##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q


|   |  |                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934. 
|  
|   |  | For the quarterly period ended March 31, 2006                                                
|  
|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.


(Exact Name of Registrant as Specified in Its Charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 52-2081178                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|1899 L Street, N.W.
     Washington D.C.                           |  | 20036                                   
|(Address of Principal Executive Offices)                           |  | (Zip Code)                              

Registrants Telephone Number, Including Area Code:


(202) 463-4860





þ o


12b-2


o þ o


12b-2 o þ


|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at April 30, 2006
|                              |  |                              
|Common Stock, $0.01 par value |  | 27,726,415                   









---



##### 










Blackboard Inc.


Quarterly Report on
Form 10-Q


For the Quarter Ended March 31, 2006


INDEX


|                                  |  |                                                                                                            |    |  |    | 
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Consolidated Financial Statements                                                                          |    |  | 1  | 
|                                  |  | Consolidated Balance Sheets as of
    December 31, 2005 and March 31, 2006 (unaudited)                     |    |  | 1  | 
|                                  |  | Unaudited Consolidated Statements of
    Operations for the Three Months ended March 31, 2005 and
    2006 |    |  | 2  | 
|                                  |  | Unaudited Consolidated Statements of Cash
    Flows for the Three Months ended March 31, 2005 and 2006     |    |  | 3  | 
|                                  |  | Notes to Unaudited Consolidated Financial
    Statements                                                   |    |  | 4  | 
|Item 2.                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                  |    |  | 14 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures
    About Market Risk                                             |    |  | 24 | 
|Item 4.                           |  | Controls and Procedures                                                                                    |    |  | 24 | 
|PART II. OTHER INFORMATION       
|Item 1A.                          |  | Risk Factors                                                                                               |    |  | 25 | 
|Item 6.                           |  | Exhibits                                                                                                   |    |  | 33 | 
|Signature                         |  |                                                                                                            | 34 | 
|Exhibit 10.1                     
|Exhibit 10.2                     
|Exhibit 10.3                     
|CEO 302 Certification            
|CFO 302 Certification            
|CEO 906 Certification            
|CFO 906 Certification            



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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##### Table of Contents






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, |  
|                                                              |                                                                                                                                                                                         | 2005                      |         |             | 2006      |  
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                                              |                                                                                                                                                                                         |                           |         | (Unaudited) |          
|ASSETS                                                       
|Current assets:                                               |                                                                                                                                                                                         |                           |         |             |           |   |         |        
|                                                              | Cash and cash equivalents                                                                                                                                                               |                           | $       | 75,895      |           |   | $       | 32,546  |       
|                                                              | Short-term investments                                                                                                                                                                  |                           |         | 62,602      |           |   |         |        |       
|                                                              | Restricted cash                                                                                                                                                                         |                           |         | 521         |           |   |         | 1,978   |       
|                                                              | Accounts receivable, net of allowance for doubtful accounts of
    $701 and $867 at December 31, 2005 and March 31, 2006,
    respectively                                              |                           |         | 26,136      |           |   |         | 26,283  |       
|                                                              | Inventories                                                                                                                                                                             |                           |         | 1,806       |           |   |         | 2,347   |       
|                                                              | Prepaid expenses and other current assets                                                                                                                                               |                           |         | 2,116       |           |   |         | 3,046   |       
|                                                              | Deferred tax asset, current portion                                                                                                                                                     |                           |         | 10,274      |           |   |         | 11,314  |       
|                                                              | Deferred cost of revenues, current portion                                                                                                                                              |                           |         | 5,797       |           |   |         | 5,422   |       
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                                              |                                                                                                                                                                                         | Total current assets      |         |             | 185,147   |   |         |         | 82,936 | 
|Deferred tax asset, non-current portion                       |                                                                                                                                                                                         |                           | 12,023  |             |           |   | 11,701  |        
|Deferred cost of revenues, non-current portion                |                                                                                                                                                                                         |                           | 1,310   |             |           |   | 951     |        
|Deferred merger costs (WebCT, Inc.)                           |                                                                                                                                                                                         |                           | 4,956   |             |           |   |        |        
|Property and equipment, net                                   |                                                                                                                                                                                         |                           | 9,940   |             |           |   | 11,327  |        
|Goodwill                                                      |                                                                                                                                                                                         |                           | 10,252  |             |           |   | 102,725 |        
|Intangible assets, net                                        |                                                                                                                                                                                         |                           | 560     |             |           |   | 72,029  |        
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total assets                                                  |                                                                                                                                                                                         | $                         | 224,188 |             |           | $ | 281,669 |        
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                                             
|LIABILITIES AND STOCKHOLDERS EQUITY                         
|Current liabilities:                                          |                                                                                                                                                                                         |                           |         |             |           |   |         |        
|                                                              | Accounts payable                                                                                                                                                                        |                           | $       | 1,833       |           |   | $       | 2,440   |       
|                                                              | Accrued expenses                                                                                                                                                                        |                           |         | 14,083      |           |   |         | 15,877  |       
|                                                              | Term loan, current portion                                                                                                                                                              |                           |         |            |           |   |         | 600     |       
|                                                              | Deferred rent, current portion                                                                                                                                                          |                           |         | 347         |           |   |         | 476     |       
|                                                              | Deferred revenues, current portion                                                                                                                                                      |                           |         | 74,975      |           |   |         | 67,710  |       
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                                              |                                                                                                                                                                                         | Total current liabilities |         |             | 91,238    |   |         |         | 87,103 | 
|Term loan, noncurrent portion, net of debt discount of $2,444 |                                                                                                                                                                                         |                           |        |             |           |   | 56,806  |        
|Deferred rent, noncurrent portion                             |                                                                                                                                                                                         |                           | 426     |             |           |   | 421     |        
|Deferred revenues, noncurrent portion                         |                                                                                                                                                                                         |                           | 2,199   |             |           |   | 2,441   |        
|Stockholders equity:                                         |                                                                                                                                                                                         |                           |         |             |           |   |         |        
|                                                              | Preferred stock, $0.01 par value; 5,000,000 shares
    authorized, and no shares issued or outstanding at
    December 31, 2005 and March 31, 2006                                      |                           |         |            |           |   |         |        |       
|                                                              | Common stock, $0.01 par value; 200,000,000 shares
    authorized; 27,479,351 and 27,705,626 shares issued and
    outstanding at December 31, 2005 and March 31, 2006,
    respectively |                           |         | 275         |           |   |         | 277     |       
|                                                              | Additional paid-in capital                                                                                                                                                              |                           |         | 210,805     |           |   |         | 215,228 |       
|                                                              | Accumulated deficit                                                                                                                                                                     |                           |         | (80,755     | )         |   |         | (80,607 | )     
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total stockholders equity                                    |                                                                                                                                                                                         |                           | 130,325 |             |           |   | 134,898 |        
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total liabilities and stockholders equity                    |                                                                                                                                                                                         | $                         | 224,188 |             |           | $ | 281,669 |        
|                                                              |                                                                                                                                                                                         |                           |         |             |           |  



1



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##### Table of Contents



BLACKBOARD INC.





UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands, except share and per share data)


|                                          |                                                                                                                                                                                                                          |                    |            |        |      |   |            |        |  
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------ | ---------- | ------ | ---- | - | ---------- | ------ | -
|                                          |                                                                                                                                                                                                                          | Three Months Ended |           
|                                          |                                                                                                                                                                                                                          | March 31,          |           
|                                          |                                                                                                                                                                                                                          |                    |           
|                                          |                                                                                                                                                                                                                          | 2005               |            |        | 2006 |  
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Revenues:                                 |                                                                                                                                                                                                                          |                    |            |        |      |   |            |       
|                                          | Product                                                                                                                                                                                                                  |                    | $          | 27,687 |      |   | $          | 33,174 |  
|                                          | Professional services                                                                                                                                                                                                    |                    |            | 3,255  |      |   |            | 4,534  |  
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Total revenues                            |                                                                                                                                                                                                                          |                    | 30,942     |        |      |   | 37,708     |       
|Operating expenses:                       |                                                                                                                                                                                                                          |                    |            |        |      |   |            |       
|                                          | Cost of product revenues, excludes amortization of acquired
    technology included in amortization of intangibles resulting
    from acquisitions shown below and includes $35 in stock-based
    compensation for 2006 |                    |            | 7,216  |      |   |            | 7,966  |  
|                                          | Cost of professional services revenues, includes $118 in
    stock-based compensation for 2006                                                                                                                           |                    |            | 2,214  |      |   |            | 3,391  |  
|                                          | Research and development, includes $122 in stock-based
    compensation for 2006                                                                                                                                         |                    |            | 3,198  |      |   |            | 4,884  |  
|                                          | Sales and marketing, includes $407 in stock-based compensation
    for 2006                                                                                                                                              |                    |            | 8,484  |      |   |            | 12,149 |  
|                                          | General and administrative, includes $18 and $817 in stock-based
    compensation for 2005 and 2006, respectively                                                                                                        |                    |            | 4,623  |      |   |            | 7,600  |  
|                                          | Amortization of intangibles resulting from acquisitions                                                                                                                                                                  |                    |            | 68     |      |   |            | 1,837  |  
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Total operating expenses                  |                                                                                                                                                                                                                          |                    | 25,803     |        |      |   | 37,827     |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Income (loss) from operations             |                                                                                                                                                                                                                          |                    | 5,139      |        |      |   | (119       | )     
|Other income (expense), net:              |                                                                                                                                                                                                                          |                    |            |        |      |   |            |       
|                                          | Interest expense                                                                                                                                                                                                         |                    |            | (18    | )    |   |            | (578   | )
|                                          | Interest income                                                                                                                                                                                                          |                    |            | 483    |      |   |            | 1,241  |  
|                                          | Other expense                                                                                                                                                                                                            |                    |            |       |      |   |            | (326   | )
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Income before provision for income taxes  |                                                                                                                                                                                                                          |                    | 5,604      |        |      |   | 218        |       
|Provision for income taxes                |                                                                                                                                                                                                                          |                    | (194       | )      |      |   | (70        | )     
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Net income                                |                                                                                                                                                                                                                          | $                  | 5,410      |        |      | $ | 148        |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Net income per common share:              |                                                                                                                                                                                                                          |                    |            |        |      |   |            |       
|Basic                                     |                                                                                                                                                                                                                          | $                  | 0.21       |        |      | $ | 0.01       |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Diluted                                   |                                                                                                                                                                                                                          | $                  | 0.20       |        |      | $ | 0.01       |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Weighted average number of common shares: |                                                                                                                                                                                                                          |                    |            |        |      |   |            |       
|Basic                                     |                                                                                                                                                                                                                          |                    | 26,076,137 |        |      |   | 27,577,200 |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  
|Diluted                                   |                                                                                                                                                                                                                          |                    | 27,657,202 |        |      |   | 28,757,423 |       
|                                          |                                                                                                                                                                                                                          |                    |            |        |      |  



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BLACKBOARD INC.





UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                  |                                              |                                           |         |       |        |   |          |       |         |  
|--------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ------- | ----- | ------ | - | -------- | ----- | ------- | -
|                                                                                  |                                              | Three Months Ended                        |        
|                                                                                  |                                              | March 31,                                 |        
|                                                                                  |                                              |                                           |        
|                                                                                  |                                              | 2005                                      |         |       | 2006   |  
|                                                                                  |                                              |                                           |         |       |        |  
|                                                                                  |                                              | (In thousands)                            |        
|Cash flows from operating activities                                              |                                              |                                           |         |       |        |   |          |      
|Net income                                                                        |                                              | $                                         | 5,410   |       |        | $ | 148      |      
|Adjustments to reconcile net income to net cash used in
    operating activities: |                                              |                                           |         |       |        |   |          |      
|                                                                                  | Deferred tax provision                       |                                           |         |      |        |   |          | (203  | )      
|                                                                                  | Amortization of debt discount                |                                           |         |      |        |   |          | 34    |        
|                                                                                  | Depreciation and amortization                |                                           |         | 1,664 |        |   |          | 1,902 |        
|                                                                                  | Amortization of intangibles                  |                                           |         | 68    |        |   |          | 1,837 |        
|                                                                                  | Change in allowance for doubtful accounts    |                                           |         | (301  | )      |   |          | (9    | )      
|                                                                                  | Noncash stock-based compensation             |                                           |         | 18    |        |   |          | 1,499 |        
|                                                                                  | Changes in operating assets and liabilities: |                                           |         |       |        |   |          |       |        
|                                                                                  |                                              | Accounts receivable                       |         |       | 4,810  |   |          |       | 4,231   |  
|                                                                                  |                                              | Inventories                               |         |       | (15    | ) |          |       | (541    | )
|                                                                                  |                                              | Prepaid expenses and other current assets |         |       | (742   | ) |          |       | 426     |  
|                                                                                  |                                              | Deferred cost of revenues                 |         |       | (1,597 | ) |          |       | 734     |  
|                                                                                  |                                              | Accounts payable                          |         |       | 900    |   |          |       | 335     |  
|                                                                                  |                                              | Accrued expenses                          |         |       | (1,825 | ) |          |       | (9,061  | )
|                                                                                  |                                              | Deferred rent                             |         |       | (81    | ) |          |       | 124     |  
|                                                                                  |                                              | Deferred revenues                         |         |       | (9,730 | ) |          |       | (11,479 | )
|                                                                                  |                                              |                                           |         |       |        |  
|Net cash used in operating activities                                             |                                              |                                           | (1,421  | )     |        |   | (10,023  | )    
|Cash flows from investing activities                                              |                                              |                                           |         |       |        |   |          |      
|Acquisition of WebCT, Inc., net of cash acquired                                  |                                              |                                           |        |       |        |   | (154,628 | )    
|Purchase of property and equipment                                                |                                              |                                           | (2,428  | )     |        |   | (1,569   | )    
|Purchase of held-to-maturity investments                                          |                                              |                                           | (9,207  | )     |        |   |         |      
|Sale of held-to-maturity investments                                              |                                              |                                           |        |       |        |   | 23,546   |      
|Purchase of available-for-sale investments                                        |                                              |                                           | (4,500  | )     |        |   |         |      
|Sale of available-for-sale investments                                            |                                              |                                           | 5,400   |       |        |   | 39,056   |      
|                                                                                  |                                              |                                           |         |       |        |  
|Net cash used in investing activities                                             |                                              |                                           | (10,735 | )     |        |   | (93,595  | )    
|Cash flows from financing activities                                              |                                              |                                           |         |       |        |   |          |      
|Payments on equipment notes                                                       |                                              |                                           | (180    | )     |        |   |         |      
|Proceeds from revolving credit facility                                           |                                              |                                           |        |       |        |   | 10,000   |      
|Payments on revolving credit facility                                             |                                              |                                           |        |       |        |   | (10,000  | )    
|Proceeds from term loan                                                           |                                              |                                           |        |       |        |   | 57,522   |      
|Payments on term loan                                                             |                                              |                                           |        |       |        |   | (150     | )    
|Proceeds from exercise of stock options                                           |                                              |                                           | 1,286   |       |        |   | 2,897    |      
|                                                                                  |                                              |                                           |         |       |        |  
|Net cash provided by financing activities                                         |                                              |                                           | 1,106   |       |        |   | 60,269   |      
|                                                                                  |                                              |                                           |         |       |        |  
|Net decrease in cash and cash equivalents                                         |                                              |                                           | (11,050 | )     |        |   | (43,349  | )    
|Cash and cash equivalents at beginning of period                                  |                                              |                                           | 78,149  |       |        |   | 75,895   |      
|                                                                                  |                                              |                                           |         |       |        |  
|Cash and cash equivalents at end of period                                        |                                              | $                                         | 67,099  |       |        | $ | 32,546   |      
|                                                                                  |                                              |                                           |         |       |        |  



3



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BLACKBOARD INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


For the Three Months Ended March 31, 2005 and 2006


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 Transaction
System tm Blackboard
One tm






|   |                      
|-- | ---------------------
|2. | Basis of Presentation

10-Q S-X.


10-K




| |                            
| | ---------------------------
| | Principles of Consolidation





| |                             
| | ----------------------------
| | Foreign Currency Translation





| |                 
| | ----------------
| | Use of Estimates



4



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##### Table of Contents



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                 
| | ----------------
| | Reclassification





| |                                    
| | -----------------------------------
| | Fair Value of Financial Instruments

Disclosures about Fair Value of
Financial Instruments,




| |                       
| | ----------------------
| | Short-term Investments

Accounting for Certain Investments in Debt and Equity
Securities.




| |                      
| | ---------------------
| | Deferred Income Taxes







| |                                              
| | ---------------------------------------------
| | Basic and Diluted Net Income per Common Share



5



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##### Table of Contents



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                      |  |                                 |            |  |      |   |            | 
|----------------------------------------------------- |  | ------------------------------- | ---------- |  | ---- | - | ---------- | 
|                                                      |  | Three Months Ended              |           
|                                                      |  | March 31,                       |           
|                                                      |  |                                 |           
|                                                      |  | 2005                            |            |  | 2006 |  
|                                                      |  |                                 |            |  |      |  
|                                                      |  | (Unaudited)                     |           
|                                                      |  | (In thousands, except share and |           
|                                                      |  | per share data)                 |           
|Net income                                            |  | $                               | 5,410      |  |      | $ | 148        | 
|                                                      |  |                                 |            |  |      |  
|Weighted average shares outstanding, basic            |  |                                 | 26,076,137 |  |      |   | 27,577,200 | 
|Dilutive effect of:                                   |  |                                 |            |  |      |   |            | 
|Stock options related to the purchase of common stock |  |                                 | 1,443,982  |  |      |   | 1,180,223  | 
|Warrants related to the purchase of common stock      |  |                                 | 137,083    |  |      |   |           | 
|                                                      |  |                                 |            |  |      |  
|Weighted average shares outstanding, diluted          |  |                                 | 27,657,202 |  |      |   | 28,757,423 | 
|                                                      |  |                                 |            |  |      |  
|Basic net income per common share                     |  | $                               | 0.21       |  |      | $ | 0.01       | 
|                                                      |  |                                 |            |  |      |  
|Diluted net income per common share                   |  | $                               | 0.20       |  |      | $ | 0.01       | 
|                                                      |  |                                 |            |  |      |  



| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock Issued to
Employees Accounting for Stock-Based Compensation Share-Based
Payment




| |                         
| | ------------------------
| | Comprehensive Net Income





|   |                   
|-- | ------------------
|3. | WebCT, Inc. Merger



6



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##### Table of Contents



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Business
Combinations.




| |                                      
| | -------------------------------------
| | Preliminary Purchase Price Allocation



|                                          |  |   |         |  
|----------------------------------------- |  | - | ------- | -
|Cash and cash equivalents                 |  | $ | 27,880  |  
|Restricted cash                           |  |   | 1,452   |  
|Accounts receivable, net                  |  |   | 4,369   |  
|Prepaid expenses and other current assets |  |   | 1,356   |  
|Property and equipment, net               |  |   | 1,720   |  
|Deferred tax assets, net                  |  |   | 486     |  
|Accounts payable                          |  |   | (272    | )
|Other accrued liabilities                 |  |   | (10,856 | )
|Deferred revenue                          |  |   | (4,456  | )
|                                          |  |   |        
|Net tangible assets to be acquired        |  |   | 21,679  |  
|Definite-lived intangible assets acquired |  |   | 73,307  |  
|Goodwill                                  |  |   | 92,473  |  
|                                          |  |   |        
|Total estimated purchase price            |  | $ | 187,459 |  
|                                          |  |   |        





7



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##### Table of Contents



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Goodwill and Other Intangible
Assets,






| |                 
| | ----------------
| | Deferred Revenue

build-up build-up


8



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##### Table of Contents



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                              
| | -----------------------------
| | Pre-Acquisition Contingencies





| |                                
| | -------------------------------
| | Pro Forma Financial Information





|                           |  |                       |        |   |      |   |        |  
|-------------------------- |  | --------------------- | ------ | - | ---- | - | ------ | -
|                           |  | Three Months Ended    |       
|                           |  | March 31,             |       
|                           |  |                       |       
|                           |  | 2005                  |        |   | 2006 |  
|                           |  |                       |        |   |      |  
|                           |  | (Unaudited)           |       
|                           |  | (In thousands, except |       
|                           |  | per share data)       |       
|Total revenues             |  | $                     | 41,203 |   |      | $ | 45,714 |  
|Net loss                   |  | $                     | (1,305 | ) |      | $ | (4,051 | )
|Basic net loss per share   |  | $                     | (0.05  | ) |      | $ | (0.15  | )
|Diluted net loss per share |  | $                     | (0.05  | ) |      | $ | (0.15  | )



|   |                         
|-- | ------------------------
|4. | Stock-Based Compensation





9



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BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                            |                                                                                                      |                  |       |       |      |   |     |      | 
|--------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------- | ----- | ----- | ---- | - | --- | ---- | 
|                            |                                                                                                      | Three Months     |      
|                            |                                                                                                      | Ended March 31,  |      
|                            |                                                                                                      |                  |      
|                            |                                                                                                      | 2005             |       |       | 2006 |  
|                            |                                                                                                      |                  |       |       |      |  
|                            |                                                                                                      | (Unaudited)      |      
|                            |                                                                                                      | (In thousands,   |      
|                            |                                                                                                      | except per share |      
|                            |                                                                                                      | data)            |      
|Pro forma net income:       |                                                                                                      |                  |       |       |      |   |     |     
|                            | As reported                                                                                          |                  | $     | 5,410 |      |   | $   | 148  | 
|                            | Add: Stock-based compensation included in reported net income                                        |                  |       | 18    |      |   |     |     | 
|                            | Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards |                  |       | (802  | )    |   |     |     | 
|                            |                                                                                                      |                  |       |       |      |  
|Pro forma net income        |                                                                                                      | $                | 4,626 |       |      | $ | 148 |     
|                            |                                                                                                      |                  |       |       |      |  
|Net income per common share |                                                                                                      |                  |       |       |      |   |     |     
|                            | Basic  as reported                                                                                  |                  | $     | 0.21  |      |   | $   | 0.01 | 
|                            |                                                                                                      |                  |       |       |      |  
|                            | Basic  pro forma                                                                                    |                  | $     | 0.18  |      |   | $   | 0.01 | 
|                            |                                                                                                      |                  |       |       |      |  
|                            | Diluted  as reported                                                                                |                  | $     | 0.20  |      |   | $   | 0.01 | 
|                            |                                                                                                      |                  |       |       |      |  
|                            | Diluted  pro forma                                                                                  |                  | $     | 0.17  |      |   | $   | 0.01 | 
|                            |                                                                                                      |                  |       |       |      |  



|                         |  |  |         |  
|------------------------ |  |  | ------- | -
|Dividend yield           |  |  | 0       | %
|Expected volatility      |  |  | 41.3    | %
|Risk-free interest rate  |  |  | 4.2     | %
|Expected life of options |  |  | 5 years |  
|Forfeiture rate          |  |  | 10      | %

Dividend yield


Expected volatility


10



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BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Risk-free interest rate


Expected life of the options


Forfeiture rate








|                                         |  |           |           |   |                  |   |       |                 |  |   |        | 
|---------------------------------------- |  | --------- | --------- | - | ---------------- | - | ----- | --------------- |  | - | ------ | 
|                                         |  | Number of |           |   | Weighted Average |   |       | Aggregate       | 
|                                         |  | Shares    |           |   | Price/Share      |   |       | Intrinsic Value | 
|                                         |  |           |           |   |                  |   |       |                 | 
|Options outstanding at December 31, 2005 |  |           | 3,343,312 |   |                  | $ | 13.06 |                 |  |   |        | 
|                                         |  |           |           |   |                  |   |       |                 | 
|Options exercisable at December 31, 2005 |  |           | 1,903,411 |   |                  | $ | 10.33 |                 |  |   |        | 
|                                         |  |           |           |   |                  |   |       |                 | 
|Granted                                  |  |           | 859,250   |   |                  | $ | 27.96 |                 |  |   |        | 
|Exercised                                |  |           | (228,571  | ) |                  | $ | 12.76 |                 |  |   |        | 
|Canceled                                 |  |           | (25,638   | ) |                  | $ | 15.41 |                 |  |   |        | 
|                                         |  |           |           |   |                  |   |       |                 | 
|Options outstanding at March 31, 2006    |  |           | 3,948,353 |   |                  | $ | 16.31 |                 |  | $ | 47,893 | 
|                                         |  |           |           |   |                  |   |       |                 | 
|Options exercisable at March 31, 2006    |  |           | 1,881,572 |   |                  | $ | 10.54 |                 |  | $ | 33,627 | 
|                                         |  |           |           |   |                  |   |       |                 | 



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BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |            
|-- | -----------
|5. | Inventories

|                  |  |                |       |             |           |   |       | 
|----------------- |  | -------------- | ----- | ----------- | --------- | - | ----- | 
|                  |  | December 31,   |       |             | March 31, |  
|                  |  | 2005           |       |             | 2006      |  
|                  |  |                |       |             |           |  
|                  |  |                |       | (Unaudited) |          
|                  |  | (In thousands) |      
|Raw materials     |  | $              | 700   |             |           | $ | 887   | 
|Work-in-process   |  |                | 451   |             |           |   | 437   | 
|Finished goods    |  |                | 655   |             |           |   | 1,023 | 
|                  |  |                |       |             |           |  
|Total inventories |  | $              | 1,806 |             |           | $ | 2,347 | 
|                  |  |                |       |             |           |  



|   |                               
|-- | ------------------------------
|6. | Goodwill and Intangible Assets



|                              |  |                |         |             |           |   |         |  
|----------------------------- |  | -------------- | ------- | ----------- | --------- | - | ------- | -
|                              |  | December 31,   |         |             | March 31, |  
|                              |  | 2005           |         |             | 2006      |  
|                              |  |                |         |             |           |  
|                              |  |                |         | (Unaudited) |          
|                              |  | (In thousands) |        
|Goodwill                      |  | $              | 10,252  |             |           | $ | 102,725 |  
|                              |  |                |         |             |           |  
|Acquired technology           |  | $              | 10,400  |             |           | $ | 44,107  |  
|Contracts and customer lists  |  |                | 5,443   |             |           |   | 45,042  |  
|Non-compete agreements        |  |                | 2,043   |             |           |   | 2,043   |  
|Trademarks and domain names   |  |                | 71      |             |           |   | 71      |  
|                              |  |                |         |             |           |  
|Subtotal                      |  |                | 17,957  |             |           |   | 91,263  |  
|Less accumulated amortization |  |                | (17,397 | )           |           |   | (19,234 | )
|                              |  |                |         |             |           |  
|Intangible assets, net        |  | $              | 560     |             |           | $ | 72,029  |  
|                              |  |                |         |             |           |  





|   |     
|-- | ----
|7. | Debt



| |                  
| | -----------------
| | Credit Facilities



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BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies





|   |                                
|-- | -------------------------------
|9. | Quarterly Financial Information



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BLACKBOARD INC.







|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|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 Blackboard
Learning System Blackboard Community System Blackboard Content System. Blackboard Commerce
Suite Blackboard Transaction System Blackboard Community System Blackboard One.






14



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##### Table of Contents















Critical Accounting Policies and Estimates






Revenue recognition.


15



---



##### Table of Contents



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. set-up






Allowance for doubtful accounts.


Long-lived assets. Accounting for the
Impairment or Disposal of Long-Lived Assets.


16



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Purchase Accounting and Goodwill. Goodwill and
Other Intangible Assets.


Deferred Income Taxes.




Stock-Based Compensation. Accounting for
Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based
Payment




Important Factors Considered by Management






17



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##### Table of Contents









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                               
|
| |  | 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 the hardware components of our
    Blackboard Transaction Systemproducts, with and without
    our embedded software, and third-party hardware and software
    sold to our clients in conjunction with our software licenses.
|
| |  | Other product revenues include those product revenues that are
    recognized as earned and are not deferred to future periods.
    These revenues include the sales of Blackboard Oneand
    Blackboard Transaction System, as well as the supplies
    and commissions we earn from publishers related to digital
    course supplement downloads. Each of these individual revenue
    streams has historically been insignificant.                      





Results of Operations




|                       |                                                         |                          |    |    |      |  |   |    |     | 
|---------------------- | ------------------------------------------------------- | ------------------------ | -- | -- | ---- |  | - | -- | --- | 
|                       |                                                         | Three Months             |   
|                       |                                                         | Ended                    |   
|                       |                                                         | March 31,                |   
|                       |                                                         |                          |   
|                       |                                                         | 2005                     |    |    | 2006 | 
|                       |                                                         |                          |    |    |      | 
|                       |                                                         | (Unaudited)              |   
|Revenues:              |                                                         |                          |    |    |      |  |   |   
|                       | Product                                                 |                          |    | 89 | %    |  |   | 88 | %  
|                       | Professional services                                   |                          |    | 11 |      |  |   | 12 |    
|                       |                                                         |                          |    |    |      | 
|                       |                                                         | Total revenues           |    |    | 100  |  |   |    | 100 | 
|Operating expenses:    |                                                         |                          |    |    |      |  |   |   
|                       | Cost of product revenues                                |                          |    | 23 |      |  |   | 21 |    
|                       | Cost of professional services revenues                  |                          |    | 7  |      |  |   | 9  |    
|                       | Research and development                                |                          |    | 10 |      |  |   | 13 |    
|                       | Sales and marketing                                     |                          |    | 28 |      |  |   | 32 |    
|                       | General and administrative                              |                          |    | 15 |      |  |   | 20 |    
|                       | Amortization of intangibles resulting from acquisitions |                          |    | 0  |      |  |   | 5  |    
|                       |                                                         |                          |    |    |      | 
|                       |                                                         | Total operating expenses |    |    | 83   |  |   |    | 100 | 
|                       |                                                         |                          |    |    |      | 
|Income from operations |                                                         |                          | 17 | %  |      |  | 0 | % 
|                       |                                                         |                          |    |    |      | 

18



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##### Table of Contents





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2006 Compared to Three
    Months Ended March 31, 2005



Product revenues.


|                               |                        |               |      |      |      |   |      |      | 
|------------------------------ | ---------------------- | ------------- | ---- | ---- | ---- | - | ---- | ---- | 
|                               |                        | Three Months  |     
|                               |                        | Ended         |     
|                               |                        | March 31,     |     
|                               |                        |               |     
|                               |                        | 2005          |      |      | 2006 |  
|                               |                        |               |      |      |      |  
|                               |                        | (Unaudited)   |     
|                               |                        | (In millions) |     
|Recurring ratable revenues     |                        | $             | 21.6 |      |      | $ | 26.8 |     
|Non-recurring ratable revenues |                        |               | 4.7  |      |      |   | 4.5  |     
|Other product revenues         |                        |               | 1.4  |      |      |   | 1.9  |     
|                               |                        |               |      |      |      |  
|                               | Total product revenues |               | $    | 27.7 |      |   | $    | 33.2 | 
|                               |                        |               |      |      |      |  

Blackboard
Learning System Blackboard
Content System Blackboard Community System Blackboard Transaction System WebCT
Vista tm WebCT Campus
Edition tm


Blackboard Learning System Blackboard Learning System  Basic
Edition tm Blackboard Learning
System. Blackboard Learning
System Blackboard Learning System  Basic Edition Blackboard Learning
System  Basic Edition Blackboard Learning System. Blackboard Learning System Blackboard Learning
System  Basic Edition


Blackboard Transaction System Blackboard Transaction System


Blackboard One


Blackboard Learning System


19



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Professional services revenues. Blackboard
Learning System


Cost of product revenues. Blackboard Content
System.


Cost of professional services revenues.


Research and development expenses.


Sales and marketing expenses.


20



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General and administrative expenses.


Amortization of intangibles resulting from acquisitions.


Net interest income (expense).


Other expense.


Income taxes.




Net income.


21



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Liquidity and Capital Resources






Blackboard Transaction
System.




22



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23



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|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk.










|        |                         
|------- | ------------------------
|Item 4. | Controls and Procedures.



|    |                                                  
|--- | -------------------------------------------------
|(a) | Evaluation of Disclosure Controls and Procedures.

13a-15(e) 15d-15(e)




|    |                                                      
|--- | -----------------------------------------------------
|(b) | Changes in Internal Control over Financial Reporting.

13a-15(f) 15d-15(f)


24



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##### Table of Contents






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 not be able to successfully sell our products and
    services to WebCT clients;                                                                                                                                                                                                                          
|
| |  | we may be unable to effectively integrate the international
    operations of WebCT with our own;                                                                                                                                                                                                                
|
| |  | providers of alternative products may be better able to compete
    against us after the merger which could negatively impact our
    sales and renewals;                                                                                                                                                        
|
| |  | 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 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.







25



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| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



26



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| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | We face intense and growing competition, which could
    result in price reductions, reduced operating margins and loss
    of market share.



Blackboard Academic Suite 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.



27



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| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because most of our licenses are renewable on an annual
    basis, a reduction in our license renewal rate could
    significantly reduce our revenues.









| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                            

28



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| |   |                                                  
| | - | -------------------------------------------------
| |  | 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.

K-12




| |                                                                      
| | ---------------------------------------------------------------------
| | We may have exposure to greater than anticipated tax
    liabilities.



29



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| |                                                                                
| | -------------------------------------------------------------------------------
| | 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.





| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



30



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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, including the
    integration of WebCTs foreign operations, 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.



31



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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.



32



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| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                                                                         





| |                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.                                 



33



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|        |          
|------- | ---------
|Item 6. | Exhibits.



|            |    |             |  |                                                                                                                                                                              
|----------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .1          |  | Guarantee and Collateral Agreement, dated February 28, 2006
    by and among the Registrant, certain subsidiaries of Registrant
    and Credit Suisse, Cayman Islands Branch.
|           
|            | 10 | .2          |  | $70,000,000 Credit Agreement, dated February 28, 2006 by
    and between the Registrant, Credit Suisse, Cayman Islands
    Branch, Credit Suisse and certain lenders thereto.
|           
|            | 10 | .3          |  | Escrow Agreement, dated February 28, 2006 by and between
    the Registrant, American Stock Transfer & Trust
    Company, Dennis Beckingham and Marc Poirier.                
|           
|            | 31 | .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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##### Table of Contents






SIGNATURE






| |                
| | ---------------
| | Blackboard Inc.



| |     |                     
| | --- | --------------------
| | By: | /s/ Peter Q. Repetti

| |                                              
| | ---------------------------------------------
| |                                              
| | Peter Q. Repetti                             
| | Chief Financial Officer                      
| | (On behalf of the registrant and as Principal
| | Financial Officer)                           



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