~~SUPPLEMETAL PRO-FORMA INFORMATION (UNAUDITED)~~

~~The Company has~~ concluded that the NETg acquisition ~~represents~~represented a material business combination. The following are unaudited pro forma ~~information presents the consolidated~~ results of operations of the Company and NETg ~~as if~~assuming the NETg acquisition ~~had~~ occurred ~~at the beginning of each of fiscal 2008 and~~on February 1, 2007, with pro forma adjustments to give effect to amortization of intangible assets, an increase in interest expense on acquisition financing and certain other adjustments:

THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006
(in thousands except per share data)
Revenue $ 75,124 $ 72,011 $ 266,233 $ 256,780
Net income / (loss) 5,978 6,152 (18,647 ) (25,114 )
Net income / (loss) per share — basic $ 0.06 $ 0.06 $ (0.18 ) $ (0.25 )

Net income / (loss) per share — diluted $ 0.05 $ 0.06 $ (0.17 ) $ (0.24 )

	NINE MONTHS ENDED OCTOBER 31, 2007

Revenue	$	266,233
Net income (loss)		(18,800	)
Net income (loss) per share - basic	$	(0.18	)
Net income (loss) per share - diluted	$	(0.17	)

The unaudited pro forma results above are not necessarily indicative of ~~the~~ results of operations that ~~the Company would~~may have ~~attained~~actually occurred had the acquisition of NETg occurred aton the ~~beginning of the periods presented.~~date noted.

~~(b) Targeted Learning Corporation~~

On February 9, 2007, the Company acquired the assets of Targeted Learning Corporation (TLC), an on-line video library business, for approximately $4.1 million in cash plus liabilities assumed of $0.8 million. Additional consideration of up to $0.5 million is payable to the shareholders of TLC at various times prior to February 2008 contingent upon achievement of certain integration milestones. As of October 31, 2007, approximately $0.3 million of this contingent consideration had been paid. The acquisition resulted in an allocation of the purchase price to goodwill and identified intangible assets of $3.2 million and $0.9 million, respectively. Intangible assets consist of internally developed software, comprised of learning content valued at $510,000, which will be amortized over a period of 4 years, customer contracts and relationships valued at $330,000, which will be amortized over 3 years and the TLC tradename valued at $20,000 which will be amortized over 2 years. Values and useful lives assigned to intangible assets were determined using management’s estimates which in part were based on valuation reports prepared by a third party specialist. The Company has concluded that the acquisition of TLC does not represent a material business combination and therefore no pro forma financial information has been provided herein.

7. SPECIAL CHARGES

MERGER AND EXIT COSTS

(a) Merger and Exit Costs Recognized as Liabilities in Purchase Accounting

In connection with the closing of the NETg acquisition on May 14, 2007, ~~(the Acquisition),~~ the Company’s management effected an acquisition integration effort to eliminate redundant facilities and employees and to reduce the overall cost structure of the acquired business to better align the Company’s operating expenses with existing economic conditions, business requirements and the Company’s operating model. Pursuant to this restructuring, the Company recorded ~~$15.8~~$11.6 million of costs related to severance and related benefits, costs to vacate leased facilities and other pre-Acquisition liabilities. These costs were accounted for under EITF Issue No. 95-3, “Recognition of Liabilities in Connection with Purchase Business Combinations.” These costs, which were recognized as a liability assumed in the purchase business combination, were included in the allocation of the purchase price.

The reductions in employee headcount ~~will total~~totaled approximately 360 employees from the administrative, sales, marketing and development functions, and amounted to a liability of approximately ~~$10.1 million. Approximately $7.1~~$8.9 million, which was paid against the exit plan accrual through October 31, ~~2007, and the remaining amount~~2008.

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Table of ~~$3.0 million, net of adjustments for foreign currency translation, is expected to be paid by the end of the second quarter of fiscal 2009.~~Contents

In connection with the exit plan, the Company ~~intends to abandon~~abandoned certain leased facilities ~~resulting in~~and has a remaining facilities consolidation liability of ~~$1.4~~$0.1 million as of October 31, ~~2007,~~2008, consisting of lease termination costs, broker commissions and other facility costs. As part of the plan, two larger sites ~~will be~~and a number of small locations were vacated. The fair value of the lease termination costs was calculated with certain assumptions related to the Company’s estimated cost recovery efforts from subleasing vacated space, including (i) the time period over which the property will remain vacant, (ii) the sublease terms and (iii) the sublease rates.

The Company’s merger and exit liabilities which include previous merger and acquisition transactions are recorded in accrued expenses and long-term liabilities (see Note ~~14) and long-term liabilities.~~16). Activity in the nine month period ended October 31, ~~2007~~2008 is as follows (in thousands):

EMPLOYEE
SEVERANCE AND CLOSEDOWN OF
RELATED COSTS FACILITIES OTHER TOTAL
Merger and exit accrual January 31, 2007 $ 878 $ 2,278 $ 121 $ 3,277
Provision for merger and exit costs as of the date of acquisition of NETg (May 14, 2007) accounted for in the allocation of purchase price 10,176 2,038 4,654 16,868
Payments made during the nine months ended October 31, 2007 (7,082 ) (727 ) (13 ) (7,822 )

Merger and exit accrual October 31, 2007 $ 3,972 $ 3,589 $ 4,762 $ 12,323

	EMPLOYEE SEVERANCE AND RELATED COSTS			CLOSEDOWN OF FACILITIES			OTHER			TOTAL
Merger and exit accrual January 31, 2008	$	1,646		$	3,224		$	1,370		$	6,240
Adjustment to provision for merger and exit costs in connection with the acquisition of NETg		212			(139	)		(971	)		(898	)
Adjustment to provision for merger and exit costs in connection with the acquisition of SmartForce		(899	)		266			-			(633	)
Payments made during the nine months ended October 31, 2008		(959	)		(1,723	)		(164	)		(2,846	)
Merger and exit accrual October 31, 2008	$	-		$	1,628		$	235		$	1,863

The Company anticipates that the remainder of the merger and exit accrual will be paid by October 2011 as follows (in thousands):

Year ended January 31,
2008 (remaining 3 months) $ 10,382
2009 779
2010 384
2011 778

Total $ 12,323

Certain of the former NETg employees continued employment during a transition period and certain of the former NETg facilities being vacated are being used as the Company transitions operations to other locations.

Year Ended January 31,
2009 (remaining 3 months)	$	409
2010		452
2011		1,002
Total	$	1,863

In accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal ~~Activities”,~~~~such~~Activities,” the costs ~~are being~~of continued employment of certain former NETg employees during the transition period were expensed as incurred and are included in merger and integration related expenses in the accompanying statements of income. ~~The Company recorded $2.6 million and $11.1 million of merger and integration related expenses in the three and nine months ended October 31, 2007, respectively.~~

~~DISCONTINUED OPERATIONS~~

(b) Discontinued Operations

In connection with the NETg acquisition, the Company ~~decided to discontinue~~discontinued four ~~product lines~~businesses acquired from NETg because the Company ~~believes these~~believed those product offerings dodid not represent areas that ~~can~~could grow in a manner consistent with the Company’s operating model or be consistent with the Company’s profit ~~model.~~model or strategic initiatives. The ~~product lines~~businesses that ~~have been~~were identified as discontinued operations ~~are~~were Financial Campus, NETg Press, Interact Now and Wave.

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Summarized results of operations for discontinued operations, which includes a ~~result, the assets and liabilities~~gain of ~~NETg Press, Interact Now and Financial Campus were classified as held for sale in~~$2.0 million, net of income tax resulting from proceeds received during the second quarter of fiscal ~~2008 and qualify for held for disposal treatment under Statement of Financial Accounting Standards (“SFAS”) No. 144, “~~~~Accounting for~~2009 from the ~~Impairment or Disposal of Long-Lived Assets.”~~

On August 21, 2007 the Company entered into an Asset Purchase Agreement pursuant to which it agreed to sell to SmartPros, LTD, the Financial Campus assets. The Company classified the Financial Campus business as discontinued operations in the second quarter of fiscal 2008. The closing of theCompany’s sale of the ~~Financial Campus~~ assets occurred on August 21, 2007, resulting in nominal cash proceeds and potential earnout payments for three years from the date of the sale based on the SmartPros’ gross revenue from the Financial Campus business line. Duerelated to the purchase price being contingent and not fixed or currently determinable, the carrying value is considered the fair value. At the time of the transaction the nominal purchase price exceeded the fair market value of the Financial Campus assets due to more liabilities being released than assets sold, which resultedNETg Press business in ~~a pre-tax gain of approximately $0.1 million during the quarter ended~~ October ~~31, 2007.~~

~~Financial results of Financial Campus~~2007, are ~~reported separately as discontinued operations for all periods presented. Summarized results of operations for Financial Campus for the three and nine months ended October 31, 2007 were~~ as follows (in thousands):

THREE MONTHS NINE MONTHS
ENDED OCTOBER ENDED OCTOBER
31, 2007 31, 2007
Revenue from discontinued operations $ 0 $ 9

Loss from discontinued operations before income taxes (187 ) (531 )
Income tax (benefit) (106 ) (236 )

Loss from discontinued operations $ (81 ) $ (295 )

On October 31, 2007, the Company entered into an Asset Purchase Agreement pursuant to which it agreed to sell to AXZO Press LLC the NETg Press assets. The Company classified the NETg Press business as discontinued operations in the second quarter of fiscal 2008. The closing of the sale of the NETg Press assets occurred on October 31, 2007, resulting in a total purchase price of $8.0 million subject to customary post-closing adjustments. Per the agreement the purchase price will be paid over a three year period starting in September 2008.

Since the NETg Press operations were acquired through the acquisition of NETg, its carrying value has been adjusted to its fair value. The fair value of the NETg Press assets and liabilities acquired in the NETg acquisition were determined to be $8.0 million, which was based on the price for which the NETg Press operations have been sold. As a result, the refinement to the fair value estimate was recorded as a purchase accounting adjustment to goodwill and therefore no gain or loss was recorded in the operations for the period ended October 31, 2007.

	THREE MONTHS ENDED						NINE MONTHS ENDED
	OCTOBER 31,						OCTOBER 31,
	2008			2007			2008		2007

Revenue from discontinued operations	$	(64	)	$	3,134		$	224	$	6,760
(Loss) gain from discontinued operations before income tax		(62	)		(662	)		3,243		249
Income tax (benefit) provision		(25	)		(311	)		1,306		76
(Loss) gain from discontinued operations	$	(37	)	$	(351	)	$	1,937	$	173

Financial results of NETg Press are reported separately as discontinued operations for all periods presented. Summarized results of operations for NETg Press for the three and nine months ended October 31, 2007 were as follows (in thousands):

THREE MONTHS NINE MONTHS
ENDED OCTOBER ENDED OCTOBER
31, 2007 31, 2007
Revenue from discontinued operations $ 2,158 $ 3,874

Income from discontinued operations before income taxes 257 408
Income tax provision 111 163

Income from discontinued operations $ 146 $ 245

(c) Restructuring

The Company also determined it would not be feasible to sell the Interact Now business line; therefore, the Company has removed the assets and liabilities from classification as held for sale. The Company expects to exit the Interact Now business by the middle of fiscal 2009.

Financial results of Interact Now are reported separately as discontinued operations for all periods presented. Summarized results of operations for Interact Now for the three and nine months ended October 31, 2007 were as follows (in thousands):

THREE MONTHS NINE MONTHS
ENDED OCTOBER ENDED OCTOBER
31, 2007 31, 2007
Revenue from discontinued operations $ 452 $ 656

Income / (loss) from discontinued operations before income taxes 52 (0 )
Income tax provision / (benefit) 22 (1 )

Income / (loss) from discontinued operations $ 30 $ (1 )

The Company exited the Wave business in October 2007. Financial results of Wave are reported separately as discontinued operations for all periods presented. Summarized results of operations for Wave for the three and nine months ended October 31, 2007 were as follows (in thousands):

THREE MONTHS NINE MONTHS
ENDED OCTOBER ENDED OCTOBER
31, 2007 31, 2007
Revenue from discontinued operations $ 524 $ 2,221

Income / (loss) from discontinued operations before income taxes (784 ) 373
Income tax (benefit) / provision (338 ) 150

(Loss) / income from discontinued operations $ (446 ) $ 224

~~RESTRUCTURING~~

~~During the three months ended October 31, 2007 the Company revised certain of its estimates made in connection to the previous restructurings related to contractual obligations.~~

Activity in the Company’s restructuring accrual was as follows (in thousands):

FACILITY LEASE
OBLIGATIONS
Total restructuring accrual as of January 31, 2007 $ 1,421
Payments made during the nine months ended October 31, 2007 (461 )
Restructuring charges incurred during the nine months ended October 31, 2007 527

Total restructuring accrual as of October 31, 2007 $ 1,487

Total restructuring accrual as of January 31, 2008	$	961
Payments made during the nine months ended October 31, 2008		(464	)
Restructuring charges incurred during the nine months ended October 31, 2008		-
Total restructuring accrual as of October 31, 2008	$	497

The Company anticipates that the remainder of the restructuring accrual will be paid out in fiscal 2009.

8. GOODWILL AND INTANGIBLE ASSETS

~~Goodwill and intangible~~

Intangible assets are as follows (in thousands):

OCTOBER 31, 2007 JANUARY 31, 2007
GROSS NET GROSS NET
CARRYING ACCUMULATED CARRYING CARRYING ACCUMULATED CARRYING
AMOUNT AMORTIZATION AMOUNT AMOUNT AMORTIZATION AMOUNT
Internally developed software/ courseware $ 38,716 $ 31,518 $ 7,198 $ 28,257 $ 27,836 $ 421
Customer contracts 36,848 17,594 19,254 13,018 11,701 1,317
Non-compete 6,900 1,380 5,520 — — —
Trademarks and trade names 3,625 688 2,937 905 5 900

86,089 51,181 34,909 42,180 39,542 2,638
Goodwill 316,301 — 316,301 83,171 — 83,171

$ 402,390 $ 51,181 $ 351,209 $ 125,351 $ 39,542 $ 85,809

	OCTOBER 31, 2008									JANUARY 31, 2008
	GROSS						NET			GROSS						NET
	CARRYING			ACCUMULATED			CARRYING			CARRYING			ACCUMULATED			CARRYING
	AMOUNT			AMORTIZATION			AMOUNT			AMOUNT			AMORTIZATION			AMOUNT
Internally developed software/ courseware		$	38,717		$	38,430		$	287		$	38,717		$	33,259		$	5,458
Customer contracts			36,848			25,231			11,617			36,848			19,846			17,002
Non-compete			6,900			4,140			2,760			6,900			2,070			4,830
Trademarks and trade names			2,725			2,047			678			2,725			1,028			1,697
Books trademark			900			-			900			900			-			900
		$	86,090		$	69,848		$	16,242		$	86,090		$	56,203		$	29,887

$900,000 of intangible assets within trademarks of our Books24x7 business unit are considered indefinite-lived and accordingly, no amortization expense is recorded.

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The change in goodwill at October 31, ~~2007~~2008 from the amount recorded at January 31, ~~2007~~2008 is as follows:

Total
Gross carrying amount of goodwill, January 31, 2007 $ 83,171
Utilization of tax benefit (25,784 )
Acquisition of TLC 3,382
Acquisition of NETg 255,692
Other (160 )

Gross carrying amount of goodwill, October 31, 2007 $ 316,301


Gross carrying amount of goodwill, January 31, 2008	$	256,196
Payment of contingent purchase price of Targeted Learning Corporation		250
Adjustments to allocation of purchase price for NETg acquisition		953
Utilization of acquired tax benefit		(793	)
Gross carrying amount of goodwill, October 31, 2008	$	256,606

The Company will be conducting its annual impairment test of goodwill for fiscal ~~2008~~2009 in the fourth quarter.

~~Amortization expense related to the intangible assets for the remainder of fiscal 2008 and the following fiscal years is expected to be as follows (in thousands):~~

Amortization
Fiscal Period Expense
Three month period ending January 31, 2008 $ 5,022
Year ending January 31, 2009 16,415
Year ending January 31,2010 8,245
Year ending January 31,2011 3,712
Year ending January 31,2012 615

Total $ 34,090

9. COMPREHENSIVE INCOME ~~(LOSS)~~

SFAS No. 130, “Reporting Comprehensive Income,” requires disclosure of all components of comprehensive ~~income/(loss)~~income on an annual and interim basis. Comprehensive ~~income/(loss)~~income is defined as the change in equity of a business enterprise during a period resulting from transactions, other events and circumstances related to non-owner sources. Comprehensive income for the three and nine months ended October 31, ~~2007~~2008 and ~~2006~~2007 was as follows (in thousands):

THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006
Comprehensive income:
Net income $ 5,825 $ 7,084 $ 25,702 $ 15,962
Other comprehensive income/(loss) — Foreign currency adjustment (701 ) (147 ) (1,116 ) (613 )
Change in fair value of interest rate hedge (842 ) — (1,074 ) —
Unrealized holding gains/(losses) 22 74 (65 ) 100

Comprehensive income $ 4,304 $ 7,011 $ 23,447 $ 15,449

	THREE MONTHS ENDED					NINE MONTHS ENDED
	OCTOBER 31,					OCTOBER 31,
	2008		2007			2008			2007
Comprehensive income:
Net income	$	12,029	$	5,825		$	31,985		$	25,702
Other comprehensive income (loss) — Foreign currency adjustment		2,013		(701	)		2,309			(1,116	)
Change in fair value of interest rate hedge, net of tax		260		(842	)		1,155			(1,074	)
Unrealized losses on available-for-sale securities		-		22			(24	)		(65	)
Comprehensive income	$	14,302	$	4,304		$	35,425		$	23,447

Accumulated other comprehensive income as of October 31, ~~2007~~2008 and January 31, ~~2007~~2008 was as follows (in thousands):

OCTOBER 31, JANUARY 31,
2007 2007
Unrealized holding (losses)/gains on available for sale securities $ 2 $ 67
Change in fair value of interest rate hedge (1,074 ) —
Foreign currency adjustment (2,500 ) (1,386 )

Total accumulated other comprehensive loss $ (3,572 ) $ (1,319 )

	NINE MONTHS ENDED OCTOBER 31, 2008			YEAR ENDED JANUARY 31, 2008
Unrealized (loss) gains on available-for-sale securities	$	(2	)	$	22
Change in fair value of interest rate hedge		(925	)		(2,080	)
Foreign currency adjustment		(58	)		(2,367	)
Total accumulated other comprehensive loss	$	(985	)	$	(4,425	)

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10. NET INCOME PER SHARE

Basic net income per share was computed using the weighted average number of shares outstanding during the period. Diluted net income per share was computed by giving effect to all dilutive potential shares outstanding. The weighted average number of shares outstanding used to compute basic net income per share and diluted net income per share was as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006
Basic weighted average shares outstanding 104,789,720 101,763,654 104,165,555 101,446,427
Effect of dilutive shares outstanding 3,762,736 2,961,031 3,853,118 2,441,425

Weighted average shares outstanding, as adjusted 108,552,456 104,724,685 108,018,673 103,887,852

	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 31,				OCTOBER 31,
	2008		2007		2008		2007
Basic weighted average shares outstanding		104,182,736		104,789,720		104,779,876		104,165,555
Effect of dilutive shares outstanding		3,317,536		3,762,736		3,876,512		3,853,118
Weighted average shares outstanding, as adjusted		107,500,272		108,552,456		108,656,388		108,018,673

The following share equivalents have been excluded from the computation of diluted weighted average shares outstanding for the three and nine months ended October 31, ~~2007~~2008 and ~~2006,~~2007, respectively, as they would be anti-dilutive:

THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006
Options to purchase shares 12,899,442 13,174,010 12,809,058 13,693,616

	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 31,				OCTOBER 31,
	2008		2007		2008		2007
Options to purchase shares		2,907,621		8,540,503		2,936,591		9,009,160

11. INCOME TAXES

The Company operates as a holding company with operating subsidiaries in several countries, and each subsidiary is taxed based on the laws of the jurisdiction in which it operates.

The Company has significant net operating loss ~~(“NOL”)~~(NOL) carryforwards, some of which are subject to potential limitations based upon the change in control provisions of Section 382 of the United States Internal Revenue Code.

For the nine months ended October 31, ~~2007~~2008 and ~~2006,~~2007, the Company’s effective tax rates were 38.5% and (44.3%) ~~and 36.5%~~, respectively. ~~Providing~~For the nine month period ended October 31, 2008, the provision for income taxes consisted of a cash tax provision of $3.1 million and a non-cash tax provision of $15.7 million. Included in the ~~differences~~non-cash tax provision of $15.7 million is a $1.1 million provision related to tax return positions not likely to be sustained under audit. For the nine month period ended October 31, 2007, the tax benefit of $7.9 million (44.3%) consisted of a cash tax provision of $1.1 million and a non-cash tax benefit of $9.0 million. The non-cash tax benefit of $9.0 million was primarily the result of a $25 million reduction in ~~book~~the Company’s U.S. deferred tax valuation allowance on NOL carryforwards which was partially offset by the Company’s projected non-cash provision for income taxes and the impact of certain tax ~~accounting~~adjustments required in purchase accounting for the NETg acquisition had the effect of significantly increasing the Company’s projected provision for income taxes for the current year. However, this increase was offset by the net release of valuation allowance discussed below, resulting in the tax rate benefit for the nine month period ended October 31, 2007. The tax rate benefit of 44.3% is comprised of the non-cash valuation allowance release benefit of approximately $25.0 million partially offset by the provision for income taxes for the nine months ended October 31, 2007 of $17.1 million.acquisition.

~~Deferred Taxes~~

~~Under SFAS No. 109, “~~~~Accounting for Income Taxes~~,” the Company can only recognize a deferred tax asset for future benefit of our tax loss, temporary differences and tax credit carryforwards to the extent that it is more likely than not that these assets will be realized. In determining the realizability of these assets, the Company considered numerous factors, including historical profitability, estimated future taxable income and the industry in which the Company operates. Based on current and preceding years’ results of operations and anticipated profit levels, the Company believes that certain of its deferred tax assets are more likely than not realizable. Accordingly, in the nine months ended October 31, 2007, the Company released approximately $49.1 million of U.S. valuation allowance on NOL carryforwards, which will more likely than not, be realized in future periods. Approximately $25.0 million of this asset was recorded through reductions to tax expense and $24.1 million was recorded through reductions to goodwill. The benefit recorded through reductions to tax expense is a component of the net release of valuation allowance discussed above.

As a result of purchase accounting for the NETg acquisition, the Company recorded a $10.2 million deferred tax asset on certain deferred revenue that has previously been recognized for tax purposes and is included in the allocation of purchase price. At October 31, 2007, the value of this deferred tax asset was $2.3 million. The Company expects to realize this asset by taking tax deductions through the period ending July 31, 2008. Additionally, certain costs incurred to service contracts acquired in the NETg acquisition are deductible over 15 years for tax purposes. The Company has recorded a valuation allowance against the portion of these costs for which realizability is uncertain. This increase in valuation allowance is a component of the net release of the valuation allowance discussed above.

~~The Company adopted the provisions of FASB Interpretation No. 48, “~~~~Accounting for Uncertainty in Income Taxes~~~~” (“FIN 48”), on February 1, 2007. On the date of adoption of FIN 48,~~2008, the Company had ~~total~~$3.1 million of unrecognized tax ~~benefits of approximately $3.6~~benefits. If recognized, $2.4 million ~~(including interest and penalties of $1.1 million) that, if recognized,~~ would ~~impact~~lower the Company’s effective tax rate. ~~The Company continues to assess recognition and measurement for new and existing uncertain positions and monitor tax developments in relevant jurisdictions for potential~~However, upon the adoption of SFAS No. 141 (revised), “Business Combinations” (SFAS No. 141(R)), changes in ~~the sustainability or measurement of positions. At October 31, 2007, the Company had $4.1 million of~~ unrecognized tax ~~benefits.~~benefits following an acquisition generally will affect income tax expense, including any changes associated with acquisitions that occurred prior to the effective date of SFAS No. 141(R). The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax

expense. As of October 31, ~~2007,~~2008, the Company had approximately ~~$0.5~~$0.9 million of accrued interest and penalties related to uncertain tax positions.

The Company conducts ~~its~~ business globally and, as a result, the Company and its subsidiaries file income tax returns in the U.S. and ~~in certain~~ foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world, including, but not limited to, such major jurisdictions as Canada, the United Kingdom and the United States. With few exceptions, the Company is no longer subject to U.S. and international income tax examinations for years before ~~2002.~~2003.

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12. COMMITMENTS AND CONTINGENCIES

The Company had been the subject of a formal investigation by the United States Securities and Exchange Commission (“SEC”) into the events and circumstances giving rise to the 2003 restatement of SmartForce PLC’s accounts (the “Restatement Investigation”). On July 19, 2007, the SEC announced that three former officers and one former employee of SmartForce had settled SEC claims in connection with the Restatement Investigation. The Company understands that the restatement investigation has now been concluded without any claim being brought against it.

In January 2007, the Boston District Office of the SEC informed the Company that it iswas the subject of an informal investigation concerning option granting practices at SmartForce for the period beginning April 12, 1996 through July 12, 2002 (the ~~“Option~~Option Granting ~~Investigation”)~~Investigation). These grants were made prior to the September 6, 2002 merger with SmartForce PLC. The Company has produced documents in response to requests from the SEC. The SEC staff has informed the Company that ~~despite closure of the Restatement Investigation,~~ the staff has not determined whether to close the ~~Options~~Option Granting Investigation.

The Company believes that it accounted for SmartForce stock option grants ~~properly~~appropriately in the merger, and believes that as a result of the merger accounting the Company’s financial statements are not going to change even if the SEC concludes that SmartForce did not properly account for its pre-merger option grants.merger. When SkillSoft Corporation and SmartForce merged on September 6, 2002, SkillSoft Corporation was for accounting purposes deemed to have acquired SmartForce. Accordingly, the pre-merger financial statements of SmartForce are not included in the historical financial statements of the Company, and the Company’s financial statements include ~~results from what had been~~ the ~~business~~results of SmartForce only from the date of the merger. Under applicable accounting rules, the Company valued all of the outstanding SmartForce stock options assumed in the merger at fair value upon consummation of the merger.

Accordingly, ~~SkillSoft~~the Company believes that its accounting for SmartForce stock options will not be affected by any error that SmartForce may have made in its own accounting for stock option grants and that that the ~~Options~~Option Granting Investigation should not require any change in ~~SkillSoft’s~~the Company’s financial statements.

The Company ~~continues to cooperate~~has cooperated with the SEC in the Option Granting Investigation. At the present time, the Company is unable to predict the outcome of the Option Granting Investigation or its potential impact on its operating results or financial position.

From time to time, the Company is a party to or may be threatened with other litigation in the ordinary course of its business. The Company regularly analyzes current information, including, as applicable, the Company’s defenses and insurance coverage and, as necessary, provides accruals for probable and estimable liabilities for the eventual disposition of these matters. The Company is not a party to any material legal proceedings.

13. GEOGRAPHICAL DISTRIBUTION OF ~~REVENUES~~REVENUE

The Company attributes ~~revenues~~revenue to different geographical areas on the basis of the location of the customer. Revenues by geographical area for the three and nine month periods ended October 31, ~~2007~~2008 and ~~2006~~2007 were as follows (in thousands):

THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
2007 2006 2007 2006
Revenue:
United States $ 59,076 $ 44,689 $ 160,161 $ 131,155
United Kingdom (UK) 8,234 6,651 22,493 18,972
Canada 2,726 2,347 7,855 7,062
Europe, excluding UK 1,036 491 2,055 1,532
Australia/New Zealand 3,290 2,177 9,128 6,473
Other 762 780 2,041 2,327

Total revenue $ 75,124 $ 57,135 $ 203,733 $ 167,521

~~Long-lived tangible assets at international facilities are not significant.~~

	THREE MONTHS ENDED				NINE MONTHS ENDED
	OCTOBER 31,				OCTOBER 31,
	2008		2007		2008		2007
Revenue:
United States	$	61,998	$	59,076	$	181,807	$	160,161
United Kingdom (UK)		11,358		8,234		34,980		22,493
Canada		3,047		2,726		9,831		7,855
Europe, excluding UK		1,758		1,036		5,438		2,055
Australia/New Zealand		3,343		3,290		11,306		9,128
Other		1,560		762		4,677		2,041
Total revenue	$	83,064	$	75,124	$	248,039	$	203,733

14. ACCRUED EXPENSES

Accrued expenses in the accompanying condensed combined balance sheets ~~consisted~~consist of the following (in thousands):

OCTOBER 31, 2007 JANUARY 31, 2007
Course development fees $ 1,848 $ 1,860
Professional fees 6,676 2,639
Accrued payables 483 415
Accrued miscellaneous taxes 662 385
Accrued merger related costs* 10,805 1,892
Sales tax payable/VAT payable 4,952 4,405
Accrued royalties 7,766 3,693
Accrued interest 1,510 —
Accrued litigation settlements — 15,250
Accrued restructuring 522 659
Other accrued liabilities 11,125 4,229

Total accrued expenses $ 46,349 $ 35,427

	OCTOBER 31, 2008		JANUARY 31, 2008
Professional fees		3,555		5,308
Sales tax payable/VAT payable		1,324		4,366
Accrued royalties		2,246		6,892
Other accrued liabilities		12,403		12,941
Total accrued expenses	$	19,528	$	29,507

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15. OTHER ASSETS

Other assets in the accompanying condensed consolidated balance sheets consist of the following (in thousands):

	OCTOBER 31, 2008		JANUARY 31, 2008
Note receivable – long term		-		3,507
Debt financing cost – long term (See Note 18)		3,498		4,126
Other		204		97
Total other assets	$	3,702	$	7,730

16. OTHER LONG TERM LIABILITIES

Other long term liabilities in the accompanying condensed consolidated balance sheets consist of the following (in thousands):

	OCTOBER 31, 2008		JANUARY 31, 2008
Merger accrual – long term		1,597		2,914
Interest rate swap liability (See Note 19)		1,542		3,467
Other		2,793		2,828
Total other long-term liabilities	$	5,932	$	9,209

In Note 17 of “Notes to Consolidated Financial Statements” presented in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2008, the Company had unintentionally included approximately $2.5 million in “Merger accrual – long term” instead of “Other”. Such amount has been reclassified above to reflect the correct presentation.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. As defined in SFAS No. 157, fair value is the amount that would be received if an asset was sold or a liability transferred in an orderly transaction between market participants at the measurement date.

Effective February 1, 2008, the Company adopted the provision of SFAS No. 157 with respect to its financial assets and liabilities that are measured at fair value within the condensed consolidated financial statements. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions” (FSP SFAS No. 157-1), and FSP SFAS No. 157-2, “Effective Date of FASB Statement No. 157” (FSP SFAS No. 157-2). FSP SFAS No. 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value Measurements.” FSP SFAS No. 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of FSP SFAS No. 157-1, effective February 1, 2008, did not impact the Company’s financial position, results of operations or cash flows. The Company has deferred the application of the provisions of this statement to its non-financial assets and liabilities in accordance with FSP SFAS No. 157-2. The Company does not expect that its adoption of the provisions of FSP SFAS 157-2 will have a material impact on its financial position, results of operations or cash flows.

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SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy established by SFAS No. 157 in order of priority are as follows:

·
*		~~Includes $1,460 and $1,188~~Level 1: Quoted prices in active markets for identical assets as of ~~accrued payroll taxes in October 31, 2007 and January 31, 2007, respectively.~~the reporting date.

Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

·	Level 3: Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

The Company’s commercial paper, corporate debt securities, certificates of deposit, federal agency notes and treasury bills are classified as cash equivalents or available for sale securities based on the original maturity period and carried at fair value. These assets, except for federal agency notes and treasury bills, are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company classifies federal agency notes and treasury bills within Level 2 of the fair value hierarchy because they are valued using pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

The Company recognizes all derivative financial instruments in its consolidated financial statements at fair value in accordance with FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The Company determines the fair value of these instruments using the framework prescribed by SFAS No. 157 by considering the estimated amount the Company would receive to terminate these agreements at the reporting date and by taking into account current interest rates and the creditworthiness of the counterparty. In certain instances, the Company may utilize financial models to measure fair value. Generally, the Company uses inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and inputs derived principally from, or corroborated by, observable market data by correlation or other means. The Company has classified its derivative liability within Level 2 of the fair value hierarchy because these observable inputs are available for substantially the full term of the derivative instrument.

~~15.~~

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The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of October 31, 2008 (in thousands):

	October 31, 2008		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
Financial Assets:
Cash equivalents (1)		30,821	$	15,625	$	15,196	$	-
Available for sale securities (2)		8,804	$	6,505	$	2,299	$	-

Financial Liabilities:
Interest rate swap agreement (Note 19)		1,542	$	-	$	1,542	$	-

(1) Consists of high-grade commercial paper and federal agency notes with original and remaining maturities of less than 90 days.

(2) Consists of high-grade commercial paper, corporate debt securities and certificates of deposit with original maturities of 90 days or more and remaining maturities of less than 365 days.

18. LINE OF CREDIT

~~In connection with the closing of the NETg acquisition on May 14, 2007, the~~

The Company ~~entered into a~~has an agreement (the Credit ~~Agreement (the “Credit Agreement”)~~Agreement) with certain lenders (the ~~“Lenders”)~~Lenders) providing for a $225 million senior secured credit facility comprised of a $200 million term loan facility and a $25 million revolving credit facility. The term loan was used to finance the ~~Acquisition~~NETg acquisition and the revolving credit facility may be used for general corporate purposes.

On July 7, 2008, the Company entered into an amendment (Amendment No. 1) to the Credit Agreement, and the related Guarantee and Collateral Agreement, dated May 14, 2007. The primary purpose of Amendment No. 1 was to expand the ability of the Company and its subsidiaries to make repurchases of the Company’s Ordinary Shares. The Company’s expanded repurchase ability under Amendment No. 1 is conditioned on the absence of an event of default and a requirement that (i) the leverage ratio shall be no greater than 2.75:1.0 as of the most recently completed fiscal quarter ending prior to the date of such repurchase and (ii) that the Company make a prepayment of the term loan ~~bears interest at a rate per annum~~under the Credit Agreement in an amount equal to at the ~~Company’s election, (i)~~dollar amount of any such repurchase. Such term loan prepayments will not, however, be required in connection with the first $24.0 million of repurchases made from and after July 7, 2008.

Amendment No. 1 also provides for an ~~alternative base~~increase in the interest rate ~~plus a margin~~on the term loan outstanding under the Credit Agreement and the payment of ~~1.75% or (ii) adjusted LIBOR plus a margin~~additional fees to the Lenders upon execution of ~~2.75%, and revolving loans~~Amendment No. 1. Pursuant to Amendment No. 1, the term loan will bear interest at a rate per annum equal to, at the Company’s election, (i) ~~an alternative~~a base rate plus a margin of ~~1.50% to~~2.50% (increased from 1.75%) or (ii) adjusted LIBOR plus a margin of ~~2.50% to~~3.50% (increased from 2.75%. The alternative base rate is the greater of certain of the Lenders’ prime rate and the federal funds effective rate plus 0.50%. Overdue amounts under the Credit Agreement bear interest at a rate per annum equal to 2.00% plus the rate otherwise applicable to such loan.

The Company is required to pay the Lenders a commitment fee at a rate per annum of 0.50% on the average daily unused amount of the revolving credit facility commitments of such Lenders during the period for which payment is made, payable quarterly in arrears. The term loan is payable in 24 consecutive quarterly installments of (i) $500,000 in the case of each of the first 23 installments, on the last day of each of September, December, March, and June commencing September 30, 2007 and ending on March 31, 2013, and (ii) the balance due on May 14, 2013. The revolving credit facility terminates on May 14, 2012, at which time all outstanding borrowings under the revolving credit facility are due. The Company may optionally prepay loans under the Credit Agreement at any time, without penalty. The loans are subject to mandatory prepayment in certain circumstances.

The Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. Affirmative covenants include, among others, with respect to the Company and its subsidiaries, maintenance of existence, financial and other reporting, payment of obligations, maintenance of properties and insurance, maintenance of a credit rating, and interest rate protection. Negative covenants include, among others, with respect to the Company and its subsidiaries, limitations on incurrence or guarantees of indebtedness, limitations on liens, limitations on sale and lease-back transactions, limitations on investments, limitations on mergers, consolidations, asset sales and acquisitions, limitations on dividends, share redemptions and other restricted payments, limitations on affiliate transactions, limitations on hedging transactions, and limitations on capital expenditures. The Credit Agreement also includes a leverage ratio covenant and an interest coverage ratio covenant (the ratio of the Company’s consolidated EBITDA to its consolidated interest expense as calculated pursuant to the Credit Agreement)).

Within the definitions of the Credit Agreement, a material adverse effect shall mean a material adverse condition or material adverse change in or materially and adversely affecting (a) the business, assets, liabilities, operations or financial condition of Holdings, the Borrower and the Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights and remedies of Administrative Agent, the Collateral Agent or the Secured Parties there under. No event, change or condition has occurred since January 31, 2007 that has caused, or could reasonably be expected to cause, a material adverse effect, and as of October 31, 2007 the Company was in compliance with all other covenants under the Credit Agreement.

The Company’s obligations under the Credit Agreement are guaranteed by the Company, its domestic subsidiaries, and certain other material subsidiaries of the Company pursuant to a Guarantee and Collateral Agreement, dated May 14, 2007 (the “Guarantee and Collateral Agreement”), among the Company, the subsidiary guarantors thereto from time to time (the “Guarantors”), and the Agent on behalf of the Lenders, and in addition by certain foreign law guarantees issued by certain of the Guarantors. The loans and the other obligations of the Company under the Credit Agreement and related loan documents and the guarantee obligations of the Company and Guarantors are secured by substantially all of the tangible and intangible assets of the Company, and each Guarantor (including, without limitation, the intellectual property and the capital stock of certain subsidiaries) pursuant to the Guarantee and Collateral Agreement, and pursuant to certain foreign debentures and charges against their assets.

In connection with the Credit Agreement and Amendment No. 1, the Company incurred debt financing costs of $5.9 million and $0.3 million, respectively, which were capitalized and are being amortized as additional interest expense over the term of the ~~loans.~~loans using the effective-interest method. During the three and nine months ended October 31, ~~2007,~~2008, the Company paid approximately ~~$4.0~~$2.3 million and ~~$7.5~~$8.6 million, respectively, in interest. The Company recorded ~~$254,382~~$0.3 million and ~~$480,645~~$0.9 million of amortized interest expense related to the capitalized

~~17. RELATED PARTY TRANSACTION~~

In connection with the NETg acquisition, the Company paid a special bonus of $500,000 to one of the members of our Board of Directors for his assistance in negotiating and completing the transaction. This bonus payment is included in general and administrative expense ~~in the accompanying statements of income~~ for the nine months ended October 31, ~~2007.~~2008 and 2007, respectively. During the twelve month period ending October 31, 2009, the Company estimates that it will incur an additional $1.5 million of interest expense relating to the interest rate swap.

~~18.~~

20. SHARE REPURCHASE PROGRAM

On ~~March 23, 2006,~~April 8, 2008, the Company’s shareholders approved a program for the repurchase by the Company of up to an aggregate of ~~3,500,000 American Depositary Shares (“ADS”). None~~10,000,000 ADSs. On September 24, 2008, the Company’s shareholders approved an increase in the number of shares that may be repurchased under the program to 25,000,000 and an extension of the repurchase program until March 23, 2010. During the three and nine months ended October 31, 2008, the Company repurchased a total of 2,985,680 and 5,709,399 shares, respectively, for a total purchase price, including commissions, of $29.3 million and $56.5 million, respectively. The Company retired 11,586,183 shares during the three months ended October 31, 2008, including 6,533,884 shares repurchased in prior fiscal years. As of October 31, 2008, 657,100 of the repurchased shares have not been retired or canceled and are held as treasury stock at cost; the Company intends to retire these shares ~~were repurchased~~in the near future. As of October 31, 2008, 19,290,601 shares remain available for repurchase, subject to certain limitations, under the shareholder approved repurchase program, which expired on September 22, 2007. On May 14, 2007, in connection with the closing of the NETg acquisition, the Company entered into a Credit Agreement that contains customary negative covenants that place limitations on the repurchase of the Company’s shares.program.

~~19.~~

21. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In ~~September 2006,~~February 2007, the FASB, issued SFAS No. ~~157, “~~~~Fair Value Measurements~~,” which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The Company is currently analyzing the effect, if any, SFAS No. 157 will have on its consolidated financial position and results of operations.

~~In February 2007, FASB, issued SFAS No.~~ 159,“The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. ~~115.~~115 ”~~SFAS~~ (SFAS No. ~~159~~159), which permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for fiscal years beginning after November 15, 2007, or February 1, 2008 for SkillSoft. ~~Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year~~The Company adopted SFAS No. 159 on February 1, 2008 and ~~also elects~~elected not to ~~apply the provisions~~measure any additional financial instruments or other items at fair value. Adoption of SFAS No. ~~157. The Company is~~159 did not have a material impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised), “Business Combinations” (SFAS No. 141(R)). SFAS No. 141(R) changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the ~~process~~acquirer’s income tax valuation allowance. SFAS No. 141(R) is effective for the Company for any business combinations for which the acquisition date is on or after February 1, 2009, with early adoption prohibited.

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Table of ~~evaluating~~Contents

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS No. 160). SFAS No. 160 changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings. Additionally, SFAS No. 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest. SFAS No. 160 is effective for the Company in fiscal 2009, with early adoption prohibited. Adoption of SFAS No. 160 did not have a material impact ~~this pronouncement may have~~ on the Company’s financial position or results of operations.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 applies to all derivative instruments and nonderivative instruments that are designated and qualify as hedging instruments pursuant to paragraphs 37 and 42 of Statement 133 and related hedged items accounted for under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133). SFAS No. 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations, and ~~financial condition and whether to adopt the provisions of~~cash flows. SFAS ~~No 159~~No. 161 is effective for the ~~fiscal year beginning~~Company on February 1, ~~2007.~~2009. The Company is currently analyzing the effect, SFAS No. 161 will have on its disclosures related to the Company’s interest rate swap agreement.

ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Any statement in this Quarterly Report on Form 10-Q about our future expectations, plans and prospects, including statements containing the words “believes,” “anticipates,” “plans,” “expects,” “will” and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those set forth under Part II, Item 1A, “Risk Factors.”

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q.

OVERVIEW

We are a leading ~~software~~Software as a ~~service~~Service (SaaS) provider of on-demand e-learning and performance support solutions for global enterprises, government, education and small to medium-sized businesses. ~~SkillSoft helps companies~~We enable business organizations to maximize ~~employee~~business performance through a combination of comprehensive e-learning content, online information resources, flexible learning technologies and support services. Our multi-modal learning solutions support and enhance the speed and effectiveness of both formal and informal learning processes and integrate ~~SkillSoft’s~~our in-depth content resources, learning management system, virtual classroom technology and support services.

We ~~derive~~generate revenue primarily from ~~agreements under which customers~~the license of our products, the provision of professional services as well as from the provision of hosting and ~~purchase our~~application services. The pricing for our courses varies based upon the ~~number of course titles or the courseware bundle licensed~~content offering selected by a customer, the number of users within the customer’s organization and the length of the license agreement (generally one, two or three years). Our agreements permit customers to exchange course titles, generally on the contract anniversary date. ~~Additional~~Hosting services ~~such as hosting and online mentoring,~~ are ~~subject to~~separately licensed for an additional ~~fees.~~fee.

Cost of ~~revenue~~revenues includes the cost of materials (such as storage media), packaging, shipping and handling, CD duplication, ~~the cost of online mentoring~~custom content development and hosting services, royalties and certain infrastructure and occupancy expenses and share-based compensation. We generally recognize these costs as incurred. Also included in cost of ~~revenue~~revenues is amortization expense related to capitalized software development costs and intangible assets related to developed software and courseware acquired in business combinations.

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We account for software development costs in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed” (SFAS No. 86),” which requires the capitalization of certain computer software development costs incurred after technological feasibility is established. No software development costs incurred during the ~~first~~three and nine months of ~~fiscal~~ended October 31, 2008 met the requirements for capitalization in accordance with SFAS No. 86.

Research and development expenses consist primarily of salaries and benefits, share-based compensation, certain infrastructure and occupancy expenses, fees to consultants and course content development fees. Selling and marketing expenses consist primarily of salaries and benefits, share-based compensation, commissions, advertising and promotion expenses, travel expenses and certain infrastructure and occupancy expenses. General and administrative expenses consist primarily of salaries and benefits, share-based compensation, consulting and service expenses, legal expenses, audit and tax preparation costs, regulatory compliance costs and certain infrastructure and occupancy expenses.

Amortization of intangible assets represents the amortization of customer value, non-compete agreements, trademarks and tradenames from our acquisitions of NETg, ~~TLC, Books 24x7~~Targeted Learning Corporation (TLC), Books24x7 and GoTrain Corp. and our merger with SkillSoft Corporation (the SmartForce Merger).

Merger and integration related expenses primarily consist of salaries paid to NETg employees for transitional work assignments, facilities, systems and process integration activities.

~~Restructuring primarily consists of charges associated with international restructuring activities.~~

~~Restatement —~~ SEC investigation expenses primarily ~~consists~~consist of legal and consulting fees incurred related to the ~~ongoing~~SEC’s review of SmartForce’s option granting practices prior to the SmartForce Merger, and historically, the SEC investigation relating to the restatement of SmartForce’s financial statements for 1999, 2000, 2001 and the first two quarters of ~~2002, and more recently, the SEC’s review of SmartForce’s option granting practices prior to the SmartForce Merger.~~2002.

BUSINESS OUTLOOK

In the three and nine months ended October 31, ~~2007,~~2008, we generated ~~revenue~~revenues of ~~$75.1~~$83.1 million and ~~$203.7~~$248.0 million, respectively, as compared to ~~$57.1~~$75.1 million and ~~$167.5~~$203.7 million in the three and nine months ended October 31, ~~2006,~~2007, respectively. We reported net income in the three and nine months ended October 31, ~~2007~~2008 of ~~$5.8~~$12.0 million and ~~$25.7~~$32.0 million, respectively, as compared to ~~$7.1~~$5.8 million and ~~$16.0~~$25.7 million in the three and nine months ended October 31, ~~2006,~~2007, respectively.

While we have achieved increased revenues and profitability from last fiscal year’s comparable periods, we have experienced a more cautious customer environment due to the current challenging global economic climate. In addition, we continue to find ourselves in a challenging business environment due to (i) ~~the overall market adoption rate for e-learning solutions remaining relatively slow, (ii)~~ budgetary constraints on information technology (IT) spending by our current and potential customers, ~~and (iii)~~(ii) price competition and ~~value based~~value-based competitive offerings from a broad array of competitors in the learning market ~~generally. Despite these challenges,~~and (iii) the relatively slow overall market adoption rate for e-learning solutions. In recent months the challenging U.S. and global economic environment has put additional pressure on potential budgetary constraints on IT and spending by our current and potential customers. While we have seen some ~~stability in~~customers put spending on hold, we have seen others increase spending and utilize e-learning as a cost effective alternative to traditional learning. Despite the ~~marketplace and~~challenges, our core business has performed predominately in accordance with our expectations. Our recent revenue growth, as compared to last fiscal year, was primarily the result of the realization of additional revenue from the increased customer base associated with the NETg acquisition, third party resellers of our product and ~~our~~international sales. Our growth prospects are strongest in developing our expanded core business, which leverages our various product lines ~~focused on or~~in a strategy of bundled product offerings, as well as continued distribution partnerships with ~~informal learning, such as those available from our Books 24x7 subsidiary.~~third party resellers and international distribution growth. As a result, we have increased our sales and marketing investment related to ~~those product lines~~these areas to help capitalize on the recent growth and potential continued ~~growth for~~

~~informal learning related products.~~growth. We have also invested aggressively in research and development in those areas to accelerate the time by which our planned new products will be available to our customers. In order to pursue the small and medium-sized business ~~market~~markets, we continue to invest in our telesales ~~unit, but~~business unit; however, we ~~need~~have not seen results in line with our expectations and as a result we have made and will continue to ~~see renewal rates consistent with those of~~make organizational changes as needed to achieve our ~~direct sales business~~expected growth. We plan to ~~determine its potential. We also will consider continuing~~continue to invest in our new business direct field sales team and lead ~~generators.~~generator organizations.

~~On May 14, 2007, we completed our acquisition~~

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Table of NETg for approximately $270 million, subject to customary post-closing adjustments. NETg is a global enterprise-learning delivering integrated learning solutions for businesses, professional associations and government agencies that include instructional content, multiple delivery options, enabling technologies, and a range of expert consulting services. NETg offers many of the same financial and operating characteristics as SkillSoft’s business model, including an annual recurring subscription-based licensing model for access to its learning resources library, a direct sales force distribution system complemented by resellers and telesales support, and a Global 2000 client base offering visibility through multi-year contracts and renewal rates. The acquisition added to our existing offerings through the addition of complementary NETg offerings such as live virtual instructor-led training, blended learning, learning content and custom development services among others. The acquisition supports our overall strategy to continually increase the quality, breadth and flexibility of the learning solutions we can make available to our corporate, government, education and small-to-medium size business customers. Also, the addition of NETg’s capabilities strengthens our ability to compete for a greater share of the $13.2 billion corporate training market that includes many larger players with more comprehensive product offerings.Contents

In ~~addition to our recent acquisition of NETg, we acquired Targeted Learning Corporation (TLC) on February 9, 2007. Under~~ the terms of the acquisition, we paid approximately $4.1 million in cash to acquire TLC. Additional consideration of up to $0.5 million is payable to the shareholders of TLC upon achievement of certain integration milestones prior to February 2008. As ofnine months ended October 31, 2007, $0.3 million of this additional consideration has been paid. The acquisition provides us with a new offering that includes an on-line library of over 300 video-based programs featuring organizational2008 and ~~leadership experts, CEOs and best-selling authors. Programs range in length from two minutes to two hours, and much of this content is presented as 3 to 5 minute segments, or Quick Talks,~~ for ~~easy access. Selected programs as indicated on the course profile page are available for offline use with portable devices that support video, including the Apple iPod~~^®. Users can search the content by Leadership Model category or by title, speaker/author or topic. This product offers many of the same financial and operating characteristics as our business model, including an annual recurring subscription-based licensing model for access to its video-based resource library to be sold through our direct sales force, complemented by resellers and telesales.

~~During~~ the remainder of fiscal ~~2008,~~2009, we ~~will continue to focus on the integration of NETg into our operations. We also~~have and will continue to focus on revenue and earnings growth, excluding normal and anticipated acquisition and integration related expenses, primarily by by:

evaluating our current operating cost structure to determine where we can realize cost efficiencies;

cross selling and up ~~selling,~~ selling;

looking at new markets, which may include expanding or investing internationally;

acquiring new customers through our core sales team as well as through the recently formed New Business Field Sales team;

continuing to execute on our new product and telesales distribution ~~initiatives,~~initiatives; and

continuing to evaluate merger and acquisition and possible partnership opportunities that could contribute to our long-term objectives.

CRITICAL ACCOUNTING POLICIES

We believe that our critical accounting policies are those related to revenue recognition, amortization of intangible assets and impairment of goodwill, share-based compensation, deferral of commissions, restructuring charges, legal contingencies, income taxes and valuation of business combinations. We believe these accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require application of significant judgment by our management. In applying these policies, management uses its judgment in making certain assumptions and estimates. Our critical accounting policies are more fully described under the heading “Critical Accounting Policies” in Note 2 of the Notes to the Consolidated Financial Statements and under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations —– Critical Accounting Policies” in our Annual Report on Form 10-K as filed with the SEC on ~~April 13, 2007.~~March 31, 2008. The policies set forth in our Form 10-K have not changed, except that the critical accounting policy for business combinations described in our Form 10-Q for the quarter ended July 31, 2007 filed with the SEC is a new critical accounting policy in light of the NETg acquisition and income taxes which, has been modified as a result of the adoption of FASB Interpretation (FIN) 48 on February 1, 2007 as described in our Form 10-Q for the quarter ended April 30, 2007 filed with the SEC.changed.

RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, ~~2007~~2008 VERSUS THREE MONTHS ENDED OCTOBER 31, ~~2006~~2007

Three Months Ended October 31,
Dollar Percent Change
Increase/(Decrease) Increase/(Decrease) Percentage of Revenue
2006/2007 2006/2007 2007† 2006†
(In thousands)
Revenue $ 17,989 31 % 100 % 100 %
Cost of revenue — amortization of intangible assets 1,000 135 % 2 % 1 %
Cost of revenue 1,436 21 % 11 % 12 %

Gross profit 15,553 31 % 87 % 87 %

Research and development 3,663 36 % 18 % 18 %
Selling and marketing 3,244 15 % 34 % 38 %
General and administrative 2,605 38 % 13 % 12 %
Amortization of intangible assets 3,222 782 % 5 % 1 %
Merger related integration expenses 2,616 * 3 % —
Restructuring (25 ) (100 )% — —
Restatement — SEC investigation (9 ) (8 )% — —

Total operating expenses 15,316 39 % 73 % 69 %

Operating income 237 2 % 14 % 18 %

Other income/(expense) , net (607 ) 1,734 % (1 )% —
Interest income (483 ) (42 )% 1 % 2 %
Interest expense (3,858 ) 5,591 % (5 )% —

Income before (benefit) / provision for income taxes from continuing operations (4,711 ) (42 )% 9 % 20 %
Provision for income taxes (3,803 ) (93 )% — 7 %

Income from continuing operations (908 ) (13 )% 8 % 12 %

(Loss)/income from operations of businesses to be disposed, net of income tax (351 ) * — —

Net income $ (1,259 ) (18 )% 8 % 12 %

Revenue


*		~~Not meaningful~~

†		~~Does not add due to rounding.~~

~~REVENUE~~

THREE MONTHS ENDED OCTOBER 31,
2007 2006 CHANGE
(In thousands)
Revenue:
Multi-Modal Learning $ 75,124 $ 55,888 $ 19,236
Retail Certification — 1,247 (1,247 )

Total $ 75,124 $ 57,135 $ 17989

	THREE MONTHS ENDED OCTOBER 31, 2008				DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008		2007
(In thousands, except percentages)
Revenues	$	83,064	$	75,124	$	7,940		11	%
Operating income		21,607		10,361		11,246		109	%

~~The primary reasons for~~

Revenue increased primarily due to the ~~increase in~~realization of additional revenue ~~are~~resulting from an increased customer base associated with the ~~additional revenues realized from the acquisitions of~~ NETg acquisition in May 2007 ~~and TLC in February 2007, a growth in sales of our informal learning product lines and~~as well as from continued additional revenue earned under agreements with third party resellers of our products. ~~Approximately $9.0 million~~We expect revenue growth to continue through the fourth quarter of ~~revenues earned in the three months ended October 31, 2007 related~~fiscal 2009 compared to the ~~amortization~~fourth quarter of ~~acquired deferred revenue we retained following the NETg acquisition.~~

The sale of certain assets related to SmartCertify, our Retail Certification business, resulted in a reduction in revenue of $1.3 million in our Retail Certification business for the three months ended October 31, 2007 as compared to the

three months ended October 31, 2006. Revenues from our Retail Certification business will be $0.2 million in fiscal 2008 as compared to $5.0 million in fiscal 2007. Our Retail Certification business will not contribute additional revenue in fiscal 2008.

THREE MONTHS ENDED OCTOBER 31,
2007 2006 CHANGE
(In thousands)
Revenue:
United States $ 59,076 $ 44,689 $ 14,387
International 16,048 12,446 3,602

Total $ 75,124 $ 57,135 $ 17,989

	THREE MONTHS ENDED OCTOBER 31,
(In thousands)	2008		2007		CHANGE
Revenue:
United States	$	61,998	$	59,076	$	2,922
International		21,066		16,048		5,018
Total	$	83,064	$	75,124	$	7,940

Revenue increased by ~~32%~~5% and ~~29%~~31% in the United States and internationally, respectively, in the three months ended October 31, ~~2007~~2008 as compared to the three months ended October 31, ~~2006~~2007 as a result of increased ~~Multi-Modal Learning (MML)~~ revenue generated from the NETg acquisition and ~~TLC acquisitions increased orders~~ from existing customers and new business.

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We exited the fiscal year ended January 31, ~~2007~~2008 with non-cancelable backlog of approximately ~~$181~~$255 million compared to ~~$171~~$181 million at January 31, ~~2006.~~2007. This amount is calculated by combining the amount of deferred revenue at each fiscal year end with the amounts to be added to deferred revenue throughout the next twelve months from billings under committed customer contracts and determining how much of these amounts are scheduled to amortize into revenue during the upcoming fiscal ~~2008.~~year. The amount scheduled to amortize into revenue during fiscal ~~2008~~2009 is disclosed as “backlog” as of January 31, ~~2007.~~2008. Amounts to be added to deferred revenue during fiscal ~~2008~~2009 include subsequent installment billings for ongoing contract periods as well as billings for new or continuing contracts. As a result of the previously described sale of certain assets related to SmartCertify, the balance of non-cancelable backlog at January 31, 2007 reflects a reduction of approximately $5.0 million in SmartCertify backlog when compared to January 31, 2006, and SmartCertify will not contribute new contracts during fiscal 2008.committed contract renewals. We have included this non-GAAP disclosure ~~due to the fact that~~as it is directly related to our subscription based revenue recognition policy. This is a key business metric, which factors into our forecasting and planning activities and provides visibility into fiscal ~~2008~~2009 revenue. ~~The backlog figures provided do not give effect to the NETg acquisition.~~

~~COSTS AND EXPENSES~~

Costs and Expenses

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)			PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Cost of revenues	$	9,374		$	8,282		$	1,092			13	%
As a percentage of revenue		11	%		11	%
Cost of revenues - amortization of intangible assets		1,690			1,740			(50	)		(3	)%
As a percentage of revenue		2	%		2	%

The increase in cost of revenue in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to increased ~~revenue, including costs associated with legacy NETg revenue transactions.~~revenues.

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)			PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Research and development	$	12,138		$	13,710		$	(1,572	)		(11	)%
As a percentage of revenue		15	%		18	%

The ~~increase~~decrease in ~~cost of revenue — amortization of intangible assets~~research and development expense in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to ~~the addition~~a reduction in professional fees of the amortization of the intangible assets acquired from the acquisition of NETg. This increase was partially offset by certain intangible assets related to capitalized software development costs and technology acquired in previous business combinations becoming fully amortized during the previous fiscal year.

~~The increase in research and development expenses in the three months ended October 31, 2007 versus the three months ended October 31, 2006 was primarily due to expenses of $2.2~~$0.8 million ~~associated with maintaining multiple platforms~~ as a result of last year’s third fiscal quarter incurring costs attributable to the acquisition of NETg ~~acquisition,~~and the subsequent integration initiatives, which were materially completed by July 31, 2008. This included maintaining multiple platforms and fulfilling obligations of acquired customer contracts and product commitments assumed in the acquisition of NETg. In addition, ~~we incurred an increase~~there was a decrease in compensation and benefits expense of ~~$1.3~~$0.2 million ~~as a result~~primarily due to performance bonuses being paid in the third quarter of last fiscal year which were related to the acquisition of NETg and the integration efforts of our ~~increased headcount. We anticipate that there will be additional research and development expenses~~employees. There was also a decrease in ~~subsequent periods~~facility charges of $0.4 million for ~~content outsourcing, software outsourcing and additional personnel. Consequently we expect~~the three months ended October 31, 2008 due to ~~incur research and development expenses of approximately $15.0 to $16.0 million~~a reduction in redundant leased space assumed in the ~~fourth quarter~~acquisition of ~~fiscal 2008.~~NETg.

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Selling and marketing	$	26,387		$	25,227		$	1,160		5	%
As a percentage of revenue		32	%		34	%

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The increase in selling and marketing ~~expenses~~expense in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to an increase in compensation and benefits of ~~$2.2~~$1.1 million as a result of ~~our increased~~an increase in sales and marketing headcount, which includes additional direct sales, telesales and field support personnel required to service our ~~the~~ increased customer base as a result of the NETg ~~acquisition. In addition we incurred an additional $0.4 million in commission expense resulting from increased sales~~acquisition, as well as incremental ~~marketing costs of $0.6~~

~~million to support~~commissions resulting from increased order intake and billings from our ~~increased~~larger base business and from the acquired NETg customer base. ~~We anticipate making additional investments related to our sales distribution efforts, sales support~~The decrease in selling and marketing ~~to support our increased customer base and our growth initiatives. As~~expense as a ~~result we expect to incur sales and marketing expenses~~percentage of ~~approximately $28.0 million to $29.0 million in the fourth quarter of fiscal 2008.~~

~~The increase in general and administrative expenses~~revenue in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006 was primarily due to an increase~~2007 reflects the growth of ~~$1.7 million~~revenue partially offset by the aforementioned factors.

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)			PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
General and administrative	$	9,130		$	9,449		$	(319	)		(3	)%
As a percentage of revenue		11	%		13	%

The decrease in costs related to additional headcount, contractors and professional services required to support the increase in customer contracts and the transitional activities undertaken as a result of the NETg acquisition. In addition, we incurred an incremental $0.6 million of deprecation and facility-related costs due to acquired assets and leased office space from the NETg acquisition. We anticipate making additional investments related to headcount and services as required to support our increased customer base and our growth initiatives. Consequently, we expect to incur general and administrative ~~expenses of approximately $8.5 million to $9.5 million for the fourth quarter of fiscal 2008.~~

~~The increase in amortization of intangible assets~~expense in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to a reduction in bad debt expense of $0.5 million resulting from an improvement in collection efforts on accounts receivable as compared to the ~~amortization~~third quarter of fiscal 2008, as well as a reduction in depreciation of fixed assets of $0.3 million and lower facility charges of $0.2 million. This was partially offset by an increase of $0.6 million in professional fees, primarily related to an on-going feasibility analysis related to our business realignment strategy.

Amortization of intangible assets ~~acquired as a result of~~decreased $0.9 million, or 25%, to $2.7 million in the ~~NETg acquisition.~~three months ended October 31, 2008 from $3.6 million in the three months ended October 31, 2007. This decrease was primarily due to certain assets becoming fully amortized during fiscal 2009.

In the three months ended October 31, ~~2007,~~2008, we ~~incurred approximately $2.6 million of~~did not incur material merger and integration related expenses as ~~a result of efforts undertaken~~compared to ~~integrate NETg’s operations into ours. Included~~the $2.6 million in ~~these costs are approximately $1.6 million of salary and benefits for~~the three months ended October 31, 2007. The significant charges in last year’s third quarter were primarily due to the NETg ~~employees conducting transition activities as well as approximately $1.0 million of charges~~acquisition. We do not expect to incur any significant additional merger-related expenses related to ~~facilities, systems and process integration activities.~~the NETg acquisition in future periods.

~~OTHER INCOME/(EXPENSE)~~

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)			PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Other income (expense), net	$	752		$	(642	)	$	1,394			*
As a percentage of revenue		1	%		(1	)%
Interest income		248			654			(406	)		(62	)%
As a percentage of revenue		0	%		1	%
Interest expense		(3,103	)		(3,927	)		(824	)		(21	)%
As a percentage of revenue		(4	)%		(5	)%

____________

* Not meaningful

Other Income (Expense), ~~NET~~Net

The ~~change~~increase in other ~~income/~~income (expense), net in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to foreign currency fluctuations. Due to our multi-national operations, our business is subject to fluctuations based upon changes in the exchange rates between the currencies used in our business. During the three months ended October 31, 2008 the strengthening of the U.S. dollar in relation to certain other foreign currencies resulted in significant gains, whereas in the same period of the prior year, the U.S. dollar declined in relation to foreign currencies.

~~INTEREST INCOME~~

~ 23 ~

Table of Contents

Interest Income

The ~~decrease~~reduction in interest income in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to ~~less funds being available for investment as~~ a ~~result of cash used for the acquisition of NETg~~reduction in ~~May 2007.~~our short-term investments and lower interest rates.

~~INTEREST EXPENSE~~

Interest Expense

The ~~increase~~decrease in interest expense in the three months ended October 31, ~~2007~~2008 versus the three months ended October 31, ~~2006~~2007 was primarily due to a reduction of our debt as a result of $55.3 million in principal debt repayments made in the ~~interest expense recognized~~first half of fiscal 2009.

Provision for Income Taxes

	THREE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Provision (benefit) for income taxes	$	7,438		$	270		$	7,168		2,655	%
As a percentage of revenue		9	%		0	%

For the three months ended October 31, 2008, the effective tax rate of 38.5% was higher than the Irish statutory rate of 12.5% primarily due to earnings realized in higher tax jurisdictions outside of Ireland. The tax benefit for the three months ended October 31, 2007 was influenced significantly by certain purchase accounting tax adjustments as a result of the ~~debt incurred for~~NETg acquisition and the ~~acquisition~~release of ~~NETg as well as the amortization~~$49.1 million of ~~prepaid debt financing costs as interest expense.~~our valuation allowance primarily related to U.S. net operating loss (NOL) carryforwards. Approximately $25 million of this valuation allowance was recorded through reductions to tax expense and $24.1 million was recorded through adjustments to goodwill.

~~DISCONTINUED OPERATIONS~~

Discontinued Operations

In connection with the NETg acquisition, we decided to discontinue four product lines that were acquired from NETg because we ~~believe~~believed these product offerings dodid not represent ~~areas~~businesses that ~~can~~could grow or beproduce operating results consistent with our profit model. The product lines that have been identified as discontinued operations are Wave, NETg Press, Interact Now and Financial Campus. We recorded a loss from discontinued operations, net of tax, of ~~$351,000~~$37 thousand in the three months ended October 31, 2008 versus a loss, net of tax, of $0.4 million in the three months ended October 31, 2007. This was primarily due to NETg Press and Financial Campus ~~were both~~being sold in the three months ended October 31, 2007. In addition, we exited the Wave business in the three months ended October 31, 2007. We ~~expect to exit the Interact Now business by the middle of fiscal 2009 and we~~ do not anticipate itoperations from discontinued operation to materially affect our liquidity, financial condition or results of ~~operations.~~operations going forward.

NINE MONTHS ENDED OCTOBER 31, ~~2007~~2008 VERSUS NINE MONTHS ENDED OCTOBER 31, ~~2006~~2007

Nine Months Ended October 31,
Dollar Percent Change
Increase/(Decrease) Increase/(Decrease) Percentage of Revenue
2006/2007 2006/2007 2007† 2006†
(In thousands)
Revenue $ 36,212 22 % 100 % 100 %
Cost of revenue — amortization of intangible assets (520 ) (12 )% 2 % 3 %
Cost of revenue 3,865 19 % 12 % 12 %

Gross profit 32,867 23 % 86 % 86 %

Research and development 5,402 18 % 17 % 18 %
Selling and marketing 3,114 5 % 35 % 41 %
General and administrative 4,624 22 % 13 % 13 %
Amortization of intangible assets 6,715 542 % 4 % 1 %
Merger related integration expenses 11,110 * 5 % —
Restructuring (13 ) (28 )% — —
Restatement — SEC investigation 894 206 % 1 % —

Total operating expenses 31,846 26 % 75 % 72 %

Operating income 1,021 5 % 11 % 13 %

Other income/(expense) , net (959 ) 1,431 % (1 )% —
Interest income (21 ) (1 )% 1 % 2 %
Interest expense (7,536 ) 3,676 % (4 )% —

Income before (benefit) / provision for income taxes from continuing operations (7,495 ) (30 )% 9 % 15 %
(Benefit) / provision for income taxes (17,062 ) (186 )% (4 )% 5 %

Income from continuing operations 9,567 60 % 13 % 10 %

Income from operations of businesses to be disposed, net of income tax 173 * — —

Net income $ 9,740 61 % 13 % 10 %

Revenue

	NINE MONTHS ENDED OCTOBER 31, 2008				DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008		2007
(In thousands, except percentages)
Revenues	$	248,039	$	203,733	$	44,306		22	%
Operating income		57,796		23,420		34,376		147	%

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Table of Contents


*		~~Not meaningful.~~

†		~~Does not add~~ Revenue increased primarily due to ~~rounding.~~

~~REVENUE~~

NINE MONTHS ENDED OCTOBER 31,
2007 2006 CHANGE
(In thousands)
Revenue:
Multi-Modal Learning $ 203,520 $ 163,018 $ 40,502
Retail Certification 213 4,503 (4,290 )

Total $ 203,733 $ 167,521 $ 36,212

~~The primary reasons for~~ the ~~increase~~realization of additional revenue resulting from an increased customer base associated with the acquisition of NETg in ~~revenue are the additional revenues realized~~May 2007 as well as from ~~the NETg acquisition, a growth in sales of our informal learning product lines and~~continued additional revenue earned under agreements with third party resellers of our products. ~~Approximately $19.8 million of revenue earned in the nine months ended October 31, 2007 relates to the amortization of acquired deferred revenue we retained following the NETg acquisition.~~

The sale of certain assets related to SmartCertify, our Retail Certification business, resulted in a reduction in revenue of $4.3 million in our Retail Certification business for the nine months ended October 31, 2007 as compared to the nine months ended October 31, 2006. Revenue from our Retail Certification business will be $0.2 million in fiscal 2008 as compared to $5.0 million in fiscal 2007 as our Retail Certification business will not contribute additional revenue in fiscal 2008.

NINE MONTHS ENDED OCTOBER 31,
(IN THOUSANDS) 2007 2006 CHANGE
(In thousands)
Revenue:
United States $ 160,161 $ 131,155 $ 29,006
International 43,572 36,366 7,206

Total $ 203,733 $ 167,521 $ 36,212

	NINE MONTHS ENDED OCTOBER 31,
(In thousands)	2008		2007		CHANGE
Revenue:
United States	$	181,807	$	160,161	$	21,646
International		66,232		43,572		22,660
Total	$	248,039	$	203,733	$	44,306

Revenue increased by ~~22%~~14% and ~~20%~~52% in the United States and internationally, respectively, in the nine months ended October 31, ~~2007~~2008 as compared to the nine months ended October 31, ~~2006~~2007 as a result of increased ~~MML~~ revenue generated from the NETg ~~and TLC acquisitions~~acquisition and from existing customers and new ~~business.~~business as well as from continued additional revenue earned under agreements with third party resellers of our products.

~~COSTS AND EXPENSES~~

Costs and Expenses

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Cost of revenues	$	28,013		$	23,827		$	4,186		18	%
As a percentage of revenue		11	%		12	%
Cost of revenues - amortization of intangible assets		5,170			3,683			1,487		40	%
As a percentage of revenue		2	%		2	%

The increase in cost of revenue in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to increased ~~revenue as well as costs associated with legacy NETg revenue transactions.~~revenue. Gross margin remained consistent during these periods.

The ~~decrease~~increase in cost of revenue — amortization of intangible assets in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to certain intangible assets related to capitalized software development costs and technology acquired in business combinations becoming fully amortized during the previous fiscal year. This decrease was partially offset by the addition of the amortization of the intangible assets acquired ~~from~~in the acquisition of ~~NETg.~~NETg being included for the entire nine month period of fiscal 2009 versus less than six months in fiscal 2008, partially offset by certain intangible assets becoming fully amortized since October 31, 2007.

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Research and development	$	38,136		$	35,315		$	2,821		8	%
As a percentage of revenue		15	%		17	%

The increase in research and development ~~expenses~~expense in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to ~~expenses~~additional contractor and outsource partner costs of ~~$3.9~~$1.4 million ~~associated with~~to support expanded product and software development initiatives resulting from our larger customer base. A portion of these incremental costs are attributable to NETg integration initiatives, which include maintaining multiple platforms, ~~as a result of the NETg acquisition,~~ fulfilling obligations of acquired customer contracts and product commitments assumed in the acquisition of NETg. In addition, we incurred an increase in compensation and benefits expense of ~~$1.7~~$1.8 million as a result of an increase in our ~~increased~~research and development headcount. The decrease in research and development expense as a percentage of revenue in the nine months ended October 31, 2008 versus the nine months ended October 31, 2007 reflects the growth of revenue partially offset by the aforementioned factors.

~ 25 ~

Table of Contents

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Selling and marketing	$	82,185		$	71,489		$	10,696		15	%
As a percentage of revenue		33	%		35	%

The increase in selling and marketing ~~expenses~~expense in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to an increase in compensation and benefits of ~~$1.9~~$8.6 million as a result of an increase in our ~~increased~~sales and marketing headcount, which ~~include~~includes additional direct sales, telesales and field support personnel required to service our increased customer base as a result of the NETg ~~acquisition.~~acquisition, as well as incremental commissions resulting from increased order intake and billings from our larger base business and from the acquired NETg customer base. In addition, we incurred incremental marketing costs of ~~$1.0~~$1.2 million to support our larger customer base, which includes the ~~increased customer base.~~expense associated with our efforts to retain customers acquired in the NETg acquisition. The decrease in selling and marketing expense as a percentage of revenue in the nine months ended October 31, 2008 versus the nine months ended October 31, 2007 reflects the growth of revenue partially offset by the aforementioned factors.

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
General and administrative	$	27,454		$	25,572		$	1,882		7	%
As a percentage of revenue		11	%		13	%

The increase in general and administrative ~~expenses~~expense in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, 2007 was primarily due to an increase of $3.1 million in costs associated with the inclusion of additional headcount, contractors and professional services required to support the increase in customer contracts and the transitional activities undertaken as a result of the NETg acquisition. In addition, we incurred an incremental $1.3$3.4 million of ~~deprecation and facility~~professional fees primarily related ~~costs due~~ to ~~acquired assets and leased office space from the NETg acquisition,~~our share capital reduction initiative aimed at increasing distributable profits in our Irish parent entity as well as ~~approximately~~a feasibility analysis related to our business realignment strategy. This was partially offset by a reduction in bad debt expense of $0.5 million resulting from improved collection efforts on accounts receivable balances compared to the fiscal 2008 third quarter, as well as a reduction in depreciation of ~~consulting expense paid~~fixed assets of $0.7 million, which was due primarily to ~~a member of our board of directors~~certain fixed assets related to the NETg ~~acquisition.~~

acquisition becoming fully depreciated by the end of fiscal 2008 and lower facility charges of $0.3 million. The ~~increase~~decrease in ~~amortization~~general and administrative expense as a percentage of ~~intangible assets~~revenue in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 reflects the growth of revenue partially offset by the aforementioned factors.

Amortization of intangible assets increased $0.5 million, or 7%, to $8.5 million in the nine months ended October 31, 2008 from $8.0 million in the nine months ended October 31, 2007. This was primarily due to the amortization of the intangible assets acquired ~~as a result~~in the acquisition of NETg being included for the ~~NETg acquisition.~~entire nine month period of fiscal 2009 versus less than six months in fiscal 2008, partially offset by certain intangible assets becoming fully amortized since October 31, 2007.

Merger and integration related expenses decreased $10.3 million, or 93%, to $0.8 million in the nine months ended October 31, ~~2007, we incurred approximately~~2008 from $11.1 ~~million of merger~~in the nine months ended October 31, 2007. This was primarily due to the significant charges in last year’s second and ~~integration related expenses as a result~~third quarter when the NETg acquisition was consummated, and the near completion of efforts undertaken to integrate NETg’s operations into ~~ours. Included in these costs are approximately $7.7 million~~ours during fiscal 2009.

~ 26 ~

Table of ~~salary and benefits for NETg employees conducting transition activities as well as approximately $3.4 million of charges related to facilities, systems and process integration activities.~~Contents

~~Restatement —~~In the nine months ended October 31, 2008, we did not incur material SEC investigation ~~charges increased~~expenses as compared to the $1.3 million in the nine months ended October 31, ~~2007 versus the nine months ended October 31, 2006~~2007. This is due to ~~an increase~~a decrease in legal ~~expenses~~activities related to the SEC’s informal inquiry into the pre-merger option granting practices at SmartForce.

~~OTHER INCOME/(EXPENSE), NET~~

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)			PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Other expense, net	$	(282	)	$	(1,026	)	$	(744	)		(73	)%
As a percentage of revenue		(0	)%		(1	)%
Interest income		1,440			2,990			(1,550	)		(52	)%
As a percentage of revenue		1	%		1	%
Interest expense		(10,116	)		(7,741	)		2,375			31	%
As a percentage of revenue		(4	)%		(4	)%

Other Expense, Net

The change in other ~~income/ (expense),~~expense, net in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to foreign currency fluctuations. Due to our multi-national operations,

our business is subject to fluctuations based upon changes in the exchange rates between the currencies used in our business.

~~INTEREST INCOME~~

Interest Income

The reduction of interest income in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006 remained relatively unchanged. Although more funds were available for investment~~2007 was primarily due to a reduction in our short-term investments and ~~higher~~lower interest rates on our cash and cash equivalents and investments during the first three months of fiscal 2008, this increase was offset by the reduction of funds available for investment as a result of cash used for the acquisition of NETg in May 2007.rates.

~~INTEREST EXPENSE~~

Interest Expense

The increase in interest expense in the nine months ended October 31, ~~2007~~2008 versus the nine months ended October 31, ~~2006~~2007 was primarily due to the interest expense ~~recognized as a result of~~on the debt incurred for the acquisition of NETg ~~as well as~~being incurred for the ~~amortization of prepaid debt financing costs as interest expense.~~full nine months through October 31, 2008 versus only six months through October 31, 2007. This was partially offset by $55.3 million in prepayments made during fiscal 2009 to reduce debt.

~~PROVISION FOR INCOME TAXES~~

Provision for Income Taxes

	NINE MONTHS ENDED OCTOBER 31, 2008						DOLLAR INCREASE/(DECREASE)		PERCENT CHANGE
	2008			2007
(In thousands, except percentages)
Provision (benefit) for income taxes	$	18,790		$	(7,886	)	$	26,676		(338	)%
As a percentage of revenue		8	%		(4	)%

For the nine months ended October 31, ~~2007, we had a~~2008, the effective tax ~~benefit~~rate of ~~$7.9 million versus a~~38.5% was higher than the Irish statutory rate of 12.5% primarily due to earnings realized in higher tax ~~provision~~jurisdictions outside of ~~$9.2 million for~~Ireland. For the nine ~~months ended October 31, 2006. The tax benefit for the nine months~~month period ended October 31, 2007, ~~has been significantly influenced by~~ the ~~release~~$8.2 million tax benefit was comprised of ~~approximately $49.1~~a $25 million ~~of U.S.~~deferred tax benefit related to the reduction in our deferred tax asset valuation allowance, ~~on net operating loss (NOL) carryforwards,~~which was partially offset by a provision for income taxes based on the projected effective tax rate for the fiscal year ended January 31, 2008 prior to the valuation allowance adjustment. Approximately $25 million of the valuation allowance release was recorded through a reduction to tax expense and $24.1 million was recorded through an adjustment to goodwill. Additionally, the projected annual tax provision is impacted by the effects of certain purchase accounting tax adjustments ~~required in purchase accounting for~~related to the NETg acquisition.

~~DISCONTINUED OPERATIONS~~

In connection with the NETg acquisition, we decided to discontinue four product lines acquired from NETg because we believe these product offerings do not represent areas that can grow or be consistent with our profit model. The product lines that have been identified as discontinued operations are Wave, NETg Press, Interact Now and Financial Campus. We recorded incomeDiscontinued Operations

Income from discontinued operations ~~net of tax, of $173,000~~was $1.9 million in the nine months ended October 31, 2008 versus $0.2 million during the nine months ended October 31, 2007. This increase was primarily due to the acquirer of our former NETg Press business prepaying the remaining portion of the purchase price for the NETg Press business during the nine months ended October 31, 2008, which resulted in a gain from the disposal of $2.0 million, net of income tax.

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LIQUIDITY AND CAPITAL RESOURCES

As of October 31, ~~2007,~~2008, our principal source of liquidity was our cash and cash equivalents and short-term investments, which totaled ~~$50.6~~$73.6 million. This compares to ~~$104.1~~$89.6 million at January 31, ~~2007.~~2008.

Net cash provided by operating activities of ~~$8.5~~$75.4 million for the nine months ended October 31, ~~2007~~2008 was primarily due to a decrease in accounts receivable of $92.8 million. Net cash provided by operating activities was also a result of net income from continuing operations of ~~$25.5~~$30.0 million, which included the impact of non-cash expenses for depreciation and amortization and amortization of intangible assets of ~~$17.1~~$17.6 million, non-cash provision for income taxes of $15.7 million and share-based compensation expense of ~~$4.0 million. Net cash provided by operating activities was also a result of a decrease in accounts receivable of $36.3 million as well as a decrease in prepaid and other current assets of $14.1~~$4.5 million. These amounts were partially offset by a decrease in accrued expenses of ~~$45.6~~$23.4 million as well as a decrease in deferred revenue of ~~$33.7 million and a non-cash income tax benefit of $9.0~~$68.6 million. ~~The~~These decreases in accounts receivable, accrued expenses and deferred revenue are primarily a result of the seasonality of our operations, with the fourth quarter of our fiscal year historically generating the most ~~activity.~~activity, including order intake and billing.

Net cash ~~used in~~provided by investing activities was ~~$232.2~~$0.7 million for the nine months ended October 31, ~~2007,~~2008, which includes ~~cash used to acquire NETg~~the maturities of ~~$275 million,~~investments, net of purchases, generating a cash ~~acquired and cash used to acquire TLC~~inflow of $3.9 million, net of cash acquired. In addition we had disposition of net assets of $6.0 million related to the sale of NETg Press and Financial Campus in which we received only nominal cash on the close of the sale of these businesses.approximately $4.8 million. This was partially offset by the ~~maturity~~purchases of ~~investments generating a cash inflow~~capital assets of approximately ~~$38.8 million, net of purchases, in the nine months ended October 31, 2007. In addition, approximately $16.2 million of cash was~~$4.1 million.

released from restricted cash as a result of making the final payment related to the settlement of the 2002 class action lawsuit in April 2007. Prior to making that payment, we were required to place a restriction on this cash to secure an outstanding letter of credit of $15.5 million.

Net cash ~~provided by~~used in financing activities was ~~$204.7~~$91.1 million for the nine months ended October 31, ~~2007. This was the result of borrowing under long-term~~2008. During this period, we made principal payments on our debt of ~~$194.1~~$55.3 million ~~net~~and purchased shares having a value of ~~debt acquisition costs, as well as~~$56.5 million under our shareholder-approved share repurchase program. These uses of cash were partially offset by proceeds of ~~$11.1~~$19.5 million we received from ~~both of~~ the exercise of share options under our various share option programs and share purchases made under our 2004 Employee Share Purchase Plan.

Cash provided from discontinued operations for the nine months ended October 31, 2008 included the gross proceeds of $6.9 million from the sale of NETg Press.

We had a working capital ~~deficit~~ of approximately ~~$35.7~~$6.0 million as of October 31, ~~2007~~2008 and ~~had working capital of~~ approximately ~~$38.1~~$30.4 million as of January 31, ~~2007.~~2008. The decrease in ~~our~~ working capital was primarily due to ~~cash used to acquire NETg~~principal debt payments of ~~$77.0~~$55.3 million and ~~cash used to acquire TLC~~the purchase of ~~$4.1 million.~~treasury shares having a value of $56.5 million under our shareholder-approved share repurchase program. This was partially offset by net income from continuing operations of $30.0 million, which includes non-cash charges for depreciation and amortization of $17.6 million, share-based compensation expense of $4.5 million and a non-cash tax charge of $15.7 million. Additionally, we received proceeds of ~~$11.1~~$19.5 million ~~we received~~ from ~~both of~~ the exercise of share options under our various share option programs and from share purchases made under our 2004 Employee Share Purchase Plan.

As of January 31, ~~2007,~~2008, we had U.S. ~~federal net operating loss (NOL)~~NOL carryforwards of approximately ~~$284.2~~$258.3 million. These NOLs represent the gross carrying value of operating loss carryforwards. The NOL carryforwards, which are subject to potential limitations based upon change in control provisions of Section 382 of the Internal Revenue Code, are available to reduce future taxable income, if any, through 2025. Included in the ~~$284.2~~$258.3 million ~~are~~of U.S. NOL carryforwards is approximately ~~$157.1~~$121.3 million of U.S. NOL carryforwards that were acquired in the SmartForce Merger and the purchase of ~~Books~~Book 24x7. As a result of the release of the U.S. valuation allowance in the nine months ended October 31, 2007, we realized the benefits of approximately $69 million of these acquired NOL carryforwards through a reduction to goodwill and approximately $71 million of these NOL carryforwards through a reduction to the provision for income taxes. We will realize the remaining benefits of these acquired NOL carryforwards through reductions to goodwill and non-goodwill intangible assets. Also included in the ~~$284.2 million are approximately $127.1 million of U.S. NOL carryforwards that relate to our operations. Additionally, included in the $284.2~~$258.3 million at January 31, ~~2007~~2008 is approximately ~~$30.8~~$36.3 million of NOL carryforwards in the United States resulting from disqualifying dispositions. We will realize the benefit of these losses through increases to shareholder’s equity in the periods in which the losses are utilized to reduce tax payments. We also acquired $365,000 of U.S. tax credit carryforwards in the SmartForce Merger and the purchase of Books 24x7. As with the acquired NOL carryforwards, we will realize the benefits of these credit carryforwards through reductions to goodwill and non-goodwill intangible assets. Additionally, we had approximately ~~$93.5~~$193.0 million of NOL carryforwards in jurisdictions outside of the U.S. ~~In addition, included~~Included in the ~~$93.5~~$193.0 million is approximately ~~$88.1~~$142.2 million of NOL carryforwards ~~in jurisdictions outside the U.S.~~, which were acquired in the SmartForce Merger, the purchase of Books24x7 and the purchase of ~~Books 24x7.~~NETg foreign entities. We will realize the benefits of these acquired NOL carryforwards through reductions to goodwill and non-goodwill intangible ~~assets.~~assets during the period that the losses are utilized. We also had U.S. federal tax credit carryforwards of approximately ~~$6.8~~$2.5 million at January 31, ~~2007.~~2008.

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We lease certain of our facilities and certain equipment and furniture under operating lease agreements that expire at various dates through 2023. In addition, we have a ~~note payable related to the acquisition of NETg~~term loan which will be paid out over the next 65 years. Future minimum lease payments, net of estimated ~~rentals,~~sub-rentals, under these agreements and the debt repayments schedule are as follows (in thousands):

Payments Due by Period
Less Than 1-3 3-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
Operating Lease Obligations $ 22,834 $ 7,745 $ 6,538 $ 2,060 $ 6,491
Debt Obligations 199,500 2,000 4,000 4,000 189,500

Total Obligations $ 222,334 $ 9,745 $ 10,538 $ 6,060 $ 195,991

~~On February 9,~~

	Payments Due By Period
			Less Than		1 - 3		3 - 5		More Than
Contractual Obligations	Total		1 Year		Years		Years		5 Years
Operating Lease Obligations	$	13,185	$	4,442	$	5,504	$	3,239	$	-
Debt Obligations		143,697		1,455		2,910		139,332		-
Total Obligations	$	156,882	$	5,897	$	8,414	$	142,571	$	-

We do not have any off-balance sheet arrangements, as defined under SEC rules, such as relationships with unconsolidated entities or financial partnerships, which are often referred to as structured finance or special purpose entities, established for the purpose of facilitating transactions that are not required to be reflected on our balance sheet.

In May 2007, we acquired the assets of TLC for approximately $4.1 million with additional consideration of up to $0.5 million payable to the shareholders of TLC based upon the achievement of certain integration milestones prior to February 2008. As of October 31, 2007, $0.3 million of this additional consideration had been paid.

We used approximately $77.0 million of our cash on May 14, 2007 for the purchase price and related expenses of the NETg acquisition. In connection with the closing of the NETg acquisition, we (and our subsidiary SkillSoft Corporation) entered into a ~~Credit Agreement~~credit agreement with ~~Credit Suisse, as agent, and~~ certain ~~other parties. The Credit Agreement provides~~lenders providing for a ~~$225~~$225.0 million senior ~~secured~~ credit facility comprised of a $200 million term loan facility

and a ~~$25~~$25.0 million revolving credit facility. ~~Proceeds~~On July 7, 2008, we entered into an amendment to the credit agreement. The primary purpose of the ~~term loan facility were used~~amendment was to finance the NETg acquisition and the revolving credit facility may be used for general corporate purposes. In connection with the NETg acquisition, SkillSoft Corporation borrowed the entire $200 million availableexpand our ability to make additional repurchases of shares. The expanded repurchase ability under the term loan facility. The term loan bears interest at a rate per annum equal to, at our election, (i) an alternative base rate plus a margin of 1.75% or (ii) adjusted LIBOR plus a margin of 2.75%, and revolving loans bear interest at a rate per annum equal to, at our election, (i) an alternative base rate plus a margin of 1.50% to 1.75% or (ii) adjusted LIBOR plus a margin of 2.50% to 2.75%. The alternative base rateamendment is the greater of Credit Suisse’s prime rate and the federal funds effective rate plus 0.50%. Overdue amounts under the Credit Agreement bear interest at a rate per annum equal to 2.00% plus the rate otherwise applicable to such loan.

~~We are required to pay the lenders a commitment fee at a rate per annum of 0.50%~~conditioned on the average daily unused amount of the revolving credit facility commitments of the lenders during the period for which payment is made, payable quarterly in arrears. The term loan is payable in 24 consecutive quarterly installments of (i) $500,000 in the case of each of the first 23 installments, on the last day of each of September, December, March, and June commencing September 30, 2007 and ending on March 31, 2013, and (ii) the balance due on May 14, 2013. The revolving credit facility terminates on May 14, 2012, at which time all outstanding borrowings under the revolving credit facility are due. We may optionally prepay loans under the Credit Agreement at any time, without penalty. The loans are subject to mandatory prepayment in certain circumstances.

The Credit Agreement contains customary representations and warranties as well as affirmative and negative covenants. Affirmative covenants include, among others, with respect to us and our subsidiaries, maintenance of existence, financial and other reporting, payment of obligations, maintenance of properties and insurance, maintenance of a credit rating, and interest rate protection. Negative covenants include, among others, with respect to us and our subsidiaries, limitations on incurrence or guarantees of indebtedness, limitations on liens, limitations on sale and lease-back transactions, limitations on investments, limitations on mergers, consolidations, asset sales and acquisitions, limitations on dividends, share redemptions and other restricted payments, limitations on affiliate transactions, limitations on hedging transactions, and limitations on capital expenditures. The Credit Agreement also includes a leverage ratio covenant and an interest coverage ratio covenant (the ratio of our consolidated EBITDA to our consolidated interest expense as calculated pursuant to the Credit Agreement).

The Credit Agreement contains customary events of default, including, among others, inaccuracy of representations and warranties in any material respect, non-payment of principal, interest or other amounts when due, violation of covenants, cross-defaults with other material indebtedness, certain undischarged judgments, the occurrence of certain ERISA or bankruptcy or insolvency events and the occurrence of a Change in Control (as defined in the Credit Agreement). Upon the occurrence and during the continuanceabsence of an event of default and a requirement that (i) the leverage ratio shall be no greater than 2.75:1.0 as of the most recently completed fiscal quarter ending prior to the date of such repurchase and (ii) that we make a prepayment of the term loan under the ~~Credit Agreement,~~credit agreement in an amount equal to the ~~lenders may declare~~dollar amount of any such repurchase. Such term loan prepayments will not, however, be required in connection with the ~~loans~~first $24.0 million of repurchases made from and ~~all other obligations under~~after July 7, 2008.

Please see Note 10 of The Notes to the ~~Credit Agreement immediately due~~Consolidated Financial Statements in our Annual Report on Form 10-K as filed with the SEC on March 31, 2008 and ~~payable. A bankruptcy or insolvency event of default causes such obligations automatically to become immediately due and payable.~~

~~Within the definitions~~our 8-K filed July 11, 2008, for a detailed description of the Credit Agreement, a material adverse effect shall mean a material adverse condition or material adverse change in or materially and adversely affecting (a) the business, assets, liabilities, operations or financial condition of Holdings, the Borrower and the Subsidiaries, takencredit agreement, as a whole, or (b) the validity or enforceability of any of the loan Documents or the rights and remedies of Administrative Agent, the Collateral Agent or the Secured Parties there under. No event, change or condition has occurred since January 31, 2007 that has caused, or could reasonably be expected to cause, a material adverse effect and as of October 31, 2007 we were in compliance with all other covenants under the Credit Agreement.amended.

~~The loans and our other obligations under the Credit Agreement and related loan documents are secured by substantially all of our tangible and intangible assets.~~

In conjunction with the Credit Agreement we entered into a $159.6 million Hedge Contract at a rate of 5.1015% to limit our exposure to the possible fluctuations of the LIBOR. Under the terms of the Credit Agreement we are required to hedge a minimum of 50% of the Term Loan for a period of two years.

We will continue to invest in research and development and sales and marketing in order to execute our business plan and achieve expected revenue growth. To the extent that our execution of the business plan results in increased

sales, we expect to experience corresponding increases in deferred revenue, cash flow and prepaid expenses. Capital expenditures for the fiscal year ~~ending~~ended January 31, ~~2008~~2009 are expected to be approximately $5.0 million to $7.0 million.

We expect that the principal sources of funding for our operating expenses, capital expenditures, debt payment obligations and other liquidity needs will be a combination of our available cash and cash equivalents and short-term investments, and funds generated from future cash flows from operating activities. We believe our current funds and expected cash flows from operating activities will be sufficient to fund our operations, including our debt repayment obligations, for at least the next 12 months. However, there are several items that may negatively impact our available sources of funds. In addition, our cash needs may increase due to factors such as unanticipated developments in our business or the marketplace for our products in general or significant acquisitions (in addition to and including NETg). The amount of cash generated from operations will be dependent upon the successful execution of our business plan. Although we do not foresee the need to raise additional capital, any unanticipated economic or business events could require us to raise additional capital to support our operations.

EXPLANATION OF USE OF NON-GAAP FINANCIAL RESULTS

In addition to our audited and unaudited financial results in accordance with United States generally accepted accounting principles (GAAP), to assist investors we may on occasion provide certain non-GAAP financial results as an alternative means to explain our periodic results. The non-GAAP financial results typically exclude non-cash or one-time charges or benefits.

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Our management uses the non-GAAP financial results internally as an alternative means for assessing our results of operations. By excluding non-cash charges such as share-based compensation, amortization of purchased intangible assets, impairment of goodwill and purchased intangible assets, management can evaluate our operations excluding these non-cash charges and can compare its results on a more consistent basis to the results of other companies in our industry. By excluding charges such as restructuring ~~charges/~~charges (benefits), and merger and integration related expenses, our management can compare our ongoing operations to prior quarters where such items may be materially different and to ongoing operations of other companies in our industry who may have materially different ~~one-time~~unusual charges. Our management recognizes that non-GAAP financial results are not a substitute for GAAP results, but believes that non-GAAP measures are helpful in assisting them in understanding and managing our business.

Our management believes that the non-GAAP financial results may also provide useful information to investors. Non-GAAP results may also allow investors and analysts to more readily compare our operations to prior financial results and to the financial results of other companies in the industry who similarly provide non-GAAP results to investors and analysts. Investors may seek to evaluate our business performance and the performance of our competitors as they relate to cash. Excluding one-time and non-cash charges may assist investors in this evaluation and ~~comparison.~~comparisons.

In addition, certain covenants in our ~~Credit Agreement~~credit agreement are based on non-GAAP financial measures, such as adjusted EBITDA, and evaluating and presenting these measures allows us and our investors to assess our compliance with the covenants in our ~~Credit Agreement~~credit agreement and thus our liquidity situation.

Our management recognizes that non-GAAP financial results are not a substitute for GAAP results, but believes that non-GAAP measures are helpful in assisting them in understanding and managing our business.

We intend to continue to assess the potential value of reporting non-GAAP results consistent with applicable rules and regulations.

ITEM 3. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of October 31, ~~2007,~~2008, we did not use derivative financial instruments for speculative or trading purposes.

INTEREST RATE RISK

Our general investing policy is to limit the risk of principal loss and to ensure the safety of invested funds by limiting market and credit risk. We currently use a registered investment manager to place our investments in highly liquid money market accounts and government-backed securities. All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Interest income is sensitive to changes in

the general level of U.S. interest rates. Based on the short-term nature of our investments, we have concluded that there is no significant market risk exposure.

In order to limit our exposure to interest rate changes associated with our term loan, we entered into an interest rate swap agreement with an initial notional amount of $160 million which amortizes over a period consistent with our anticipated payment schedule. This strategy uses an interest rate swap to effectively convert $160 million in variable rate borrowings into fixed rate liabilities at a 5.1015% effective interest rate. The interest rate swap is considered to be a hedge against changes in the amount of future cash flows associated with interest payments on a variable rate loan.

FOREIGN CURRENCY RISK

Due to our multi-national operations, our business is subject to fluctuations based upon changes in the exchange rates between the currencies in which we collect revenues or pay expenses and the U.S. dollar. Our expenses are not necessarily incurred in the currency in which revenue is generated, and, as a result, we are required from time to time to convert currencies to meet our obligations. These currency conversions are subject to exchange rate fluctuations, in particular with respect to changes toin the value of the Euro, Canadian dollar, Australian dollar, New Zealand dollar, Singapore dollar, and ~~United Kingdom~~ pound sterling relative to the U.S. dollar, which could adversely affect our business and ~~the~~our results of operations. During the nine months ended October 31, ~~2007~~2008 and ~~2006,~~2007, we incurred a foreign currency exchange ~~losses~~gain of ~~$546,000~~$0.3 million and ~~$252,000,~~a foreign currency exchange loss of $0.5 million, respectively.

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ITEM 4. — CONTROLS AND PROCEDURES

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of October 31, ~~2007.~~2008. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ~~as amended~~ (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 31, ~~2007,~~2008, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended October 31, ~~2007~~2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. — LEGAL PROCEEDINGS

See Part III Item 13 of our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the fiscal ~~quarter~~year ended ~~July~~January 31, ~~2007~~2008 for a discussion of legal proceedings. There were no material developments in these proceedings during the quarter ended October 31, ~~2007.~~2008.

ITEM 1A. —– RISK FACTORS

Investors should carefully consider the risks described below before making an investment decision with respect to our shares. While the following risk factors have been updated to reflect developments subsequent to the filing of our Annual Report on Form 10-K for the fiscal year ended January 31, ~~2007,~~2008, there have been no material changes to the risk factors included in that ~~report, except that the risk related to the ongoing investigation by the SEC has been revised to reflect developments in that investigation.~~

~~RISKS RELATED TO LEGAL PROCEEDINGS~~report.

~~WE ARE THE SUBJECT OF AN ONGOING INVESTIGATION BY THE SEC.~~

We had been the subject of a formal investigation by the United States Securities and Exchange Commission (“SEC”) into the events and circumstances giving rise to the 2003 restatement of SmartForce PLC’s accounts (the “Restatement Investigation”). On July 19, 2007, the SEC announced that three former officers and one former employee of SmartForce had settled SEC claims in connection with the Restatement Investigation. The former officers/employee have made payments in connection with their settlements. It is possible that they may seek to require us to indemnify them for such payments. We understand that the Restatement Investigation has now been concluded without any claim being brought against us.

The Boston District Office of the SEC informed us in January 2007 that we are the subject of an informal investigation concerning options granting practices at SmartForce for the period beginning April 12, 1996 through July 12, 2002. These grants were made prior to the September 6, 2002 merger with SmartForce PLC. We have produced documents in response to requests from the SEC.

We continue to cooperate with the SEC in this matter. At the present time, we are unable to predict the outcome of this matter or its potential impact on our operating results or financial position. However, we may incur substantial costs in connection with the SEC investigation, and this investigation could cause a diversion of management time and attention. In addition, we could be subject to penalties, fines or regulatory sanctions or claims by our former officers, directors or employees for indemnification of costs they may incur in connection with the SEC investigation. Any or all of those issues could adversely affect our business, operating results and financial position.

CLAIMS THAT WE INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS COULD RESULT IN COSTLY LITIGATION OR ROYALTY PAYMENTS TO THIRD PARTIES, OR REQUIRE US TO REENGINEER OR CEASE SALES OF OUR PRODUCTS OR SERVICES.

Third parties have in the past and could in the future claim that our current or future products infringe their intellectual property rights. Any claim, with or without merit, could result in costly litigation or require us to reengineer or cease sales of our products or services, any of which could have a material adverse effect on our business. Infringement claims could also result in an injunction in the use of our products or require us to enter into royalty or licensing agreements. Licensing agreements, if required, may not be available on terms acceptable to the combined company or at all.

From time to time we learn of parties that claim broad intellectual property rights in the e-learning area that might implicate our offerings. These parties or others could initiate actions against us in the future.

~~WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR CUSTOMERS’ USE OF OUR PRODUCTS AND SERVICES.~~

Many of the business interactions supported by our products and services are critical to our customers’ businesses. Any failure in a customer’s business interaction or other collaborative activity caused or allegedly caused in the future by our products and services could result in a claim for substantial damages against us, regardless of our responsibility for the failure. Although we maintain general liability insurance, including coverage for errors and omissions, there can be no assurance that existing coverage will continue to be available on reasonable terms or will be available in amounts sufficient to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim.

~~WE COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE OBTAIN FROM THIRD PARTIES OVER WHOM WE EXERT LIMITED CONTROL.~~

It is possible that we could become subject to legal actions based upon claims that our course content infringes the rights of others or is erroneous. Any such claims, with or without merit, could subject us to costly litigation and the diversion of our financial resources and management personnel. The risk of such claims is exacerbated by the fact that our course content is provided by third parties over whom we exert limited control. Further, if those claims are successful, we may be required to alter the content, pay financial damages or obtain content from others.

~~SOME OF OUR INTERNATIONAL SUBSIDIARIES HAVE NOT COMPLIED WITH REGULATORY REQUIREMENTS RELATING TO THEIR FINANCIAL STATEMENTS AND TAX RETURNS.~~

We operate our business in various foreign countries through subsidiaries organized in those countries. Due to our restatement of the historical SmartForce financial statements, some of our subsidiaries have not filed their audited statutory financial statements and have been delayed in filing their tax returns in their respective jurisdictions. As a result, some of these foreign subsidiaries may be subject to regulatory restrictions, penalties and fines and additional taxes.

RISKS RELATED TO THE OPERATION OF OUR BUSINESS

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE ~~SIGNIFICANTLY. THIS LIMITS~~SIGNIFICANTLY, LIMITING YOUR ABILITY TO EVALUATE HISTORICAL FINANCIAL RESULTS AND ~~INCREASES~~INCREASING THE LIKELIHOOD THAT OUR RESULTS WILL FALL BELOW MARKET ANALYSTS’ EXPECTATIONS, WHICH COULD CAUSE THE PRICE OF OUR ADSs TO DROP RAPIDLY AND SEVERELY.

We have in the past experienced fluctuations in our quarterly operating results, and we anticipate that these fluctuations will continue. As a result, we believe that our quarterly revenue, expenses and operating results are likely to vary significantly in the future. If in some future quarters our results of operations are below the expectations of public market analysts and investors, this could have a severe adverse effect on the market price of our ADSs.

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Our operating results have historically fluctuated, and our operating results may in the future continue to fluctuate, as a result of factors, which include, ~~(without limitation):~~without limitation:

the size and timing of new/renewal agreements and upgrades;

royalty rates;

	•		~~royalty rates;~~

	•		~~the announcement, introduction and acceptance of new products, product enhancements and technologies by us and our competitors;~~

	•		~~the mix of sales between our field sales force, our other direct sales channels and our telesales channels;~~

	•		~~general conditions in the U.S. or the international economy;~~

	•		~~the loss of significant customers;~~

	•		~~delays in availability of new products;~~

	•		~~product or service quality problems;~~

	•		seasonality — due to the budget and purchasing cycles of our customers, we expect our revenue and operating results will generally be strongest in the second half of our fiscal year and weakest in the first half of our fiscal year;

	•		~~the spending patterns of our customers;~~

	•		~~litigation costs and expenses;~~

	•		~~non-recurring charges related to acquisitions;~~

	•		~~growing competition that may result in price reductions; and~~

	•		~~currency fluctuations.~~

the announcement, introduction and acceptance of new products, product enhancements and technologies by us and our competitors;

the mix of sales between our field sales force, our other direct sales channels and our telesales channels;

general conditions in the U.S. or the international economy;

the loss of significant customers;

delays in availability of new products;

product or service quality problems;

seasonality — due to the budget and purchasing cycles of our customers, we expect our revenue and operating results will generally be strongest in the second half of our fiscal year and weakest in the first half of our fiscal year;

the spending patterns of our customers;

litigation costs and expenses;

non-recurring charges related to acquisitions;

growing competition that may result in price reductions; and

currency fluctuations.

Most of our expenses, such as rent and most employee compensation, do not vary directly with revenue and are difficult to adjust in the short-term. As a result, if revenue for a particular quarter is below our expectations, we could not proportionately reduce operating expenses for that quarter. Any such revenue shortfall would, therefore, have a disproportionate effect on our expected operating results for that quarter.

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PAST AND FUTURE ACQUISITIONS, INCLUDING ~~THE RECENT~~OUR ACQUISITION OF NETG, MAY NOT PRODUCE THE BENEFITS WE ANTICIPATE AND COULD HARM OUR CURRENT OPERATIONS.

One aspect of our business strategy is to pursue acquisitions of businesses or technologies that will contribute to our future growth. On May 14, 2007, we acquired NETg from The Thomson Corporation. However, we may not be successful in identifying or consummating future attractive acquisition opportunities. Moreover, any acquisitions we do consummate, ~~including the NETg acquisition,~~ may not produce benefits commensurate with the purchase price we pay or our expectations for the acquisition. In addition, acquisitions ~~including the NETg acquisition,~~ involve numerous risks, including:

	•		~~difficulties in integrating the technologies, operations, financial controls and personnel of the acquired company;~~

	•		~~difficulties in retaining or transitioning customers and employees of the acquired company;~~

	•		~~diversion of management time and focus;~~

	•		~~the incurrence of unanticipated expenses associated with the acquisition or the assumption of unknown liabilities or unanticipated financial, accounting or other problems of the acquired company; and~~

difficulties in integrating the technologies, operations, financial controls and personnel of the acquired company;

difficulties in retaining or transitioning customers and employees of the acquired company;

diversion of management time and focus;

incurrence of unanticipated expenses associated with the acquisition or the assumption of unknown liabilities or unanticipated financial, accounting or other problems of the acquired company; and

accounting charges related to the acquisition, including restructuring charges, write-offs of in-process research and development costs, and subsequent impairment charges relating to goodwill or other intangible assets acquired in the transaction.

~~WE HAVE EXPERIENCED NET LOSSES IN THE PAST, AND WE MAY BE UNABLE TO MAINTAIN PROFITABILITY.~~

We recorded a net loss of $20.1 million for the fiscal year ended January 31, 2005, net income of $35.2 million for the fiscal year ended January 31, 2006 and net income of $24.2 million for the fiscal year ended January 31, 2007. While we achieved profitability in the last two fiscal years, we cannot guarantee that our business will sustain profitability in any future period.

DEMAND FOR OUR PRODUCTS AND SERVICES MAY BE ESPECIALLY SUSCEPTIBLE TO ADVERSE ECONOMIC CONDITIONS.

Our business and financial performance may be damaged by adverse financial conditions affecting our target customers or by a general weakening of the economy. Companies may not view training products and services as critical to the success of their businesses. If these companies experience disappointing operating results, whether as a result of adverse economic conditions, competitive issues or other factors, they may decrease or forego education and training expenditures before limiting their other expenditures or in conjunction with lowering other expenses.

INCREASED COMPETITION MAY RESULT IN DECREASED DEMAND FOR OUR PRODUCTS AND SERVICES, WHICH MAY RESULT IN REDUCED REVENUE AND GROSS PROFITS AND LOSS OF MARKET SHARE.

The market for corporate education and training solutions is highly fragmented and competitive. We expect the market to become increasingly competitive due to the lack of significant barriers to entry. In addition to increased competition from new companies entering into the market, established companies are entering into the market through acquisitions of smaller companies, which directly compete with us, and this trend is expected to continue. We may also face competition from publishing companies, vendors of application software and HRhuman resource outsourcers, including those vendors with whom we have formed development and marketing alliances.

Our primary sources of direct competition are:

	•		~~third-party suppliers of instructor-led information technology, business, management and professional skills education and training;~~

	•		~~technology companies that offer learning courses covering their own technology products;~~

	•		~~suppliers of computer-based training and e-learning solutions;~~

	•		~~internal education, training departments and HR outsourcers of potential customers; and~~

	•		~~value-added resellers and network integrators.~~

third-party suppliers of instructor-led information technology, business, management and professional skills education and training;

technology companies that offer learning courses covering their own technology products;

suppliers of computer-based training and e-learning solutions;

internal education, training departments and HR outsourcers of potential customers; and

value-added resellers and network integrators.

Growing competition may result in price reductions, reduced revenue and gross profits and loss of market share, any one of which would have a material adverse effect on our business. Many of our current and potential competitors have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition, and we expect to face increasing ~~price pressures~~pricing pressure from competitors as managers demand more value for their training budgets. Accordingly, we may be unable to provide e-learning solutions that compare favorably with new instructor-led techniques, other interactive training software or new e-learning solutions.

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WE RELY ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE US WITH EDUCATIONAL CONTENT FOR OUR COURSES AND REFERENCEWARE, AND OUR ALLIANCES WITH THESE THIRD PARTIES MAY BE TERMINATED OR FAIL TO MEET OUR REQUIREMENTS.

We rely on a limited number of independent third parties to provide us with the educational content for a majority of our courses based on learning objectives and specific instructional design templates that we provide to them. We do not have exclusive arrangements or long-term contracts with any of these content providers. If one or more of our third party content providers were to stop working with us, we would have to rely on other parties to develop our course content. In addition, these providers may fail to develop new courses or existing courses on a timely basis. We cannot predict whether new content or enhancements would be available from reliable alternative sources on reasonable terms. In addition, our subsidiary, ~~Books 24x7.com~~Books24x7 relies on third party publishers to provide all of the content incorporated into its Referenceware products. If one or more of these publishers were to terminate their license with us, we may not be able to find substitute publishers for such content. In addition, we may be forced to pay increased royalties to these publishers to continue our licenses with them.

In the event that we are unable to maintain or expand our current development alliances or enter into new development alliances, our operating results and financial condition could be materially adversely affected. Furthermore, we will be required to pay royalties to some of our development partners on products developed with them, which could reduce our gross margins. We expect that cost of revenues may fluctuate from period to period in the future based upon many factors, including the revenue mix and the timing of expenses associated with development alliances. In addition, the collaborative nature of the development process under these alliances may result in longer development times and less control over the timing of product introductions than for e-learning offerings developed solely by us. Our strategic alliance partners may from time to time renegotiate the terms of their agreements with us, which could result in changes to the royalty or other arrangements, adversely affecting our results of operations.

The independent third party strategic partners we rely on for educational content and product marketing may compete with us, harming our results of operations. Our agreements with these third parties generally do not restrict them from developing courses on similar topics for our competitors or from competing directly with us. As a result, our competitors may be able to duplicate some of our course content and gain a competitive advantage.

OUR SUCCESS DEPENDS ON OUR ABILITY TO MEET THE NEEDS OF THE RAPIDLY CHANGING MARKET.

The market for education and training software is characterized by rapidly changing technology, evolving industry standards, changes in customer requirements and preferences and frequent introductions of new products and services embodying new technologies. New methods of providing interactive education in a technology-based format are being developed and offered in the marketplace, including intranet and Internet offerings. In addition, multimedia and other product functionality features are being added to educational software. Our future success will depend upon the extent to which we are able to develop and implement products which address these emerging market requirements on a cost effective and timely basis. Product development is risky because it is difficult to foresee developments in technology coordinate technical personnel and identify and eliminate design flaws. Any significant delay in releasing new products could have a material adverse effect on the ultimate success of our products and could reduce sales of predecessor products. We may not be successful in introducing new products on a timely basis. In addition, new products introduced by us may fail to achieve a significant degree of market acceptance or, once accepted, may fail to sustain viability in the market for any significant period. If we are unsuccessful in addressing the changing needs of the marketplace due to resource, technological or other constraints, or in anticipating and responding adequately to changes in customers’ software technology and preferences, our business and results of operations would be materially adversely affected. We, along with the rest of the industry, face a challenging and competitive market for IT spending that has resulted in reduced contract value for our formal learning product lines. This pricing pressure has a negative impact on revenue for these product lines and may have a continued or increased adverse impact in the future.

THE E-LEARNING MARKET IS A DEVELOPING MARKET, AND OUR BUSINESS WILL SUFFER IF E-LEARNING IS NOT WIDELY ACCEPTED.

The market for e-learning is a new and emerging market. Corporate training and education have historically been conducted primarily through classroom instruction and have traditionally been performed by a company’s internal personnel. Many companies have invested heavily in their current training solutions. Although technology-based training applications have been available for several years, they currently account for only a small portion of the overall training market.

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Accordingly, our future success will depend upon the extent to which companies adopt technology-based solutions for their training activities, and the extent to which companies utilize the services or purchase products of third-party providers. Many companies that have already invested substantial resources in traditional methods of corporate training may be reluctant to adopt a new strategy that may compete with their existing investments. Even if companies implement technology-based training or e-learning solutions, they may still choose to design, develop, deliver or manage all or part of their education and training internally. If technology-based learning does not become widespread, or if companies do not use the products and services of third parties to develop, deliver or manage their training needs, then our products and service may not achieve commercial success.

NEW PRODUCTS INTRODUCED BY US MAY NOT BE SUCCESSFUL.

An important part of our growth strategy is the development and introduction of new products that open up new revenue streams for us. Despite our efforts, we cannot assure you that we will be successful in developing and introducing new products, or that any new products we do introduce will meet with commercial acceptance. The failure to successfully introduce new products will not only hamper our growth prospects but may also adversely impact our net income due to the development and marketing expenses associated with those new products.

THE SUCCESS OF OUR E-LEARNING STRATEGY DEPENDS ON THE RELIABILITY AND CONSISTENT PERFORMANCE OF OUR INFORMATION SYSTEMS AND INTERNET INFRASTRUCTURE.

The success of our e-learning strategy is highly dependent on the consistent performance of our information systems and Internet infrastructure. If our Web site fails for any reason or if it experiences any unscheduled downtimes, even for only a short period, our business and reputation could be materially harmed. We have in the past experienced performance problems and unscheduled downtime, and these problems could recur. We currently rely on third parties for proper functioning of computer infrastructure, delivery of our e-learning applications and the performance of our destination site. Our systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, earthquake, financial patterns of hosting providers and similar events. Any system failures could adversely affect customer usage of our solutions and user traffic results in any future quarters, which could adversely affect our revenue and operating results and harm our reputation with corporate customers, subscribers and commerce partners. Accordingly, the satisfactory performance, reliability and availability of our Web site and computer infrastructure are critical to our reputation and ability to attract and retain corporate customers, subscribers and commerce partners. We cannot accurately project the rate or timing of any increases in traffic to our Web site and, therefore, the integration and timing of any upgrades or enhancements required to facilitate any significant traffic increase to the Web site are uncertain. We have in the past experienced difficulties in upgrading our Web site infrastructure to handle increased traffic, and these difficulties could recur. The failure to expand and upgrade our Web site or any system error, failure or extended down time could materially harm our business, reputation, financial condition or results of operations.

BECAUSE MANY USERS OF OUR E-LEARNING SOLUTIONS WILL ACCESS THEM OVER THE INTERNET, FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET OR OUR CUSTOMERS’ NETWORKING INFRASTRUCTURES COULD HARM OUR BUSINESS.

Many of our customer’s users access our e-learning solutions over the Internet or through our customers’ internal networks. Any factors that adversely affect Internet usage could disrupt the ability of those users to access our e-learning solutions, which would adversely affect customer satisfaction and therefore our business.

For example, our ability to increase the effectiveness and scope of our services to customers is ultimately limited by the speed and reliability of both the Internet and our customers’ internal networks. Consequently, the emergence and growth of the market for our products and services depends upon the improvements being made to the entire Internet as well as to our individual customers’ networking infrastructures to alleviate overloading and congestion. If these improvements are not made, and the quality of networks degrades, the ability of our customers to use our products and services will be hindered and our revenue may suffer.

Additionally, a requirement for the continued growth of accessing e-learning solutions over the Internet is the secure transmission of confidential information over public networks. Failure to prevent security breaches into our products or our customers’ networks, or well-publicized security breaches affecting the Internet in general could significantly harm our growth and revenue. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in a compromise of technology we use to protect content and transactions, our products or our customers’ proprietary information in our databases. Anyone who is able to circumvent our security measures could misappropriate proprietary and confidential information or could cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to address problems caused by security breaches. The privacy of users may also deter people from using the Internet to conduct transactions that involve transmitting confidential information.

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WE DEPEND ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE THE BUSINESS AND MUST BE ABLE TO ATTRACT AND RETAIN HIGHLY QUALIFIED EMPLOYEES.

Our success is largely dependent on the personal efforts and abilities of our senior management. Failure to retain these executives, or the loss of certain additional senior management personnel or other key employees, could have a material adverse effect on our business and future prospects. We are also dependent on the continued service of our key sales, content development and operational personnel and on our ability to attract, train, motivate and retain highly qualified employees. In addition, we depend on writers, programmers, Web designers and graphic artists. We may be unsuccessful in attracting, training, retaining or motivating key personnel. The inability to hire, train and retain qualified personnel or the loss of the services of key personnel could have a material adverse effect upon our business, new product development efforts and future business prospects.

OUR BUSINESS IS SUBJECT TO CURRENCY FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

Due to our multinational operations, our operating results are subject to fluctuations based upon changes in the exchange rates between the currencies in which revenue is collected or expenses are paid. In particular, the value of the U.S. dollar against the ~~euro~~Euro, pound sterling, Canadian dollar, Australian dollar, New Zealand dollar, Singapore dollar and related currencies will impact our operating results. Our expenses will not necessarily be incurred in the currency in which revenue is generated, and, as a result, we will be required from time to time to convert currencies to meet our obligations. These currency conversions are subject to exchange rate fluctuations, and changes to the value of ~~the euro, pound sterling~~these currencies and other currencies relative to the U.S. dollar could adversely affect our business and results of operations.

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS. UNAUTHORIZED USE OF OUR INTELLECTUAL PROPERTY MAY RESULT IN DEVELOPMENT OF PRODUCTS OR SERVICES THAT COMPETE WITH OURS.

Our success depends to a degree upon the protection of our rights in intellectual property. We rely upon a combination of patent, copyright, and trademark laws to protect our proprietary rights. We have also entered into, and will continue to enter into, confidentiality agreements with our employees, consultants and third parties to seek to limit and protect the distribution of confidential information. However, we have not signed protective agreements in every case.

Although we have taken steps to protect our proprietary rights, these steps may be inadequate. Existing patent, copyright, and trademark laws offer only limited protection. Moreover, the laws of other countries in which we market our products may afford little or no effective protection of our intellectual property. Additionally, unauthorized parties may copy aspects of our products, services or technology or obtain and use information that we regard as proprietary. Other parties may also breach protective contracts we have executed or will in the future execute. We may not become aware of, or have adequate remedies in the event of, a breach. Litigation may be necessary in the future to enforce or to determine the validity and scope of our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Even if we were to prevail, such litigation could result in substantial costs and diversion of management and technical resources.

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OUR ~~NON-U.S.~~WORLDWIDE OPERATIONS ARE SUBJECT TO RISKS WHICH COULD NEGATIVELY IMPACT OUR FUTURE OPERATING RESULTS.

We expect that international operations will continue to account for a significant portion of our revenues ~~Operations outside of the United States~~and are subject to inherent risks, including:

	•		~~difficulties or delays in developing and supporting non-English language versions of our products and services;~~

	•		~~political and economic conditions in various jurisdictions;~~

	•		~~difficulties in staffing and managing foreign subsidiary operations;~~

	•		~~longer sales cycles and account receivable payment cycles;~~

	•		~~multiple, conflicting and changing governmental laws and regulations;~~

	•		~~foreign currency exchange rate fluctuations;~~

	•		~~protectionist laws and business practices that may favor local competitors;~~

	•		~~difficulties in finding and managing local resellers;~~

	•		~~potential adverse tax consequences; and~~

	•		~~the absence or significant lack of legal protection for intellectual property rights.~~

difficulties or delays in developing and supporting non-English language versions of our products and services;

political and economic conditions in various jurisdictions;

difficulties in staffing and managing foreign subsidiary operations;

longer sales cycles and account receivable payment cycles;

multiple, conflicting and changing governmental laws and regulations;

foreign currency exchange rate fluctuations;

protectionist laws and business practices that may favor local competitors;

difficulties in finding and managing local resellers;

potential adverse tax consequences; and

the absence or significant lack of legal protection for intellectual property rights.

Any of these factors could have a material adverse effect on our future operations outside of the United States, which could negatively impact our future operating results.

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OUR SALES CYCLE MAY MAKE IT DIFFICULT TO PREDICT OUR OPERATING RESULTS.

The period between our initial contact with a potential customer and the purchase of our products by that customer typically ranges from three to twelve months or more. Factors that contribute to our long sales cycle include:

	•		~~our need to educate potential customers about the benefits of our products;~~

	•		~~competitive evaluations by customers;~~

	•		~~the customers’ internal budgeting and approval processes;~~

	•		~~the fact that many customers view training products as discretionary spending, rather than purchases essential to their business; and~~

	•		~~the fact that we target large companies, which often take longer to make purchasing decisions due to the size and complexity of the enterprise.~~

our need to educate potential customers about the benefits of our products;

competitive evaluations by customers;

the customers’ internal budgeting and approval processes;

the fact that many customers view training products as discretionary spending, rather than purchases essential to their business; and

the fact that we target large companies, which often take longer to make purchasing decisions due to the size and complexity of the enterprise.

These long sales cycles make it difficult to predict the quarter in which sales may occur. Delays in sales could cause significant variability in our revenue and operating results for any particular period.

OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS.

Software products as complex as ours contain known and undetected errors or “bugs” that result in product failures. The existence of bugs could result in loss of or delay in revenue, loss of market share, diversion of product development resources, injury to reputation or damage to efforts to build brand awareness, any of which could have a material adverse effect on our business, operating results and financial condition.

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RISKS RELATED TO LEGAL PROCEEDINGS

WE ARE THE SUBJECT OF AN INVESTIGATION BY THE SEC.

The Boston District Office of the States Securities and Exchange Commission (“SEC”) informed us in January 2007 that we are the subject of an informal investigation concerning option granting practices at SmartForce for the period beginning April 12, 1996 through July 12, 2002. These grants were made prior to the September 6, 2002 merger of SkillSoft Corporation and SmartForce PLC. We have produced documents in response to requests from the SEC.

We have cooperated with the SEC in this matter. At the present time, we are unable to predict the outcome of this matter or its potential impact on our operating results or financial position. However, we may incur substantial costs in connection with the SEC option granting practices investigation, and this investigation could cause a diversion of management time and attention. In addition, we could be subject to penalties, fines or regulatory sanctions or claims by our former officers, directors or employees for indemnification of costs they may incur in connection with the SEC investigation. Any or all of those issues could adversely affect our business, operating results and financial position.

Third parties have in the past and could in the future claim that our current or future products infringe their intellectual property rights. Any claim, with or without merit, could result in costly litigation or require us to reengineer or cease sales of our products or services, any of which could have a material adverse effect on our business. Infringement claims could also result in an injunction barring the sale of our products or require us to enter into royalty or licensing agreements. Licensing agreements, if required, may not be available on terms acceptable to the combined company or at all.

WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR CUSTOMERS’ USE OF OUR PRODUCTS AND SERVICES.

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WE COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT WE OBTAIN FROM THIRD PARTIES OVER WHOM WE EXERT LIMITED CONTROL.

SOME OF OUR INTERNATIONAL SUBSIDIARIES HAVE NOT COMPLIED WITH REGULATORY REQUIREMENTS RELATING TO THEIR FINANCIAL STATEMENTS AND TAX RETURNS.

RISKS RELATED TO OUR ADSs

THE MARKET PRICE OF OUR ADSs MAY FLUCTUATE AND MAY NOT BE SUSTAINABLE.

The market price of our ADSs has fluctuated significantly since our initial public offering and is likely to continue to be volatile. In addition, in recent years the stock market in general, and the market for shares of technology stocks in particular, have experienced extreme price and volume fluctuations, which have often been unrelated to the operating performance of affected companies. The market price of our ADSs may continue to experience significant fluctuations in the future, including fluctuations that are unrelated to our performance. As a result of these fluctuations in the price of our ADSs, it is difficult to predict what the price of our ADSs will be at any point in the future, and you may not be able to sell your ADSs at or above the price that you paid for them.

SALES OF LARGE BLOCKS OF OUR ADSs COULD CAUSE THE MARKET PRICE OF OUR ADSs TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.

Some shareholders own 5% or more of our outstanding shares. We cannot predict the effect, if any, that public sales of these shares will have on the market price of our ADSs. If our significant shareholders, or our directors and officers, sell substantial amounts of our ADSs in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our ADSs, even if there is no relationship between such sales and the performance of our business.

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ITEM 2. — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~Not applicable.~~

On April 8, 2008, our shareholders approved the repurchase of up to 10,000,000 of our ADSs. On September 24, 2008 our shareholders approved an increase in the number of shares that may be repurchased to 25,000,000. Under the approved share purchase program, we entered into a share purchase agreement, pursuant to which we and certain of our subsidiaries are entitled to purchase our ADSs. ADSs that are repurchased by us or our subsidiaries under the share purchase program shall, at the option of our Board of Directors, be either cancelled upon their purchase or held as treasury shares.

During the three months ended October 31, 2008, certain of our subsidiaries repurchased our ADSs as follows:

(c)

Total

(d)

Number of

Maximum

Number of

(a)

Purchased

Shares that

Total

(b)

as Part of

May Yet Be

Number of

Average

Publicly

Purchased

Price Paid

Announced

Under the

Period

Purchased (1)

Per Share $

or Program (2)

Program

August 1, 2008 - August 31, 2008

985,680

10.18

985,680

6,290,601

September 1, 2008 - September 30, 2008

1,000,000

10.40

1,000,000

20,290,601

October 1, 2008 - October 31, 2008

1,000,000

8.60

1,000,000

19,290,601

Total

2,985,680

9.73

2,985,680

19,290,601

(1) We repurchased ADSs pursuant to a share repurchase program that was approved by our shareholders on April 8, 2008 and amended on September 24, 2008.

(2) Our shareholders approved the repurchase by us of up to 25,000,000 ADSs at a per share purchase price which complies with the requirements of Rule 10b-18. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire on March 23, 2010 or when we have repurchased all shares authorized for repurchase thereunder.

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ITEM 3. — DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our ~~2007~~2008 annual general meeting of shareholders (the “AGM”) on September ~~27, 2007.~~24, 2008. Under the terms of our arrangements with The Bank of New York, The Bank of New York is entitled to vote or cause to be voted all of our ordinary shares represented by ADSs on behalf of, and in accordance with the instructions received from, the ADS holders. There were no broker non-votes or votes withheld with respect to any matter submitted to a vote of the ordinary shareholders at the AGM.

The following is a brief description of each matter submitted to a vote of the ordinary shareholders and a summary of the votes tabulated with respect to each such matter at the AGM, as well as a summary of the votes cast by The Bank of New York based on the ADR facility:

~~(1) Receipt and consolidation of the consolidated financial statements for the fiscal year ended January 31, 2007 and the Report of Directors and Auditors thereon.~~

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,956,979 4,075 3,432

(1)

Receipt and consolidation of the consolidated financial statements for the fiscal year ended January 31, 2008 and the Report of Directors and Auditors thereon.

	Votes “FOR”		“AGAINST”		“ABSTAIN”
Ordinary Shareholders		4		0		0
ADS Holders		115,152,262		646		41,158

(2A) Re-election of Mr. ~~James S. Krzywicki,~~Charles E. Moran, who retired by rotation, as a director.

	Votes “FOR”		“AGAINST”		“ABSTAIN”
Ordinary Shareholders		4		0		0
ADS Holders		114,701,478		477,706		14,882

(2B) Re-election of Dr. Ferdinand von Prondzynski, who retired by rotation, as a director.

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,815,852 133,718 14,916

	Votes “FOR”		“AGAINST”		“ABSTAIN”
Ordinary Shareholders		4		0		0
ADS Holders		114,824,744		355,760		13,562

~~(2B) Re-election of Mr. William F. Meagher, Jr., who retired by rotation, as a director.~~

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 103,837,950 6,112,070 14,466

The term of office for each of ~~Charles Moran,~~P. Howard Edelstein, Stewart K.P. Gross, ~~P. Howard Edelstein~~James S. Krzwicki and ~~Ferdinand von Prondyniski~~William F. Meagher, Jr. continued after the AGM.

(3) Authorization of the Audit Committee of the Board of Directors to fix the remuneration of our auditor for the fiscal year ending January 31, ~~2008.~~2009.

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,640,395 319,157 4,934

	Votes “FOR”		“AGAINST”		“ABSTAIN”
Ordinary Shareholders		4		0		0
ADS Holders		115,048,481		140,108		5,477

(4) Amendment of the ~~2004 employee~~ share purchase ~~plan to increase the total number of shares reserved for issuance thereunder by 1,000,000 ordinary shares of~~€agreement, ~~0.11 each (to 3,500,000 ordinary shares of~~€~~0.11 each).~~

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,422,049 209,050 333,387

(5) Amendment of the 2001 outside director option plan to increase (i) the number of shares underlying the initial option granted to non-employee directors (“Outside Directors”) from 25,000 ordinary shares of€~~0.11 each to 50,000 ordinary shares of~~€~~0.11 each and (ii) the number of shares underlying the annual option granted to Outside Directors from 10,000 ordinary shares of~~€~~0.11 each to 20,000 ordinary shares of~~€~~0.11 each.~~

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 75,123,205 30,998,444 3,842,837

~~(6) Effective~~dated as of ~~November 1, 2007~~April 9, 2008, among SkillSoft Public Limited Company, CBT (Technology) Limited, SkillSoft Finance Limited, SkillSoft Corporation and ~~continuing until further adjustment, (i) the annual remuneration~~Credit Suisse Securities (USA) LLC.

	Votes “FOR”		“AGAINST”		“ABSTAIN”
Ordinary Shareholders		4		0		0
ADS Holders		114,997,249		22,799		174,018

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Table of each of our Outside Directors for their services as directors shall remain at $30,000 plus, for each such director, an additional $2,000 per each meeting of the Board of Directors or a committee of the Board of Directors which he/she participates and which is not a regularly scheduled meeting, up to a maximum of $20,000 per annum, (ii) the Outside Director serving as chair of the Audit Committee shall be paid additional annual remuneration of $20,000, (iii) the Outside Director serving as chair of the Compensation Committee shall continue to be paid additional annual remuneration of $7,500 and (iv) the Outside Director serving as chair of the Nominating and Corporate Governance Committee shall be paid additional annual remuneration of $7,500.Contents

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,687,824 239,089 37,573

(6) Subject to the confirmation of the High Court of Ireland pursuant to Section 72 of the Companies Act 1963, the Company’s share capital be reduced by the cancellation of the whole amount standing to the credit of the Company’s share premium account at the date of this meeting (or such part thereof as the High Court of Ireland may determine).

Votes “FOR” “AGAINST” “ABSTAIN”
Ordinary Shareholders 4 0 0
ADS Holders 109,915,101 18,468 30,917

ITEM 5. — OTHER INFORMATION

Not applicable.

ITEM 6. — EXHIBITS

See the Exhibit Index attached hereto.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SKILLSOFT PUBLIC LIMITED COMPANY

	~~SKILLSOFT PUBLIC LIMITED COMPANY~~
Date: December ~~10, 2007~~ 9, 2008	By:	/s/ Thomas J. McDonald
		Thomas J. McDonald
		Chief Financial Officer

~ 44 ~

Table of Contents

EXHIBIT INDEX

~~10.1~~		~~2001 Outside Director Option Plan, as amended~~

31.1		Certification of SkillSoft PLC’s Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15(d)-14(a) under the Securities Exchange Act of 1934.

31.2		Certification of SkillSoft PLC’s Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15(d)-14(a) under the Securities Exchange Act of 1934.

32.1		Certification of SkillSoft PLC’s Chief Executive Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of SkillSoft PLC’s Chief Financial Officer pursuant to Rule 13a-14(b)/Rule 15d-14(b) under the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~ 45


o	FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2008

OR

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	FOR THE TRANSITION PERIOD FROM ________ TO ________


REPUBLIC OF IRELAND	N/A
(STATE OR OTHER JURISDICTION OF	(I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)		~~N/A~~ ~~(I.R.S. EMPLOYER~~ IDENTIFICATION NO.)

107 NORTHEASTERN BOULEVARD
NASHUA, NEW HAMPSHIRE	03062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		~~03062~~ (ZIP CODE)

	Large accelerated filer R	Accelerated filer £
	Non-accelerated filer £	Smaller reporting company £
	(Do not check if a smaller reporting company)


		PAGE NO.
PART I — FINANCIAL INFORMATION		3
Item 1. Unaudited Condensed Consolidated Financial Statements:		3
Condensed Consolidated Balance Sheets as of October 31, ~~2007~~2008 and January 31, ~~2007~~2008		3
Condensed Consolidated Income Statements for the Three and Nine Months Ended October 31, ~~2007~~2008 and ~~2006~~2007		4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, ~~2007~~2008 and ~~2006~~2007		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2119
Item 3. Quantitative and Qualitative Disclosures about Market Risk		3230
Item 4. Controls and Procedures		3331
PART II — OTHER INFORMATION		3331
Item 1. Legal Proceedings		3331
Item 1A. Risk Factors		3331
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4241
Item 3. Defaults Upon Senior Securities		42
Item 4. Submission of Matters to a Vote of Security Holders		42
Item 5. Other Information		43
Item 6. Exhibits		43
SIGNATURE		44
EXHIBIT INDEX		45
~~Ex-10.1 2001 Outside Director Option Plan, as amended~~
~~Ex-31.1~~EX-31.1 Section 302 Certification of ~~the C.E.O.~~CEO
~~Ex-31.2~~EX-31.2 Section 302 Certification of ~~the C.F.O.~~CFO
~~Ex-32.1~~EX-32.1 Section 906 Certification of ~~the C.E.O.~~CEO
~~Ex-32.2~~EX-32.2 Section 906 Certification of ~~the C.F.O.~~CFO


	OCTOBER 31,			JANUARY 31,
	2007			2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	30,363		$	48,612
Short-term investments		20,202			55,505
Restricted cash		3,919			20,095
Accounts receivable, net		94,249			94,343
Prepaid expenses and other current assets		24,134			22,215

Total current assets		172,867			240,770
Property and equipment, net		8,033			9,672
Intangible assets, net		34,909			2,638
Goodwill		316,301			83,171
Long-term investments		—			3,598
Deferred tax assets, net		45,376			159
Other assets		9,205			2,962

Total assets	$	586,691		$	342,970

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	2,000		$	—
Accounts payable		3,186			3,327
Accrued compensation		16,441			17,870
Accrued expenses		46,349			35,427
Deferred revenue		140,598			146,012

Total current liabilities		208,574			202,636
Long term debt		197,500			—
Other long term liabilities		4,176			2,405

Total long term liabilities		201,676			2,405
Commitments and contingencies (Note 12)
Shareholders’ equity:
Ordinary shares, Euro 0.11 par value: 250,000,000 shares authorized; 111,515,993 and 109,255,366 shares issued at October 31, 2007 and January 31, 2007, respectively		12,374			12,039
Additional paid-in capital		588,124			573,394
Treasury stock, at cost, 6,533,884 ordinary shares		(24,524	)		(24,524	)
Accumulated deficit		(395,961	)		(421,661	)
Accumulated other comprehensive loss		(3,572	)		(1,319	)

Total shareholders’ equity		176,441			137,929

Total liabilities and shareholders’ equity	$	586,691		$	342,970


þ	R	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	OCTOBER 31, 2008 (Unaudited)			JANUARY 31, 2008
ASSETS
Current Assets:
Cash and cash equivalents	$	64,764		$	76,059
Short-term investments		8,804			13,525
Restricted cash		3,745			3,963
Accounts receivable, net		72,546			171,708
Prepaid expenses and other current assets		19,114			29,061
Deferred tax assets		10,326			13,476
Total current assets		179,299			307,792
Property and equipment, net		7,914			7,210
Intangible assets, net		16,242			29,887
Goodwill		256,606			256,196
Deferred tax assets		75,005			87,866
Other assets		3,702			7,730
Total assets	$	538,768		$	696,681
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long term debt	$	1,455		$	2,000
Accounts payable		1,772			2,139
Accrued compensation		7,952			24,577
Accrued expenses		19,528			29,507
Deferred revenue		142,642			219,161
Total current liabilities		173,349			277,384

Long-term debt		142,242			197,000
Other long-term liabilities		5,932			9,209
Total long-term liabilities		148,174			206,209
Commitments and contingencies (Note 12)
Shareholders' equity:
Ordinary shares, €0.11 par value: 250,000,000 shares authorized; 104,088,871 and 111,663,813 shares issued at October 31, 2008 and January 31, 2008, respectively		11,342			12,397
Additional paid-in capital		541,967			591,303
Treasury stock, at cost, 657,100 and 6,533,884 ordinary shares at October 31, 2008 and January 31, 2008, respectively		(5,401	)		(24,524	)
Accumulated deficit		(329,678	)		(361,663	)
Accumulated other comprehensive loss		(985	)		(4,425	)
Total stockholders' equity		217,245			213,088
Total liabilities and stockholders' equity	$	538,768		$	696,681


(1)		Share-based compensation included in cost of ~~revenue~~revenues and operating expenses:


						Weighted
						Average		Aggregate
				Weighted		Remaining		Intrinsic
				Average		Contractual		Value
Share Options	Shares			Exercise Price		Term (Years)		(in thousands)
Outstanding, January 31, 2007		20,188,177		$	7.48		5.47
Granted		90,000			9.31
Exercised		(1,780,554	)		4.65
Cancelled		(1,835,446	)		14.81

Outstanding, October 31, 2007		16,662,177		$	7.06		4.96	$	49,380

Exercisable, October 31, 2007		11,114,666		$	7.38		4.40	$	35,250

Vested and Expected to Vest, October 31, 2007 (1)		15,903,230		$	7.09		4.91	$	47,452

Share Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding, January 31, 2008		16,630,763		$	7.05		4.76
Granted		50,000			10.81
Exercised		(3,636,058	)		4.51
Cancelled		(69,420	)		15.01
Outstanding, October 31, 2008		12,975,285		$	7.74		4.13	$	20,240
Exercisable, October 31, 2008		9,757,981		$	8.10		3.77	$	16,255
Vested and Expected to Vest, October 31, 2008 (1)		12,564,616		$	7.77		4.09	$	19,731


(1)		~~This represents~~Represents the number of vested options as of October 31, ~~2007~~2008 plus the number of unvested options as of October 31, ~~2007~~2008 that are expected to vest ~~based on~~adjusted for an estimated forfeiture rate of ~~11.6%~~12.9%. The Company recognizes expense incurred under SFAS No. 123(R) on a straight line basis. Due to the Company’s vesting schedule, expense is incurred on options that have not yet vested but which are expected to vest in a future


		period. The options for which expense has been incurred but have not yet vested are included above as options expected to vest.


Cash paid	$	269,738
Transaction costs incurred		7,249

Total purchase price	$	276,987


Description	Amount
Current assets	$	44,137
Deferred tax asset		10,194
Property and equipment		1,470
Goodwill		255,692
Amortizable intangible assets		43,050
Current liabilities*		(52,071	)
Deferred revenue		(25,485	)

Total	$	276,987


Description	Amount		Life
Non-compete agreement	$	6,900	2.5 years
Trademark/tradename		2,700	2 years
Developed software/courseware		9,950	1.5 years
Customer contractual relationships		1,000	1 year
Customer non-contractual relationships		22,500	4 years

	$	43,050


	EMPLOYEE
	SEVERANCE AND			CLOSEDOWN OF
	RELATED COSTS			FACILITIES			OTHER			TOTAL
Merger and exit accrual January 31, 2007	$	878		$	2,278		$	121		$	3,277
Provision for merger and exit costs as of the date of acquisition of NETg (May 14, 2007) accounted for in the allocation of purchase price		10,176			2,038			4,654			16,868
Payments made during the nine months ended October 31, 2007		(7,082	)		(727	)		(13	)		(7,822	)

Merger and exit accrual October 31, 2007	$	3,972		$	3,589		$	4,762		$	12,323


Year ended January 31,
2008 (remaining 3 months)	$	10,382
2009		779
2010		384
2011		778

Total	$	12,323


	THREE MONTHS			NINE MONTHS
	ENDED OCTOBER			ENDED OCTOBER
	31, 2007			31, 2007
Revenue from discontinued operations	$	0		$	9


Loss from discontinued operations before income taxes		(187	)		(531	)
Income tax (benefit)		(106	)		(236	)

Loss from discontinued operations	$	(81	)	$	(295	)


	FACILITY LEASE
	OBLIGATIONS
Total restructuring accrual as of January 31, 2007	$	1,421
Payments made during the nine months ended October 31, 2007		(461	)
Restructuring charges incurred during the nine months ended October 31, 2007		527

Total restructuring accrual as of October 31, 2007	$	1,487


	OCTOBER 31, 2007						JANUARY 31, 2007
	GROSS				NET		GROSS				NET
	CARRYING		ACCUMULATED		CARRYING		CARRYING		ACCUMULATED		CARRYING
	AMOUNT		AMORTIZATION		AMOUNT		AMOUNT		AMORTIZATION		AMOUNT
Internally developed software/ courseware	$	38,716	$	31,518	$	7,198	$	28,257	$	27,836	$	421
Customer contracts		36,848		17,594		19,254		13,018		11,701		1,317
Non-compete		6,900		1,380		5,520		—		—		—
Trademarks and trade names		3,625		688		2,937		905		5		900

		86,089		51,181		34,909		42,180		39,542		2,638
Goodwill		316,301		—		316,301		83,171		—		83,171

	$	402,390	$	51,181	$	351,209	$	125,351	$	39,542	$	85,809


	Amortization
Fiscal Period	Expense
Three month period ending January 31, 2008	$	5,022
Year ending January 31, 2009		16,415
Year ending January 31,2010		8,245
Year ending January 31,2011		3,712
Year ending January 31,2012		615

Total	$	34,090


	OCTOBER 31, 2007		JANUARY 31, 2007
Course development fees	$	1,848	$	1,860
Professional fees		6,676		2,639
Accrued payables		483		415
Accrued miscellaneous taxes		662		385
Accrued merger related costs*		10,805		1,892
Sales tax payable/VAT payable		4,952		4,405
Accrued royalties		7,766		3,693
Accrued interest		1,510		—
Accrued litigation settlements		—		15,250
Accrued restructuring		522		659
Other accrued liabilities		11,125		4,229

Total accrued expenses	$	46,349	$	35,427

Fiscal 2009 (remaining 3 months)	$	364
Fiscal 2010		1,455
Fiscal 2011		1,455
Fiscal 2012		1,455
Fiscal 2013		1,455
Thereafter		137,513
Total	$	143,697


	Three Months Ended October 31,
	Dollar			Percent Change
	Increase/(Decrease)			Increase/(Decrease)			Percentage of Revenue
	2006/2007			2006/2007			2007†			2006†
	(In thousands)
Revenue	$	17,989			31	%		100	%		100	%
Cost of revenue — amortization of intangible assets		1,000			135	%		2	%		1	%
Cost of revenue		1,436			21	%		11	%		12	%

Gross profit		15,553			31	%		87	%		87	%

Research and development		3,663			36	%		18	%		18	%
Selling and marketing		3,244			15	%		34	%		38	%
General and administrative		2,605			38	%		13	%		12	%
Amortization of intangible assets		3,222			782	%		5	%		1	%
Merger related integration expenses		2,616			*			3	%		—
Restructuring		(25	)		(100	)%		—			—
Restatement — SEC investigation		(9	)		(8	)%		—			—

Total operating expenses		15,316			39	%		73	%		69	%

Operating income		237			2	%		14	%		18	%

Other income/(expense) , net		(607	)		1,734	%		(1	)%		—
Interest income		(483	)		(42	)%		1	%		2	%
Interest expense		(3,858	)		5,591	%		(5	)%		—

Income before (benefit) / provision for income taxes from continuing operations		(4,711	)		(42	)%		9	%		20	%
Provision for income taxes		(3,803	)		(93	)%		—			7	%

Income from continuing operations		(908	)		(13	)%		8	%		12	%

(Loss)/income from operations of businesses to be disposed, net of income tax		(351	)		*			—			—

Net income	$	(1,259	)		(18	)%		8	%		12	%


	THREE MONTHS ENDED OCTOBER 31,
	2007		2006		CHANGE
			(In thousands)
Revenue:
Multi-Modal Learning	$	75,124	$	55,888	$	19,236
Retail Certification		—		1,247		(1,247	)

Total	$	75,124	$	57,135	$	17989