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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE 000-28823
SKILLSOFT CORPORATION
(exact name of registrant as specified in its charter)
DELAWARE 02-0496115
(state or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
20 INDUSTRIAL PARK DRIVE 03062
NASHUA, NEW HAMPSHIRE (zip code)
(address of principal executive offices)
Registrant's telephone number, including area code: (603) 324-3000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On June 9, 2000, the Registrant had outstanding 13,234,985 shares of common
stock, $.001 par value per share.
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SKILLSOFT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of
April 30, 2000 and January 31, 2000 (unaudited)........................ 3
Condensed Consolidated Statements of Operations
for the three months ended April 30, 2000 and 1999 (unaudited)......... 4
Condensed Consolidated Statements of Cash Flows
for the three months ended April 30, 2000 and 1999 (unaudited)......... 5
Notes to Consolidated Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk................. 19
Part II - Other Information
Item 1. Legal Proceedings.......................................................... 19
Item 2. Changes in Securities and Use of Proceeds.................................. 20
Item 3. Defaults Upon Senior Securities............................................ 20
Item 4. Submission of Matters to a Vote of Security Holders........................ 20
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K........................................... 20
Signatures......................................................................... 21
</TABLE>
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PART I
ITEM 1. - FINANCIAL STATEMENTS
SKILLSOFT CORPORATION
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
At April 30, At January 31,
------------ -------------
2000 2000
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,075,328 $ 734,595
Short-term investments 24,691,270 --
Accounts Receivable 831,701 422,713
Prepaid expenses and other current
assets 1,823,995 1,397,028
------------ ------------
Total current assets 39,422,294 2,554,336
PROPERTY AND EQUIPMENT, NET: 649,518 558,052
------------ ------------
Total Assets $ 40,071,812 $ 3,112,388
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ -- $ 4,513,209
Accounts payable 818,096 702,557
Accrued expenses 3,097,216 2,834,030
Deferred revenue 2,205,685 1,419,990
------------ ------------
Total current liabilities 6,120,997 9,469,786
STOCKHOLDERS' EQUITY(DEFICIT):
Preferred Stock -- 20,710,256
Class A common stock -- 2,848
Common stock 13,241 --
Additional paid-in capital 75,231,420 7,460,320
Warrants outstanding 319,228 319,228
Deferred compensation (2,284,910) (2,479,910)
Notes receivable from stockholders (339,063) (339,063)
Accumulated deficit (38,980,612) (32,045,346)
Cumulative translation adjustment (8,489) 14,269
------------ ------------
Total stockholders' equity
(deficit) 33,950,815 (6,357,398)
Total liabilities and
shareholders' equity (deficit) $ 40,071,812 $ 3,112,388
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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SKILLSOFT CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
2000 1999
----------------------------
<S> <C> <C>
Revenues $ 2,114,357 $ 197,822
Cost of revenues 224,720 126,779
------------ ------------
Gross margin 1,889,637 71,043
Operating expenses:
Research and development 3,326,326 1,917,181
Selling and marketing 4,317,652 1,281,092
General and administrative 1,319,232 1,063,685
Amortization of deferred compensation 195,000 9,874
------------ ------------
Total operating expenses 9,158,210 4,271,832
------------ ------------
Interest income, net 333,307 64,478
Net loss $ (6,935,266) $ (4,136,311)
============ ============
NET LOSS PER SHARE:
Basic and diluted $ (0.57) $ (2.40)
============ ============
Basic and diluted weighted average shares
outstanding 12,259,605 1,723,532
============ ============
PRO FORMA NET LOSS PER SHARE (NOTE 8):
Basic and diluted $ (0.57)
============
Pro forma basic and diluted weighted 7,279,444
average shares outstanding
============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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SkillSoft Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended April 30,
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (6,935,266) $ (4,136,311)
Adjustments to reconcile net loss to net cash used in operating
activities:
Amortization of deferred compensation 195,000 9,873
Depreciation and amortization 73,065 47,234
Changes in current assets and liabilities
Accounts receivable (410,094) (182,747)
Prepaid expenses and other current assets (434,578) (450,620)
Accounts payable 122,211 250
Accrued expenses 260,448 344,176
Deferred revenue 787,943 61,740
------------ ------------
Net cash used in operating activities (6,341,271) (4,306,405)
Cash Flows from Investing Activities:
Purchases of property and equipment (166,982) (58,279)
Purchases of short-term investments (24,691,270) (5,000,000)
Maturity of short-term investments -- 4,155,720
------------ ------------
Net cash used in investing activities (24,858,252) (902,559)
Cash Flows from Financing Activities:
Issuance of Common Stock in the initial public offering 45,058,894 --
Issuance of Common Stock to Interim Services, Inc. 1,999,998 --
Issuance of Series B convertible preferred stock, net of
issuance costs -- 4,999,894
Issuance of Class A restricted common stock -- 34,563
Exercise of stock options 12,345 2,100
Payments on Line of Credit (4,500,000) --
------------ ------------
Net cash provided by financing activities 42,571,231 5,036,557
Effect of Exchange Rate Changes on Cash (30,981) --
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 11,340,733 (172,407)
Cash and Cash Equivalents, beginning of period 734,595 623,322
------------ ------------
Cash and Cash Equivalents, end of period $ 12,075,328 $ 450,915
------------ ------------
Supplemental Disclosure of Noncash Financing Transactions:
Issuance of Class A restricted common stock for notes
receivable from stockholders $ -- $ 31,937
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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SkillSoft Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. OPERATIONS
SkillSoft Corporation (the Company) was incorporated in Delaware on October 15,
1997. The Company commenced operations on January 8, 1998 in conjunction with
its initial round of financing. The Company is a provider of web-based training
resources that cover a variety of professional effectiveness and business
topics.
On February 4, 2000, the Company closed its initial public offering of 3,100,000
shares of common stock at a public offering price of $14 per share. On February
15, 2000, in connection with the exercise of the underwriters' over-allotment
option, the Company issued an additional 465,000 shares of common stock at the
initial public offering price of $14 per share. Net proceeds to the Company from
the initial public offering and the exercise of the over-allotment option were
approximately $45,000,000.
Upon the closing of the initial public offering, all shares of Class A common
stock issued and outstanding were converted into a new single class of common
stock. In addition, all shares of Series A, Series B and Series C convertible
preferred stock were converted into 6,638,095 shares of common stock.
2. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures, normally included in financial statements prepared in accordance
with generally accepted accounting principles, have been condensed or omitted
pursuant to such SEC rules and regulations. Nevertheless, the management of the
Company believes that the disclosures herein are adequate to make the
information presented not misleading. In the opinion of management, the
condensed consolidated financial statements reflect all material adjustments (of
a normal and recurring nature) which are necessary to present fairly the
consolidated financial position of the Company as of April 30, 2000 and the
results of its operations and its cash flows for the three-month periods ended
April 30, 2000 and 1999. These condensed consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K filed with the SEC on May 1, 2000. The results of operations for the
interim period are not necessarily indicative of the results of operations for
the full year.
3. CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with original maturities of
90 days or less at the time of purchase to be cash equivalents. At April 30,
2000 and January 31, 2000, cash equivalents consisted mainly of money market
funds. The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, securities that
the Company has the positive intent and ability to hold to maturity are reported
at amortized cost, which approximates market value, and are classified as
held-to-maturity. At April 30, 2000, the Company's investments consisted of
held-to-maturity securities that are investments in high grade commercial paper
instruments, short-term notes and U.S. Treasury bills. All of these investments
are classified as current assets in the accompanying consolidated balance sheets
as they mature within one year.
4. RELATED PARTY TRANSACTION
In April 2000, the Company sold 142,857 shares of common stock to Interim
Services, Inc., at a price of $14 per share. In addition, the Company entered
into a separate license arrangement with Interim Services, Inc.
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5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition. This bulletin established guidelines for revenue
recognition and is effective for periods beginning after March 15, 2000. The
Company does not expect that the adoption of this guidance will have a material
impact on its financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB
Opinion No. 25. The Interpretation clarifies the application of Opinion 25 in
certain situations, as defined. The Interpretation is effective as of July 1,
2000 but covers certain events having occurred after December 15, 1998. To the
extent that events covered by this Interpretation occur during the period after
December 15, 1998, but before the effective date of the Interpretation, the
effects of applying this Interpretation will be recognized on a prospective
basis from the effective date. Accordingly, upon initial application of the
Interpretation, (a) no adjustments will be made to financial statements for
periods before the effective date and (b) no expense will be recognized for any
additional compensation cost measured that is attributable to periods before the
effective date. The Company does not expect the adoption of this Interpretation
to have a material impact on the Company's financial condition or results of
operations.
6. REVENUE RECOGNITION
The Company follows the provisions of the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-4. The AICPA issued SOP 98-9, which provides
amendments to SOP 97-2, and was effective for transactions entered into
beginning January 1, 2000. This pronouncement has not materially impacted the
Company's revenue recognition practices. The Company derives revenue primarily
pursuant to license agreements under which customers license usage of delivered
products for a period of one, two or three years. On each anniversary date
during the term of multi-year license agreements, customers are generally
allowed to exchange any or all of the licensed products for an equivalent number
of alternative products within the Company's course library.
The annual license fee for the first year is generally billed in advance.
Revenue is recognized either at the time of delivery of products or over the
term of the contract, depending on specific contract terms. In the event that
the customer initially specified the entire set of licensed courses to be
delivered and those courses are available and delivered, the license revenue for
the first year of the contract is recognized upon execution of the contract.
License fees for subsequent years of multiyear license agreements will be
generally billed on the anniversary date of the agreement and recognized in the
manner described above or, if the customer exchanges courses at the renewal
date, upon delivery of the exchanged courses. Revenue is recognized ratably over
the license period if the customer does not initially specify the entire set of
licensed courses or is given exchange privileges that are exercisable other than
on the contract anniversaries or flexible payment terms, or if the customer
licenses all courses currently available and to be developed during a particular
term.
The Company also derives service revenue from installation and technical
support, extranet hosting and online mentoring services, which is recognized as
revenue as the service is performed. For the three months ended April 30, 2000,
the Company recognized approximately $72,000 of service revenue. The Company did
not have any service revenue for the three months ended April 30, 1999. The
Company may offer payment terms generally up to six months from the initial
shipment date or anniversary date for multi-year agreements to some of its
customers. The cost of satisfying any Post Contract Support (PCS) is accrued and
included in deferred revenue at the time revenue is recognized, as PCS fees are
included in the annual license fee. The estimated cost of providing PCS during
the agreements is insignificant and the Company does not offer it separately.
Unspecified upgrades or enhancements offered have been and are expected to be
minimal and infrequent. For multi-element agreements, vendor specific objective
evidence exists to
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allocate the total fee to the elements of the agreement. Deferred revenue
represents the undelivered portion of first year license fees and PCS for which
the Company has received payment.
7. COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of all
components of comprehensive income (loss) on an annual and interim basis.
Comprehensive income (loss) is defined as the change in equity of a business
enterprise during a period from transactions, other events and circumstances
from nonowner sources. The components of comprehensive income (loss) for the
three-month periods ended April 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three months ended
April 30,
2000 1999
----------- -----------
<S> <C> <C>
Comprehensive income (loss):
Net loss $(6,935,266) $(4,136,311)
Other comprehensive loss
Foreign currency adjustment (22,758) --
----------- -----------
Comprehensive loss $(6,958,024) $(4,136,311)
=========== ===========
</TABLE>
8. NET LOSS PER SHARE
Basic and diluted net loss per common share was determined by dividing net loss
by the weighted average common shares outstanding during the period. Basic and
diluted net loss per share are the same, as outstanding unvested shares of
restricted common stock, common stock options and convertible preferred stock
are antidilutive because the Company has recorded a net loss for all periods
presented. Unvested shares of restricted common stock and common stock options
totaling 1,437,314 and 1,583,268 common shares have been excluded from the
computation of diluted weighted average shares outstanding for the three months
ended April 30, 1999 and 2000, respectively. Warrants to purchase 60,606 shares
of common stock outstanding at April 30, 2000, have also been excluded from the
computation of diluted weighted average shares outstanding for the three months
ended April 30, 2000. Shares of common stock issuable upon the conversion of
outstanding convertible preferred stock have also been excluded for the three
months ended April 30, 1999.
The calculation of pro forma net loss per common share for the three months
ended April 30, 1999 assumes that all Series A and Series B convertible
preferred stock had been converted to common stock as of the issuance date.
9. SEGMENT REPORTING
The Company adopted SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, in the fiscal year ended January 31, 1999. SFAS No. 131
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to stockholders. SFAS No.
131 also establishes standards for related disclosures about products and
services and geographic areas. Operating segments are identified as components
of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision
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maker, or decision making group, in making decisions how to allocate resources
and assess performance. The Company's chief operating decision makers, as
defined under SFAS No. 131, are the Chief Executive Officer and the Chief
Financial Officer. To date, the Company has viewed its operations and manages
its business as principally one operating segment. As a result, the financial
information disclosed herein represents all of the material financial
information related to the Company's principal operating segment.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of SkillSoft should be read in conjunction with SkillSoft's financial
statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q.
This discussion and analysis contains forward-looking statements that involve
risks and uncertainties. SkillSoft's actual results may differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including but not limited to those set forth under "Future Operating
Results" below.
OVERVIEW
SkillSoft commenced operations in January 1998, and until March 1999,
devoted substantially all of its efforts to product development, establishing a
course content developer and supplier base, and building a direct sales and
support organization in the United States and a business application and network
infrastructure to support future growth. Since March 1999, SkillSoft has devoted
substantial resources to sales and marketing activities as well as to continued
product development, and has recorded revenue, although it is not yet
profitable. SkillSoft had an accumulated deficit of $38,980,612 as of April 30,
2000. SkillSoft expects to incur additional losses through at least the fiscal
year ending January 31, 2001, due primarily to substantial increases in sales
and marketing expenditures related to expanding its direct sales organization in
North America, Europe and Australia and to increased personnel-related costs and
expenditures for travel, advertising, public relations, recruiting and other
activities. Research and development expenses will also contribute to losses
during this period as SkillSoft continues to introduce new courses. Legal costs
may also increase due to the defense of a lawsuit filed against SkillSoft and
certain of its executives by NETg.
SkillSoft derives revenue primarily from license agreements under which
customers license its courses for periods of one, two or three years. The
pricing for licenses varies based upon the number of course titles licensed by a
customer, the number of users within the customer's organization and the length
of the license agreement. For example, a three-year license for 25 courses for
5,000 users would cost approximately $106,250 per year. SkillSoft's license
agreements permit customers to exchange courses, generally on the contract
anniversary date. Customers may amend the license agreements, for an additional
fee, to gain access to additional courses and/or to increase the size of the
user base. SkillSoft also derives revenue on a pay-for-use basis under which
some customers are charged based on the number of courses accessed by users.
Revenue derived from pay-for-use contracts has been minimal to date.
The annual license fee for the first year is generally billed in advance.
Revenue is recognized either at the time of delivery of products or over the
course of the contract, depending on specific contract terms. In the event that
the customer initially specifies the entire set of licensed courses to be
delivered and those courses are available and delivered, the license revenue for
the first year of the contract is recognized upon execution of the contract.
License fees for subsequent years of multi-year license agreements will be
generally billed on the anniversary date of the agreement and recognized in the
manner described above, or if the customer exchanges courses at the renewal
date, upon delivery of the exchanged courses. Revenue is recognized ratably over
the license period if the customer does not initially specify the entire set of
licensed courses or is given exchange privileges that are exercisable other than
on the contract anniversaries or flexible payment terms, or if the customer
licenses all courses currently available and to be developed during a particular
term. This license approach enables us to build a backlog of future revenue
streams. Revenue is recognized as billed monthly or quarterly under the
pay-for-use model. SkillSoft also derives revenue from optional complementary
services such as extranet hosting and mentoring services, which have
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been minimal to date. SkillSoft may offer payment terms up to six months from
the initial shipment date or anniversary date for multi-year agreements.
SkillSoft's backlog at any given time represents the amount of license fees
which are due to SkillSoft under existing license agreements but which have not
yet been recognized as revenue. This amount is comprised of license fees
attributable to licensed courses that have not yet been selected by the customer
or delivered by SkillSoft and to future years of non-cancellable multi-year
license agreements. SkillSoft's backlog can vary based upon a number of factors,
including the timing of the execution of new license agreements, the timing of
product deliveries and the length of SkillSoft license agreements.
Cost of revenue includes the cost of materials (such as CD-ROM media),
packaging, duplication, custom library CD production, internet hosting services,
the cost of Online Mentoring services and certain infrastructure and occupancy
expenses. In the future, cost of revenue is expected to include content
royalties, although SkillSoft intends to minimize the use of such arrangements.
These costs of revenue are generally recognized as incurred. Research and
development expenses consist primarily of salaries and benefits, certain
infrastructure and occupancy expenses, fees to consultants and course content
development fees. Software development costs are accounted for in accordance
with SFAS No. 86, which requires the capitalization of certain computer software
development costs incurred after technological feasibility is established. To
date, development costs after establishment of technological feasibility have
been immaterial, and all software development costs have been expensed as
incurred. Selling and marketing expenses consist primarily of salaries,
commissions and benefits, advertising and promotion, travel and certain
infrastructure and occupancy expenses. General and administrative expenses
consist primarily of salaries and benefits, consulting and service expenses,
legal expenses and certain infrastructure and occupancy expenses.
RESULTS OF OPERATIONS
Quarter Ended April 30, 2000 versus Quarter Ended April 30, 1999
Revenue for the quarter ended April 30, 2000 was $2,114,357 compared to
$197,822 for the quarter ended April 30, 1999. This increase is due to
continuing revenue from our existing customers as well as new customers signed
during the quarter ended April 30, 2000. One customer accounted for 11% of
revenue in the quarter ended April 30, 2000.
Cost of revenue was $224,720, or 11% of revenue, for the quarter ended
April 30, 2000, compared to $126,779, or 64% of revenue, for the quarter ended
April 30, 1999. This decrease as a percentage of revenue was primarily due to
the spreading of cost of revenue, many of which are fixed over a significantly
larger revenue base.
Research and development expenses were $3,326,326 for the quarter ended
April 30, 2000 compared to $1,917,181 for the quarter ended April 30, 1999. This
increase was primarily due to an increase in courseware and software development
costs amounting to approximately $1,400,000. Since SkillSoft's strategy includes
offering the largest library of soft skills courses in the industry, SkillSoft
believes that a significant investment in research and development is necessary
to remain competitive, and SkillSoft therefore expects research and development
expenses to continue to increase.
Selling and marketing expenses were $4,317,652 for the quarter ended April
30, 2000, compared to $1,281,092 for the quarter ended April 30, 1999. This
increase was primarily due to increased personnel, commissions, marketing, and
travel costs amounting to $1,800,000, $200,000, $600,000 and $430,000
respectively. SkillSoft believes that a significant investment in selling and
marketing to expand its distribution channel worldwide is required to remain
competitive, and SkillSoft therefore expects selling and marketing expenses to
continue to increase.
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General and administrative expenses were $1,319,232 for the quarter ended
April 30, 2000, compared to $1,063,685 for the quarter ended April 30, 1999.
This increase was primarily due to increased personnel and investor relations
costs amounting to $250,000 and $50,000, respectively. SkillSoft anticipates
that general and administrative expenses will continue to increase due to
increases in information services and additional expenses associated with
operating as a public company.
Interest income totaled $333,307 for the quarter ended April 30, 2000,
compared to interest income of $64,478 for the quarter ended April 30, 1999. The
increase was due to higher cash balances as the result of proceeds from the
initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
From inception through January 31, 2000, SkillSoft was funded primarily
through preferred stock financings with Warburg, Pincus and other minority
investors. The net proceeds from these financings through January 31, 2000 were
approximately $20,710,000. In February 2000, SkillSoft received net proceeds
totaling $45,058,894 from the sale of 3,565,000 shares of common stock in its
initial public offering.
As of April 30, 2000, SkillSoft's principal source of liquidity was its
cash and cash equivalents and marketable securities balances, which totaled
$36,766,598.
SkillSoft has a line of credit agreement with GreyRock Capital that permits
borrowings of up to $4.5 million as of April 30, 2000. The agreement is a
revolving credit facility, with borrowings under the revolving facility limited
to 80% of eligible accounts receivable. In connection with an amendment to this
agreement in December 1999, SkillSoft paid GreyRock a $70,000 fee and issued
GreyRock warrants for 60,606 shares of common stock at an exercise price of
$8.25 per share. At January 31, 2000, there was $4,513,209 outstanding under
this line of credit. On February 9, 2000, this amount was repaid in full. The
$7.5 million term loan facility was eliminated by SkillSoft on March 2, 2000.
SkillSoft's primary investing activities were purchases of property and
equipment, and purchases and maturation of marketable securities. Property and
equipment purchases were approximately $58,000 and $167,000 for the quarter
ended April 30, 1999 and the quarter ended April 30, 2000 respectively.
Purchases and maturation of marketable securities generated a net cash outflow
of approximately $800,000 in the three months ended April 30, 1999 compared to a
net cash outflow of approximately $24.7 million in the three months ended April
30, 2000.
Cash provided by financing activities was approximately $5.0 million and
$42.6 million for the quarter ended April 30, 1999 and 2000, respectively. For
the quarter ended April 30, 1999, this primarily consisted of proceeds from the
issuance of Series B convertible preferred stock of approximately $5.0 million.
For the quarter ended April 30, 2000, this primarily consisted of net proceeds
from the sale of common stock in the initial public offering of approximately
$45.1 million and proceeds from the sale of common stock to Interim Services,
Inc. of $2.0 million, partially offset by the payment of $4.5 million on the
Greyrock credit line.
Working capital (deficit) was approximately $(6.9) million and $33.3
million as of April 30, 1999 and 2000, respectively. Total assets were
approximately $3.1 million and $40.1 million as of April 30, 1999 and 2000,
respectively. These increases were primarily attributable to the proceeds from
the initial public offering, offset by the funding of operations.
SkillSoft believes that its current cash, cash equivalents and short-term
investments will be sufficient to satisfy its funding needs for at least the
next 18 months.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
Revenue Recognition. This bulletin established guidelines for revenue
recognition and is effective for periods beginning after March 15, 2000.
SkillSoft does not expect that the adoption of this guidance will have a
material impact on its financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB
Opinion No. 25. The Interpretation clarifies the application of Opinion 25 in
certain situations, as defined. The Interpretation is effective as of July 1,
2000 but covers certain events having occurred after December 15, 1998. To the
extent that events covered by this Interpretation occur during the period after
December 15, 1998, but before the effective date of the Interpretation, the
effects of applying this Interpretation will be recognized on a prospective
basis from the effective date. Accordingly, upon initial application of the
Interpretation, (a) no adjustments will be made to financial statements for
periods before the effective date and (b) no expense will be recognized for any
additional compensation cost measured that is attributable to periods before the
effective date. SkillSoft does not expect the adoption of this Interpretation to
have a material impact on the SkillSoft's financial condition or results of
operations.
FUTURE OPERATING RESULTS
BECAUSE SKILLSOFT BEGAN OPERATIONS ONLY RECENTLY AND HAS A LIMITED NUMBER OF
CUSTOMERS AND A LIMITED AMOUNT OF REVENUE, INVESTORS COULD HAVE DIFFICULTY
EVALUATING SKILLSOFT'S BUSINESS AND ITS FUTURE PROSPECTS
An evaluation of the risks and uncertainties of SkillSoft's business will
be difficult because of SkillSoft's limited operating history. SkillSoft
commenced operations in January 1998 and commercially released its first product
in March 1999.
SKILLSOFT HAS INCURRED SUBSTANTIAL LOSSES, AND EXPECTS TO CONTINUE TO INCUR THEM
IN THE FUTURE, AND SKILLSOFT MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN
PROFITABILITY, WHICH MAY ADVERSELY AFFECT THE MARKET PRICE OF SKILLSOFT'S COMMON
STOCK
Since SkillSoft began operations in January 1998, it has incurred losses in
every fiscal period. SkillSoft's accumulated deficit through the quarter ended
April 30, 2000 was $38,980,612. SkillSoft expects to continue to incur
substantial losses through at least the first several quarters of the fiscal
year ending January 31, 2002, and SkillSoft cannot be certain if or when it will
become profitable. If SkillSoft does not become profitable within the timeframe
expected by investors, the market price of our common stock may be adversely
affected. SkillSoft has generated relatively small amounts of revenue while
increasing expenditures in all areas in order to develop its business. SkillSoft
expects to continue to incur significant expenses, particularly in sales and
marketing, in an effort to develop our business. As a result, SkillSoft will
need to generate significant revenue to achieve and maintain profitability. Even
if SkillSoft does achieve profitability, it may not be able to sustain or
increase profitability on a quarterly or annual basis in the future.
SKILLSOFT AND SEVERAL OF SKILLSOFT'S EXECUTIVES ARE INVOLVED IN LITIGATION WITH
NETG WHICH ALLEGES, AMONG OTHER THINGS, MISAPPROPRIATION OF TRADE SECRETS; THIS
LITIGATION WILL CONTINUE TO BE COSTLY AND DIVERT THE EFFORTS OF SKILLSOFT'S
MANAGEMENT AND MAY ULTIMATELY RESTRICT SKILLSOFT'S ABILITY TO DO BUSINESS
SkillSoft, several of SkillSoft's executives, three of SkillSoft's key
employees and SkillSoft's largest investor are involved in a lawsuit brought by
National Education Training Group, Inc. (NETg), the former employer of these
individuals. NETg alleges in substance that the defendants breached their
fiduciary and contractual obligations to NETg in connection with the
organization and operation of SkillSoft, misappropriated trade secrets from
NETg, tortiously interfered with NETg's business and
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employees and breached provisions of a license agreement with NETg relating to
the use of its software. NETg maintains that the trade secrets allegedly
misappropriated by SkillSoft and the other defendants include:
- various aspects of the design and functionality of its education and
training software products;
- customer lists and information;
- distribution channels and relationships with course developers and
other service providers; and
- the business plan to develop soft skills products for use in a Web
environment.
The claims seek injunctive relief against the defendants demanding the return,
and no future use by these defendants, of the alleged trade secrets. The claims
also seek compensatory damages of $400 million, exemplary damages in the
additional amount of $400 million additional compensatory, incidental and
consequential damages in an unspecified amount and punitive damages in excess of
$70 million. Named as defendants in the lawsuit, in addition to SkillSoft, are
Charles E. Moran, Jerald A. Nine, Jr., Mark A. Townsend, Lee A. Ritze, Dennis E.
Brown, Sally H. Welsh, Warburg, Pincus Ventures, L.P., SkillSoft's largest
investor, and each partner of Warburg.
The lawsuit is still in discovery, and SkillSoft can not yet assess the
potential liability of SkillSoft or the other defendants. SkillSoft's failure to
prevail in this litigation could have any or all of the following significant
adverse effects on SkillSoft's business and financial performance:
- injunctive relief issued against SkillSoft and SkillSoft's officers,
which could restrict SkillSoft's ability to conduct its business;
- an adverse judgment against SkillSoft for monetary damages;
- a settlement on unfavorable terms; or
- obligations SkillSoft has to indemnify SkillSoft's employees for
liabilities and expenses they incur in connection with the lawsuit.
In addition, this litigation, regardless of its outcome, will continue to
result in significant expenses in defending the lawsuit and may divert the
efforts and attention of SkillSoft's management team from normal business
operations.
SKILLSOFT'S LIMITED OPERATING HISTORY DOES NOT AFFORD SIGNIFICANT FINANCIAL DATA
UPON WHICH TO FORECAST QUARTERLY REVENUE OR OPERATING RESULTS, AND SKILLSOFT'S
OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER DUE TO THE NATURE OF
SKILLSOFT'S BUSINESS, WHICH COULD HAVE A NEGATIVE IMPACT ON THE PRICE OF
SKILLSOFT'S COMMON STOCK
As a result of SkillSoft's limited operating history, SkillSoft does not
have sufficient historical financial data upon which to forecast quarterly
revenue and operating results. If SkillSoft's quarterly revenue or operating
results fall below the expectations of investors or securities analysts, the
price of SkillSoft's common stock could fall substantially. SkillSoft's
quarterly operating results may fluctuate as a result of a variety of factors,
including:
- the fact that SkillSoft depends upon a relatively small number of
customers for its revenue, so that a delay in any particular customer
order beyond a fiscal quarter would have a significant impact on
SkillSoft's revenue for that quarter;
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- seasonality -- due to the budget and purchasing cycles of SkillSoft's
customers, SkillSoft expects its revenue and operating results will
generally be strongest in the fourth quarter of SkillSoft's fiscal
year and weakest in the first quarter; and
- the expenses SkillSoft incurs to support the anticipated growth of its
business.
Most of SkillSoft's 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 SkillSoft's
expectations, SkillSoft could not proportionately reduce operating expenses for
that quarter. Any such revenue shortfall would therefore have a disproportionate
effect on SkillSoft's expected operating results for that quarter. In addition,
SkillSoft expects that a disproportionate amount of its revenue each quarter
will be recognized in the final weeks of that quarter. As a result, any delays
in receiving orders or signing contracts may defer the associated revenue to the
following quarter, which would adversely affect SkillSoft's operating results on
a quarterly basis.
SKILLSOFT'S BUSINESS WILL SUFFER IF WEB-BASED EDUCATION AND TRAINING PRODUCTS
ARE NOT WIDELY ADOPTED
SkillSoft's Web-based products represent a new and emerging approach for
the corporate soft skills education and training market. SkillSoft's success
depends substantially upon the widespread adoption of Web-based products for
education and training. The early stage of development of the market for
Web-based education and training makes it difficult for SkillSoft to predict
customer demand accurately. The failure of this market to develop, or a delay in
the development of this market -- whether due to technological, competitive or
other reasons -- would severely limit the growth of SkillSoft's business and
adversely affect SkillSoft's financial performance.
INTENSE COMPETITION FROM OTHER EDUCATION AND TRAINING COMPANIES COULD IMPAIR
SKILLSOFT'S ABILITY TO GROW AND TO ACHIEVE PROFITABILITY
The market for soft skills education and training is fragmented and highly
competitive. Increased competition may result in lost sales and may force
SkillSoft to lower prices. SkillSoft expects that competition in this market
will increase substantially in the future for a number of reasons.
One source of competition for SkillSoft's products is the internal
educational and technological personnel of potential customers. If an
organization decides to use external providers to supply some or all of its
training, SkillSoft's principal sources of competition are:
- Providers of traditional classroom instruction. Many of the companies
in this category are attempting to adapt their courses to a non-instructor-led
format suitable for deployment over the internet and corporate intranets.
- Providers of CD-ROM training courses.
- Suppliers of online information technology training courses that are
attempting to take advantage of their current technology and customer base and
expand into the soft skills market.
There can be no assurance that SkillSoft can maintain or improve its
competitive position. Many of SkillSoft's current and potential competitors have
longer operating histories, greater name recognition and greater financial,
technical, sales, marketing, support and other resources than SkillSoft does.
SKILLSOFT RELIES ON A LIMITED NUMBER OF THIRD PARTIES TO PROVIDE SKILLSOFT WITH
EDUCATIONAL CONTENT FOR ITS COURSES, AND THEY MAY NOT BE ABLE TO DEVELOP NEW
COURSES OR ENHANCE EXISTING COURSES ON A TIMELY BASIS
To be competitive, SkillSoft must develop and introduce on a timely basis
new course offerings which meet the needs of companies seeking to use
SkillSoft's education and training products. In addition, some
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of SkillSoft's courses may need to be updated due to changes in educational
doctrines or the evolving requirements of educational institutions and
certification organizations. SkillSoft relies on independent third parties to
provide it with the educational content for its courses based on learning
objectives and specific instructional design templates that SkillSoft provides
to them. SkillSoft's most important content provider, Frontline Group Technology
Center, formerly Institute for Performance Excellence, Inc., is responsible for
the development of more than half of SkillSoft's courses. SkillSoft does not
have exclusive arrangements or long-term contracts with any of these content
providers. If one or more of SkillSoft's third-party content providers were to
stop working with SkillSoft, SkillSoft would have to rely on other parties to
develop SkillSoft course content. SkillSoft cannot predict whether new content
or enhancements would be available from reliable alternative sources on
reasonable terms.
SKILLSOFT COURSE CONTENT PROVIDERS SUPPLY SKILLSOFT WITH THE EDUCATIONAL CONTENT
OF ITS COURSES AND ARE GENERALLY NOT RESTRICTED FROM DEVELOPING SIMILAR CONTENT
FOR SKILLSOFT'S COMPETITORS, WHICH COULD MAKE IT EASIER FOR SKILLSOFT
COMPETITORS TO COMPETE WITH SKILLSOFT
SkillSoft relies on independent third parties to provide SkillSoft with the
educational content for its courses based on learning objectives and specific
instructional design templates that SkillSoft provides to them. SkillSoft's
agreements with these content providers do not restrict them from developing
courses on similar topics for SkillSoft's competitors or from competing directly
with SkillSoft. As a result, SkillSoft's competitors may be able to duplicate
some of SkillSoft's course content and may, therefore, find it easier to enter
the market for soft skills education and training.
SKILLSOFT'S SUCCESS DEPENDS ON THE SERVICES OF CHARLES E. MORAN AND SKILLSOFT'S
OTHER EXECUTIVE OFFICERS AND KEY EMPLOYEES
SkillSoft's future success depends to a significant degree on the skills
and efforts of Charles E. Moran, SkillSoft's founder, Chairman of the Board,
President and Chief Executive Officer. The loss of the services of Mr. Moran
could have a material adverse effect on SkillSoft's business and financial
performance. SkillSoft also depends on the ability of SkillSoft's other
executive officers and members of senior management to work effectively as a
team. The loss of one or more of SkillSoft's executive officers or senior
management members could result in less effective development of SkillSoft's
products and management of its business, which could have a material adverse
effect on SkillSoft's business and financial performance.
SKILLSOFT'S FUTURE GROWTH DEPENDS ON SUCCESSFUL HIRING AND RETENTION,
PARTICULARLY WITH RESPECT TO SALES, MARKETING AND DEVELOPMENT PERSONNEL, AND
SKILLSOFT MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL SKILLSOFT NEEDS
TO SUCCEED
SkillSoft's failure to attract and retain sufficient skilled personnel may
limit the rate at which SkillSoft can grow, may adversely affect the quality or
availability of SkillSoft's products and may result in less effective management
of SkillSoft's business, any of which may harm SkillSoft's business and
financial performance. The growth of SkillSoft's business and revenue depends in
large part upon SkillSoft's ability to attract and retain sufficient numbers of
highly skilled employees, particularly sales and marketing personnel and product
development personnel. Qualified personnel are in great demand throughout the
software industry. The demand for qualified personnel is particularly acute in
the New England area due to the large number of software companies and the low
unemployment rate in the region.
THE LENGTHY SALES CYCLE FOR SKILLSOFT'S PRODUCTS MAY MAKE ITS OPERATING RESULTS
UNPREDICTABLE AND VOLATILE
The period between SkillSoft's initial contact with a potential customer
and the purchase of SkillSoft's products by that customer typically ranges from
three to 12 months. Factors which may contribute to SkillSoft's long sales cycle
include:
- SkillSoft's need to educate potential customers about the benefits of
its products;
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- competitive evaluations by customers;
- the customers' internal budgeting and approval processes;
- the fact that some customers view training products, as discretionary
spending, rather than purchases essential to their business; and
- the fact that SkillSoft targets large companies, which often take
longer to make purchasing decisions due to the size and complexity of the
enterprise.
SkillSoft's long sales cycle makes it difficult for SkillSoft to predict if
and when a potential sale will actually occur. In addition, if a sale is delayed
from the quarter in which SkillSoft expects it to occur, SkillSoft's operating
results for that quarter would be adversely affected.
SKILLSOFT'S FINANCIAL PERFORMANCE DEPENDS IN PART ON ITS ABILITY TO DEVELOP
BRAND AWARENESS, AND SKILLSOFT MAY NOT BE SUCCESSFUL IN DOING SO
SkillSoft believes that developing the SkillSoft brand within the corporate
training market is critical to achieving widespread acceptance of its products.
There are a number of factors which could prevent SkillSoft from successfully
developing the SkillSoft brand, including the emergence of more successful
competitors, product performance problems or customer dissatisfaction, as well
as SkillSoft's failure to devote sufficient resources to marketing efforts.
SKILLSOFT'S FAILURE TO PROPERLY MANAGE ITS RECENT AND ANTICIPATED GROWTH COULD
HAVE A MATERIAL ADVERSE EFFECT ON THE QUALITY OF SKILLSOFT'S PRODUCTS, ITS
ABILITY TO RETAIN KEY PERSONNEL AND THE EFFICIENCY OF ITS OPERATIONS
SkillSoft's failure to properly manage its recent and anticipated growth
could have a material adverse effect on the quality of its products, its ability
to retain key personnel and the efficiency of its operations, any of which could
have a material adverse effect on its business and financial performance. From
January 1, 1999 to April 30, 2000, the number of SkillSoft's employees increased
from 45 to 176. This growth has strained, and SkillSoft's future growth may
continue to strain, its management, operational systems and other resources. To
manage its growth effectively, SkillSoft must be able to maintain and enhance
its financial and accounting systems and controls, integrate new personnel and
manage expanded operations. There can be no assurance SkillSoft will be able to
do so.
BECAUSE MANY OF SKILLSOFT'S COURSES AND TECHNOLOGIES ARE STILL UNDER DEVELOPMENT
AND SKILLSOFT EXPECTS TO CONTINUE TO DEVELOP NEW COURSES AND ENHANCE ITS
TECHNOLOGIES, SKILLSOFT'S BUSINESS WILL SUFFER IF IT IS UNABLE TO INTRODUCE
THESE NEW COURSES AND TECHNOLOGIES ON A TIMELY BASIS OR IF NEW COURSES ARE
UNSUCCESSFUL
SkillSoft's future success will depend significantly on whether it is able
to introduce new courses and enhance its Web-based technologies as planned.
While SkillSoft has new courses and technology features scheduled for commercial
launch, SkillSoft cannot assure investors that it will be successful in
releasing them as scheduled, or that they will meet with market acceptance.
SkillSoft may not have sufficient resources to develop the new courses and
technology enhancements necessary to maintain or improve SkillSoft's competitive
position.
BECAUSE SKILLSOFT'S PRODUCTS AND SERVICES MAY NOT BE VIEWED BY SKILLSOFT'S
CUSTOMERS AS ESSENTIAL TO THEIR BUSINESS, DEMAND FOR SKILLSOFT'S PRODUCTS MAY BE
ESPECIALLY SUSCEPTIBLE TO ADVERSE ECONOMIC CONDITIONS
SkillSoft's business and financial performance may be damaged, more so than
most companies, by adverse financial conditions affecting SkillSoft's target
customers or by a general weakening of the
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economy. Some companies may not view training products as critical to the
success of their business. 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.
SKILLSOFT MUST CONTINUALLY INTRODUCE NEW PRODUCTS, AND ITS PRODUCTS MUST ADAPT
TO FREQUENT CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS, AND SKILLSOFT MAY HAVE
DIFFICULTY INTRODUCING NEW PRODUCTS OR KEEPING UP WITH THESE CHANGES
The market for education and training products is characterized by rapidly
changing technologies, frequent new product and service introductions and
evolving industry standards. The growth in the use of the Web and intense
competition in SkillSoft's industry exacerbate these market characteristics.
SkillSoft's future success will depend on its ability to adapt to rapidly
changing technologies and customer demands by continually improving the features
and performance of SkillSoft's products.
THE NATURE OF SKILLSOFT'S PRODUCTS MAKES THEM PARTICULARLY VULNERABLE TO
UNDETECTED ERRORS, OR BUGS, WHICH COULD REDUCE SKILLSOFT'S REVENUE, MARKET SHARE
OR THE DEMAND FOR ITS PRODUCTS
Product performance problems could result in lost or delayed revenue, loss
of market share, failure to achieve market acceptance, diversion of development
resources or injury to SkillSoft's reputation, any of which could have a
material adverse effect on SkillSoft's business and financial performance.
Software products such as SkillSoft's may contain undetected errors, or bugs,
which result in product failures or poor product performance. SkillSoft's
products may be particularly susceptible to bugs or performance degradation
because of the emerging nature of Web-based technologies and the stress that may
be placed on SkillSoft's products by the full deployment of its products to
thousands of users.
SKILLSOFT MAY NOT BE ABLE TO GENERATE ENOUGH REVENUE FROM ITS PLANNED
INTERNATIONAL EXPANSION TO OFFSET THE COSTS ASSOCIATED WITH ESTABLISHING AND
MAINTAINING FOREIGN OPERATIONS
A key component of SkillSoft's growth strategy is to expand its presence in
foreign markets. It will be costly to establish international operations, market
SkillSoft's products internationally and support and manage geographically
dispersed operations. Revenue from international operations is not likely to
offset the expense of establishing and maintaining these foreign operations in
the foreseeable future.
SKILLSOFT'S PLANNED INTERNATIONAL BUSINESS WILL EXPOSE IT TO RISKS IT HAS NOT
HAD TO FACE IN THE PAST
If SkillSoft is successful in establishing international operations,
SkillSoft will have to confront and manage a number of risks that it has not had
to address in its U.S. operations. SkillSoft cannot assure investors that
SkillSoft will be successful in managing these risks. These risks include:
- expenses associated with customizing products for foreign countries;
- challenges and costs inherent in managing geographically dispersed
operations;
- protectionist laws and business practices that favor local
competitors;
- economic or political instability in some international markets;
- difficulties in finding and managing local resellers;
- multiple, conflicting and changing governmental laws and regulations;
and
- foreign currency exchange rate fluctuations.
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BECAUSE MANY USERS OF SKILLSOFT'S COURSES ACCESS THEM OVER THE INTERNET, FACTORS
ADVERSELY AFFECTING THE USE OF THE INTERNET COULD HARM SKILLSOFT'S BUSINESS
Some users access SkillSoft's courses over the public internet. Examples
include users who access courses from their company's intranet via remote access
and employees of companies that utilize SkillSoft's hosting services and who
therefore access courses from SkillSoft-managed servers via the internet. Any
factors that adversely affect internet usage could disrupt the ability of those
users to access SkillSoft's courses, which would adversely affect customer
satisfaction and therefore SkillSoft's business. Among the factors that could
disrupt internet usage are:
- slow access and download times;
- security concerns;
- network problems or service disruptions that prevent users from
accessing an internet server; and
- delays in, or disputes concerning, the development and adoption of
industry-wide internet standards and protocols.
SKILLSOFT COULD BE SUBJECTED TO LEGAL ACTIONS BASED UPON THE CONTENT SKILLSOFT
OBTAINS FROM THIRD PARTIES OVER WHOM IT EXERTS LIMITED CONTROL
It is possible that SkillSoft could become subject to legal actions based
upon claims that SkillSoft's course content infringes the rights of others or is
erroneous. Any such claims, with or without merit, could subject SkillSoft to
costly litigation and the diversion of its financial resources and management
personnel. The risk of such claims is exacerbated by the fact that SkillSoft's
course content is provided by third parties over whom SkillSoft exert limited
control. Further, if those claims are successful, SkillSoft may be required to
alter the content, pay financial damages or obtain content from others.
SKILLSOFT'S PRODUCTS MAY BE SUSCEPTIBLE TO CLAIMS BY OTHER COMPANIES THAT
SKILLSOFT'S PRODUCTS INFRINGE UPON THEIR COPYRIGHTS OR PATENTS, WHICH COULD
ADVERSELY AFFECT SKILLSOFT'S FINANCIAL CONDITION
If any of SkillSoft's products violate the proprietary rights of third
parties, SkillSoft may be required to reengineer its products or to obtain
licenses to continue offering SkillSoft's products without substantial
reengineering. Any efforts to reengineer SkillSoft's products or obtain licenses
from third parties may not be successful and, in any case, could have a material
adverse effect on SkillSoft's business and financial performance by
substantially increasing its costs. SkillSoft does not conduct comprehensive
patent searches to determine whether the technologies used in SkillSoft's
products infringe upon patents held by others. In addition, product development
is inherently uncertain in a rapidly evolving technological environment in which
there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies.
THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF SKILLSOFT'S COMMON STOCK WILL
LIMIT INVESTORS ABILITY TO INFLUENCE CORPORATE ACTIONS
The concentration of ownership of SkillSoft's common stock may have the
effect of delaying, preventing or deterring a change in control of SkillSoft,
could deprive SkillSoft's stockholders of an opportunity to receive a premium
for their common stock as part of a sale of SkillSoft and might affect the
market price of SkillSoft's common stock. Warburg, Pincus Ventures, L.P. owns
47.5% of SkillSoft's outstanding common stock and, together with SkillSoft's
executive officers and directors, will beneficially own approximately 68.7% of
SkillSoft's outstanding common stock. As a result, those stockholders, if they
act together, are
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able to control all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions.
SOME PROVISIONS OF SKILLSOFT'S CHARTER AND BY-LAWS MAY DELAY OR PREVENT
TRANSACTIONS THAT MANY STOCKHOLDERS MAY FAVOR
Some provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger or acquisition that SkillSoft's
stockholders may consider favorable, including transactions in which
stockholders might otherwise receive a premium for their shares. Some provisions
of Delaware law may also discourage, delay or prevent someone from acquiring
SkillSoft or merging with SkillSoft.
ITEM 3. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of April 30, 2000, SkillSoft did not use derivative financial
instruments for speculative or trading purposes.
INTEREST RATE RISK
SkillSoft invests its excess cash in high quality securities with
maturities not exceeding ninety days and therefore would not expect its
operating results or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates.
FOREIGN CURRENCY EXCHANGE RISK
To date, SkillSoft has not generated significant revenues originating
outside the United States, and therefore, foreign currency fluctuations have not
had a material effect on SkillSoft's operating results.
PART II
ITEM 1. -- LEGAL PROCEEDINGS
The information under Item 3 entitled "Legal Proceedings" from the Annual
Report on Form 10-K, is hereby incorporated by reference.
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ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended April 30, 2000, SkillSoft issued the following
securities that were not registered under the Securities Act of 1933, as
amended:
On April 25, 2000, SkillSoft issued and sold an aggregate of 142,857 shares
of its common stock, $.001 par value per share at $14.00 per share, for an
aggregate purchase price of $1,999,998.
No underwriters were involved in the foregoing sale of securities. The
shares issued in the above mentioned transaction were issued in private
placements in reliance upon the exemption from registration provided by section
4 (2) of the Securities Act of 1933.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. - OTHER INFORMATION.
Not applicable.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
The exhibit filed as a part of this Form 10-Q is the following:
Exhibit 27.1: Financial Data Schedule
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended April
30, 2000.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SKILLSOFT CORPORATION
(Registrant)
By /s/ THOMAS J. MCDONALD
--------------------------------------
Thomas J. McDonald, Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: June 14, 2000
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