##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
   FORM 10-Q
   þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.For the quarterly period ended
    September 30, 2006ORo

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.(Address of Principal
    Executive Offices)

20036(Zip
    Code)    Registrants Telephone Number, Including Area Code:
 (202) 463-4860
      þ o
  Rule 12b-2
 o þ o
  Rule 12b-2 o þ
   Class

Outstanding at October 31, 2006Common Stock, $0.01 par value



28,068,526




---



##### 



Blackboard
    Inc.
  Quarterly
    Report on
    Form 10-Q
 For the
    Quarter Ended September 30, 2006
  INDEX
  PART I.
    FINANCIAL INFORMATIONItem 1.


Consolidated
    Financial StatementsConsolidated
    Balance Sheets as of December 31, 2005 and
    September 30, 2006 (unaudited)


1Unaudited
    Consolidated Statements of Operations for the Three and Nine
    Months ended September 30, 2005 and 2006


2Unaudited
    Consolidated Statements of Cash Flows for the Nine Months ended
    September 30, 2005 and 2006


3Notes to Unaudited
    Consolidated Financial Statements


4Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


15Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


28Item 4.


Controls and
    Procedures


29PART II. OTHER
    INFORMATIONItem 1A.


Risk
    Factors


30Item 6.


Exhibits


38Signature


39Employment AgreementEmployment AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer     Throughout this Quarterly Report on
    Form 10-Q,
    the terms we, us, our and
    Blackboard refer to Blackboard Inc. and its
    subsidiaries.
 ii




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION  Item 1.
    Consolidated
    Financial Statements  BLACKBOARD
    INC.
 CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) December 31,


September 30,2005


2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents

$
75,895


$
37,045Short-term investments


62,602



Restricted cash


521



461Accounts receivable, net of
    allowance for doubtful accounts of $701 and $733 at
    December 31, 2005 and September 30, 2006, respectively


26,136



61,360Inventories


1,806



2,443Prepaid expenses and other current
    assets


2,116



2,976Deferred tax asset, current portion


10,274



16,818Deferred cost of revenues, current
    portion


5,797



8,080Total current assets


185,147



129,183Deferred tax asset, non-current
    portion


12,023



12,386Deferred cost of revenues,
    non-current portion


1,310



772Deferred merger costs (WebCT, Inc.)


4,956



Property and equipment, net


9,940



13,276Goodwill


10,252



102,725Intangible assets, net


560



61,275Total assets

$
224,188


$
319,617LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
1,833


$
1,530Accrued expenses


14,083



20,153Term loan, current portion






600Deferred rent, current portion


347



398Deferred revenues, current portion


74,975



118,388Total current liabilities


91,238



141,069Term loan, noncurrent portion, net
    of debt discount of $1,539 at September 30, 2006






42,411Deferred rent, noncurrent portion


426



233Deferred revenues, noncurrent
    portion


2,199



3,290Stockholders equity:Preferred stock, $0.01 par
    value; 5,000,000 shares authorized, and no shares issued or
    outstanding at December 31, 2005 and September 30, 2006






Common stock, $0.01 par
    value; 200,000,000 shares authorized; 27,479,351 and
    28,052,831 shares issued and outstanding at
    December 31, 2005 and September 30, 2006, respectively


275



280Additional paid-in capital


210,805



224,027Accumulated deficit


(80,755
)


(91,693
)Total stockholders equity


130,325



132,614Total liabilities and
    stockholders equity

$
224,188


$
319,617    1




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##### Table of Contents



BLACKBOARD
    INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data) Three Months Ended


Nine Months EndedSeptember 30,


September 30,2005


2006


2005


2006Revenues:Product

$
31,301


$
43,435


$
88,341


$
113,597Professional services


4,626



6,919



11,577



18,046Total revenues


35,927



50,354



99,918



131,643Operating expenses:Cost of product revenues, excludes
    $2,800 and $6,533 in amortization of acquired technology
    included in amortization of intangibles resulting from
    acquisitions shown below for the three and nine months ended
    September 30, 2006, respectively(1)


7,507



11,354



21,818



29,348Cost of professional services
    revenues(1)


2,733



4,385



7,499



12,061Research and development(1)


3,657



8,000



10,162



20,157Sales and marketing(1)


10,323



16,678



28,269



43,920General and administrative(1)


5,032



9,661



14,464



27,063Amortization of intangibles
    resulting from acquisitions


66



5,377



200



12,591Total operating expenses


29,318



55,455



82,412



145,140Income (loss) from operations


6,609



(5,101
)


17,506



(13,497
)Other income (expense), net:Interest expense


(9
)


(1,860
)


(39
)


(3,756
)Interest income


932



341



1,939



1,974Other income (expense)






(155
)






(301
)Income (loss) before (provision)
    benefit for income taxes


7,532



(6,775
)


19,406



(15,580
)(Provision) benefit for income
    taxes


(263
)


2,000



(664
)


4,642Net income (loss)

$
7,269


$
(4,775
)

$
18,742


$
(10,938
)Net income (loss) per common share:Basic

$
0.27


$
(0.17
)

$
0.71


$
(0.39
)Diluted

$
0.25


$
(0.17
)

$
0.66


$
(0.39
)Weighted average number of common
    shares:Basic


26,986,242



27,922,879



26,529,922



27,760,438Diluted


28,829,768



27,922,879



28,240,576



27,760,438(1) Includes the following amounts
    related to stock-based compensation:Cost of product revenues

$



$
113


$



$
277Cost of professional services
    revenues






150







519Research and development






168







444Sales and marketing






899







2,239General and administrative


19



931



55



2,559    2




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##### Table of Contents



BLACKBOARD
    INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS  Nine Months EndedSeptember 30,2005


2006(In thousands)Cash flows from operating
    activitiesNet income (loss)

$
18,742


$
(10,938
)Adjustments to reconcile net
    income (loss) to net cash provided by operating activities:Deferred income tax benefit






(6,078
)Excess tax benefits from
    stock-based compensation






(248
)Amortization of debt discount






940Depreciation and amortization


5,003



6,572Amortization of intangibles


200



12,591Change in allowance for doubtful
    accounts


(24
)


(143
)Noncash stock-based compensation


55



6,038Changes in operating assets and
    liabilities:Accounts receivable


(11,490
)


(30,712
)Inventories


(59
)


(637
)Prepaid expenses and other current
    assets


(586
)


496Deferred cost of revenues


(1,959
)


(1,745
)Accounts payable


111



(575
)Accrued expenses


797



(4,883
)Deferred rent


(221
)


(142
)Deferred revenues


12,797



40,048Net cash provided by operating
    activities


23,366



10,584Cash flows from investing
    activitiesAcquisition of WebCT, Inc., net of
    cash acquired






(154,628
)Purchase of property and equipment


(6,696
)


(8,188
)Purchase of
    held-to-maturity
    investments


(27,230
)


Sale of
    held-to-maturity
    investments


5,750



23,546Purchase of
    available-for-sale
    investments


(21,900
)


Sale of
    available-for-sale
    investments


25,600



39,056Net cash used in investing
    activities


(24,476
)


(100,214
)Cash flows from financing
    activitiesPayments on equipment notes


(424
)


Proceeds from revolving credit
    facility






10,000Payments on revolving credit
    facility






(10,000
)Proceeds from term loan






57,522Payments on term loan






(15,450
)Release of letter of credit






1,517Excess tax benefits from
    stock-based compensation






248Proceeds from exercise of stock
    options


8,222



6,943Net cash provided by financing
    activities


7,798



50,780Net increase (decrease) in cash
    and cash equivalents


6,688



(38,850
)Cash and cash equivalents at
    beginning of period


78,149



75,895Cash and cash equivalents at end
    of period

$
84,837


$
37,045    3




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##### Table of Contents



BLACKBOARD
    INC.NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS
  BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 For the Nine Months Ended September 30, 2005 and 2006
  In these Notes to Unaudited Consolidated Financial
    Statements, the terms the Company and
    Blackboard refer to Blackboard Inc. and its
    subsidiaries.
  1.
    Nature of
    Business  Blackboard Learning
    SystemTM,
    Blackboard Community
    SystemTM,
    Blackboard Content
    SystemTM,
    Blackboard Transaction
    SystemTM Blackboard
    OneTM.
    2.
    Basis of
    Presentation  Form 10-Q Regulation S-X.
  Form 10-K
  Principles
    of Consolidation
    Foreign
    Currency Translation
    Use of
    Estimates
   4




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Reclassification
    Fair
    Value of Financial Instruments
  Disclosures about Fair Value of
    Financial Instruments,
  Short-term
    Investments
  Accounting for Certain Investments in Debt and Equity
    Securities.
  Deferred
    Income Taxes
      Cost
    of Product Revenues
    Basic
    and Diluted Net Income (Loss) per Common Share
   5




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2005


2006


2005


2006(Unaudited)(In thousands, except share and per share amounts)Net income (loss)

$
7,269


$
(4,775
)

$
18,742


$
(10,938
)Weighted average shares
    outstanding, basic


26,986,242



27,922,879



26,529,922



27,760,438Dilutive effect of:Stock options related to the
    purchase of common stock


1,761,668







1,598,334



Warrants related to the purchase
    of common stock


81,858







112,320



Weighted average shares
    outstanding, diluted


28,829,768



27,922,879



28,240,576



27,760,438Basic net income (loss) per common
    share

$
0.27


$
(0.17
)

$
0.71


$
(0.39
)Diluted net income (loss) per
    common share

$
0.25


$
(0.17
)

$
0.66


$
(0.39
)   Stock-Based
    Compensation
  Accounting for Stock Issued to
    Employees Accounting for Stock-Based Compensation Share-Based
    Payment
  Comprehensive
    Net Income (Loss)
    Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income
    taxes  an interpretation of FASB Statement
    No. 109 Accounting for Income
    Taxes
 6




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair Value Measurements
  3.
    WebCT,
    Inc. Merger    Business Combinations.
  Preliminary
    Purchase Price Allocation
    7




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash and cash equivalents

$
27,880Restricted cash


1,452Accounts receivable, net


4,369Prepaid expenses and other current
    assets


1,356Property and equipment, net


1,720Deferred tax assets, net


486Accounts payable


(272
)Other accrued liabilities


(10,856
)Deferred revenues


(4,456
)Net tangible assets to be acquired


21,679Definite-lived intangible assets
    acquired


73,307Goodwill


92,473Total estimated purchase price

$
187,459          8




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Deferred
    Revenues
  build-up build-up
  Pre-Acquisition
    Contingencies
    Pro
    Forma Financial Information
      9




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2005


2006


2005


2006(Unaudited)(In thousands, except per share amounts)Total revenues

$
47,587


$
50,354


$
133,652


$
139,648Net income (loss)

$
3


$
(4,775
)

$
(812
)

$
(15,137
)Basic net income (loss) per common
    share

$
0.00


$
(0.17
)

$
(0.03
)

$
(0.55
)Diluted net income (loss) per
    common share

$
0.00


$
(0.17
)

$
(0.03
)

$
(0.55
)   4.
    Stock-Based
    Compensation      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2005


2006


2005


2006(Unaudited)(In thousands, except per share amounts)Pro forma net income (loss):As reported

$
7,269


$
(4,775
)

$
18,742


$
(10,938
)Add: Stock-based compensation
    included in reported net income (loss)


19







55



Deduct: Stock-based compensation
    determined under fair value-based method for all awards


(1,623
)






(4,260
)


Pro forma net income (loss)

$
5,665


$
(4,775
)

$
14,537


$
(10,938
)Net income (loss) per common share:Basic  as reported

$
0.27


$
(0.17
)

$
0.71


$
(0.39
)Basic  pro forma

$
0.21


$
(0.17
)

$
0.55


$
(0.39
)Diluted  as reported

$
0.25


$
(0.17
)

$
0.66


$
(0.39
)Diluted  pro forma

$
0.20


$
(0.17
)

$
0.51


$
(0.39
)     10




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Dividend yield

0%Expected volatility

42.0%Risk-free interest rate

4.8%Expected life of options

4.93 yearsForfeiture rate

10%   Dividend yield
  Expected volatility
  Risk-free interest rate
  Expected life of the options
  Forfeiture rate
       11




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Number of


Weighted Average


AggregateShares


Price/Share


Intrinsic ValueOptions exercisable at
    December 31, 2005


1,903,411


$
10.33Options outstanding at
    December 31, 2005


3,343,312


$
13.06Granted


1,636,250


$
27.60Exercised


(574,977
)

$
12.11Canceled


(389,389
)

$
24.16Options outstanding at
    September 30, 2006


4,015,196


$
18.04


$
35,908Options exercisable at
    September 30, 2006


1,874,861


$
11.33


$
28,442       5.
    Inventories  December 31,


September 30,2005


2006(Unaudited)(In thousands)Raw materials

$
700


$
980Work-in-process


451



594Finished goods


655



869Total inventories

$
1,806


$
2,443   6.
    Goodwill
    and Intangible Assets    December 31,


September 30,2005


2006(Unaudited)(In thousands)Goodwill

$
10,252


$
102,725Acquired technology

$
10,400


$
44,107Contracts and customer lists


5,443



45,042Non-compete agreements


2,043



2,043Trademarks and domain names


71



71Subtotal


17,957



91,263Less accumulated amortization


(17,397
)


(29,988
)Intangible assets, net

$
560


$
61,275  12




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7.
    Debt  Credit
    Facilities
           13




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##### Table of Contents



BLACKBOARD
    INC.
  NOTES TO
    UNAUDITED CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Commitments
    and Contingencies    9.
    Quarterly
    Financial Information   14




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##### Table of Contents



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
      time-and-materials
  Blackboard Academic
    SuiteTM Blackboard Commerce
    SuiteTM. Blackboard Academic Suite WebCT Campus
    EditionTM WebCT
    VistaTM
  Blackboard Academic Suite
  
    Blackboard Learning Systembasic products, which include:  Blackboard Learning System  Basic
    License
  Blackboard Learning System  CE Basic
    License
  
    Blackboard Learning Systementerprise products, which
    include:  Blackboard Learning System  Enterprise
    License,
  Blackboard Learning System  CE
    Enterprise License
  Blackboard Learning System  Vista
    Enterprise License
  
    Blackboard Community Systemand
    Blackboard Content System 15




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##### Table of Contents



Blackboard Commerce Suite
  
    Blackboard Transaction System,
    Blackboard Community Systemand
    Blackboard One                 16




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##### Table of Contents



Critical
    Accounting Policies and Estimates
      Revenue recognition. Software Revenue Recognition, SOP 98-9, Modification of
    SOP 97-2,
    Software Revenue Recognition, with Respect to Certain
    Transactions.
      Application of AICPA
    SOP 97-2
    to Arrangements That Include the Right to Use Software Stored on
    Another Entitys Hardware. set-up
  time-and-materials
  when-and-if-available
  Allowance for doubtful accounts.
 17




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##### Table of Contents



Long-lived assets. Accounting for the Impairment or Disposal of Long-Lived
    Assets.
  Purchase Accounting and Goodwill. Goodwill and
    Other Intangible Assets.
  Deferred Income Taxes.
    Stock-Based Compensation. Accounting for Stock Issued to
    Employees Accounting for Stock-Based Compensation Share-Based Payment
 18




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##### Table of Contents



Recent Accounting Pronouncements. Accounting for Uncertainty in Income taxes  an
    interpretation of FASB Statement No. 109 Accounting for Income
    Taxes
  Fair Value Measurements
  Important
    Factors Considered by Management
        
    Recurring ratable revenues include those product revenues that
    are recognized ratably over the contract term, which is
    typically one year, and that recur each year assuming clients
    renew their contracts. These revenues include revenues from the
    licensing of all of our software products, hosting arrangements
    and enhanced support and maintenance contracts related to our
    software products, including certain professional services
    performed by our professional services groups.
    Non-recurring ratable revenues include those product revenues
    that are recognized ratably over the term of the contract, which
    is typically one year, but that do not contractually recur.
    These revenues include certain hardware components of our
    Blackboard Transaction System products and certain
    third-party hardware and software sold to our clients in
    conjunction with our software licenses.
    Other revenues include those revenues that are recognized as
    earned and are not deferred to future periods. These revenues
    include professional services, the sales of Blackboard
    One, as well as the supplies and commissions we earn from
    publishers related to digital course supplement downloads.     19




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##### Table of Contents



Results
    of Operations
    Three MonthsEnded


Nine Months EndedSeptember 30,


September 30,2005


2006


2005


2006(Unaudited)Revenues:Product


87
%


86
%


88
%


86
%Professional services


13



14



12



14Total revenues


100



100



100



100Operating expenses:Cost of product revenues, excludes
    amortization of acquired technology included in amortization of
    intangibles resulting from acquisitions shown below


21



22



22



22Cost of professional services
    revenues


8



9



8



9Research and development


10



16



10



15Sales and marketing


29



33



28



33General and administrative


14



19



14



21Amortization of intangibles
    resulting from acquisitions


0



11



0



10Total operating expenses


82



110



82



110Income (loss) from operations


18
%


(10
)%


18
%


(10
)%   Three
    Months Ended September 30, 2006 Compared to Three Months
    Ended September 30, 2005
      Three Months Ended September 30,2005


2006Professional








ProfessionalProduct


Services





Product


ServicesRevenues


Revenues


Total


Revenues


Revenues


Total(Unaudited)(In millions)Recurring ratable revenues

$
25.2


$
0.2


$
25.4


$
34.7


$
0.6


$
35.3Non-recurring ratable revenues


4.3







4.3



5.4







5.4Other revenues


1.8



4.4



6.2



3.3



6.3



9.7Total revenues

$
31.3


$
4.6


$
35.9


$
43.4


$
6.9


$
50.4   Product revenues. Blackboard
    Academic Suite Blackboard Academic Suite Blackboard
    Learning System Blackboard Content System Blackboard Community
    System
 20




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##### Table of Contents



Blackboard Commerce Suite Blackboard Transaction System
  Blackboard Learning System Blackboard Learning System Blackboard Learning System. Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning System. Blackboard Learning System Blackboard Learning System
      Blackboard Academic Suite Blackboard Academic Suite
  Professional services revenues.
  Cost of product revenues. Blackboard
    Transaction System
 21




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##### Table of Contents



Cost of professional services revenues.
  Research and development expenses.
  Sales and marketing expenses.
  General and administrative expenses.
 22




---



##### Table of Contents



Net interest income (expense).
  Other income (expense).
  Income taxes.
  Net income (loss).
  Nine
    Months Ended September 30, 2006 Compared to Nine Months
    Ended September 30, 2005
  Revenues.
    Nine Months Ended September 30,2005


2006Professional








ProfessionalProduct


Services





Product


ServicesRevenues


Revenues


Total


Revenues


Revenues


Total(Unaudited)(In millions)Recurring ratable revenues

$
70.0


$
0.6


$
70.6


$
91.5


$
1.4


$
92.9Non-recurring ratable revenues


13.6







13.6



14.6







14.6Other revenues


4.7



11.0



15.7



7.5



16.6



24.1Total revenues

$
88.3


$
11.6


$
99.9


$
113.6


$
18.0


$
131.6   Product revenues. Blackboard
    Academic Suite
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Blackboard Academic Suite Blackboard Learning Sys m Blackboard Content
    System Blackboard Community System Blackboard Commerce Suite Blackboard Transaction System
  Blackboard Learning System Blackboard Learning System Blackboard Learning System. Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning
    System
    Blackboard One
  Blackboard Academic Suite Blackboard Academic Suite Blackboard Academic Suite Blackboard Academic Suite
  Professional services revenues.
  Cost of product revenues.
 24




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Blackboard
    Transaction System.
    Cost of professional services revenues.
  Research and development expenses.
  Sales and marketing expenses.
 25




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General and administrative expenses.
  Net interest income (expense).
  Other expense.
  Income taxes.
  Net income (loss).
  Liquidity
    and Capital Resources
       26




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27




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Item 3.
    Quantitative
    and Qualitative Disclosures about Market Risk.       28




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Item 4.
    Controls
    and Procedures.  (a)
    Evaluation
    of Disclosure Controls and Procedures.  Rules 13a-15(e) 15d-15(e)
  (b)
    Changes
    in Internal Control over Financial Reporting.  Rules 13a-15(f) 15d-15(f)
 29




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PART II.
    OTHER INFORMATION  Item 1A.
    Risk
    Factors.  Our
    merger with WebCT presents many risks, and we may not realize
    the financial and strategic goals that were contemplated at the
    time of the transaction.
    
    we may not realize the anticipated increase in our revenues if a
    larger than predicted number of customers decline to renew their
    contracts, if we are unable to sell WebCTs products to our
    customer base or if the acquired contracts do not allow us to
    recognize revenues on a timely basis;
    we may have difficulty incorporating WebCTs technologies
    or products with our existing product lines and maintaining
    uniform standards, controls, procedures and policies;
    we may have higher than anticipated costs in continuing support
    and development of WebCTs products;
    we may lose anticipated tax benefits or have additional legal or
    tax exposures;
    we may not be able to retain key WebCT employees;
    we may face contingencies related to product liability,
    intellectual property, financial disclosures, and accounting
    practices or internal controls; and
    we may be unable to manage effectively the increased size and
    complexity of the combined company, and our managements
    attention may be diverted from our ongoing business by
    transition or integration issues.  Our
    business strategy contemplates future business combinations and
    acquisitions which may be difficult to integrate, disrupt our
    business, dilute stockholder value or divert management
    attention.
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We
    incurred a significant amount of debt to finance the WebCT
    merger, which could constrict our liquidity, result in
    substantial cash outflows, and adversely affect our financial
    health and ability to obtain financing in the
    future.
    Providing
    enterprise software applications to the education industry is an
    emerging and uncertain business; if the market for our products
    fails to develop, we will not be able to grow our
    business.
      Most
    of our clients use our products to facilitate online education,
    which is a relatively new field; if online education does not
    continue to develop and gain acceptance, demand for our products
    could suffer.
    We
    face intense and growing competition, which could result in
    price reductions, reduced operating margins and loss of market
    share.
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Blackboard Academic Suite Blackboard
    Commerce Suite
    If
    potential clients or competitors use open source software to
    develop products that are competitive with our products and
    services, we may face decreased demand and pressure to reduce
    the prices for our products.
    Because
    most of our licenses are renewable on an annual basis, a
    reduction in our license renewal rate could significantly reduce
    our revenues.
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Because
    we generally recognize revenues ratably over the term of our
    contract with a client, downturns or upturns in sales will not
    be fully reflected in our operating results until future
    periods.
    Our
    operating margins may suffer if our professional services
    revenues increase in proportion to total revenues because our
    professional services revenues have lower gross
    margins.
    If our
    products contain errors or if new product releases are delayed,
    we could lose new sales and be subject to significant liability
    claims.
    
    delays in or loss of market acceptance of our products;
    diversion of our resources;
    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.
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
    clients budgetary constraints and priorities;
    the timing of our clients budget cycles;
    the need by some clients for lengthy evaluations that often
    include both their administrators and faculties; and
    the length and timing of clients approval processes.    Our
    sales cycle with international postsecondary education providers
    and U.S. K-12 schools may be longer than our historic
    U.S. postsecondary sales cycle, which could cause us to
    incur greater costs and could reduce our operating
    margins.
    We may
    have exposure to greater than anticipated tax
    liabilities.
    Our
    ability to utilize our net operating loss carryforwards may be
    limited.
      Our
    future success depends on our ability to continue to retain and
    attract qualified employees.
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If we
    do not maintain the compatibility of our products with
    third-party applications that our clients use in conjunction
    with our products, demand for our products could
    decline.
    If we
    are unable to protect our proprietary technology and other
    rights, it will reduce our ability to compete for
    business.
    If we
    are found to infringe the proprietary rights of others, we could
    be required to redesign our products, pay significant royalties
    or enter into license agreements with third
    parties.
    
    be expensive and time consuming to defend;
    force us to stop licensing our products that incorporate the
    challenged intellectual property;
    require us to redesign our products and reimburse certain costs
    to our clients;
    divert managements attention and other company
    resources; and
    require us to enter into royalty or licensing agreements in
    order to obtain the right to use necessary technologies, which
    may not be available on terms acceptable to us, if at all. 35




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Expansion
    of our business internationally will subject our business to
    additional economic and operational risks that could increase
    our costs and make it difficult for us to operate
    profitably.
    
    foreign currency fluctuations, which could result in reduced
    revenues and increased operating expenses;
    potentially longer payment and sales cycles;
    difficulty in collecting accounts receivable;
    the effect of applicable foreign tax structures, including tax
    rates that may be higher than tax rates in the United States or
    taxes that may be duplicative of those imposed in the United
    States;
    tariffs and trade barriers;
    general economic and political conditions in each country;
    inadequate intellectual property protection in foreign countries;
    uncertainty regarding liability for information retrieved and
    replicated in foreign countries;
    the difficulties and increased expenses in complying with a
    variety of foreign laws, regulations and trade
    standards; and
    unexpected changes in regulatory requirements.  Unauthorized
    disclosure of data, whether through breach of our computer
    systems or otherwise, could expose us to protracted and costly
    litigation or cause us to lose clients.
    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.
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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.    We may
    be subject to state and federal financial services regulation,
    and any violation of any present or future regulation could
    expose us to liability, force us to change our business
    practices or force us to stop selling or modify our products and
    services.
  Blackboard Transaction System
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
    disclosure of consumer rights and our business policies and
    practices;
    restrictions on uses and disclosures of customer information;
    error resolution procedures;
    limitations on consumers liability for unauthorized
    account activity;
    data security requirements;
    government registration; and
    reporting and documentation requirements.    Item 6.
    Exhibits.    Exhibit No.

Description10
.1

Employment Agreement between the
    Registrant and Michael Beach dated September 1, 2006.10
.2

Employment Agreement between the
    Registrant and Peter Segall dated September 1, 2006.31
.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.  38




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SIGNATURE    Blackboard Inc.
  By:
    /s/  Michael
    J. Beach      (On behalf of the registrant and as Principal Financial
    Officer)
   39