##### 



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 March 31, 2007
 OR
 o
    
    TRANSITION REPORT
PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 Commission file number 000-50784
 Blackboard Inc.
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    52-2081178
(I.R.S. Employer
Identification No.)
 1899 L Street, N.W. 
Washington D.C.
(Address of Principal Executive Offices)
    
    20036
(Zip Code)
 (202) 463-4860
 þ o
  þ o o
 o þ
 Class
    
    Outstanding at April 30, 2007Common Stock, $0.01 par value
    
    28,565,938




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##### 



Blackboard Inc.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2007
 INDEX
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Consolidated Financial StatementsConsolidated Balance Sheets as of December 31, 2006 and March 31, 2007 (unaudited)
    
    
    1Unaudited Consolidated Statements of Operations for the three months ended
    
    
    2March 31, 2006 and 2007Unaudited Consolidated Statements of Cash Flows for the three months ended
    
    
    3March 31, 2006 and 2007Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II.
    
    OTHER INFORMATIONItem 1A.
    
    Risk Factors
    
    
    20Item 6.
    
    Exhibits
    
    
    27Signature
    
    
    
    
    28
 Throughout this Quarterly Report on Form 10-Q, the terms we, us, our and Blackboard refer
to Blackboard Inc. and its subsidiaries.
 ii




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##### 



PART I  FINANCIAL INFORMATION
 Item 1. Consolidated Financial Statements
 BLACKBOARD INC.
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share data)
 December 31,
    
    
    March 31,2006
    
    
    2007(unaudited)Current assets:Cash and cash equivalents
    
    $
    30,776
    
    
    $
    25,881Accounts receivable, net of allowance for
doubtful accounts of $767 and $810 at
December 31, 2006 and March 31, 2007,
respectively
    
    
    52,394
    
    
    
    40,642Inventories
    
    
    2,377
    
    
    
    2,060Prepaid expenses and other current assets
    
    
    3,514
    
    
    
    3,599Deferred tax asset, current portion
    
    
    7,326
    
    
    
    8,480Deferred cost of revenues, current portion
    
    
    7,983
    
    
    
    7,018Total current assets
    
    
    104,370
    
    
    
    87,680Deferred tax asset, noncurrent portion
    
    
    25,431
    
    
    
    20,027Deferred cost of revenues, noncurrent portion
    
    
    4,253
    
    
    
    3,984Restricted cash
    
    
    1,999
    
    
    
    2,337Property and equipment, net
    
    
    12,761
    
    
    
    12,691Goodwill
    
    
    101,644
    
    
    
    105,730Intangible assets, net
    
    
    56,841
    
    
    
    54,029Total assets
    
    $
    307,299
    
    
    $
    286,478Current liabilities:Accounts payable
    
    $
    2,238
    
    
    $
    4,068Accrued expenses
    
    
    20,519
    
    
    
    15,266Term loan, current portion
    
    
    246
    
    
    
    196Deferred rent, current portion
    
    
    371
    
    
    
    295Deferred revenues, current portion
    
    
    117,972
    
    
    
    96,070Total current liabilities
    
    
    141,346
    
    
    
    115,895Term loan, noncurrent portion, net of debt
discount of $777 and $566 at December 31,
2006 and March 31, 2007, respectively
    
    
    23,377
    
    
    
    18,638Deferred rent, noncurrent portion
    
    
    157
    
    
    
    127Deferred revenues, noncurrent portion
    
    
    2,298
    
    
    
    3,412Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.01 par value; 5,000,000
shares authorized, and no shares issued or
outstanding at December 31, 2006 and March
31, 2007
    
    
    
    
    
    
    Common stock, $0.01 par value; 200,000,000
shares authorized; 28,248,214 and 28,491,775
shares issued and outstanding at December
31, 2006 and March 31, 2007, respectively
    
    
    282
    
    
    
    285Additional paid-in capital
    
    
    231,331
    
    
    
    238,242Accumulated deficit
    
    
    (91,492
    )
    
    
    (90,121
    )Total stockholders equity
    
    
    140,121
    
    
    
    148,406Total liabilities and stockholders equity
    
    $
    307,299
    
    
    $
    286,478
 See notes to unaudited consolidated financial statements.
 1




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##### 



BLACKBOARD INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except share and per share data)
 Three Months EndedMarch 31,2006
    
    
    2007Revenues:Product
    
    $
    33,174
    
    
    $
    49,981Professional services
    
    
    4,534
    
    
    
    5,299Total revenues
    
    
    37,708
    
    
    
    55,280Operating expenses:Cost of product revenues, excludes $933
and $2,825 in amortization of acquired
technology included in amortization of
intangibles resulting from acquisitions
shown below for the three months ended
March 31, 2006 and 2007, respectively (1)
    
    
    7,966
    
    
    
    11,697Cost of professional services revenues (1)
    
    
    3,391
    
    
    
    3,764Research and development (1)
    
    
    4,884
    
    
    
    6,953Sales and marketing (1)
    
    
    12,149
    
    
    
    14,546General and administrative (1)
    
    
    7,600
    
    
    
    9,317Amortization of intangibles resulting from
acquisitions
    
    
    1,837
    
    
    
    5,399Total operating expenses
    
    
    37,827
    
    
    
    51,676(Loss) Income from operations
    
    
    (119
    )
    
    
    3,604Other income (expense), net:Interest expense
    
    
    (578
    )
    
    
    (758
    )Interest income
    
    
    1,241
    
    
    
    405Other (expense) income
    
    
    (326
    )
    
    
    73Income before provision for income taxes
    
    
    218
    
    
    
    3,324Provision for income taxes
    
    
    (70
    )
    
    
    (1,380
    )Net income
    
    $
    148
    
    
    $
    1,944Net income per common share:Basic
    
    $
    0.01
    
    
    $
    0.07Diluted
    
    $
    0.01
    
    
    $
    0.07Weighted average number of common shares:Basic
    
    
    27,577,200
    
    
    
    28,351,872Diluted
    
    
    28,757,423
    
    
    
    29,428,043(1) Includes the following amounts related
to stock-based compensation:Cost of product revenues
    
    $
    35
    
    
    $
    129Cost of professional services revenues
    
    
    118
    
    
    
    116Research and development
    
    
    122
    
    
    
    117Sales and marketing
    
    
    407
    
    
    
    491General and administrative
    
    
    817
    
    
    
    1,359
 See notes to unaudited consolidated financial statements.
 2




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##### 



BLACKBOARD INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three MonthsEnded March 31,2006
    
    
    2007(in thousands)Cash flows from operating activitiesNet income
    
    $
    148
    
    
    $
    1,944Adjustments to reconcile net income to net cash (used in) provided by
operating activities:Deferred tax
(benefit) provision
    
    
    (203
    )
    
    
    883Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    (1,568
    )Amortization of debt discount
    
    
    34
    
    
    
    211Depreciation and amortization
    
    
    1,902
    
    
    
    2,512Amortization of intangibles resulting from acquisitions
    
    
    1,837
    
    
    
    5,399Change in allowance for doubtful accounts
    
    
    (9
    )
    
    
    43Noncash stock-based compensation
    
    
    1,499
    
    
    
    2,212Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable
    
    
    4,231
    
    
    
    11,709Inventories
    
    
    (541
    )
    
    
    317Prepaid expenses and other current assets
    
    
    426
    
    
    
    (85
    )Deferred cost of revenues
    
    
    734
    
    
    
    1,234Accounts payable
    
    
    335
    
    
    
    1,830Accrued expenses
    
    
    (9,061
    )
    
    
    (4,856
    )Deferred rent
    
    
    124
    
    
    
    (106
    )Deferred revenues
    
    
    (11,479
    )
    
    
    (20,788
    )Net cash (used in) provided by operating activities
    
    
    (10,023
    )
    
    
    891Cash flows from investing activitiesAcquisition of WebCT, Inc., net of cash acquired
    
    
    (154,628
    )
    
    
    Purchase of property and equipment
    
    
    (1,569
    )
    
    
    (2,417
    )Payments for patent enforcement costs
    
    
    
    
    
    
    (1,233
    )Purchase of intangible assets
    
    
    
    
    
    
    (1,500
    )Sale of held-to-maturity investments
    
    
    23,546
    
    
    
    Sale of available-for-sale investments
    
    
    39,056
    
    
    
    Net cash used in investing activities
    
    
    (93,595
    )
    
    
    (5,150
    )Cash flows from financing activitiesProceeds from revolving credit facility
    
    
    10,000
    
    
    
    Payments on revolving credit facility
    
    
    (10,000
    )
    
    
    Proceeds from term loan
    
    
    57,522
    
    
    
    Payments on term loan
    
    
    (150
    )
    
    
    (5,000
    )Payments on letters of credit
    
    
    
    
    
    
    (338
    )Excess tax benefits from stock-based compensation
    
    
    
    
    
    
    1,568Proceeds from exercise of stock options
    
    
    2,897
    
    
    
    3,134Net cash provided by (used in) financing activities
    
    
    60,269
    
    
    
    (636
    )Net decrease in cash and cash equivalents
    
    
    (43,349
    )
    
    
    (4,895
    )Cash and cash equivalents at beginning of period
    
    
    75,895
    
    
    
    30,776Cash and cash equivalents at end of period
    
    $
    32,546
    
    
    $
    25,881
 See notes to unaudited consolidated financial statements.
 3




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##### 



BLACKBOARD INC.
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 For the Three Months Ended March 31, 2006 and 2007
 In these Notes to Unaudited Consolidated Financial Statements, the terms the Company and
Blackboard refer to Blackboard Inc. and its subsidiaries
 1. Nature of Business
 Blackboard Learning System(TM), Blackboard Community System(TM),
Blackboard Content System(TM), Blackboard Outcomes System(TM), Blackboard
Portfolio System(TM,) Blackboard Transaction System(TM) and Blackboard
One(TM).
   2. Basis of Presentation
   Principles of Consolidation
  Foreign Currency Translation
  Use of Estimates
  4




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Reclassification
  Fair Value of Financial Instruments
 Disclosures about Fair Value of Financial Instruments,
 Deferred Income Taxes
   Accounting for Uncertainty
in Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 Cost of Product Revenues
  Basic and Diluted Net Income per Common Share
  5




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months EndedMarch 31,2006
    
    
    2007(unaudited)(in thousands, except share andper share data)Net income
    
    $
    148
    
    
    $
    1,944Weighted average shares outstanding, basic
    
    
    27,577,200
    
    
    
    28,351,872Dilutive effect of:Stock options related to the purchase of
common stock
    
    
    1,180,223
    
    
    
    1,076,171Weighted average shares outstanding, diluted
    
    
    28,757,423
    
    
    
    29,428,043Basic net income per common share
    
    $
    0.01
    
    
    $
    0.07Diluted net income per common share
    
    $
    0.01
    
    
    $
    0.07
 Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
 Comprehensive Net Income
  Recent Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 6




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. WebCT, Inc. Merger
  Business Combinations
   4. Stock-Based Compensation
   Three Months Ended March 31,2006
    
    
    2007Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    41.3
    %
    
    
    44.0
    %Risk-free interest rate
    
    
    4.2
    %
    
    
    4.7
    %Expected life of options
    
    5.0 years
    
    5.1 yearsForfeiture rate
    
    
    10
    %
    
    
    15
    %
 Dividend yield
 Expected volatility
 Risk-free interest rate
 7




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Expected life of the options Share-Based
Payment
 Forfeiture rate
    Number of
    
    
    Weighted Average
    
    
    AggregateShares
    
    
    Price/Share
    
    
    Intrinsic ValueOptions exercisable at December 31, 2006
    
    
    1,810,267
    
    
    $
    11.85Options outstanding at December 31, 2006
    
    
    3,922,045
    
    
    $
    18.76Granted
    
    
    510,500
    
    
    $
    32.44Exercised
    
    
    (234,411
    )
    
    $
    12.62Canceled
    
    
    (75,949
    )
    
    $
    21.11Options outstanding at March 31, 2007
    
    
    4,122,185
    
    
    $
    20.76
    
    
    $
    53,038Options exercisable at March 31, 2007
    
    
    1,798,972
    
    
    $
    13.05
    
    
    $
    37,025
   8




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Inventories
 December 31,
    
    
    March 31,2006
    
    
    2007(unaudited)(in thousands)Raw materials
    
    $
    799
    
    
    $
    644Work-in-process
    
    
    658
    
    
    
    614Finished goods
    
    
    920
    
    
    
    802Total inventories
    
    $
    2,377
    
    
    $
    2,060
 6. Goodwill and Intangible Assets
  December 31,
    
    
    March 31,2006
    
    
    2007(unaudited)(in thousands)Goodwill
    
    $
    101,644
    
    
    $
    105,730Acquired technology
    
    $
    44,107
    
    
    $
    45,637Contracts and customer lists
    
    
    45,042
    
    
    
    45,042Non-compete agreements
    
    
    2,043
    
    
    
    2,043Trademarks and domain names
    
    
    71
    
    
    
    71Patents and related costs
    
    
    944
    
    
    
    2,027Subtotal
    
    
    92,207
    
    
    
    94,820Less accumulated amortization
    
    
    (35,366
    )
    
    
    (40,791
    )Intangible assets, net
    
    $
    56,841
    
    
    $
    54,029
     7. Credit Facilities
    9




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##### 



BLACKBOARD INC.
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  8. Commitments and Contingencies
  9. Quarterly Financial Information
  10




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This report contains forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words believes, anticipates, plans, expects, intends and
similar expressions are intended to identify forward-looking statements. The important factors
discussed under the caption Risk Factors, presented below, could cause actual results to differ
materially from those indicated by forward-looking statements made herein. We undertake no
obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
 General
    Blackboard Academic Suite( tm) Blackboard
Commerce Suite( tm) . Blackboard Academic Suite WebCT Campus Edition( tm) WebCT Vista( tm)
      11




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##### 



Critical Accounting Policies and Estimates
   Revenue recognition. Software
Revenue Recognition, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions.
   Application of AICPA SOP 97-2 to Arrangements That Include the Right to Use Software Stored on
Another Entitys Hardware.
 12




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##### 



Allowance for doubtful accounts.
 Long-lived assets. Accounting for the Impairment or Disposal of
Long-Lived Assets.
 Purchase Accounting and Goodwill Goodwill and Other Intangible
Assets.
 Deferred Income Taxes .
  Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
 13




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##### 



Stock-Based Compensation. Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
  Recent Accounting Pronouncements. Fair
Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Important Factors Considered by Management
    
    
    Recurring ratable revenues include those product revenues that are recognized ratably
over the contract term, which is typically one year, and that recur each year assuming
clients renew their contracts. These revenues include revenues from the licensing of all of
our software products, hosting arrangements and enhanced support and maintenance contracts
related to our software products, including certain professional services performed by our
professional services groups.
    
    Non-recurring ratable revenues include those product revenues that are recognized ratably
over the term of the contract, which is typically one year, but that do not contractually
recur. These revenues include certain hardware components of our Blackboard Transaction
Systemproducts and certain third-party hardware and software sold to our clients in
conjunction with our software licenses.
    
    Other revenues include those revenues that are recognized as earned and are not deferred
to future periods. These revenues include professional services, the sales of Blackboard
One, as well as the supplies and commissions we earn from publishers related to digital
course supplement downloads.
 14




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##### 



Results of Operations
  Three MonthsEndedMarch 31,(unaudited)2006
    
    2007Revenues:Product
    
    
    88
    %
    
    
    90
    %Professional services
    
    
    12
    
    
    
    10Total revenues
    
    
    100
    
    
    
    100Operating expenses:Cost of product revenues
    
    
    21
    
    
    
    21Cost of professional services
revenues
    
    
    9
    
    
    
    7Research and development
    
    
    13
    
    
    
    12Sales and marketing
    
    
    32
    
    
    
    26General and administrative
    
    
    20
    
    
    
    17Amortization of intangibles resulting
from acquisitions
    
    
    5
    
    
    
    10Total operating expenses
    
    
    100
    
    
    
    93Income from operations
    
    
    0
    %
    
    
    7
    %
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
   Three Months Ended March 31,2006
    
    2007Professional
    
    
    
    
    
    
    
    
    
    ProfessionalProduct
    
    Services
    
    
    
    
    
    Product
    
    ServicesRevenues
    
    Revenues
    
    Total
    
    Revenues
    
    Revenues
    
    Total(Unaudited)(in millions)Recurring ratable revenues
    
    $
    26.8
    
    
    $
    0.3
    
    
    $
    27.1
    
    
    $
    42.0
    
    
    $
    0.7
    
    
    $
    42.7Non-recurring ratablerevenues
    
    
    4.5
    
    
    
    
    
    
    
    4.5
    
    
    
    5.1
    
    
    
    
    
    
    
    5.1Other revenues
    
    
    1.9
    
    
    
    4.2
    
    
    
    6.1
    
    
    
    2.9
    
    
    
    4.6
    
    
    
    7.5Total revenues
    
    $
    33.2
    
    
    $
    4.5
    
    
    $
    37.7
    
    
    $
    50.0
    
    
    $
    5.3
    
    
    $
    55.3
 Product revenues
 15




---



##### 



Blackboard Learning System Blackboard Content System Blackboard Community System Blackboard Commerce
Suite Blackboard Transaction System
 Blackboard Learning System Blackboard Learning System Blackboard Learning
System Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard
Learning System
 Blackboard Commerce Suite
  Blackboard Academic Suite Blackboard Academic Suite
 Professional services revenues
 Cost of product revenues Blackboard
Transaction System
 16




---



##### 



Cost of professional services revenues
 Research and development expenses
 Sales and marketing expenses
 General and administrative expenses
 Net interest income (expense)
 Other income (expense)
 Income taxes
 Net income
 17




---



##### 



Liquidity and Capital Resources
        18




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
    Item 4. Controls and Procedures.
 (a) Evaluation of Disclosure Controls and Procedures.
  19




---



##### 



(b) Changes in Internal Control over Financial Reporting.
  PART II. OTHER INFORMATION
 Item 1A. Risk Factors.
 Our merger with WebCT presents many risks, and we may not realize the financial and strategic goals
that were contemplated at the time of the transaction.
  
    
    we may not realize the anticipated increase in our revenues if a larger than predicted
number of customers decline to renew their contracts, if we are unable to sell WebCTs
products to our customer base or if the acquired contracts do not allow us to recognize
revenues on a timely basis;
    
    we may have difficulty incorporating WebCTs technologies or products with our existing
product lines and maintaining uniform standards, controls, procedures and policies;
    
    we may have higher than anticipated costs in continuing support and development of WebCTs products;
    
    we may lose anticipated tax benefits or have additional legal or tax exposures;
    
    we may not be able to retain key WebCT employees;
    
    we may face contingencies related to product liability, intellectual property, financial
disclosures, and accounting practices or internal controls; and
    
    we may be unable to manage effectively the increased size and complexity of the combined
company, and our managements attention may be diverted from our ongoing business by
transition or integration issues.
 Our business strategy contemplates future business combinations and acquisitions which may be
difficult to integrate, disrupt our business, dilute stockholder value or divert management
attention.
    20




---



##### 



We incurred a significant amount of debt to finance the WebCT merger, which could constrict our
liquidity, result in substantial cash outflows, and adversely affect our financial health and
ability to obtain financing in the future.
  Providing enterprise software applications to the education industry is an emerging and uncertain
business; if the market for our products fails to develop, we will not be able to grow our
business.
   Most of our clients use our products to facilitate online education, which is a relatively new
field; if online education does not continue to develop and gain acceptance, demand for our
products could suffer.
  We face intense and growing competition, which could result in price reductions, reduced operating
margins and loss of market share.
  Blackboard Academic Suite
 21




---



##### 



Blackboard Commerce Suite
  If potential clients or competitors use open source software to develop products that are
competitive with our products and services, we may face decreased demand and pressure to reduce
the prices for our products.
  Because most of our licenses are renewable on an annual basis, a reduction in our license renewal
rate could significantly reduce our revenues.
   If our newest product, the Blackboard Outcomes System, does not gain widespread market acceptance,
our financial results could suffer.
  Because we generally recognize revenues ratably over the term of our contract with a client,
downturns or upturns in sales will not be fully reflected in our operating results until future
periods.
  Our operating margins may suffer if our professional services revenues increase in proportion to
total revenues because our professional services revenues have lower gross margins.
  22




---



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If our products contain errors or if new product releases are delayed, we could lose new sales and
be subject to significant liability claims.
  
    
    delays in or loss of market acceptance of our products;
    
    diversion of our resources;
    
    a lower rate of license renewals or upgrades;
    
    injury to our reputation; and
    
    increased service expenses or payment of damages.
  The length and unpredictability of the sales cycle for our software could delay new sales and
cause our revenues and cash flows for any given quarter to fail to meet our projections or market
expectations.
  
    
    clients budgetary constraints and priorities;
    
    the timing of our clients budget cycles;
    
    the need by some clients for lengthy evaluations that often include both their administrators and faculties; and
    
    the length and timing of clients approval processes.
  Our sales cycle with international postsecondary education providers and U.S. K-12 schools may be
longer than our historic U.S. postsecondary sales cycle, which could cause us to incur greater
costs and could reduce our operating margins.
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We may have exposure to greater than anticipated tax liabilities.
  Our ability to utilize our net operating loss carryforwards may be limited.
   Our future success depends on our ability to continue to retain and attract qualified employees.
  Our move to our new headquarters location may be delayed, which would disrupt our operations and
increase our expenses.
  If we do not maintain the compatibility of our products with third-party applications that our
clients use in conjunction with our products, demand for our products could decline.
  If we are unable to protect our proprietary technology and other rights, it will reduce our
ability to compete for business.
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If we are found to infringe the proprietary rights of others, we could be required to redesign our
products, pay significant royalties or enter into license agreements with third parties.
  
    
    be expensive and time consuming to defend;
    
    force us to stop licensing our products that incorporate the challenged intellectual property;
    
    require us to redesign our products and reimburse certain costs to our clients;
    
    divert managements attention and other company resources; and
    
    require us to enter into royalty or licensing agreements in order to obtain the right to
use necessary technologies, which may not be available on terms acceptable to us, if at all.
 Expansion of our business internationally will subject our business to additional economic and
operational risks that could increase our costs and make it difficult for us to operate
profitably.
  
    
    foreign currency fluctuations, which could result in reduced revenues and increased operating expenses;
    
    potentially longer payment and sales cycles;
    
    difficulty in collecting accounts receivable;
    
    the effect of applicable foreign tax structures, including tax rates that may be higher
than tax rates in the United States or taxes that may be duplicative of those imposed in the
United States;
    
    tariffs and trade barriers;
    
    general economic and political conditions in each country;
    
    inadequate intellectual property protection in foreign countries;
    
    uncertainty regarding liability for information retrieved and replicated in foreign countries;
    
    the difficulties and increased expenses in complying with a variety of foreign laws, regulations and trade standards; and
    
    unexpected changes in regulatory requirements.
 Unauthorized disclosure of data, whether through breach of our computer systems or otherwise,
could expose us to protracted and costly litigation or cause us to lose clients.
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Operational failures in our network infrastructure could disrupt our remote hosting service, could
cause us to lose current hosting clients and sales to potential hosting clients and could result
in increased expenses and reduced revenues.
  We could lose revenues if there are changes in the spending policies or budget priorities for
government funding of colleges, universities, schools and other education providers.
  U.S. and foreign government regulation of the Internet could cause us to incur significant
expenses, and failure to comply with applicable regulations could make our business less efficient
or even impossible.
   
    
    The Childrens Online Protection Act and the Childrens Online Privacy Protection Act
restrict the distribution of certain materials deemed harmful to children and impose
additional restrictions on the ability of online services to collect personal information
from children under the age of 13; and
    
    The Family Educational Rights and Privacy Act imposes parental or student consent
requirements for specified disclosures of student information, including online information.
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We may be subject to state and federal financial services regulation, and any violation of any
present or future regulation could expose us to liability, force us to change our business
practices or force us to stop selling or modify our products and services.
 Blackboard Transaction System
 
    
    disclosure of consumer rights and our business policies and practices;
    
    restrictions on uses and disclosures of customer information;
    
    error resolution procedures;
    
    limitations on consumers liability for unauthorized account activity;
    
    data security requirements;
    
    government registration; and
    
    reporting and documentation requirements.
  Item 6. Exhibits.
  Exhibit No.
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURE
  Blackboard Inc.Dated:     May 4, 2007
    
    By:
    
    /s/ Michael J. BeachMichael J. BeachChief Financial Officer(On behalf of the registrant and as PrincipalFinancial Officer)
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