##### 





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
    20549
      Form 10-K
  ANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT of 1934
  For the fiscal year ended December 31, 2007
  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(Zip Code)(Address of Principal Executive
    Offices)     Registrants telephone number, including area code:
 (202) 463-4860
 Securities registered pursuant to Section 12(g) of the
    Act:
 None
  Securities registered pursuant to Section 12(b) of the
    Act:
 Common Stock, $0.01 par value per share
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated filer
    þ

Accelerated filer
    o

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting
    company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K.




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##### 





BLACKBOARD
    INC.
  Form 10-K
  TABLE OF CONTENTS
  PageNumberPART IItem 1.


Business


1Item 1A.


Risk Factors


10Item 1B.


Unresolved Staff Comments


20Item 2.


Properties


20Item 3.


Legal Proceedings


20Item 4.


Submission of Matters to a Vote of Security Holders


20PART IIItem 5.


Market for Registrants Common Equity and Related
    Stockholder Matters and Issuer Purchases of Equity Securities


21Item 6.


Selected Financial Data


23Item 7.


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


25Item 7A.


Quantitative and Qualitative Disclosures About Market Risk


44Item 8.


Financial Statements and Supplementary Data


45Item 9.


Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


71Item 9A.


Controls and Procedures


71Item 9B.


Other Information


74PART IIIItem 10.


Directors and Executive Officers of the Registrant


74Item 11.


Executive Compensation


74Item 12.


Security Ownership of Certain Beneficial Owners and Management


74Item 13.


Certain Relationships and Related Transactions


74Item 14.


Principal Accounting Fees and Services


74PART IVItem 15.


Exhibits, Financial Statement Schedules


75  ii




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##### 



This report contains forward-looking statements that involve
    risks and uncertainties that could cause our actual results to
    differ materially from those expressed or implied by such
    statements. Factors that might cause or contribute to such
    differences include, but are not limited to, those discussed in
    the section entitled Risk Factors under
    Item 1A. When used in this report, the words
    expects, anticipates,
    intends, plans, believes,
    seeks, estimates and similar expressions
    are generally intended to identify forward-looking statements
    within the meaning of The Private Securities Litigation Reform
    Act of 1995. You should not place undue reliance on these
    forward-looking statements, which reflect our opinions only as
    of the date of this report. Blackboard assumes no obligation and
    does not intend to update these forward-looking statements.
 PART I  Item 1.
    Business.  General
  Blackboard Academic
    Suitetm Blackboard Commerce
    Suitetm Blackboard
    Connecttm Blackboard Learning
    Systemtm Blackboard Community
    Systemtm Blackboard Content
    Systemtm Blackboard Outcomes
    Systemtm Blackboard Portfolio
    Systemtm Blackboard Transaction
    Systemtm Blackboard
    Onetm Blackboard
    Connecttm
        Blackboard Connect
  Customer
    Overview
   1




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##### 



Products
    and Services
    
    Blackboard Academic Suite,
    Blackboard Commerce Suite,and
    Blackboard Connect.  Blackboard Academic Suite Blackboard Commerce Suite Blackboard
    Connect Blackboard
    Academic Suite
  The
    Blackboard Academic Suite
  Blackboard Academic Suite
  
    Increase faculty adoption of technology for teaching,
    Drive student engagement through personalized experiences and
    active learning tools,
    Securely share and collaborate around content across the
    institution, and
    Meet diverse assessment needs of institutions.  Blackboard Academic Suite
  
    the Blackboard Learning
    Systemtm;
    the Blackboard Community
    Systemtm;
    the Blackboard Content
    Systemtm;
    the Blackboard Portfolio
    Systemtm;
    and
    the Blackboard Outcomes
    Systemtm.  Blackboard Academic Suite WebCT Campus
    Editiontm
    and WebCT Vistatm
  The
    Blackboard Learning System
  Blackboard Learning System Blackboard Learning System
  
    Teaching and Learning.  Instructors can post
    syllabi and course materials, including documents, graphics,
    audio, video and multimedia; create, deliver and automatically
    score online assignments and tests; and report grades and
    grading analysis along with other information to students.
    Advanced features.  The Blackboard Learning
    Systemalso provides integrated email, discussion forums and
    live virtual classrooms. It also provides tools to facilitate
    group collaboration, communication, file-sharing,
    self-evaluation and peer review. Additionally, we offer
    Blackboard
    Scholartm,
    a service which 2




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##### 



allows users to build a network of peers who share similar
    educational interests, and
    SafeAssigntm,
    a plagiarism prevention service.  
    Extending the learning environment.  Our
    products can be integrated with existing campus student
    information systems and campus registrars systems to
    access user, course and enrollment information stored throughout
    the institution. Additional capabilities are available through
    the integration of third-party Blackboard Building Blocks(R)
    or Blackboard
    PowerLinkstm
    tools developed by our clients or independent parties. These
    extensions allow institutions to download, install and manage
    third-party enhancements. These third-party applications add
    functionality to our products, and several client-managed online
    communities exist to foster open source development of
    enhancements to our products as well.
    System administration.  Our products allow
    clients to configure our applications to the specific needs of
    their institutions. The appearance and configuration of our
    products are customizable by each client for multiple
    independent user populations within their institution on the
    same system hardware and database. In addition, clients have the
    ability to define multiple user roles and set access policies
    for guest accounts and observers, such as parents, advisors,
    mentors and supervisors.  Blackboard Learning System Blackboard Learning System Blackboard
    Learning System Blackboard Learning System
  Blackboard
    Community System
  Blackboard Community System Blackboard Learning System Blackboard Community System Blackboard Academic Suite, Blackboard
    Community System Blackboard Learning System Blackboard Community
    System
  
    Configurable portal environment enabling one-stop access to
    services.   Through a customizable Web portal, the
    Blackboard Community System enables institutions to
    provide their users access to multiple content sources, campus
    services, administrative systems and personal information
    management tools, such as email and calendar. The Blackboard
    Community Systemcan provide single sign-on access to a
    variety of campus systems, eliminating the need for multiple
    access points and identification verifications. Institutions and
    independent software vendors can create custom portal
    applications that provide views into content and data from other
    systems or integrate other applications.
    Facilitating academic and co-curricular collaboration using
    community and communication tools.The
    Blackboard Community Systemfacilitates the creation of
    meaningful campus connections by allowing institutions to define
    dedicated online environments for departments, clubs and other
    groups. Members of organizations can manage their own
    operations, as well as upload and share documents, and use their
    own communication tools, conserving the resources of campus
    information technology departments.
    Maintaining distinct campus identities.  An
    institution can configure the Blackboard Community Systemto support multiple identities or brands within the
    institution (such as multiple campuses, a law school, medical
    school or continuing education program) and deliver content to
    targeted, institution-defined roles. In addition, users can
    customize the Blackboard Community Systeminterface
    according to their needs and preferences. 3




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##### 




    e-Commerce
    capabilities.This functionality enables campus
    business units and student organizations to sell products, which
    may be paid for with a students credit card or debit
    account (via the Blackboard Transaction System). Uses
    include campus bookstore online purchases, athletics and event
    tickets, library fees and parking fees.  Blackboard
    Content System
  Blackboard Content System Blackboard Learning System Blackboard Content System Blackboard Content System Blackboard Content System
  
    Storing and accessing learning
    materials.  Institutions can make secure,
    web-based,
    drag-and-drop
    file storage space available to all users, who can then use a
    configurable permissions structure to share files with
    individuals or groups, track versions, and add comments. To
    assure appropriate usage of the file space, administrators can
    manage disk space quotas and set bandwidth controls.
    Learning content management.  Instructors can
    manage versions of documents and other course material and can
    re-use content across courses. Institutions can create content
    repositories administered at the departmental, school or
    institutional levels to facilitate the sharing and searching of
    digital content.
    Integrating library resources into the learning
    environment. Librarians can create and manage
    collections of digital assets for use by specific courses,
    disciplines or the entire institution.
    Collecting and sharing materials within electronic
    portfolios.Users can collect and organize their
    academic work as electronic portfolios to showcase their
    accomplishments, which can be shared with other users on the
    system, as well as published externally. These portfolios can be
    used for personal reflection, academic assignments, program
    completion, alignment with educational standards, or for
    professional development, such as résumés and job
    applications.  Blackboard Content System Blackboard Portfolio System Blackboard
    Portfolio System Blackboard Learning
    System 
  Blackboard
    Outcomes System
  Blackboard Outcomes
    Systemtm
    was released in December 2006 and is currently available to
    customers with the Blackboard Learning System - Blackboard Outcomes System Blackboard Outcomes System Blackboard
    Outcomes System
  
    Planning outcomes.  The Standards, Goals
    and Student Learning Objectives feature enables
    institutions to document intended outcomes of courses, programs,
    departments, colleges, universities and standards bodies.
    Rubrics, or standard evaluation criteria, facilitate shared and
    consistent evaluation of 4




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##### 



outcomes, while curriculum maps highlight the connection between
    program goals and courses and co-curricular educational
    experiences.  
    Measuring learning and administrative
    outcomes.  Various assessment tools simplify the
    collection of student work and its evaluation against shared
    rubrics. Surveys and course evaluations enable users to collect
    useful indirect assessment data, soliciting attitudes and
    opinions from constituents on-campus and off-campus.
    Improving learning and institutional
    effectiveness.  Operational and analytic reports
    provide insight into assessment plans, activities, data,
    follow-up
    actions and correlations to all levels of an institution.  The
    Blackboard Commerce Suite
  Blackboard Commerce Suite e-commerce, Blackboard Commerce Suite
  
    the Blackboard Transaction
    Systemtm;
    the Blackboard Community System;and
    Blackboard
    Onetm.  Blackboard
    Transaction System
  Blackboard Transaction System Blackboard Transaction
    System Blackboard Transaction System Blackboard Transaction System
  
    Commerce.  Transaction processing capabilities
    of the Blackboard Transaction Systemsupport the creation
    and management of student debit accounts, as well as the
    processing of payments against those accounts using student ID
    cards on campus, such as in dining facilities, vending machines,
    copy machines and bookstores, off-campus and online. Our clients
    use the Blackboard Transaction Systemto manage
    point-of-sale transactions, such as prepaid debit cards, meal
    plan administration, cash equivalency, privilege verification
    and discounts, and self-service or unattended transactions, such
    as vending, laundry, printing and copying and parking.
    Activities management and security.  The
    access-rights capabilities of the Blackboard Transaction
    Systemenable a variety of applications using the
    clients investment in a single-card environment for
    commerce. These include event admission, student government
    voting, wireless verification on buses, library authorization
    and computer lab access and tracking. In addition, the system
    interfaces directly with door access points to manage
    identification and secure access control to facilities using the
    same student ID card.  Blackboard
    Community System
  Blackboard Academic Suite Blackboard Community
    System Blackboard Commerce Suite
  
    eMarketplace.The Blackboard Community
    Systemenables campus business units and student
    organizations to sell products, which may be paid with the
    student debit account. Users can activate template-driven tools
    that allow them to describe, price, display and charge for an
    item all within the campus portal environment. Uses include
    campus bookstore online purchases, athletics and event tickets,
    library fees and parking fees. 5




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##### 




    Web account management.  Through an online
    account, end users can manage a variety of activities, including
    online deposits, guest and parent deposits, balance inquiries,
    transaction history statements and lost and stolen card reports.  Blackboard
    One
  Blackboard One Blackboard Commerce
    Suite Blackboard Transaction
    System. Blackboard Transaction
    System Blackboard
    One
  Blackboard
    Connect
  Blackboard Connect Blackboard Connect Connect-ED Connect-CTY Connect-GOV Connect-MIL Blackboard Connect e-mail, Blackboard Connect
  Professional
    Services
    
    project management;
    integration of our applications with existing campus systems;
    user interface customization;
    installation and configuration;
    training and instructional design;
    course and content migration; and
    custom Blackboard Building Blocksand Blackboard
    PowerLinksapplication development.  Competition
  Blackboard Academic Suite Blackboard
 6




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Commerce Suite and/or
      
    base of reference clients;
    functional breadth and depth of solution offered;
    ease of use;
    complexity of installation and upgrade;
    scalability of solution to meet growing needs;
    client service;
    availability of third-party application and content add-ons;
    total cost of ownership;
    financial stability; and
    company reputation.    Our
    Growth Strategy
    
    Growing annual license revenues.  We intend to
    increase annual license revenues with existing clients through
    upgrades to current products, cross-selling of complementary
    applications and increased total license value commensurate with
    the value of our offerings.
    Increasing penetration with U.S. postsecondary and K-12
    clients.We intend to capitalize on our
    experience in U.S. postsecondary and K-12 education to
    further enhance our leadership position.
    Offering new products to our target
    markets.  Using feedback gathered from our clients
    and our sales and technical support groups, we intend to
    continue to develop and offer new upgrades, applications and
    application suites to increase our presence on campuses and
    expand the value provided to our clients.
    Increasing sales to international postsecondary and
    U.S. K-12 clients.We intend to continue to
    expand sales and marketing efforts to increase sales of our
    applications to international postsecondary institutions as well
    as U.S. K-12 schools.
    Pursuing strategic relationships and acquisition
    opportunities.We intend to continue to pursue
    strategic relationships with, acquisitions of, and investments
    in, companies that enhance the 7




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technological features of our products, offer complementary
    products, services and technologies, or broaden the scope of our
    product offerings into other areas.  Research
    and Development
    Marketing
    and Sales
  Marketing
    Sales
     8




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Executive
    Officers
    Name

Age

PositionMichael L. Chasen


36


Chief executive officer, president, directorMatthew L. Pittinsky


35


Chairman, directorMichael J. Beach


37


Chief financial officer and treasurerMatthew H. Small


35


Chief legal officer and secretaryPeter Segall


46


President, North American higher education and operationsDavid Sample


59


Senior vice president for salesJonathan R. Walsh


35


Vice president for finance and accounting   Matthew Pittinsky
  Michael Chasen
  Michael Beach
  Matthew Small
  Peter Segall
  David Sample
 9




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Jonathan Walsh
  Employees
    International
    Operations
    Website
    Access to U.S. Securities and Exchange Commission
    Reports
  http://www.blackboard.com. Form 10-K, Form 10-Q, Form 8-K http://www.sec.gov 1-800-SEC-0330.
  Item 1A.
    Risk
    Factors.  Our
    merger with The NTI Group, Inc. 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 financial benefits if we are
    unable to sell the Blackboard Connectproducts to our
    customer base, if a larger than predicted number of customers
    decline to renew their contracts, or if the acquired contracts
    do not allow us to recognize revenues on a timely basis;
    we may have difficulty incorporating The NTI Groups
    technologies or products with our existing product lines and
    maintaining uniform standards, controls, procedures and policies;
    we may face contingencies related to product liability,
    intellectual property, financial disclosures, and accounting
    practices or internal controls;
    we may have higher than anticipated costs in supporting and
    continuing development of the Blackboard Connectproducts
    and in servicing new and existing Blackboard Connectclients;
    we may not be able to retain key employees from The NTI Group; 10




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
    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;
    we may lose anticipated tax benefits or have additional legal or
    tax exposures; and
    we will not be able to determine whether all or any of the
    0.5 million shares of stock consideration in the merger
    that is contingent on the achievement of certain performance
    milestones will be issued until the completion of the financial
    results for fiscal year 2008 and 2009.  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.
          Our
    indebtedness could adversely affect our financial condition and
    prevent us from fulfilling our debt obligations, including the
    3.25% Convertible Senior Notes due 2027 (the
    Notes).
    
    we will use a significant portion of our cash flow to pay
    interest on our outstanding debt and to pay principal when
    required, limiting the amount available for working capital,
    capital expenditures and other general corporate purposes;
    lenders may be unwilling to lend additional amounts to us for
    future working capital needs, additional acquisitions or other
    purposes or may only be willing to provide funding on terms we
    would consider unacceptable;
    if our cash flow were inadequate to make interest and principal
    payments on our debt, we might have to refinance our
    indebtedness and may not be successful in those efforts; and
    our ability to finance working capital needs and general
    corporate purposes for the public and private markets, as well
    as the associated cost of funding, is dependent, in part, on our
    credit ratings, which may be adversely affected if we experience
    declining revenues. 11




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We may
    not be able to repurchase the Notes when required by the
    holders, including upon a fundamental change or other specified
    dates at the option of the holder, or pay cash upon conversion
    of the Notes.
    Conversion
    of the Notes may affect the market price of our common stock and
    may dilute the ownership of existing stockholders.
    Our
    reported earnings per share may be more volatile because of the
    contingent conversion provision of the Notes.
    The
    accounting method for convertible debt securities with net share
    settlement, like the Notes, may be subject to
    change.
   12




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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.
  Blackboard Outcomes System Blackboard Connect Blackboard Outcomes
    System Blackboard Connect
  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 Blackboard Connect and/or
   13




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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.
  Blackboard Academic Suite
  Because
    most of our licenses are renewable on an annual basis, a
    reduction in our license renewal rate could significantly reduce
    our revenues.
      Because
    we generally recognize revenues ratably over the term of our
    contract with a client, downturns or upturns in sales will not
    be fully reflected in our operating results until future
    periods.
    Our
    operating margins may suffer if our professional services
    revenues increase in proportion to total revenues because our
    professional services revenues have lower gross
    margins.
   14




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If our
    products contain errors, new product releases are delayed or our
    services are disrupted, 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.   15




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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.
      The
    investment of our cash balance and our investments in marketable
    debt securities are subject to risks which may cause losses and
    affect the liquidity of these investments.
    Our
    future success depends on our ability to continue to retain and
    attract qualified employees.
   16




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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, or 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; 17




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
    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 services, could cause us to lose clients and sales to
    potential clients and could result in increased expenses and
    reduced revenues.
   18




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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
  
    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. 19




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Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   20




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##### 



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.    High


LowYear Ended December 31, 2006:First Quarter


32.24



25.75Second Quarter


32.98



23.46Third Quarter


29.49



25.23Fourth Quarter


30.12



25.98Year Ended December 31, 2007:First Quarter


35.52



28.50Second Quarter


42.94



32.76Third Quarter


46.45



38.08Fourth Quarter


49.90



37.52          21




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##### 



STOCK
    PERFORMANCE GRAPH
    COMPARE
    CUMULATIVE TOTAL RETURN
    AMONG BLACKBOARD INC.
    NASDAQ MARKET INDEX AND SIC CODE INDEX
  
  Assumes $100 invested on June 18, 2004
 Assumes dividends reinvested
 Fiscal year ending December 31, 2007
  6/18/2004


12/31/2004


12/31/2005


12/31/2006


12/31/2007Blackboard Inc.


$
100.00



$
74.01



$
144.83



$
150.12



$
201.15SIC Code Index



100.00




107.82




106.14




121.83




143.09NASDAQ Market Index



100.00




106.69




109.04




120.23




132.17   (1)
    
    This graph is not soliciting material, is not deemed
    filed with the SEC and is not to be incorporated by reference in
    any filing by us under the Securities Act of 1933, as amended
    (the Securities Act), or the Exchange Act, whether
    made before or after the date hereof and irrespective of any
    general incorporation language in any such filing.(2)
    
    The stock price performance shown on the graph is not
    necessarily indicative of future price performance. Information
    used in the graph was obtained from Hemscott Inc., a source
    believed to be reliable, but we are not responsible for any
    errors or omissions in such information.(3)
    
    The hypothetical investment in our common stock presented in the
    stock performance graph above is based on an assumed initial
    price of $20.01 per share, the closing price on June 18,
    2004, the date of our initial public offering. The stock sold in
    our initial public offering was issued at a price to the public
    of $14.00 per share. 22




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##### 



Item 6.
    Selected
    Financial Data.    Year Ended December 31,2003


2004


2005


2006


2007(In thousands, except per share amounts)Statements of operations data:Revenues:Product

$
83,331


$
98,632


$
120,389


$
160,392


$
213,631Professional services


9,147



12,771



15,275



22,671



25,817Total revenues


92,478



111,403



135,664



183,063



239,448Operating expenses:Cost of product revenues, excludes $3,467, $1,567, $0, $9,333
    and $11,564, respectively, of amortization of acquired
    technology included in amortization of intangibles resulting
    from acquisitions shown below(1)


23,079



25,897



29,607



39,594



47,444Cost of professional services revenues(1)


6,628



7,962



10,220



16,001



16,941Research and development(1)


11,397



13,749



13,945



27,162



28,278Sales and marketing(1)


30,908



35,176



37,873



58,340



66,033General and administrative(1)


15,050



15,069



19,306



35,823



38,667Amortization of intangibles resulting from acquisitions


5,757



3,517



266



17,969



22,122Total operating expenses


92,819



101,370



111,217



194,889



219,485(Loss) income from operations


(341
)


10,033



24,447



(11,826
)


19,963Interest (expense) income, net


(470
)


315



3,097



(2,974
)


(93
)Other (expense) income














(519
)


575(Loss) income before provision (benefit) for income taxes


(811
)


10,348



27,544



(15,319
)


20,445Provision (benefit) for income taxes


614



299



(14,309
)


(4,582
)


7,580Net (loss) income


(1,425
)


10,049



41,853



(10,737
)


12,865Dividends on and accretion of convertible preferred stock


(10,077
)


(6,344
)










Net (loss) income attributable to common stockholders

$
(11,502
)

$
3,705


$
41,853


$
(10,737
)

$
12,865 23




---



##### 



Year Ended December 31,2003


2004


2005


2006


2007(In thousands, except per share amounts)Net (loss) income attributable to common stockholders per common
    share:Basic

$
(2.09
)

$
0.23


$
1.57


$
(0.39
)

$
0.45Diluted

$
(2.09
)

$
0.21


$
1.47


$
(0.39
)

$
0.43Weighted average number of common shares:Basic


5,516



16,072



26,715



27,858



28,789Diluted


5,516



17,864



28,510



27,858



30,114(1) Includes the following amounts related to stock-based
    compensation:Cost of product revenues

$



$



$



$
386


$
672Cost of professional services revenues














524



631Research and development














733



467Sales and marketing














2,951



4,359General and administrative


319



174



75



3,462



5,914     December 31,2003


2004


2005


2006


2007(In thousands)Balance sheet data:Cash and cash equivalents

$
30,456


$
78,149


$
75,895


$
30,776


$
206,558Short-term investments






20,000



62,602







Working capital (deficit)


(13,001
)


53,026



93,388



(36,976
)


125,401Total assets


83,054



148,398



224,188



307,299



505,276Deferred revenues, current portion


51,215



63,901



74,975



117,972



126,600Total debt


11,564



762







23,623



161,519Mandatorily redeemable convertible preferred stock and
    Series E warrants


130,297















Total stockholders (deficit) equity


(124,617
)


69,107



130,325



140,121



184,674  24




---



##### 



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  You should read the following discussion together with our
    consolidated financial statements and the related notes included
    elsewhere in this annual report. This discussion contains
    forward-looking statements that are based on our current
    expectations, estimates and projections about our business and
    operations. Our actual results may differ materially from those
    currently anticipated and expressed in such forward-looking
    statements as a result of a number of factors, including those
    we discuss under Risks Related to Our Business and
    elsewhere in this annual report.
  General
    Blackboard Connect
    time-and-materials
  Blackboard Academic
    Suitetm Blackboard Commerce
    Suitetm Blackboard
    Connecttm Blackboard Academic Suite WebCT Campus
    Editiontm WebCT
    Vistatm
     25




---



##### 



Critical
    Accounting Policies and Estimates
   26




---



##### 



Revenue recognition. 97-2, Software Revenue Recognition, SOP 98-9, Modification of
    SOP 97-2,
    Software Revenue Recognition, with Respect to Certain
    Transactions.
      00-3, Application of AICPA
    SOP 97-2
    to Arrangements That Include the Right to Use Software Stored on
    Another Entitys Hardware. set-up
  SOP 97-2. time-and-materials
  when-and-if-available SOP 97-2.
  Allowance for doubtful accounts.
 27




---



##### 



Short-term investments. Accounting
    for Certain Investments in Debt and Equity Securities.
  Long-lived assets. Accounting for the Impairment or Disposal of Long-Lived
    Assets.
  Goodwill and intangible assets. Goodwill and
    Other Intangible Assets.
   28




---



##### 



Acquired technology

3 yearsContracts and customer lists

3 to 5 yearsNon-compete agreements

Term of agreementTrademarks and domain names

3 yearsPatents and related costs

Life of patent       Business Combinations
        Blackboard
    Content System Blackboard
    Content System Academic Suite
 29




---



##### 



Income Taxes.
    Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement No. 109 Accounting for
    Income Taxes Accounting for Contingencies
  Stock-Based Compensation. Share-Based Payment
   30




---



##### 



Recent Accounting Pronouncements. Fair
    Value Measurements
  The Fair Value Option for Financial Assets and
    Financial Liabilities
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Business
    Combinations.
   31




---



##### 



Important
    Factors Considered by Management
        
    Recurring ratable revenues include those product revenues that
    are recognized ratably over the contract term, which is
    typically one year, and that recur each year assuming clients
    renew their contracts. These revenues include revenues from the
    licensing of all of our software products, hosting arrangements
    and enhanced support and maintenance contracts related to our
    software products, including certain professional services
    performed by our professional services groups.
    Non-recurring ratable revenues include those product revenues
    that are recognized ratably over the term of the contract, which
    is typically one year, but that do not contractually recur.
    These revenues include certain hardware components of our
    Blackboard Transaction Systemproducts and certain
    third-party hardware and software sold to our clients in
    conjunction with our software licenses.
    Other revenues include those revenues that are recognized as
    earned and are not deferred to future periods. These revenues
    include professional services, the sales of Blackboard
    One, certain sales of licenses, as well as the supplies and
    commissions we earn from publishers related to digital course
    supplement downloads.     32




---



##### 



Results
    of Operations
    Year EndedDecember 31,2005


2006


2007Revenues:Product


89
%


88
%


89
%Professional services


11



12



11Total revenues


100



100



100Operating expenses:Cost of product revenues


22



22



20Cost of professional services revenues


8



9



7Research and development


10



15



12Sales and marketing


28



32



28General and administrative


14



19



16Amortization of intangibles resulting from acquisitions


0



9



9Total operating expenses


82



106



92Operating margin


18
%


(6
)%


8
%     Year EndedDecember 31,2005


2006


2007Cost of product revenues


25
%


25
%


22
%Cost of professional services revenues


67
%


71
%


66
%   Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Revenues.
    2006


2007Product


Professional





Product


ProfessionalRevenues


Services Revenues


Total


Revenues


Services Revenues


Total(In millions)(Unaudited)Recurring ratable revenues

$
130.4


$
2.3


$
132.7


$
179.6


$
3.3


$
182.9Non-recurring ratable revenues


20.0







20.0



21.7







21.7Other revenues


10.0



20.4



30.4



12.3



22.5



34.8Total revenues

$
160.4


$
22.7


$
183.1


$
213.6


$
25.8


$
239.4   Product revenues.
 33




---



##### 



Blackboard
    Academic Suite Blackboard
    Learning System Blackboard Learning
    System Blackboard
    Learning System Blackboard
    Learning System Blackboard Learning System Blackboard Learning System Blackboard Learning
    System Blackboard Learning System Blackboard Commerce Suite Blackboard Transaction System
  Blackboard Commerce
    Suite
  Blackboard
  Blackboard Academic Suite
  Professional services revenues.
  Cost of product revenues.
 34




---



##### 



Blackboard Transaction System
    Cost of professional services revenues.
  Research and development expenses.
  Sales and marketing expenses.
  General and administrative expenses.
 35




---



##### 



Net interest expense.
  Other (expense) income.
  (Benefit) provision for income taxes.
    Net income (loss).
 36




---



##### 



Year
    Ended December 31, 2006 Compared to Year Ended
    December 31, 2005
  Revenues.
    2005


2006Product


Professional





Product


ProfessionalRevenues


Services Revenues


Total


Revenues


Services Revenues


Total(In millions)(Unaudited)Recurring ratable revenues

$
95.7


$
0.9


$
96.6


$
130.4


$
2.3


$
132.7Non-recurring ratable revenues


18.1







18.1



20.0







20.0Other revenues


6.6



14.4



21.0



10.0



20.4



30.4Total revenues

$
120.4


$
15.3


$
135.7


$
160.4


$
22.7


$
183.1   Product revenues. Blackboard Academic Suite 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
   37




---



##### 



Blackboard
    Academic Suite Blackboard Academic Suite Blackboard Academic Suite Blackboard Academic Suite
  Professional services revenues.
  Cost of product revenues. Blackboard Transaction System
    Cost of professional services revenues.
 38




---



##### 



Research and development expenses.
  Sales and marketing expenses.
  General and administrative expenses.
  Net interest income (expense).
  Other (expense).
 39




---



##### 



(Benefit) for income taxes.
  Net income (loss).
  Quarterly
    Results
      Quarter EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006(In thousands)Total revenues

$
37,708


$
43,580


$
50,354


$
51,421Total operating expenses(1)


37,827



51,856



55,455



49,751(Loss) Income from operations


(119
)


(8,276
)


(5,101
)


1,670Net income (loss)


148



(6,311
)


(4,775
)


201Net cash (used in) provided by operating activities


(10,023
)


(3,848
)


24,455



12,302   (1)
    
    During the three months ended December 31, 2006, we
    adjusted our estimated forfeiture rate from approximately 10.0%
    to approximately 15.0% which resulted in a reduction of
    previously recorded compensation expense of approximately
    $0.5 million.  Quarter EndedMarch 31,


June 30,


September 30,


December 31,2007


2007


2007


2007(In thousands)Total revenues

$
55,280


$
59,404


$
61,562


$
63,202Total operating expenses


51,676



53,751



57,413



56,645Income from operations


3,604



5,653



4,149



6,557Net income


1,944



3,439



3,279



4,203Net cash provided by operating activities


891



484



38,415



29,567   Liquidity
    and Capital Resources
   40




---



##### 



41




---



##### 



EITF 04-8,
    The Effect of Contingently Convertible Instruments on
    Diluted Earnings per Share
          Blackboard Connect
   42




---



##### 



Obligations
    and Commitments
    Notes


OperatingPayable


Leases(In thousands)2008

$



$
10,5332009






9,7102010






10,3312011


165,000



7,8072012






7,5122013 and beyond






33,888Total

$
165,000


$
79,781         Seasonality
   43




---



##### 



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk     44




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm


46Consolidated Balance Sheets as of December 31, 2006 and 2007


47Consolidated Statements of Operations for the years ended
    December 31, 2005, 2006 and 2007


48Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2005, 2006 and 2007


49Consolidated Statements of Cash Flows for the years ended
    December 31, 2005, 2006 and 2007


50Notes to Consolidated Financial Statements


51  45




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           Internal Control-Integrated
    Framework
  Accounting for Uncertainty in Income Taxes, an
    interpretation of SFAS No. 109 Share-Based Payment
      46




---



##### 



BLACKBOARD
    INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2007(In thousands, except per share data)Current assets:Cash and cash equivalents

$
30,776


$
206,558Accounts receivable, net of allowance for doubtful accounts of
    $767 and $765, respectively


52,394



52,846Inventories


2,377



2,089Prepaid expenses and other current assets


3,514



5,255Deferred tax asset, current portion


7,326



6,549Deferred cost of revenues, current portion


7,983



6,793Total current assets


104,370



280,090Deferred tax asset, noncurrent portion


25,431



34,154Deferred cost of revenues, noncurrent portion


4,253



84Restricted cash


1,999



4,015Property and equipment, net


12,761



18,584Goodwill


101,644



117,502Intangible assets, net


56,841



50,847Total assets

$
307,299


$
505,276Current liabilities:Accounts payable

$
2,238


$
3,747Accrued expenses


20,519



24,182Term loan, current portion


246



Deferred rent, current portion


371



160Deferred revenues, current portion


117,972



126,600Total current liabilities


141,346



154,689Term loan, noncurrent portion, net of debt discount of $777


23,377



Convertible senior notes, net of debt discount of $3,481






161,519Deferred rent, noncurrent portion


157



1,469Deferred revenues, noncurrent portion


2,298



2,925Total liabilities


167,178



320,602Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value; 5,000,000 shares
    authorized, and no shares issued or outstanding






Common stock, $0.01 par value; 200,000,000 shares
    authorized; 28,248,214 and 29,196,807 shares issued and
    outstanding, respectively


282



292Additional paid-in capital


231,331



263,582Accumulated deficit


(91,492
)


(79,200
)Total stockholders equity


140,121



184,674Total liabilities and stockholders equity

$
307,299


$
505,276    47




---



##### 



BLACKBOARD
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2005


2006


2007(In thousands, except share and per share data)Revenues:Product

$
120,389


$
160,392


$
213,631Professional services


15,275



22,671



25,817Total revenues


135,664



183,063



239,448Operating expenses:Cost of product revenues, excludes $0, $9,333 and $11,654,
    respectively, in amortization of acquired technology included in
    amortization of intangibles resulting from acquisitions shown
    below(1)


29,607



39,594



47,444Cost of professional services revenues(1)


10,220



16,001



16,941Research and development(1)


13,945



27,162



28,278Sales and marketing(1)


37,873



58,340



66,033General and administrative(1)


19,306



35,823



38,667Amortization of intangibles resulting from acquisitions


266



17,969



22,122Total operating expenses


111,217



194,889



219,485Income (loss) from operations


24,447



(11,826
)


19,963Other income (expense), net:Interest expense


(49
)


(5,354
)


(5,766
)Interest income


3,146



2,380



5,673Other (expense) income






(519
)


575Income (loss) before (benefit) provision for income taxes


27,544



(15,319
)


20,445(Benefit) provision for income taxes


(14,309
)


(4,582
)


7,580Net income (loss)

$
41,853


$
(10,737
)

$
12,865Net income (loss) per common share:Basic

$
1.57


$
(0.39
)

$
0.45Diluted

$
1.47


$
(0.39
)

$
0.43Weighted average number of common shares:Basic


26,714,748



27,857,576



28,789,083Diluted


28,509,777



27,857,576



30,113,621(1) Includes the following amounts related to stock-based
    compensation:Cost of product revenues

$



$
386


$
672Cost of professional services revenues






524



631Research and development






733



467Sales and marketing






2,951



4,359General and administrative


75



3,462



5,914    48




---



##### 



BLACKBOARD
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  Additional


Deferred





TotalCommon Stock


Paid-In


Stock


Accumulated


StockholdersShares


Amount


Capital


Compensation


Deficit


Equity(In thousands, except share amounts)Balance at December 31, 2004


25,977,822



260



191,664



(209
)


(122,608
)


69,107Issuance of common stock upon exercise of options


1,320,728



13



11,779











11,792Issuance of common stock upon cashless exercise of warrants


180,801



2



(2
)










Amortization of deferred stock compensation










(20
)


95







75Tax benefit for exercise of disqualified stock options










7,498











7,498Net income


















41,853



41,853Balance at December 31, 2005


27,479,351



275



210,919



(114
)


(80,755
)


130,325Issuance of common stock upon exercise of options


768,863



7



9,153











9,160Reclassification of deferred stock compensation upon adoption of
    SFAS 123R










(114
)


114







Tax benefit for exercise of disqualified stock options










3,317











3,317Stock-based compensation expense










8,056











8,056Net loss


















(10,737
)


(10,737
)Balance at December 31, 2006


28,248,214


$
282


$
231,331


$



$
(91,492
)

$
140,121Impact of adoption of FIN 48


















(573
)


(573
)Issuance of common stock upon exercise of options


948,593



10



13,363











13,373Tax benefit for exercise of disqualified stock options










6,845











6,845Stock-based compensation expense










12,043











12,043Net income


















12,865



12,865Balance at December 31, 2007


29,196,807


$
292


$
263,582


$



$
(79,200
)

$
184,674    49




---



##### 



BLACKBOARD
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2005


2006


2007(In thousands)Cash flows from operating activitiesNet income (loss)

$
41,853


$
(10,737
)

$
12,865Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Deferred tax benefit


(14,799
)


(5,075
)


(2,830
)Excess tax benefits from stock-based compensation






(3,317
)


(6,845
)Amortization of debt discount






1,701



1,840Depreciation and amortization


6,867



8,980



10,681Amortization of intangibles resulting from acquisitions


266



17,969



22,122Change in allowance for doubtful accounts


(253
)


(109
)


(2
)Noncash stock compensation


75



8,056



12,043Changes in operating assets and liabilities, net of effect of
    acquisitions:Accounts receivable


(4,197
)


(21,780
)


(225
)Inventories


188



(571
)


288Prepaid expenses and other current assets


(910
)


(42
)


(1,233
)Deferred cost of revenues


(2,191
)


(5,129
)


372Accounts payable


719



133



952Accrued expenses


2,373



(5,588
)


9,394Deferred rent


(294
)


(245
)


1,101Deferred revenues


10,116



38,640



8,834Net cash provided by operating activities


39,813



22,886



69,357Cash flows from investing activitiesPurchases of property and equipment


(7,959
)


(10,081
)


(16,023
)Payments for capitalized patent enforcement costs






(276
)


(4,186
)Purchases of held-to-maturity securities


(33,296
)






Sales of held-to-maturity securities


9,750



23,546



Purchases of available-for-sale securities


(55,306
)






(94,250
)Sales of available-for-sale securities


36,250



39,056



94,250Acquisitions, net of cash acquired


(2,536
)


(154,628
)


(27,664
)Net cash used in investing activities


(53,097
)


(102,383
)


(47,873
)Cash flows from financing activitiesProceeds from revolving credit facility






10,000



Payments on revolving credit facility






(10,000
)


Proceeds from term loan






57,522



Payments on term loan






(35,600
)


(24,400
)Payments on equipment notes


(762
)






Proceeds from convertible senior notes










160,456Releases of letters of credit






1,777



Payments on letters of credit






(1,798
)


(1,976
)Excess tax benefits from stock-based compensation






3,317



6,845Proceeds from exercise of stock options


11,792



9,160



13,373Net cash provided by financing activities


11,030



34,378



154,298Net (decrease) increase in cash and cash equivalents


(2,254
)


(45,119
)


175,782Cash and cash equivalents at beginning of year


78,149



75,895



30,776Cash and cash equivalents at end of year

$
75,895


$
30,776


$
206,558Supplemental cash flow informationCash paid for interest

$
49


$
3,539


$
3,824Cash paid for income taxes


687



344



415    50




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007
  1.
    Nature of
    Business and Organization  Blackboard Learning
    Systemtm Blackboard Community
    Systemtm Blackboard Content
    Systemtm Blackboard Outcomes
    Systemtm Blackboard Portfolio
    Systemtm Blackboard Transaction
    Systemtm Blackboard
    Onetm Blackboard
    Connecttm.
    2.
    Significant
    Accounting Policies  Basis
    of Presentation and Consolidation
  Consolidated Financial Statements, Consolidation of all
    Majority-Owned Subsidiaries. Consolidation of Variable Interest Entities, The Equity Method of Accounting for
    Investments in Common Stock.
  Use of
    Estimates
    Fair
    Value of Financial Instruments
  Disclosures about Fair Value of
    Financial Instruments,
 51




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash
    and Cash Equivalents
    Short-term
    Investments
  Accounting for Certain
    Investments in Debt and Equity Securities.
  Restricted
    Cash
    Foreign
    Currency Translation
    Concentration
    of Credit Risk
      Allowance
    for Doubtful Accounts
   52




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2005


2006


2007(In thousands)Beginning Balance

$
954


$
701


$
767Additions


(1,250
)


198



554Reductions


(318
)


(132
)


(556
)Other(1)


1,315







Ending Balance

$
701


$
767


$
765     (1)
    
    The year ended December 31, 2005 includes the reinstatement
    and subsequent collections on accounts receivable that were
    deemed uncollectible in prior periods.  Income
    Taxes
      Accounting for Uncertainty in Income
    Taxes  an interpretation of FASB Statement
    No. 109 Accounting for Income Taxes
  Inventories
  first-in,
 53




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Property
    and Equipment
    Computer and office equipment

3 yearsSoftware

2 to 5 yearsFurniture and fixtures

3 to 5 yearsLeasehold improvements

Shorter of lease term or useful life   Goodwill
    and Intangible Assets
  Goodwill and Other Intangible
    Assets.
      Acquired technology

3 yearsContracts and customer lists

3 to 5 yearsNon-compete agreements

Term of agreementTrademarks and domain names

3 yearsPatents and related costs

Life of patent   Impairment
    of Long-Lived Assets
    Revenue
    Recognition and Deferred Revenue
  97-2, Software Revenue Recognition, SOP 98-9, Modification of
 54




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SOP 97-2,
    Software Revenue Recognition, with Respect to Certain
    Transactions.
      00-3, Application of AICPA
    SOP 97-2
    to Arrangements That Include the Right to Use Software Stored on
    Another Entitys Hardware. set-up
  SOP 97-2. time-and-materials
  when-and-if-available SOP 97-2.
  Cost
    of Revenues and Deferred Cost of Revenues
   55




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Software
    Development Costs
  Accounting for
    the Costs of Computer Software to be Sold, Leased, or Otherwise
    Marketed.
  Advertising
    Accounting
    for Stock-Based Compensation
  Share-Based
    Payment
   56




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Pro forma net income for the year ended December 31, 2005
    (in thousands except per share data):As reported

$
41,853Add: Stock-based compensation included in reported net income


75Deduct: Stock-based compensation expense determined under fair
    value-based method for all awards


(6,031
)Pro forma net income

$
35,897Net income per common share:Basic as reported

$
1.57Diluted as reported

$
1.47Basic  pro forma

$
1.34Diluted  pro forma

$
1.26     Year Ended December 31,2005


2006


2007Dividend yield


0
%


0
%


0
%Expected volatility


47.4
%


42.4
%


44.0
%Average risk-free interest rate


4.00
%


4.75
%


4.53
%Expected term


5.0 years



4.9 years



5.1 yearsForfeiture rate


10.0
%


15.0
%


15.0
%   Dividend yield
  Expected volatility
 57




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Risk-free interest rate
  Expected life of the options Share-Based Payment.
  Forfeiture rate
      Basic
    and Diluted Net Income (loss) per Common Share
   58




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2005


2006


2007(In thousands, except share and per share amounts)Basic net income (loss) per common share:Net income (loss)

$
41,853


$
(10,737
)

$
12,865Weighted average shares outstanding


26,714,748



27,857,576



28,789,083Basic net income (loss) per common share

$
1.57


$
(0.39
)

$
0.45Diluted net income (loss) per common share:Net income (loss)

$
41,853


$
(10,737
)

$
12,865Weighted average basic shares outstanding


26,714,748



27,857,576



28,789,083Dilutive effect of:Stock options related to the purchase of common stock


1,697,566







1,324,538Warrants related to the purchase of common stock


97,463







Weighted average diluted shares outstanding


28,509,777



27,857,576



30,113,621Diluted net income (loss) per common share

$
1.47


$
(0.39
)

$
0.43     Segment
    Information
  Disclosure about Segments of an Enterprise and Related
    Information.
    Recent
    Accounting Pronouncements
  Fair Value Measurements
 59




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    The Fair Value Option for Financial Assets and
    Financial Liabilities
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of ARB No. 51
  Business
    Combinations
    Comprehensive
    Net Income (loss)
   60




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Acquisitions    Business Combinations
        Blackboard Content System Blackboard Content System Academic
    Suite
   61




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Inventories    December 31,2006


2007(In thousands)Raw materials

$
799


$
551Work-in-process


658



602Finished goods


920



936Total inventories

$
2,377


$
2,089   5.
    Property
    and Equipment    December 31,2006


2007(In thousands)Computer and office equipment

$
32,108


$
41,511Software


14,914



20,830Furniture and fixtures


681



713Leasehold improvements


2,304



3,25250,007



66,306Less accumulated depreciation and amortization


(37,246
)


(47,722
)Total property and equipment, net

$
12,761


$
18,584     6.
    Goodwill
    and Intangible Assets    December 31,2006


2007(In thousands)Goodwill

$
101,644


$
117,502Acquired technology

$
44,107


$
48,462Contracts and customer lists


45,042



52,632Non-compete agreements


2,043



2,043Trademarks and domain names


71



191Patents and related costs


944



5,212Subtotal


92,207



108,540Less accumulated amortization


(35,366
)


(57,693
)Intangible assets, net

$
56,841


$
50,847  62




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      7.
    Credit
    Facilities and Notes Payable             63




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 04-8,
    The Effect of Contingently Convertible Instruments on
    Diluted Earnings per Share
          8.
    Stock
    Option Plan     64




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-AverageShares


Price/ShareOptions outstanding at December 31, 2004


3,937,593


$
10.37Options granted


944,629



19.10Options exercised


(1,320,728
)


8.99Options forfeited


(218,182
)


14.92Options outstanding at December 31, 2005


3,343,312



13.06Options granted


1,858,250



27.65Options exercised


(768,863
)


11.99Options forfeited


(510,654
)


24.16Options outstanding at December 31, 2006


3,922,045



18.76Options granted


1,527,750



35.02Options exercised


(948,593
)


14.07Options forfeited


(255,465
)


26.27Options outstanding at December 31, 2007


4,245,737



25.21Options exercisable at December 31, 2007


1,825,306



16.92Options unvested at December 31, 2007


2,420,431



31.46Options vested and expected to vest at December 31, 2007


3,882,469



24.62     Outstanding Options


Exercisable OptionsWeighted Average


Weighted





WeightedRemaining Life


Average





AverageRange of Exercise Prices

Shares


(Years)


Price


Shares


Price$0.02-$9.66


714,591



3.93


$
9.07



714,591


$
9.07$9.67-$16.99


298,476



6.49



13.61



221,510



13.15$17.00-$26.84


773,322



5.79



22.13



486,954



20.60$26.85-$28.41


847,449



6.30



28.01



302,731



28.05$28.42-$46.89


1,611,899



7.22



34.51



99,520



29.734,245,737



6.17



25.21



1,825,306



16.92  65




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Income
    Taxes  paid-in-capital
    Year Ended December 31,2005


2006


2007(In thousands)Current expense

$
490


$
493


$
2,660Deferred (benefit) expense


(14,799
)


(5,075
)


4,920(Benefit) provision for income taxes

$
(14,309
)

$
(4,582
)

$
7,580  66




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2006


2007(In thousands)Deferred tax assets (liabilities):Stock-based compensation expense

$
1,813


$
4,958Net operating loss carryforwards


34,996



23,290International net operating loss carryforwards


1,542



714Alternative minimum tax and other tax credits


2,749



4,723Net operating loss attributable to stock option exercises


9,663



17,629Depreciation


1,328



2,876Amortization


(13,136
)


(10,909
)Bad debts


305



305Deferred rent


140



596Deferred revenues


1,350



1,441Deferred cost of revenues


(2,388
)


(2,669
)Other accruals and prepaids


(458
)


(507
)Valuation allowance


(5,147
)


(1,744
)Net deferred tax assets

$
32,757


$
40,703       2005


2006


2007Federal tax at statutory rates


35.0
%


35.0
%


35.0
%State taxes, net of federal benefit


4.5



4.5



4.8Change in valuation allowance


(87.7
)


4.6



(1.2
)Permanent differences


(3.7
)


(9.1
)


3.6Difference in international tax rates






(1.3
)


(8.0
)Other






(3.8
)


2.9(Benefit) provision for income taxes


(51.9
)%


(29.9
)%


37.1
%  67




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Balance at January 1, 2007

$
573Increases related to current year tax positions


Expiration of the statute of limitations for the assessment of
    taxes


Balance at December 31, 2007

$
573       10.
    Commitments
    and Contingencies   68




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Notes


OperatingPayable


Leases(In thousands)2008

$



$
10,5332009






9,7102010






10,3312011


165,000



7,8072012






7,5122013 and beyond






33,888Total

$
165,000


$
79,781           11.
    Employee
    Benefit Plans     69




---



##### 



BLACKBOARD
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  12.
    Quarterly
    Financial Information (Unaudited)    Quarter EndedMarch 31,


June 30,


September 30,


December 31,2006


2006


2006


2006(In thousands, except per share amounts)Summary consolidated statement of operations:Total revenues

$
37,708


$
43,580


$
50,354


$
51,421Costs of revenues


11,357



14,312



15,739



14,187Net income (loss)


148



(6,311
)


(4,775
)


201Net income (loss) per common share:Basic

$
0.01


$
(0.23
)

$
(0.17
)

$
0.01Diluted

$
0.01


$
(0.23
)

$
(0.17
)

$
0.01     Quarter EndedMarch 31,


June 30,


September 30,


December 31,2007


2007


2007


2007(In thousands, except per share amounts)Summary consolidated statement of operations:Total revenues

$
55,280


$
59,404


$
61,562


$
63,202Costs of revenues


15,461



16,097



16,392



16,435Net income


1,944



3,439



3,279



4,203Net income per common share:Basic

$
0.07


$
0.12


$
0.11


$
0.14Diluted

$
0.07


$
0.12


$
0.11


$
0.14   13.
    Subsequent
    Event  Blackboard Connect
 70




---



##### 



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    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)
 71




---



##### 



MANAGEMENTS
    REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
  Rule 13a-15(f).
  Internal Control 
    Integrated Framewor Internal
    Control  Integrated Framework
    Signature

Title

Date/s/  Michael
    L. ChasenMichael
    L. Chasen

Chief Executive Officer and Director
    (Principal Executive Officer)

February 19, 2008/s/  Michael
    J. BeachMichael
    J. Beach

Chief Financial Officer
    (Principal Financial Officer)

February 19, 2008  72




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                     73




---



##### 



Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant.      
    Information regarding our directors required by this Item is set
    forth under the heading Election of Directors
    Information regarding our audit committee and designated
    audit committee financial experts is set forth under
    the heading Corporate Governance Principles and Board
    Matters, Board Structure and Committee Composition 
    Audit Committee
    Information regarding Section 16(a) beneficial ownership
    reporting compliance is set forth under the heading
    Section 16(a) Beneficial Ownership Reporting
    Compliance  Code of
    Ethics
   Item 11.  Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and
    Management.    Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accounting Fees and Services.   74




---



##### 



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.  (a)  1.
    Financial Statements. The consolidated financial statements are
    listed under Item 8 of this report.  2.
    Financial Statement Schedules.    3.
    Exhibits. The Exhibits filed as part of this Annual Report on
    Form 10-K
    are listed on the Exhibit Index immediately preceding such
    Exhibits, which Exhibit Index is incorporated herein by
    reference.  (b)
    Exhibits  see Item 15(a)(3) above.  (c)
    Financial Statement Schedules  see Item 15(a)(2)
    above. 75




---



##### 



SIGNATURES
      By:
    /s/  Michael
    J. Beach   Chief Financial Officer
    Signature

Title

Date/s/  Michael
    L. ChasenMichael
    L. Chasen

Chief Executive Officer and Director (Principal Executive
    Officer)

February 19, 2008/s/  Michael
    J. BeachMichael
    J. Beach

Chief Financial Officer 
    (Principal Financial Officer)

February 19, 2008/s/  Jonathan
    R. WalshJonathan
    R. Walsh

Vice President, Finance and Accounting (Principal Accounting
    Officer)

February 19, 2008/s/  Matthew
    PittinskyMatthew
    Pittinsky

Chairman of the Board of Directors

February 19, 2008/s/  Joseph
    L. CowanJoseph
    L. Cowan

Director

February 19, 2008/s/  Frank
    R. GattiFrank
    R. Gatti

Director

February 19, 2008/s/  Beth
    KaplanBeth
    Kaplan

Director

February 19, 2008/s/  Thomas
    KalinskeThomas
    Kalinske

Director

February 19, 2008/s/  E.
    Rogers Novak, Jr.E.
    Rogers Novak, Jr.

Director

February 19, 2008/s/  William
    RaduchelWilliam
    Raduchel

Director

February 19, 2008  76




---



##### 



EXHIBIT INDEX
  ExhibitNumber1
.1

Underwriting Agreement dated June 14, 2007(15)2
.1

Agreement and Plan of Merger, dated as of January 11, 2008, by
    and among Blackboard Inc., Bookstore Merger Sub, Inc., The NTI
    Group, Inc. and Pace Holdings, LLC(8)3
.1

Fourth Restated Certificate of Incorporation of the Registrant(3)3
.2

Amended and Restated By-Laws of the Registrant(3)4
.1

Form of certificate representing the shares of the
    Registrants common stock(2)4
.2

Indenture, dated as of June 20, 2007, between Blackboard Inc.
    and U.S. Bank National Association, as trustee(15)10
.1

Amended and Restated Stock Incentive Plan, as amended(1)10
.2

Amended and Restated 2004 Stock Incentive Plan(11)10
.3

Employment Agreement between the Registrant and Michael Chasen
    dated November 14, 2005(9)10
.4

Employment Agreement between the Registrant and Matthew
    Pittinsky dated November 14, 2005(9)10
.5

Employment Agreement between the Registrant and Michael Beach,
    dated September 1, 2006(12)10
.6

Employment Agreement between the Registrant and Matthew H.
    Small, dated January 26, 2004(6)10
.7

Employment Agreement between the Registrant and David Sample,
    dated June 3, 2006(16)10
.8

Outside Director Compensation Plan(13)10
.9

Office lease between the Registrant and 1899 L Street
    LLC, dated November 22, 1999, as amended(1)10
.10

Fifth Amendment to Lease Agreement between the Registrant and
    1899 L Street Tower LLC, dated August 31, 2005(10)10
.11

Lease Commencement Agreement between the Registrant and
    1899 L Street Tower LLC, dated August 31, 2005(10)10
.12

Sixth Amendment to Lease Agreement between the Registrant and
    1899 L Street Tower LLC, dated January 27, 2006(10)10
.13

Seventh Amendment to Lease Agreement between the Registrant and
    1899 L Street Tower LLC, dated November 3, 2006(16)10
.14

Eighth Amendment to Lease Agreement between the Registrant and L
    Street Tower LLC dated February 21, 2007(16)10
.15

Office Lease Agreement between the Registrant and Washington
    Television Center, dated December 15, 2006(16)10
.16

Third Amended and Restated Registration Rights Agreement,
    between the Registrant and certain stockholders of the
    Registrant dated as of April 6, 2001(1)10
.17

Registration Rights Agreement, between the Registrant and The
    George Washington University, dated January 11, 2002(2)10
.18

Form of Incentive Stock Option Agreement(4)10
.19

Form of Nonstatutory Stock Option Agreement(4)10
.20

Form of Restricted Stock Agreement(4)10
.21

Form of Executive Incentive Stock Option Agreement(5)10
.22

Form of Executive Nonstatutory Stock Option Agreement(5)10
.23

Form of Executive Nonstatutory Stock Option Agreement(13)10
.24

Form of Executive Nonstatutory Stock Option Agreement(13)10
.25

Summary of Approved 2007 and 2008 Compensation(17)21
.1

Subsidiaries of the Company 23
.1

Consent of Ernst & Young LLP, independent registered public
    accounting firm 31
.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 31
.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 




---



##### 



ExhibitNumber32
.1

Section 906 Principal Executive Officer Certification 32
.2

Section 906 Principal Financial Officer Certification      
    
    Filed herewith.
    
    Furnished herewith.(1)
    
    Previously filed on March 5, 2004 as an exhibit to the
    Registrants Registration Statement on
    Form S-1
    (File No.
    333-113332),
    and incorporated by reference herein.(2)
    
    Previously filed on May 4, 2004 as an exhibit to Amendment
    No. 2 to the Registrants Registration Statement on
    Form S-1
    (File
    No. 333-113332),
    and incorporated by reference herein.(3)
    
    Previously filed on August 8, 2004 as an exhibit to the
    Registrants Report on
    Form 10-Q,
    and incorporated by reference herein.(4)
    
    Previously filed on December 3, 2004 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(5)
    
    Previously filed on March 1, 2005 as an exhibit to the
    Registrants Report on
    Form 10-K,
    and incorporated by reference herein.(6)
    
    Previously filed on May 13, 2005 as an exhibit to the
    Registrants Report on
    Form 10-Q,
    and incorporated by reference herein.(7)
    
    Previously filed on May 25, 2005 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(8)
    
    Previously filed on January 11, 2008 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(9)
    
    Previously filed on November 18, 2005 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(10)
    
    Previously filed on February 15, 2006 as an exhibit to the
    Registrants Report on
    Form 10-K,
    and incorporated by reference herein.(11)
    
    Previously filed on August 7, 2007 as an exhibit to the
    Registrants Report on
    Form 10-Q,
    and incorporated by reference herein.(12)
    
    Previously filed on November 9, 2006 as an exhibit to the
    Registrants Report on
    Form 10-Q,
    and incorporated by reference herein.(13)
    
    Previously filed on February 6, 2007 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(14)
    
    Previously filed on June 20, 2007 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(15)
    
    Previously filed on June 15, 2007 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.(16)
    
    Previously filed on February 23, 2007 as an exhibit to the
    Registrants Report on
    Form 10-K,
    and incorporated by reference herein.(17)
    
    Previously filed on February 5, 2008 as an exhibit to the
    Registrants Report on
    Form 8-K,
    and incorporated by reference herein.