SmartForce fees force US$255m loss for SkillSoft

26 May 2003

Celebrations of record results for the past year at SkillSoft have been overshadowed by the fact that charges arising from the company’s acquisition of Irish e-learning firm SmartForce will cost the firm in excess of $255m.

Legal fees arising from the purchase of SmartForce cost SkillSoft approximately US$5.1m, and major net losses due to goodwill impairment in the marketplace come to $250.1m – a total of $255.2m and rising.

In the latest fourth quarter results, the company reported a total revenue of $42.9m, representing a 182pc year-over-year increase from $15.2m a year ago. For the fiscal year ended 31 January 2003, SkillSoft reported revenue of $101.5m, compared to $44.3m a year ago.

Net losses for the fourth quarter were $269.8m, or $2.71 per share. This net loss included a goodwill impairment charge of $250.1m, a restructuring charge of $7.6m and costs in connection with the pending restatement of the historical SmartForce financial statements of $5.1m.

Excluding these losses as a result of the SmartForce case, the net losses for the quarter would have been only $7.2m in comparison.

Earlier this month, SkillSoft had told the US stock exchange watchdog, the Securities and Exchange Commission (SEC) that it would have to delay filing its audited financial results due to accounting problems caused by alleged dodgy accounting practices at SmartForce, the Irish e-learning company it acquired over a year ago.

In its latest results, the company incurred $5.1m in expenses related to the pending restatement and audit of the historical financial statements of SmartForce PLC. “Management expects these charges to continue and exponentially increase for the fiscal year ended January 31, 2004,” the company stated. The company said it occurred some $2.3 m worth of litigation related costs, which it expects to increase over the next four quarters.

At one time SmartForce Technologies, formerly CBT, was considered one of Ireland’s brightest technology stars and its success in the e-learning world attracted SkillSoft Corporation to acquire the company.

The recent legal actions that SkillSoft became embroiled in have been taken by at least three US law firms that have filed class-action law suits against SmartForce and two of its executives, Greg Priest and William McCabe, on behalf of investors who lost money on shares they acquired between 19 October 1999 and 22 November 2002.

The three firms allege that SmartForce’s failure to supply investors with correct financial details over the previous three-year period was fraudulent, insofar as they allege that untrue statements about the company’s finances were made in order to induce the plaintiffs to buy SmartForce shares.

By John Kennedy