2.61
    
    
    
    $3.01
    
    
    
    $2.66Weighted average remaining contractual life
of options outstanding
    
    5.56 years
    
    
    6.35 years
    
    
    5.56 years
    
    
    6.35 years
    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
    
    
    985,000
    
    
    
    5.96Exercised
    
    
    (379,952
    )
    
    
    3.42Cancelled
    
    
    (297,983
    )
    
    
    12.77Outstanding, July 31, 2006
    
    
    16,546,155
    
    
    $
    7.63
    
    
    
    5.56
    
    
    $
    14,030Exercisable, July 31, 2006
    
    
    15,325,389
    
    
    $
    7.78
    
    
    
    5.44
    
    
    $
    13,818Vested and Expected to Vest, July 31, 2006 (1)
    
    
    16,323,000
    
    
    $
    7.66
    
    
    
    5.54
    
    
    $
    14,025
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(1)
    
    This represents the number of vested options as of July 31, 2006 plus the number of unvested
options expected to vest as of July 31, 2006 based on the unvested outstanding options at July 31,
2006 adjusted for the estimated forfeiture rate of 11.6%.      EMPLOYEESEVERANCE AND
    
    
    CLOSEDOWN OFRELATED COSTS
    
    
    FACILITIES
    
    
    OTHER
    
    
    TOTALMerger and exit accrual January 31, 2006
    
    $
    1,186
    
    
    $
    3,457
    
    
    $
    169
    
    
    $
    4,812Payments made during the six months ended July 31, 2006
    
    
    (370
    )
    
    
    (440
    )
    
    
    (47
    )
    
    
    (857
    )Merger and exit accrual July 31, 2006
    
    $
    816
    
    
    $
    3,017
    
    
    $
    122
    
    
    $
    3,955
  Year ended January 31,2007 (remaining 6 months)
    
    $
    2,3532008
    
    
    5512009
    
    
    4932010
    
    
    518Thereafter
    
    
    40Total
    
    $
    3,955
   FACILITY LEASEOBLIGATIONSTotal restructuring accrual as of January 31, 2006
    
    $
    1,987Payments made during the six months ended July 31, 2006
    
    
    (207
    )Restructuring charges incurred during the six months ended July 31, 2006
    
    
    22Total restructuring accrual as of July 31, 2006
    
    $
    1,802
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JULY 31, 2006
    
    
    JANUARY 31, 2006GROSS
    
    
    
    
    
    
    NET
    
    
    GROSS
    
    
    
    
    
    
    NETCARRYING
    
    
    ACCUMULATED
    
    
    CARRYING
    
    
    CARRYING
    
    
    ACCUMULATED
    
    
    CARRYINGAMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNT
    
    
    AMOUNT
    
    
    AMORTIZATION
    
    
    AMOUNTInternally developed
software/courseware
    
    $
    28,257
    
    
    $
    26,877
    
    
    $
    1,380
    
    
    $
    28,257
    
    
    $
    23,414
    
    
    $
    4,843Customer contracts
    
    
    13,018
    
    
    
    10,878
    
    
    
    2,140
    
    
    
    13,018
    
    
    
    10,055
    
    
    
    2,963Trademarks and trade names
    
    
    905
    
    
    
    5
    
    
    
    900
    
    
    
    905
    
    
    
    
    
    
    
    90542,180
    
    
    
    37,760
    
    
    
    4,420
    
    
    
    42,180
    
    
    
    33,469
    
    
    
    8,711Goodwill
    
    
    88,912
    
    
    
    
    
    
    
    88,912
    
    
    
    93,929
    
    
    
    
    
    
    
    93,929$
    131,092
    
    
    $
    37,760
    
    
    $
    93,332
    
    
    $
    136,109
    
    
    $
    33,469
    
    
    $
    102,640
  TotalGross carrying amount of goodwill, January 31, 2006
    
    $
    93,929Utilization of tax benefit
    
    
    (4,446
    )Other
    
    
    (571
    )Gross carrying amount of goodwill, July 31, 2006
    
    $
    88,912
  AmortizationFiscal Year
    
    Expense2007
    
    $
    1,8832008
    
    
    1,6252009
    
    
    12Total
    
    $
    3,520
    THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Comprehensive income:Net income
    
    $
    4,825
    
    
    $
    22,944
    
    
    $
    8,878
    
    
    $
    25,411Other comprehensive income/(loss) Foreign currency adjustment
    
    
    (167
    )
    
    
    560
    
    
    
    (465
    )
    
    
    547Unrealized holding gains/(losses)
    
    
    (49
    )
    
    
    (12
    )
    
    
    26
    
    
    
    (39
    )Comprehensive income
    
    $
    4,609
    
    
    $
    23,492
    
    
    $
    8,439
    
    
    $
    25,919
  SIX MONTHS
    
    
    YEAR ENDEDENDED JULY 31,
    
    
    JANUARY 31,2006
    
    
    2006Unrealized holding gains/(losses)
    
    $
    12
    
    
    $
    (15
    )Foreign currency adjustment
    
    
    (1,201
    )
    
    
    (735
    )Total accumulated other comprehensive loss
    
    $
    (1,189
    )
    
    $
    (750
    )
  11




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THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2006
    
    2005
    
    2006
    
    2005Basic weighted average shares outstanding
    
    
    101,524,912
    
    
    
    103,796,060
    
    
    
    101,285,185
    
    
    
    104,362,838Effect of dilutive shares outstanding
    
    
    2,525,248
    
    
    
    426,781
    
    
    
    2,175,134
    
    
    
    532,757Weighted average shares outstanding, as adjusted
    
    
    104,050,160
    
    
    
    104,222,841
    
    
    
    103,460,319
    
    
    
    104,895,595
  THREE MONTHS ENDED
    
    SIX MONTHS ENDEDJULY 31,
    
    JULY 31,2006
    
    2005
    
    2006
    
    2005Options to purchase shares
    
    
    14,005,126
    
    
    
    17,308,246
    
    
    
    14,355,240
    
    
    
    17,202,269
         12




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##### Table of Contents



Three Months Ended July 31, 2006Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    54,210
    
    
    $
    1,524
    
    
    $
    55,734Net income
    
    $
    4,792
    
    
    $
    33
    
    
    $
    4,825
 Three Months Ended July 31, 2005Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    49,707
    
    
    $
    3,897
    
    
    $
    53,604Net income
    
    $
    22,867
    
    
    $
    77
    
    
    $
    22,944
 Six Months Ended July 31, 2006Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    107,132
    
    
    $
    3,255
    
    
    $
    110,387Net income
    
    $
    8,772
    
    
    $
    106
    
    
    $
    8,878
 Six Months Ended July 31, 2005Multi-Modal
    
    Retail Certification
    
    Combined(In thousands)Revenue
    
    $
    97,756
    
    
    $
    9,175
    
    
    $
    106,931Net income/(loss)
    
    $
    26,569
    
    
    $
    (1,158
    )
    
    $
    25,411
  THREE MONTHS ENDED
    
    
    SIX MONTHS ENDEDJULY 31,
    
    
    JULY 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue:United States
    
    $
    43,603
    
    
    $
    41,609
    
    
    $
    86,466
    
    
    $
    83,581United Kingdom (UK)
    
    
    6,260
    
    
    
    5,690
    
    
    
    12,321
    
    
    
    11,277Canada
    
    
    2,354
    
    
    
    2,214
    
    
    
    4,716
    
    
    
    4,386Europe, excluding UK
    
    
    518
    
    
    
    1,570
    
    
    
    1,041
    
    
    
    2,908Australia/New Zealand
    
    
    2,058
    
    
    
    1,811
    
    
    
    4,296
    
    
    
    3,681Other
    
    
    941
    
    
    
    710
    
    
    
    1,547
    
    
    
    1,098Total revenue
    
    $
    55,734
    
    
    $
    53,604
    
    
    $
    110,387
    
    
    $
    106,931
 13




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JULY 31, 2006
    
    
    JANUARY 31, 2006Accrued compensation and benefits
    
    $
    8,426
    
    
    $
    15,984Course development fees
    
    
    1,347
    
    
    
    1,170Professional fees
    
    
    3,079
    
    
    
    2,989Accrued payables
    
    
    517
    
    
    
    1,254Accrued miscellaneous taxes
    
    
    368
    
    
    
    395Accrued merger related costs*
    
    
    2,407
    
    
    
    2,977Sales tax payable/VAT payable
    
    
    3,081
    
    
    
    4,193Accrued royalties
    
    
    3,311
    
    
    
    3,129Accrued litigation settlements
    
    
    15,250
    
    
    
    17,040Accrued restructuring
    
    
    805
    
    
    
    810Other accrued liabilities
    
    
    3,217
    
    
    
    3,854Total accrued expenses
    
    $
    41,808
    
    
    $
    53,795
 
 *
    
    Includes $1,214 and $1,584 of accrued payroll taxes in July 31, 2006 and January 31, 2006,
respectively.       14




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17




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DOLLAR
    
    
    THREE MONTHS ENDED JULY 31,INCREASE/(DECREASE)
    
    
    PERCENT CHANGE2005/2006
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2005/2006
    
    
    2006
    
    
    2005Revenue
    
    $
    2,130
    
    
    
    4
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    347
    
    
    
    5
    %
    
    
    12
    %
    
    
    12
    %Gross margin
    
    
    1,783
    
    
    
    4
    %
    
    
    88
    %
    
    
    88
    %Operating expenses:Research and development
    
    
    (335
    )
    
    
    (3
    %)
    
    
    18
    %
    
    
    19
    %Selling and marketing
    
    
    2,252
    
    
    
    11
    %
    
    
    42
    %
    
    
    39
    %General and administrative
    
    
    81
    
    
    
    1
    %
    
    
    12
    %
    
    
    13
    %Amortization of intangible assets
    
    
    (164
    )
    
    
    (7
    %)
    
    
    4
    %
    
    
    4
    %(Insurance recoveries)
    
    
    19,500
    
    
    
    *
    
    
    
    
    
    
    
    (36
    %)Restructuring
    
    
    138
    
    
    
    *
    
    
    
    
    
    
    
    Restatement  SEC investigation
    
    
    (765
    )
    
    
    (92
    %)
    
    
    
    
    
    
    2
    %Total operating expenses
    
    
    20,707
    
    
    
    97
    %
    
    
    76
    %
    
    
    40
    %Operating income
    
    
    (18,924
    )
    
    
    (73
    %)
    
    
    13
    %
    
    
    48
    %Other income/(expense) , net
    
    
    (536
    )
    
    
    *
    
    
    
    
    
    
    
    1
    %Interest income
    
    
    722
    
    
    
    208
    %
    
    
    2
    %
    
    
    1
    %Interest expense
    
    
    (33
    )
    
    
    89
    %
    
    
    
    
    
    
    Income before provision for income
taxes
    
    
    (18,771
    )
    
    
    (70
    %)
    
    
    14
    %
    
    
    50
    %Provision for income taxes
    
    
    (652
    )
    
    
    (17
    %)
    
    
    6
    %
    
    
    7
    %Net income
    
    $
    (18,119
    )
    
    
    (79
    %)
    
    
    9
    %
    
    
    43
    %
 
 *
    
    Not meaningful  THREE MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    54,210
    
    
    $
    49,707
    
    
    $
    4,503Retail Certification
    
    
    1,524
    
    
    
    3,897
    
    
    
    (2,373
    )Total
    
    $
    55,734
    
    
    $
    53,604
    
    
    $
    2,130
  THREE MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:United States
    
    $
    43,603
    
    
    $
    41,609
    
    
    $
    1,994International
    
    
    12,131
    
    
    
    11,995
    
    
    
    136Total
    
    $
    55,734
    
    
    $
    53,604
    
    
    $
    2,130
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DOLLAR
    
    
    SIX MONTHS ENDED JULY 31,INCREASE/(DECREASE)
    
    
    PERCENT CHANGE2005/2006
    
    
    INCREASE/(DECREASE)
    
    
    PERCENTAGE OF REVENUE(IN THOUSANDS)
    
    
    2005/2006
    
    
    2006
    
    
    2005Revenue
    
    $
    3,456
    
    
    
    3
    %
    
    
    100
    %
    
    
    100
    %Cost of revenue
    
    
    964
    
    
    
    8
    %
    
    
    12
    %
    
    
    11
    %Gross margin
    
    
    2,492
    
    
    
    3
    %
    
    
    88
    %
    
    
    89
    %Operating expenses:Research and development
    
    
    (287
    )
    
    
    (1
    %)
    
    
    18
    %
    
    
    19
    %Selling and marketing
    
    
    1,298
    
    
    
    3
    %
    
    
    42
    %
    
    
    42
    %General and administrative
    
    
    1,077
    
    
    
    8
    %
    
    
    13
    %
    
    
    12
    %Amortization of intangible assets
    
    
    (262
    )
    
    
    (6
    %)
    
    
    4
    %
    
    
    4
    %(Insurance
recoveries)
    
    
    19,500
    
    
    
    *
    
    
    
    
    
    
    
    (18
    %)Restructuring
    
    
    (565
    )
    
    
    (96
    %)
    
    
    
    
    
    
    1
    %Restatement  SEC investigation
    
    
    (763
    )
    
    
    (70
    %)
    
    
    
    
    
    
    1
    %Total operating expenses
    
    
    19,998
    
    
    
    31
    %
    
    
    77
    %
    
    
    61
    %Operating income
    
    
    (17,506
    )
    
    
    (59
    %)
    
    
    11
    %
    
    
    28
    %Other income/(expense), net
    
    
    (416
    )
    
    
    *
    
    
    
    
    
    
    
    Interest income
    
    
    1,171
    
    
    
    167
    %
    
    
    2
    %
    
    
    1
    %Interest expense
    
    
    (38
    )
    
    
    39
    %
    
    
    
    
    
    
    Loss on sale of assets, net
    
    
    681
    
    
    
    *
    
    
    
    
    
    
    
    (1
    %)Income before provision for income
taxes
    
    
    (16,108
    )
    
    
    (54
    %)
    
    
    13
    %
    
    
    28
    %Provision for income taxes
    
    
    425
    
    
    
    9
    %
    
    
    5
    %
    
    
    4
    %Net income
    
    $
    (16,533
    )
    
    
    (65
    %)
    
    
    8
    %
    
    
    24
    %
 
 *
    
    Not meaningful.  SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:Multi-Modal Learning
    
    $
    107,131
    
    
    $
    97,756
    
    
    $
    9,375Retail Certification
    
    
    3,256
    
    
    
    9,175
    
    
    
    (5,919
    )Total
    
    $
    110,387
    
    
    $
    106,931
    
    
    $
    3,456
  SIX MONTHS ENDED JULY 31,(IN THOUSANDS)
    
    2006
    
    
    2005
    
    
    CHANGERevenue:United States
    
    $
    86,467
    
    
    $
    83,580
    
    
    $
    2,887International
    
    
    23,920
    
    
    
    23,351
    
    
    
    569Total
    
    $
    110,387
    
    
    $
    106,931
    
    
    $
    3,456
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Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanContractual Obligations
    
    Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 YearsOperating Lease Obligations
    
    $
    30,988
    
    
    $
    5,645
    
    
    $
    8,571
    
    
    $
    3,566
    
    
    $
    13,206
         23




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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
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
    
    currency fluctuations.
       
    
    third-party suppliers of instructor-led information technology, business, management and professional skills education and
training;
    
    technology companies that offer learning courses covering their own technology products;
    
    suppliers of computer-based training and e-learning solutions;
    
    internal education, training departments and HR outsourcers of potential customers; and
    
    value-added resellers and network integrators.
    27




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
    
    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 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.
      29




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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.
    31




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
    
    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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SKILLSOFT PUBLIC LIMITED COMPANYDate: September 8, 2006
    By:
    /s/ Thomas J. McDonaldThomas J. McDonaldChief Financial Officer 33




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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.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.
 34