##### 









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, 2005                                               
|  
|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


o þ


|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at April 30, 2005
|                              |  |                              
|Common Stock, $0.01 par value |  | 26,384,822                   









---



##### 



Blackboard Inc.


Quarterly Report on Form 10-Q


For the Quarter Ended March 31, 2005


INDEX


|                                  |  |                                                                                                            |    |  |    | 
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Consolidated Financial Statements                                                                          |    |  |    | 
|                                  |  | Consolidated Balance Sheets as of
    December 31, 2004 and March 31, 2005 (unaudited)                     |    |  | 1  | 
|                                  |  | Unaudited Consolidated Statements of
    Operations for the Three Months ended March 31, 2004 and
    2005 |    |  | 2  | 
|                                  |  | Unaudited Consolidated Statements of Cash
    Flows for the Three Months ended March 31, 2004 and 2005     |    |  | 3  | 
|                                  |  | Notes to Unaudited Consolidated Financial
    Statements                                                   |    |  | 4  | 
|Item 2.                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                  |    |  | 11 | 
|Item 3.                           |  | Quantitative and Qualitative Disclosures
    About Market Risk                                             |    |  | 29 | 
|Item 4.                           |  | Controls and Procedures                                                                                    |    |  | 29 | 
|PART II. OTHER INFORMATION       
|Item 2.                           |  | Unregistered Sales of Equity Securities and
    Use of Proceeds                                            |    |  | 31 | 
|Item 6.                           |  | Exhibits                                                                                                   |    |  | 31 | 
|Signature                         |  |                                                                                                            | 32 | 

Throughout this Quarterly Report on Form 10-Q, the terms
we, us, our and
Blackboard refer to Blackboard Inc. and its
subsidiaries.


ii



---



##### 






PART I  FINANCIAL INFORMATION







|        |                                  
|------- | ---------------------------------
|Item 1. | Consolidated Financial Statements




BLACKBOARD INC.


CONSOLIDATED BALANCE SHEETS


|                                              |                                                                                                                                                                                         |                           |         |             |           |   |         |          |         | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ----------- | --------- | - | ------- | -------- | ------- | 
|                                              |                                                                                                                                                                                         | December 31,              |         |             | March 31, |  
|                                              |                                                                                                                                                                                         | 2004                      |         |             | 2005      |  
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                              |                                                                                                                                                                                         |                           |         | (Unaudited) |          
|                                              |                                                                                                                                                                                         | (In thousands)            |        
|ASSETS                                       
|Current assets:                               |                                                                                                                                                                                         |                           |         |             |           |   |         |         
|                                              | Cash and cash equivalents                                                                                                                                                               |                           | $       | 78,149      |           |   | $       | 67,099   |        
|                                              | Short-term investments                                                                                                                                                                  |                           |         | 20,000      |           |   |         | 28,307   |        
|                                              | Accounts receivable, net of allowance for doubtful accounts of
    $954,000 and $653,000 at December 31, 2004 and
    March 31, 2005, respectively                                      |                           |         | 21,686      |           |   |         | 17,177   |        
|                                              | Inventories                                                                                                                                                                             |                           |         | 1,994       |           |   |         | 2,009    |        
|                                              | Prepaid expenses and other current assets                                                                                                                                               |                           |         | 1,727       |           |   |         | 2,469    |        
|                                              | Deferred cost of revenues, current portion                                                                                                                                              |                           |         | 4,547       |           |   |         | 4,507    |        
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                              |                                                                                                                                                                                         | Total current assets      |         |             | 128,103   |   |         |          | 121,568 | 
|Deferred cost of revenues, noncurrent portion |                                                                                                                                                                                         |                           | 369     |             |           |   | 2,006   |         
|Property and equipment, net                   |                                                                                                                                                                                         |                           | 8,848   |             |           |   | 9,612   |         
|Goodwill                                      |                                                                                                                                                                                         |                           | 10,252  |             |           |   | 10,252  |         
|Intangible assets, net                        |                                                                                                                                                                                         |                           | 826     |             |           |   | 758     |         
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total assets                                  |                                                                                                                                                                                         | $                         | 148,398 |             |           | $ | 144,196 |         
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                             
|LIABILITIES AND STOCKHOLDERS EQUITY         
|Current liabilities:                          |                                                                                                                                                                                         |                           |         |             |           |   |         |         
|                                              | Accounts payable                                                                                                                                                                        |                           | $       | 1,114       |           |   | $       | 2,014    |        
|                                              | Accrued expenses                                                                                                                                                                        |                           |         | 9,290       |           |   |         | 7,465    |        
|                                              | Equipment note, current portion                                                                                                                                                         |                           |         | 525         |           |   |         | 449      |        
|                                              | Deferred revenues, current portion                                                                                                                                                      |                           |         | 63,901      |           |   |         | 54,477   |        
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|                                              |                                                                                                                                                                                         | Total current liabilities |         |             | 74,830    |   |         |          | 64,405  | 
|Equipment note, noncurrent portion            |                                                                                                                                                                                         |                           | 237     |             |           |   | 133     |         
|Deferred rent                                 |                                                                                                                                                                                         |                           | 1,067   |             |           |   | 986     |         
|Deferred revenues, noncurrent portion         |                                                                                                                                                                                         |                           | 3,157   |             |           |   | 2,851   |         
|Stockholders equity:                         |                                                                                                                                                                                         |                           |         |             |           |   |         |         
|                                              | Preferred stock, $0.01 par value; 5,000,000 shares
    authorized, and no shares issued or outstanding at
    December 31, 2004 and March 31, 2005                                      |                           |         |            |           |   |         |         |        
|                                              | Common stock, $0.01 par value; 200,000,000 shares
    authorized; 25,977,822 and 26,213,205 shares issued and
    outstanding at December 31, 2004 and March 31, 2005,
    respectively |                           |         | 260         |           |   |         | 262      |        
|                                              | Additional paid-in capital                                                                                                                                                              |                           |         | 191,664     |           |   |         | 192,948  |        
|                                              | Deferred stock compensation                                                                                                                                                             |                           |         | (209        | )         |   |         | (191     | )      
|                                              | Accumulated deficit                                                                                                                                                                     |                           |         | (122,608    | )         |   |         | (117,198 | )      
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total stockholders equity                    |                                                                                                                                                                                         |                           | 69,107  |             |           |   | 75,821  |         
|                                              |                                                                                                                                                                                         |                           |         |             |           |  
|Total liabilities and stockholders equity    |                                                                                                                                                                                         | $                         | 148,398 |             |           | $ | 144,196 |         
|                                              |                                                                                                                                                                                         |                           |         |             |           |  



1



---



##### 






BLACKBOARD INC.


UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                                            |                                                                                                                                                                |                    |           |        |      |   |            |        |  
|--------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | --------- | ------ | ---- | - | ---------- | ------ | -
|                                                                            |                                                                                                                                                                | Three Months Ended |          
|                                                                            |                                                                                                                                                                | March 31,          |          
|                                                                            |                                                                                                                                                                |                    |          
|                                                                            |                                                                                                                                                                | 2004               |           |        | 2005 |  
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|                                                                            |                                                                                                                                                                | (In thousands)     |          
|Revenues:                                                                   |                                                                                                                                                                |                    |           |        |      |   |            |       
|                                                                            | Product                                                                                                                                                        |                    | $         | 22,616 |      |   | $          | 27,687 |  
|                                                                            | Professional services                                                                                                                                          |                    |           | 2,603  |      |   |            | 3,255  |  
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Total revenues                                                              |                                                                                                                                                                |                    | 25,219    |        |      |   | 30,942     |       
|Operating expenses:                                                         |                                                                                                                                                                |                    |           |        |      |   |            |       
|                                                                            | Cost of product revenues, excludes amortization of acquired
    technology included in amortization of intangibles resulting
    from acquisitions shown below |                    |           | 6,060  |      |   |            | 7,216  |  
|                                                                            | Cost of professional services revenues                                                                                                                         |                    |           | 1,553  |      |   |            | 2,214  |  
|                                                                            | Research and development                                                                                                                                       |                    |           | 3,254  |      |   |            | 3,198  |  
|                                                                            | Sales and marketing                                                                                                                                            |                    |           | 8,768  |      |   |            | 8,484  |  
|                                                                            | General and administrative                                                                                                                                     |                    |           | 3,425  |      |   |            | 4,605  |  
|                                                                            | Amortization of intangibles resulting from acquisitions                                                                                                        |                    |           | 880    |      |   |            | 68     |  
|                                                                            | Stock-based compensation                                                                                                                                       |                    |           | 83     |      |   |            | 18     |  
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Total operating expenses                                                    |                                                                                                                                                                |                    | 24,023    |        |      |   | 25,803     |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Income from operations                                                      |                                                                                                                                                                |                    | 1,196     |        |      |   | 5,139      |       
|Other income (expense):                                                     |                                                                                                                                                                |                    |           |        |      |   |            |       
|                                                                            | Interest expense                                                                                                                                               |                    |           | (78    | )    |   |            | (18    | )
|                                                                            | Interest income                                                                                                                                                |                    |           | 26     |      |   |            | 483    |  
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Income before provision for income taxes                                    |                                                                                                                                                                |                    | 1,144     |        |      |   | 5,604      |       
|Provision for income taxes                                                  |                                                                                                                                                                |                    | (358      | )      |      |   | (194       | )     
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Net income                                                                  |                                                                                                                                                                |                    | 786       |        |      |   | 5,410      |       
|Dividends on and accretion of convertible preferred stock                   |                                                                                                                                                                |                    | (2,595    | )      |      |   |           |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Net (loss) income attributable to common stockholders                       |                                                                                                                                                                | $                  | (1,809    | )      |      | $ | 5,410      |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Net (loss) income attributable to common stockholders per common
    share: |                                                                                                                                                                |                    |           |        |      |   |            |       
|Basic                                                                       |                                                                                                                                                                | $                  | (0.33     | )      |      | $ | 0.21       |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Diluted                                                                     |                                                                                                                                                                | $                  | (0.33     | )      |      | $ | 0.20       |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Weighted average number of common shares:                                   |                                                                                                                                                                |                    |           |        |      |   |            |       
|Basic                                                                       |                                                                                                                                                                |                    | 5,547,016 |        |      |   | 26,076,137 |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  
|Diluted                                                                     |                                                                                                                                                                |                    | 5,547,016 |        |      |   | 27,657,202 |       
|                                                                            |                                                                                                                                                                |                    |           |        |      |  



2



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##### 






BLACKBOARD INC.


UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                  |                                                                          |                                           |        |       |        |   |         |       |        |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ----------------------------------------- | ------ | ----- | ------ | - | ------- | ----- | ------ | -
|                                                                                  |                                                                          | Three Months Ended                        |       
|                                                                                  |                                                                          | March 31,                                 |       
|                                                                                  |                                                                          |                                           |       
|                                                                                  |                                                                          | 2004                                      |        |       | 2005   |  
|                                                                                  |                                                                          |                                           |        |       |        |  
|                                                                                  |                                                                          | (In thousands)                            |       
|Cash flows from operating activities                                              |                                                                          |                                           |        |       |        |   |         |      
|Net income                                                                        |                                                                          | $                                         | 786    |       |        | $ | 5,410   |      
|Adjustments to reconcile net income to net cash used in
    operating activities: |                                                                          |                                           |        |       |        |   |         |      
|                                                                                  | Depreciation and amortization                                            |                                           |        | 1,533 |        |   |         | 1,664 |       
|                                                                                  | Amortization of intangibles                                              |                                           |        | 880   |        |   |         | 68    |       
|                                                                                  | Change in allowance for doubtful accounts                                |                                           |        | (230  | )      |   |         | (301  | )     
|                                                                                  | Noncash stock compensation related to options issued to
    nonemployees |                                           |        | 60    |        |   |         |      |       
|                                                                                  | Noncash deferred stock amortization                                      |                                           |        | 23    |        |   |         | 18    |       
|                                                                                  | Changes in operating assets and liabilities:                             |                                           |        |       |        |   |         |       |       
|                                                                                  |                                                                          | Accounts receivable                       |        |       | 4,436  |   |         |       | 4,810  |  
|                                                                                  |                                                                          | Inventories                               |        |       | (104   | ) |         |       | (15    | )
|                                                                                  |                                                                          | Prepaid expenses and other current assets |        |       | (417   | ) |         |       | (742   | )
|                                                                                  |                                                                          | Deferred cost of revenues                 |        |       | (236   | ) |         |       | (1,597 | )
|                                                                                  |                                                                          | Accounts payable                          |        |       | (459   | ) |         |       | 900    |  
|                                                                                  |                                                                          | Accrued expenses                          |        |       | (1,195 | ) |         |       | (1,825 | )
|                                                                                  |                                                                          | Deferred rent                             |        |       | (36    | ) |         |       | (81    | )
|                                                                                  |                                                                          | Deferred revenues                         |        |       | (6,908 | ) |         |       | (9,730 | )
|                                                                                  |                                                                          |                                           |        |       |        |  
|Net cash used in operating activities                                             |                                                                          |                                           | (1,867 | )     |        |   | (1,421  | )    
|Cash flows from investing activities                                              |                                                                          |                                           |        |       |        |   |         |      
|Purchase of property and equipment                                                |                                                                          |                                           | (1,857 | )     |        |   | (2,428  | )    
|Purchase of short-term investments                                                |                                                                          |                                           |       |       |        |   | (13,707 | )    
|Sale of short-term investments                                                    |                                                                          |                                           |       |       |        |   | 5,400   |      
|                                                                                  |                                                                          |                                           |        |       |        |  
|Net cash used in investing activities                                             |                                                                          |                                           | (1,857 | )     |        |   | (10,735 | )    
|Cash flows from financing activities                                              |                                                                          |                                           |        |       |        |   |         |      
|Payments on equipment notes                                                       |                                                                          |                                           | (300   | )     |        |   | (180    | )    
|Proceeds from line of credit                                                      |                                                                          |                                           | 7,880  |       |        |   |        |      
|Payments on line of credit                                                        |                                                                          |                                           | (7,880 | )     |        |   |        |      
|Payments on note payable                                                          |                                                                          |                                           | (1,000 | )     |        |   |        |      
|Proceeds from exercise of stock options                                           |                                                                          |                                           | 612    |       |        |   | 1,286   |      
|                                                                                  |                                                                          |                                           |        |       |        |  
|Net cash (used in) provided by financing activities                               |                                                                          |                                           | (688   | )     |        |   | 1,106   |      
|                                                                                  |                                                                          |                                           |        |       |        |  
|Net decrease in cash and cash equivalents                                         |                                                                          |                                           | (4,412 | )     |        |   | (11,050 | )    
|Cash and cash equivalents at beginning of period                                  |                                                                          |                                           | 30,456 |       |        |   | 78,149  |      
|                                                                                  |                                                                          |                                           |        |       |        |  
|Cash and cash equivalents at end of period                                        |                                                                          | $                                         | 26,044 |       |        | $ | 67,099  |      
|                                                                                  |                                                                          |                                           |        |       |        |  



3



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##### 






BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


For the Three Months Ended March 31, 2004 and 2005


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 lackboard Transaction
System TM  Blackboard
One TM .








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







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





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



4



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##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




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

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




| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | Basic and Diluted Net (Loss) Income Attributable to Common
    Stockholders per Common Share





|                                                                                    |  |                    |           |   |      |   |            | 
|----------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ---- | - | ---------- | 
|                                                                                    |  | Three Months Ended |          
|                                                                                    |  | March 31,          |          
|                                                                                    |  |                    |          
|                                                                                    |  | 2004               |           |   | 2005 |  
|                                                                                    |  |                    |           |   |      |  
|                                                                                    |  | (Unaudited)        |          
|Basic net (loss) income attributable to common stockholders per
    common share:   |  |                    |           |   |      |   |            | 
|Net income                                                                          |  | $                  | 786       |   |      | $ | 5,410      | 
|Less preferred stock dividends:                                                     |  |                    |           |   |      |   |            | 
|Redeemable convertible preferred stock                                              |  |                    | (2,595    | ) |      |   |           | 
|                                                                                    |  |                    |           |   |      |  
|Net (loss) income attributable to common stockholders                               |  | $                  | (1,809    | ) |      | $ | 5,410      | 
|                                                                                    |  |                    |           |   |      |  
|Weighted average shares outstanding                                                 |  |                    | 5,547,016 |   |      |   | 26,076,137 | 
|                                                                                    |  |                    |           |   |      |  
|Basic net (loss) income attributable to common stockholders per
    common share    |  | $                  | (0.33     | ) |      | $ | 0.21       | 
|                                                                                    |  |                    |           |   |      |  
|Diluted net (loss) income attributable to common stockholders
    per common share: |  |                    |           |   |      |   |            | 
|Net (loss) income attributable to common stockholders                               |  | $                  | (1,809    | ) |      | $ | 5,410      | 
|                                                                                    |  |                    |           |   |      |  
|Weighted average number of basic shares outstanding                                 |  |                    | 5,547,016 |   |      |   | 26,076,137 | 
|Dilutive effect of:                                                                 |  |                    |           |   |      |   |            | 
|Stock options related to the purchase of common stock                               |  |                    |          |   |      |   | 1,443,982  | 
|Warrants related to the purchase of common stock                                    |  |                    |          |   |      |   | 137,083    | 
|                                                                                    |  |                    |           |   |      |  
|Diluted shares outstanding                                                          |  |                    | 5,547,016 |   |      |   | 27,657,202 | 
|                                                                                    |  |                    |           |   |      |  
|Diluted net (loss) income attributable to common stockholders
    per common share  |  | $                  | (0.33     | ) |      | $ | 0.20       | 
|                                                                                    |  |                    |           |   |      |  

5



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##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Share-Based
Payment Statement of Cash
Flows.








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A modified prospective method in which compensation
    cost is recognized beginning with the effective date
    (a) based on the requirements of SFAS 123(R) for all
    share-based payments granted after the effective date and
    (b) based on the requirements of SFAS 123(R) for all
    awards granted to employees prior to the effective date of
    SFAS 123(R) that remain unvested on the effective date.
|
| |  | A prospective method which includes the requirements
    of the modified prospective method described above, but also
    permits entities to restate based on the amounts previously
    recognized under SFAS 123(R) for purposes of pro forma
    disclosures for either (a) all prior periods presented or
    (b) prior interim periods of the year of adoption.                                                  





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





|   |                         
|-- | ------------------------
|3. | Stock-Based Compensation

Accounting for Stock-Based
Compensation Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment
of SFAS No. 123, Accounting for Stock Issued
to Employees, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.


6



---



##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                           |                                                                                                              |                    |        |        |      |   |       |       |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------ | ------ | ------ | ---- | - | ----- | ----- | -
|                                                                           |                                                                                                              | Three Months Ended |       
|                                                                           |                                                                                                              | March 31,          |       
|                                                                           |                                                                                                              |                    |       
|                                                                           |                                                                                                              | 2004               |        |        | 2005 |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           |                                                                                                              | (Unaudited)        |       
|                                                                           |                                                                                                              | (In thousands)     |       
|Pro forma net (loss) income attributable to common stockholders:           |                                                                                                              |                    |        |        |      |   |       |      
|                                                                           | As reported                                                                                                  |                    | $      | (1,809 | )    |   | $     | 5,410 |  
|                                                                           | Add: Stock-based compensation included in reported net (loss)
    income attributable to common stockholders |                    |        | 83     |      |   |       | 18    |  
|                                                                           | Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards         |                    |        | (827   | )    |   |       | (802  | )
|                                                                           |                                                                                                              |                    |        |        |      |  
|Pro forma net (loss) income attributable to common stockholders            |                                                                                                              | $                  | (2,553 | )      |      | $ | 4,626 |      
|                                                                           |                                                                                                              |                    |        |        |      |  
|Net (loss) income attributable to common stockholders per common
    share |                                                                                                              |                    |        |        |      |   |       |      
|                                                                           | Basic  as reported                                                                                          |                    | $      | (0.33  | )    |   | $     | 0.21  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Basic  pro forma                                                                                            |                    | $      | (0.46  | )    |   | $     | 0.18  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Diluted  as reported                                                                                        |                    | $      | (0.33  | )    |   | $     | 0.20  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Diluted  pro forma                                                                                          |                    | $      | (0.46  | )    |   | $     | 0.17  |  
|                                                                           |                                                                                                              |                    |        |        |      |  





|                                |  |                    |         |   |      |  |         |  
|------------------------------- |  | ------------------ | ------- | - | ---- |  | ------- | -
|                                |  | Three Months Ended |        
|                                |  | March 31,          |        
|                                |  |                    |        
|                                |  | 2004               |         |   | 2005 | 
|                                |  |                    |         |   |      | 
|                                |  | (Unaudited)        |        
|Dividend yield                  |  |                    | 0       | % |      |  | 0       | %
|Expected volatility             |  |                    | 85.0    | % |      |  | 51.4    | %
|Average risk-free interest rate |  |                    | 3.0     | % |      |  | 4.0     | %
|Expected term                   |  |                    | 5 years |   |      |  | 5 years |  



7



---



##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |            
|-- | -----------
|4. | Inventories

|                  |  |                |       |             |           |   |       | 
|----------------- |  | -------------- | ----- | ----------- | --------- | - | ----- | 
|                  |  | December 31,   |       |             | March 31, |  
|                  |  | 2004           |       |             | 2005      |  
|                  |  |                |       |             |           |  
|                  |  |                |       | (Unaudited) |          
|                  |  | (In thousands) |      
|Raw materials     |  | $              | 395   |             |           | $ | 603   | 
|Work-in-process   |  |                | 518   |             |           |   | 455   | 
|Finished goods    |  |                | 1,081 |             |           |   | 951   | 
|                  |  |                |       |             |           |  
|Total inventories |  | $              | 1,994 |             |           | $ | 2,009 | 
|                  |  |                |       |             |           |  



|   |                               
|-- | ------------------------------
|5. | Goodwill and Intangible Assets



|                              |  |                |         |             |           |   |         |  
|----------------------------- |  | -------------- | ------- | ----------- | --------- | - | ------- | -
|                              |  | December 31,   |         |             | March 31, |  
|                              |  | 2004           |         |             | 2005      |  
|                              |  |                |         |             |           |  
|                              |  |                |         | (Unaudited) |          
|                              |  | (In thousands) |        
|Goodwill                      |  | $              | 10,252  |             |           | $ | 10,252  |  
|                              |  |                |         |             |           |  
|Acquired technology           |  | $              | 10,400  |             |           | $ | 10,400  |  
|Contracts and customer lists  |  |                | 5,443   |             |           |   | 5,443   |  
|Non-compete agreements        |  |                | 2,043   |             |           |   | 2,043   |  
|Trademarks and domain names   |  |                | 71      |             |           |   | 71      |  
|                              |  |                |         |             |           |  
|Subtotal                      |  |                | 17,957  |             |           |   | 17,957  |  
|Less accumulated amortization |  |                | (17,131 | )           |           |   | (17,199 | )
|                              |  |                |         |             |           |  
|Intangible assets, net        |  | $              | 826     |             |           | $ | 758     |  
|                              |  |                |         |             |           |  





|   |     
|-- | ----
|6. | Debt



| |                                              
| | ---------------------------------------------
| | Working Capital and Equipment Lines of Credit







|   |                              
|-- | -----------------------------
|7. | Commitments and Contingencies



8



---



##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                     
|-- | --------------------
|8. | Stockholders Equity























|   |             
|-- | ------------
|9. | Income Taxes





9



---



##### 



BLACKBOARD INC.


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






10



---



##### 



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
SuiteTM Blackboard Commerce
SuiteTM Blackboard Academic Suite Blackboard
Learning System, Blackboard Community System Blackboard Content System. Blackboard Commerce
Suite Blackboard Transaction System, Blackboard Community System Blackboard One.






11



---



##### 

















Critical Accounting Policies and Estimates






Revenue recognition.


12



---



##### 



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.






Allowance for doubtful accounts.


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


13



---



##### 





Goodwill. Goodwill and
Other Intangible Assets.


Stock-based compensation. Accounting for
Stock Issued to Employees, Accounting for Stock-Based
Compensation Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of
SFAS No. 123.


Share-Based
Payment, Statement of Cash Flows.








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A modified prospective method in which compensation
    cost is recognized beginning with the effective date
    (a) based on the requirements of SFAS 123(R) for all
    share-based payments granted after the effective date and
    (b) based on the requirements of SFAS 123(R) for all
    awards granted to employees prior to the effective date of
    SFAS 123(R) that remain unvested on the effective date.
|
| |  | A prospective method which includes the requirements
    of the modified prospective method described above, but also
    permits entities to restate based on the amounts previously
    recognized under SFAS 123(R) for purposes of pro forma
    disclosures for either (a) all prior periods presented or
    (b) prior interim periods of the year of adoption.                                                  



14



---



##### 





|                                                                           |                                                                                                              |                    |        |        |      |   |       |       |  
|-------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ------------------ | ------ | ------ | ---- | - | ----- | ----- | -
|                                                                           |                                                                                                              | Three Months Ended |       
|                                                                           |                                                                                                              | March 31,          |       
|                                                                           |                                                                                                              |                    |       
|                                                                           |                                                                                                              | 2004               |        |        | 2005 |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           |                                                                                                              | (In thousands)     |       
|Pro forma net (loss) income attributable to common stockholders:           |                                                                                                              |                    |        |        |      |   |       |      
|                                                                           | As reported                                                                                                  |                    | $      | (1,809 | )    |   | $     | 5,410 |  
|                                                                           | Add: Stock-based compensation included in reported net (loss)
    income attributable to common stockholders |                    |        | 83     |      |   |       | 18    |  
|                                                                           | Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards         |                    |        | (827   | )    |   |       | (802  | )
|                                                                           |                                                                                                              |                    |        |        |      |  
|Pro forma net (loss) income attributable to common stockholders            |                                                                                                              | $                  | (2,553 | )      |      | $ | 4,626 |      
|                                                                           |                                                                                                              |                    |        |        |      |  
|Net (loss) income attributable to common stockholders per common
    share |                                                                                                              |                    |        |        |      |   |       |      
|                                                                           | Basic  as reported                                                                                          |                    | $      | (0.33  | )    |   | $     | 0.21  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Basic  pro forma                                                                                            |                    | $      | (0.46  | )    |   | $     | 0.18  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Diluted  as reported                                                                                        |                    | $      | (0.33  | )    |   | $     | 0.20  |  
|                                                                           |                                                                                                              |                    |        |        |      |  
|                                                                           | Diluted  pro forma                                                                                          |                    | $      | (0.46  | )    |   | $     | 0.17  |  
|                                                                           |                                                                                                              |                    |        |        |      |  

Accounting for income taxes.






Important Factors Considered by Management






15



---



##### 









| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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,                |  
|                       |                                                         |                          |  
|                       |                                                         | 2004                     |   |    | 2005 | 
|                       |                                                         |                          |   |    |      | 
|                       |                                                         | (Unaudited)              |  
|Revenues:              |                                                         |                          |   |    |      |  |    |   
|                       | Product                                                 |                          |   | 90 | %    |  |    | 89 | %  
|                       | Professional services                                   |                          |   | 10 |      |  |    | 11 |    
|                       |                                                         |                          |   |    |      | 
|                       |                                                         | Total revenues           |   |    | 100  |  |    |    | 100 | 
|Operating expenses:    |                                                         |                          |   |    |      |  |    |   
|                       | Cost of product revenues                                |                          |   | 24 |      |  |    | 23 |    
|                       | Cost of professional services revenues                  |                          |   | 6  |      |  |    | 7  |    
|                       | Research and development                                |                          |   | 13 |      |  |    | 10 |    
|                       | Sales and marketing                                     |                          |   | 35 |      |  |    | 28 |    
|                       | General and administrative                              |                          |   | 14 |      |  |    | 15 |    
|                       | Amortization of intangibles resulting from acquisitions |                          |   | 3  |      |  |    | 0  |    
|                       | Stock-based compensation                                |                          |   | 0  |      |  |    | 0  |    
|                       |                                                         |                          |   |    |      | 
|                       |                                                         | Total operating expenses |   |    | 95   |  |    |    | 83  | 
|                       |                                                         |                          |   |    |      | 
|Income from operations |                                                         |                          | 5 | %  |      |  | 17 | % 
|                       |                                                         |                          |   |    |      | 

16



---



##### 





| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Three Months Ended March 31, 2004 Compared to Three
    Months Ended March 31, 2005



Product revenues.


|                               |                        |               |      |      |      |   |      |      | 
|------------------------------ | ---------------------- | ------------- | ---- | ---- | ---- | - | ---- | ---- | 
|                               |                        | Three Months  |     
|                               |                        | Ended         |     
|                               |                        | March 31,     |     
|                               |                        |               |     
|                               |                        | 2004          |      |      | 2005 |  
|                               |                        |               |      |      |      |  
|                               |                        | (Unaudited)   |     
|                               |                        | (In millions) |     
|Recurring ratable revenues     |                        | $             | 16.8 |      |      | $ | 21.6 |     
|Non-recurring ratable revenues |                        |               | 4.9  |      |      |   | 4.7  |     
|Other product revenues         |                        |               | 0.9  |      |      |   | 1.4  |     
|                               |                        |               |      |      |      |  
|                               | Total product revenues |               | $    | 22.6 |      |   | $    | 27.7 | 
|                               |                        |               |      |      |      |  

Blackboard
Learning System Blackboard
Community System Blackboard Content System Blackboard Transaction System


Blackboard Learning System Blackboard Learning System  Basic
EditionTM 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


17



---



##### 



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


General and administrative expenses.


18



---



##### 



Net interest income (expense).


Income taxes.


Net income.


Liquidity and Capital Resources












19



---



##### 











Seasonality




20



---



##### 



RISK FACTORS






| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | We have only had one profitable year and may never achieve
    sustained profitability.





| |                                                                                
| | -------------------------------------------------------------------------------
| | Our ability to utilize our net operating loss
    carryforwards may be limited.





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







| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some 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.



21



---



##### 







| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our level of fixed expenses may cause us to incur
    operating losses if we are unsuccessful in achieving revenue
    growth.





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





| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | If our newest product, the Blackboard Content System, does
    not gain widespread market acceptance, our financial results
    could suffer.

Blackboard
Content System,




| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our product development efforts are delayed, fail to
    develop a product which gains market acceptance or fail to
    develop a marketable product at all, our financial results could
    suffer.





| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because we generally recognize revenues ratably over the
    term of our contract with a client, downturns or upturns in
    sales will not be fully reflected in our operating results until
    future periods.



22



---



##### 





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



23



---



##### 





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





| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to effectively manage our expanding
    operations, which could impair our ability to operate
    profitably.





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



24



---



##### 





| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to protect our proprietary technology and
    other rights, it will reduce our ability to compete for
    business.





| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                                                         
|
| |  | divert managements attention and other company resources;
    and                                                                                                                           
|
| |  | require us to enter into royalty or licensing agreements in
    order to obtain the right to use necessary technologies, which
    may not be available on terms acceptable to us, if at all.



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Expansion of our business internationally will subject our
    business to additional economic and operational risks that could
    increase our costs and make it difficult for us to operate
    profitably.





| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | foreign currency fluctuations, which could result in reduced
    revenues and increased operating expenses;                                                                                                    
|
| |  | potentially longer payment and sales cycles;                                                                                                                                                                   
|
| |  | difficulty in collecting accounts receivable;                                                                                                                                                                  
|
| |  | the effect of applicable foreign tax structures, including tax
    rates that may be higher than tax rates in the United States or
    taxes that may be duplicative of those imposed in the United
    States;
|
| |  | tariffs and trade barriers;                                                                                                                                                                                    
|
| |  | general economic and political conditions in each country;                                                                                                                                                     

25



---



##### 





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





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we undertake business combinations and acquisitions,
    they may be difficult to integrate, disrupt our business, dilute
    stockholder value or divert management attention.









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



26



---



##### 









| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | 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




27



---



##### 





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





| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We could lose revenues if there are changes in the
    spending policies or budget priorities for government funding of
    colleges, universities, schools and other education
    providers.





| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | U.S. and foreign government regulation of the Internet
    could cause us to incur significant expenses, and failure to
    comply with applicable regulations could make our business less
    efficient or even impossible.







| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Childrens Online Protection Act and the
    Childrens Online Privacy Protection Act restrict the
    distribution of certain materials deemed harmful to children and
    impose additional restrictions on the ability of online services
    to collect personal information from children under the age of
    13; and
|
| |  | The Family Educational Rights and Privacy Act imposes parental
    or student consent requirements for specified disclosures of
    student information, including online information.                                                                                                                                         



28



---



##### 





| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our status under state and federal financial services
    regulation is currently unclear, 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 our business policies and practices;            
|
| |  | restrictions on specified uses and disclosures of information;
|
| |  | data security requirements;                                   
|
| |  | government registration; and                                  
|
| |  | reporting and documentation requirements.                     








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












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

(a) Evaluation of Disclosure Controls and Procedures.




29



---



##### 





(b) Changes in Internal Control over Financial
Reporting.




30



---



##### 






PART II. OTHER INFORMATION







|        |                                                                 
|------- | ----------------------------------------------------------------
|Item 2. | Unregistered Sales of Equity Securities and Use of
    Proceeds.












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



|            |    |             |  |                                                                                                       
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .1          |  | Employment Agreement between Blackboard Inc. and Matthew H.
    Small, dated January 26, 2004         
|           
|            | 10 | .2          |  | Employment Agreement between Blackboard Inc. and Todd Gibby,
    dated May 11, 2005                   
|           
|            | 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

31



---



##### 






SIGNATURE






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



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

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



32