<PAGE>   1

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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 MARCH 31, 2001

                                       OR

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

          For the transition period from ____________ to ____________

                        Commission File Number 000-30277

                         SERVICEWARE TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                        <C>
                DELAWARE                       25-1647861
    (State or Other Jurisdiction of         (I.R.S. Employer
     Incorporation or Organization)        Identification No.)

          333 ALLEGHENY AVENUE
              OAKMONT, PA                         15139
(Address of Principal Executive Offices)       (Zip Code)
</TABLE>

       Registrant's Telephone Number, Including Area Code: (412) 826-1158

     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  _

     The number of shares of the registrant's common stock outstanding as of the
close of business on May 7, 2001 was 24,368,579.

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<PAGE>   2

                         SERVICEWARE TECHNOLOGIES, INC.
                                   FORM 10-Q
                                 MARCH 31, 2001

                                     INDEX

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         ----
<S>        <C>                                                           <C>
PART I.    FINANCIAL INFORMATION
ITEM 1.    Consolidated Financial Statements (Unaudited)
           Consolidated Balance Sheets as of March 31, 2001 and
           December 31, 2000...........................................      2
           Consolidated Statements of Operations for the three months
           ended March 31, 2001 and 2000...............................      3
           Consolidated Statement of Stockholders' Equity for the three
           months ended March 31, 2001 and 2000........................      4
           Consolidated Statements of Cash Flows for the three months
           ended March 31, 2001 and 2000...............................      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........................................................     25

PART II.   OTHER INFORMATION
ITEM 6.    Exhibits and Reports on Form 8-K............................     26
</TABLE>
<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

                          CONSOLIDATED BALANCE SHEETS
                 AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS

<TABLE>
<CAPTION>
                                                                  MARCH 31,      DECEMBER 31,
                                                                    2001             2000
                                                                -------------    ------------
                                                                 (UNAUDITED)
<S>                                                             <C>              <C>
                           ASSETS
Current assets
  Cash and cash equivalents.................................      $  5,847         $ 12,048
  Short term investments....................................        11,466           13,715
  Accounts receivable, less allowance for doubtful accounts
    of $438 as of March 31, 2001 and $460 in 2000...........         3,974            5,717
  Other current assets......................................         2,532            2,661
                                                                  --------         --------
         Total current assets...............................        23,819           34,141
Long term assets
  Purchased technology, net of amortization of $1,003 as of
    March 31, 2001
    and $854 in 2000........................................           779              928
  Property and equipment
    Office furniture, equipment, and leasehold
      improvements..........................................         2,061            1,946
    Computer equipment......................................         6,611            6,403
                                                                  --------         --------
         Total property and equipment.......................         8,672            8,349
Less accumulated depreciation...............................        (4,465)          (4,023)
                                                                  --------         --------
Property and equipment, net.................................         4,207            4,326
  Intangible assets, net of accumulated amortization of
    $8,529 as of March 31, 2001
    and $7,263 in 2000......................................         6,379            7,645
  Long term receivables.....................................         1,100            1,100
  Other long term assets....................................           292              262
                                                                  --------         --------
         Total long term assets.............................        12,757           14,261
                                                                  --------         --------
         Total assets.......................................      $ 36,576         $ 48,402
                                                                  ========         ========
            LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable..........................................         2,556            2,236
  Accrued compensation and benefits.........................         1,001            1,029
  Deferred revenue -- licenses and subscriptions............         2,837            3,458
  Deferred revenue -- services..............................         3,211            3,505
  Reserve for restructuring.................................         1,510               --
  Other current liabilities.................................         2,042            2,127
                                                                  --------         --------
         Total current liabilities..........................        13,157           12,355
                                                                  --------         --------
Long term debt, less current portion........................           215              258
Long term deferred revenue -- licenses and subscriptions....           785              785
Long term deferred revenue -- services......................           315              315
Other long term liabilities.................................           113              120
                                                                  --------         --------
         Total liabilities..................................        14,585           13,833
Stockholders' equity
  Common stock, $0.01 par; 100,000 shares authorized, 24,369
    and 24,366 shares issued and 24,369 and 24,346 shares
    outstanding in 2001 and 2000............................           244              244
  Additional paid in capital................................        73,835           74,208
  Treasury stock, 0 and 20 shares in 2001 and 2000..........            --             (146)
  Deferred compensation and other...........................        (1,648)          (1,801)
  Warrants..................................................         1,414            1,379
  Note receivable from common stockholders..................        (2,350)          (2,350)
  Accumulated other comprehensive loss:
    Currency translation account............................           (25)             (18)
    Unrealized gain on short term investments...............            54               19
  Retained deficit..........................................       (49,533)         (36,966)
                                                                  --------         --------
         Total stockholders' equity.........................        21,991           34,569
                                                                  --------         --------
         Total liabilities and stockholders' equity.........      $ 36,576         $ 48,402
                                                                  ========         ========
</TABLE>

              See accompanying notes to the financial statements.
                                        2
<PAGE>   4

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 QUARTER ENDED MARCH 31,
                                                                -------------------------
                                                                   2001            2000
                                                                -----------      --------
                                                                (UNAUDITED)
<S>                                                             <C>              <C>
Revenues
  Licenses and subscriptions................................      $  2,451       $ 5,442
  Services..................................................         1,461         1,520
                                                                  --------       -------
     Total revenues.........................................         3,912         6,962
                                                                  --------       -------
Cost of revenues
  Cost of licenses and subscriptions........................         1,080           448
  Cost of services..........................................         3,420         1,563
                                                                  --------       -------
     Total cost of revenues.................................         4,500         2,011
                                                                  --------       -------
Gross margin................................................          (588)        4,951
Operating expenses
  Sales and marketing.......................................         5,655         4,021
  Research and development..................................         2,609         1,973
  General and administrative................................           940         1,108
  Intangible assets amortization............................         1,266         1,264
  Restructuring charge......................................         1,856            --
                                                                  --------       -------
     Total operating expenses...............................        12,326         8,366
                                                                  --------       -------
Loss from operations........................................       (12,914)       (3,415)
Other income (expense)
  Interest expense..........................................           (21)         (101)
  Other (net)...............................................           368            95
                                                                  --------       -------
Other (expense) income, net.................................           347            (6)
                                                                  --------       -------
Net loss....................................................      $(12,567)      $(3,421)
                                                                  ========       =======
Net loss per common share, basic and diluted................      $  (0.52)      $ (0.49)
                                                                  ========       =======
Shares used in computing per share amounts..................        24,356         6,948
                                                                  ========       =======
</TABLE>

              See accompanying notes to the financial statements.
                                        3
<PAGE>   5

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                                          NOTE
                                                                                                       RECEIVABLE     ACCUMULATED
                                   COMMON STOCK     ADDITIONAL                DEFERRED                    FROM           OTHER
                                  ---------------    PAID IN     TREASURY   COMPENSATION                 COMMON      COMPREHENSIVE
                                  SHARES   AMOUNT    CAPITAL      STOCK      AND OTHER     WARRANTS   STOCKHOLDERS       LOSS
                                  ------   ------   ----------   --------   ------------   --------   ------------   -------------
<S>                               <C>      <C>      <C>          <C>        <C>            <C>        <C>            <C>
Balance at December 31, 2000....  24,346    $244     $74,208      $(146)      $(1,801)      $1,379      $(2,350)         $  1
Exercise of stock options.......      23      --        (127)       146            --           --           --            --
Stock based compensation........      --      --        (246)        --           144           --           --            --
Issuance of warrants............      --      --          --         --           (35)          35           --            --
Amortization of warrants........      --      --          --         --            44           --           --            --
Other comprehensive gain (loss):
Currency translation
  adjustment....................      --      --          --         --            --           --           --            (7)
Unrealized gain on short term
  investments...................      --      --          --         --            --           --           --            35
Net loss........................      --      --          --         --            --           --           --            --
                                                                                                                         ----
Total other comprehensive
  loss..........................                                                                                           28
                                  ------    ----     -------      -----       -------       ------      -------          ----
Balance at March 31, 2001.......  24,369    $244     $73,835      $  --       $(1,648)      $1,414      $(2,350)         $ 29
                                  ======    ====     =======      =====       =======       ======      =======          ====

<CAPTION>

                                                 TOTAL
                                             STOCKHOLDERS'
                                  DEFICIT       EQUITY
                                  --------   -------------
<S>                               <C>        <C>
Balance at December 31, 2000....  $(36,966)    $ 34,569
Exercise of stock options.......        --           19
Stock based compensation........        --           23
Issuance of warrants............        --           --
Amortization of warrants........        --           44
Other comprehensive gain (loss):
Currency translation
  adjustment....................        --           (7)
Unrealized gain on short term
  investments...................        --           35
Net loss........................   (12,567)     (12,567)
                                  --------     --------
Total other comprehensive
  loss..........................   (12,567)     (12,539)
                                  --------     --------
Balance at March 31, 2001.......  $(49,533)    $ 21,991
                                  ========     ========
</TABLE>

              See accompanying notes to the financial statements.
                                        4
<PAGE>   6

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                2001        2000
                                                              --------    --------
<S>                                                           <C>         <C>
Cash flows from operating activities
  Net loss..................................................  $(12,567)   $ (3,421)
  Adjustments to reconcile net loss to net cash used in
     operations:
     Depreciation and amortization..........................     2,036       1,740
Changes in operating assets and liabilities:
  Accounts receivable.......................................     1,743      (1,804)
  Other assets..............................................        (4)         94
  Accounts payable..........................................       320         326
  Accrued compensation......................................       (28)       (300)
  Other liabilities.........................................     1,470         503
  Deferred revenue..........................................      (915)        627
  Unrealized gain on short term investments.................       (54)         --
                                                              --------    --------
       Net cash used in operating activities................    (7,999)     (2,235)
                                                              --------    --------
Cash flows from investing activities
  Purchase of short term investments........................    (1,697)         --
  Sale of short term investments............................     4,000          --
  Property and equipment acquisitions.......................      (457)       (396)
                                                              --------    --------
       Net cash provided by (used in) investing
        activities..........................................     1,846        (396)
                                                              --------    --------
Cash flows from financing activities
  Repayments of principal of capital lease obligation.......       (17)        (42)
  Repayments of principal of equipment line.................       (43)         --
  Proceeds from stock options issuances.....................        19          66
                                                              --------    --------
       Net cash (used in) provided by financing
        activities..........................................       (41)         24
Effect of exchange rate changes on cash.....................        (7)         --
                                                              --------    --------
Increase in cash and cash equivalents.......................    (6,201)     (2,607)
Cash and cash equivalents at beginning of period............    12,048       6,623
                                                              --------    --------
Cash and cash equivalents at end of period..................  $  5,847    $  4,016
                                                              ========    ========
Supplemental disclosures of cash flow information:
  Cash paid for interest....................................  $     15    $     95
                                                              ========    ========
</TABLE>

              See accompanying notes to the financial statements.
                                        5
<PAGE>   7

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001
                                  (UNAUDITED)

NOTE 1.  ORGANIZATION OF THE COMPANY

     ServiceWare Technologies, Inc. (the "Company") is a leading provider of
software and content solutions that businesses use to provide an Internet-based
e-service platform to their customers, partners, suppliers and employees.

     The Company's eService Suite includes software and content products which
enable its customers to develop and manage a knowledge base of service-related
information. Its solutions also permit the dissemination of knowledge through
multiple communication channels, such as telephone, e-mail, chat and Web-based
self-service. Additionally, its Internet-based knowledge portal,
RightAnswers.com(TM), enables customers to access a continuously updated
knowledge base of content obtained from leading technology companies as well as
the Company's internally produced knowledge content. The Company also offers
integration, training, consulting and maintenance services that enable its
customers to realize the benefits of its eService Suite.

     The Company's products include:

     eService Architect. The eService Architect provides a robust set of
     knowledge tools that allows customers' subject matter experts and system
     administrators to administer, design, manage and maintain knowledge bases.

     eService Professional. The eService Professional provides a Web-based
     application interface for use by customer service professionals to more
     easily navigate through the knowledge base, view various components of the
     knowledge base as well as capture and revise additional knowledge.

     eService Site. The eService Site allows customers to provide Web-based
     self-service to their end-users.

     RightAnswers.com. RightAnswers.com is an Internet-based knowledge portal
     that enables customers to access a continuously updated database of
     problem-solution pairs in a cost effective and timely manner.
     RightAnswers.com is also sold in a CD-ROM version.

     eService Architect, eService Professional and eService Site are derived
from Knowledge Bridge, which was a product of the Molloy Group prior to its
acquisition by the Company in July 1999, and includes the functionality of
Knowledge-Pak Architect and Knowledge-Pak Viewer, which were products of the
Company. The predecessor of RightAnswers.com was sold on CD-ROM as Knowledge-Pak
Desktop Suite. Knowledge-Pak Desktop Suite was often sold together with
Knowledge-Pak Architect and Knowledge-Pak Viewer. All of these various products
have been integrated in the eService Suite.

NOTE 2.  UNAUDITED INTERIM FINANCIAL INFORMATION

     The accompanying unaudited balance sheet as of March 31, 2001 and related
unaudited consolidated statements of operations and cash flows for the three
months ended March 31, 2001 and 2000, and the unaudited consolidated statement
of stockholders' equity for the three months ended March 31, 2001 have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States for interim financial information and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles for complete
financial statements. The interim financial statements include all adjustments,
consisting of normal recurring accruals, considered necessary for a fair
presentation of the results of interim periods. Operating results for the three
month period ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto incorporated by reference
into the Company's 2000 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.

                                        6
<PAGE>   8

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after elimination of all significant
intercompany accounts and transactions.

NOTE 3. NET LOSS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                ---------------------
                                                                  2001         2000
                                                                --------      -------
                                                                   (IN THOUSANDS)
<S>                                                             <C>           <C>
Numerator for basic and diluted net loss per share -- loss
  available to common stockholders..........................     (12,567)      (3,421)
Denominator for basic and diluted loss per share -- weighted
  average shares............................................      24,356        6,948
                                                                ========      =======
Basic and diluted net loss per share........................    $  (0.52)     $ (0.49)
                                                                ========      =======
</TABLE>

     Dilutive securities include options, warrants, and preferred stock as if
converted. Potentially dilutive securities totaling 4,922,410 and 12,255,933 for
the three months ended March 31, 2001 and 2000, respectively, were excluded from
historical basic and diluted loss per share because of their antidilutive
effect.

NOTE 4.  OTHER COMPREHENSIVE INCOME

     The following table reconciles net loss as reported to total comprehensive
loss for the three months ended March 31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED
                                                              MARCH 31,
                                                        ---------------------
                                                          2001         2000
                                                        --------      -------
                                                           (IN THOUSANDS)
<S>                                                     <C>           <C>
Net loss............................................    $(12,567)     $(3,421)
Other comprehensive income:
  Unrealized foreign currency loss..................          (7)          --
  Unrealized gain on short term investments.........          35           --
                                                        --------      -------
     Total comprehensive loss.......................    $(12,539)     $(3,421)
                                                        ========      =======
</TABLE>

NOTE 5.  RECEIVABLES

     Receivables consist of the following:

<TABLE>
<CAPTION>
                                                    MARCH 31,    DECEMBER 31,
                                                      2001           2000
                                                    ---------    ------------
                                                         (IN THOUSANDS)
<S>                                                 <C>          <C>
Billed receivables..............................     $3,009         $4,463
Unbilled receivables............................      1,403          1,714
                                                     ------         ------
                                                      4,412          6,177
Allowance for doubtful accounts.................       (438)          (460)
                                                     ------         ------
     Total receivables..........................     $3,974         $5,717
                                                     ======         ======
</TABLE>

     Unbilled receivables represent non-cancelable, non-refundable amounts that
are billable by the Company at future dates based on contractual payment terms.

                                        7
<PAGE>   9

NOTE 6.  DEBT

     The Company has a secured credit facility with PNC bank. This facility
consists of three sub-facilities: a revolving credit facility, a convertible
equipment loan and a term loan. All amounts outstanding under the revolving
credit facility and term loan were paid in August 2000.

     On July 1, 2000, the equipment loan was converted to a term loan, and
principal repayments are being made as required in 36 equal installments which
began July 1, 2000.

NOTE 7.  SEGMENT INFORMATION

ORGANIZATION

     The Company has two reportable segments: Software and Content. The Software
segment includes products where customers can develop and manage a knowledge
base of service-related support information and disseminate that knowledge
through multiple communication channels, such as telephone support, e-mail, chat
and Web-based self-service. The Content segment product, RightAnswers.com, is an
Internet-based knowledge portal that enables customers to access a continuously
updated database of problem-solution pairs in a cost effective and timely
manner. The Company does not disclose segmented balance sheet information as
management reviews balance sheet information on a consolidated basis.

SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                                                SOFTWARE    CONTENT    TOTAL
                                                                --------    -------    ------
                                                                       (IN THOUSANDS)
<S>                                                             <C>         <C>        <C>
Three months ended March 31, 2001
  Revenues..................................................    $ 2,266     $1,646     $3,912
  Segment profit (loss).....................................     (9,253)       399     (8,854)
Three months ended March 31, 2000
  Revenues..................................................      2,182      4,780      6,962
  Segment profit (loss).....................................     (3,316)     2,273     (1,043)
</TABLE>

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                                -------------------
                                                                  2001       2000
                                                                --------    -------
                                                                  (IN THOUSANDS)
<S>                                                             <C>         <C>
Profit or Loss
  Total profit (loss) for reportable segments...............    $ (8,854)   $(1,043)
  Unallocated amounts
     General and administrative.............................        (939)    (1,108)
     Intangible assets amortization.........................      (1,266)    (1,264)
     Restructuring charge...................................      (1,856)        --
     Other income (expense), net............................         348         (6)
                                                                --------    -------
  Net loss..................................................    $(12,567)   $(3,421)
                                                                ========    =======
</TABLE>

NOTE 8.  RESTRUCTURING CHARGE

     In February 2001, the Company announced a strategic restructuring to focus
on revenue growth opportunities in the eService software market and confirmed
that it has actively engaged in discussions regarding the sale of its content
subscription business. The plan of restructuring approved by the board of
directors included taking a restructuring charge of $1.9 million. This
restructuring charge includes severance benefits and costs of $471,000,
reduction and relocation of certain facilities costs of $1,231,000, termination
costs for certain services of $115,000 and equipment write off of $39,000. As
part of the restructuring plan, 55 employees were terminated on February 28,
2001 primarily from the Company's Oakmont, Pennsylvania facility. Accordingly,
office space in

                                        8
<PAGE>   10

Oakmont was reduced. The Company plans to either sublet part of this facility or
all of it and move to an alternative location.

     As of March 31, 2001, $346,000 of severance benefits and costs had been
paid and $1,510,000 of the total charge remained to be paid. The remaining cash
costs will be paid in the three months ended June 30, 2001.

     As a result of the restructuring, the Company expects to lose most or all
of the Content Segment revenues, but expects to save approximately $4.9 million
per year in personnel costs, rent and other services related to the content
subscription business.

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

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed
consolidated financial statements and related notes contained in this Quarterly
Report on Form 10-Q ("Form 10-Q").

     Certain statements contained in this Form 10-Q, other securities filings,
press releases, interviews and other public statements that are not historical
facts, including those statements that refer to our plans, prospects,
expectations, strategies, intentions, hopes and beliefs, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. You should not place undue reliance on these
forward-looking statements. These statements involve risks, uncertainties and
other factors, including those described below and elsewhere in this Form 10-Q,
that may cause our actual results to differ materially from any expressed or
implied by these forward-looking statements. We assume no obligation to update
these forward-looking statements as circumstances change in the future. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue," or the negative of these terms or other
comparable terminology.

OVERVIEW

     We are a leading provider of software and content solutions that businesses
use to provide an Internet-based e-service platform to their customers,
partners, suppliers and employees. We develop and market comprehensive service
solutions to meet the needs of these end-users who, together, form an extended
enterprise. Our eService Suite includes licensed and subscription-based software
and content products that enable businesses to capture enterprise knowledge,
solve their end-users' problems, reuse solutions and share captured knowledge
through the Internet. Additionally, our patented Cognitive Processor contained
in our eService Suite continually learns at each request, keeping knowledge
up-to-date and accurate and providing end-users with relevant and useful answers
to their questions. Our solutions also permit the dissemination of knowledge
through multiple communication channels, such as telephone support, e-mail, chat
and Web-based self-service.

     We have two reportable operating segments: Software and Content. Our
Software Segment includes products where customers can develop and manage a
knowledge base of service-related support information and disseminate that
knowledge through multiple communication channels, such as telephone support,
e-mail, chat and Web-based self-service. Our Content Segment product,
RightAnswers.com, is an Internet-based knowledge portal that enables customers
to access a continuously updated database of problem-solution pairs in a cost
effective and timely manner.

     In February 2001, we announced a strategic corporate restructuring pursuant
to which we will focus our business exclusively on revenue growth opportunities
in our Software Segment business and will sell or discontinue our Content
Segment business.

FACTORS AFFECTING FUTURE OPERATIONS

     Our operating losses, as well as our negative operating cash flow, have
been significant to date, and we expect both to continue for the foreseeable
future until we can develop a customer base that will generate sufficient
revenues to fund our operating expenses. We expect to have positive operating
margins over time by

                                        9
<PAGE>   11

increasing the number of our customers and selling them additional services
without significantly increasing related capital expenditures and other
operating costs.

     As of March 31, 2001, we had $5.8 million in cash and cash equivalents.
Additionally, we had $11.5 million in investments. Based upon internal
projections, we expect that this amount together with our existing credit line
will allow us to remain funded through the end of this fiscal year. Accordingly,
we will require significant capital to finance our operations and the
development of our business.

REVENUES

     We market and sell our products in North America through both our direct
sales force and indirectly through third party distributors, software vendors
and value-added resellers. Internationally, we market products primarily through
value-added resellers, software vendors and system integrators. International
revenues historically have not been a significant percentage of total revenues.
We derive our revenues from licenses and subscriptions for software and content
products and from providing related services, including installation, training,
consulting, customer support and maintenance contracts. License and subscription
revenues include fees for both perpetual licenses and periodic subscription
access. Services revenues contain variable fees for installation, training and
consulting, as well as fixed fees for customer support and maintenance
contracts. We recognize revenues on license fees after a non-cancelable license
agreement has been signed, the product has been delivered, the fee is fixed,
determinable and collectable, and there is vendor-specific objective evidence to
support the allocation of the total fee to elements of a multiple-element
arrangement using the residual method. We recognize revenues on periodic
subscription licenses over the subscription term. We recognize revenues on
installation, training and consulting on a time-and-material basis, and customer
support and maintenance contracts are recognized over the life of the contract.

COST OF REVENUES

     Cost of license and subscription revenues consists primarily of the
expenses related to royalties, the cost of media on which our product is
delivered, product fulfillment costs, amortization of purchased technology,
salaries, benefits, direct expenses and allocated overhead costs related to
product fulfillment and the costs associated with maintaining our
RightAnswers.com Web site. Cost of services revenues consists of the salaries,
benefits, direct expenses and allocated overhead costs of customer support and
services personnel, fees for sub-contractors and the costs associated with
maintaining our customer support site.

OPERATING COSTS

     We classify our operating costs into five general categories: sales and
marketing, research and development, general and administrative, intangible
assets amortization and restructuring charge, based upon the nature of the
costs. We allocate the total costs for overhead and facilities, based upon
headcount, to each of the functional areas that use these services. These
allocated charges include general overhead items such as building rent,
equipment-leasing costs, telecommunications charges and depreciation expense.
Sales and marketing expenses consist primarily of employee compensation for
direct sales and marketing personnel, travel, public relations, sales and other
promotional materials, trade shows, advertising and other sales and marketing
programs. Research and development expenses consist primarily of expenses
related to the development and upgrade of our proprietary software, content and
other technologies. These expenses include employee compensation for software
developers, content developers and quality assurance personnel and for
third-party contract development costs. General and administrative expenses
consist primarily of compensation for personnel, fees for outside professional
advisors and stock based compensation. Deferred compensation related to stock
based compensation is amortized on a straight line basis over the stock option
vesting period. Intangible assets amortization expense consists primarily of the
amortization of intangible assets acquired through our acquisition of the Molloy
Group. These assets are amortized on a straight line basis over their respective
estimated useful lives. Restructuring charge consists of costs incurred and
accrued for reduction in staff and certain facilities and services related to
our shift to focus on revenue growth opportunities in the eService software
market.

                                        10
<PAGE>   12

RESULTS OF OPERATIONS

     The following table sets forth consolidated statement of operations data as
a percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                                -------------------
                                                                 2001         2000
                                                                ------        -----
<S>                                                             <C>           <C>
Revenues
  Licenses and subscriptions................................      62.7%        78.2%
  Services..................................................      37.3         21.8
                                                                ------        -----
     Total revenues.........................................     100.0        100.0
                                                                ------        -----
Cost of revenues
  Cost of licenses and subscriptions........................      27.6          6.4
  Cost of services..........................................      87.5         22.5
                                                                ------        -----
     Total cost of revenues.................................     115.1         28.9
                                                                ------        -----
Gross margin................................................     (15.1)        71.1
                                                                ------        -----
Operating expenses
  Sales and marketing.......................................     144.5         57.8
  Research and development..................................      66.7         28.3
  General and administrative................................      24.0         15.9
  Intangible assets amortization............................      32.4         18.1
  Restructuring charge......................................      47.5           --
                                                                ------        -----
     Total operating expenses...............................     315.1        120.1
                                                                ------        -----
Loss from operations........................................    (330.2)       (49.0)
Other income (expense), net.................................       8.9         (0.1)
                                                                ------        -----
Net loss....................................................    (321.3)%      (49.1)%
                                                                ======        =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

REVENUES

     Revenues decreased 43.8% to $3.9 million in the first three months of 2001
from $7.0 million in the first three months of 2000. License and subscription
revenues decreased 55.0% to $2.5 million in the first three months of 2001 from
$5.4 million in the first three months of 2000. The decrease in license and
subscription revenues was attributable to a decreased number of new customers
although our average contract size increased. Service revenues remained steady
at $1.5 million in the first three months of 2001 compared with $1.5 million in
the first three months of 2000. The size of service contracts significantly
increased, while the number of new customers decreased. Approximately $1.2
million and $4.2 million was recognized in revenues related to indirect sales
channels in the first three months of 2001 and the first three months of 2000,
respectively. The decrease in revenues related to indirect sales channels was
primarily attributable to the decrease in sales to Tivoli, a third-party
distributor that distributed our content products. Tivoli was recently acquired
by another corporation and the Tivoli product with which our content product was
distributed has been discontinued. Revenues from software licensing and
subscription services were approximately $1.6 million and $0.9 million in the
first three months of 2001 and $3.6 million and $1.8 million in the first three
months of 2000.

     Software Segment revenues increased 3.8% to $2.3 million in the first three
months of 2001 from $2.2 million in the first three months of 2000. License and
subscription revenues decreased 0.4% to $0.9 million in the first three months
of 2001, which was essentially the same as the $1.0 million in the first three
months of 2000. Service revenues increased 7.1% to $1.3 million in the first
three months of 2001 from $1.2 million in the first three months of 2000.
Although the number of new customers decreased, our revenues remained steady as
our average contract size increased. In the first three months of 2001, we added
4 new software customers versus 16 new software customers in the first three
months of 2000. Our average software contract size increased

                                        11
<PAGE>   13

142.3% to $416,000 in the first three months of 2001 from $172,000 in the first
three months of 2000. Of this average contract size, $108,000 and $47,000
represent services in the first three months of 2001 and the first three months
of 2000, respectively, which is a 133.1% increase.

     Content Segment revenues decreased 65.6% to $1.6 million in the first three
months of 2001 from $4.8 million in the first three months of 2000. During the
first three months of 2001, we announced that we would discontinue or sell our
content segment business. License and subscription revenues decreased 66.5% to
$1.5 million in the first three months of 2001 from $4.5 million in the first
three months of 2000. The decrease in license and subscription revenues was
primarily attributable to decreased sales reported by a single third party
distributor. Service revenues decreased 50.9% to $0.1 million in the first three
months of 2001 from $0.3 million in the first three months of 2000. Service
revenues represent content writing services provided under contract with a
customer.

COST OF REVENUES

     Cost of revenues increased to $4.5 million in the first three months of
2001 from $2.0 million in the first three months of 2000. Cost of revenues as a
percentage of revenues increased to 115.1% from 28.9%. Cost of license and
subscription revenues increased to $1.1 million in the first three months of
2001 from $0.4 million in the first three months of 2000. Cost of license and
subscription revenues as a percentage of revenues increased to 27.6% from 6.4%.
The increase in the cost of license and subscription revenues was primarily
attributable to an increase in product royalties, the cost of equipment for
specific implementations, and increased Web site hosting services paid to a
third party.

     Cost of service revenues increased to $3.4 million in the first three
months of 2001 from $1.6 million in the first three months of 2000. Cost of
service revenues as a percentage of revenues increased to 87.5% from 22.5%. The
increase in the cost of service revenues was primarily attributable to increases
in staff and use of third parties to perform services and customer support.

     Software Segment cost of revenues increased to $4.1 million in the first
three months of 2001 from $1.5 million in the first three months of 2000. Cost
of revenues as a percentage of revenues increased to 181.8% from 69.1%. Cost of
license and subscription revenues increased to $0.9 million in the first three
months of 2001 from $0.2 million in the first three months of 2000. Cost of
license and subscription revenues as a percentage of revenues increased to 38.1%
from 7.7%. The increase in the cost of license and subscription revenues was
primarily attributable to an increase in product royalties and the cost of
equipment for specific implementations.

     Software Segment cost of service revenues increased to $3.3 million in the
first three months of 2001 from $1.3 million in the first three months of 2000.
Cost of service revenues as a percentage of revenues increased to 143.7% from
61.4%. The increase in the cost of service revenues was primarily attributable
to an increase in the size of the services staff and our increased use of third
parties to perform services and customer support. Services staff increased 51.4%
to 56 in the first three months of 2001 from 37 in the first three months of
2000.

     Content Segment cost of revenues decreased to $0.4 million in the first
three months of 2001 from $0.5 million in the first three months of 2000. Cost
of revenues as a percentage of revenues increased to 23.1% from 10.5%. Cost of
license and subscription revenues decreased to $0.2 million in the first three
months of 2001 from $0.3 million in the first three months of 2000. Cost of
license and subscription revenues as a percentage of revenues increased to 13.2%
from 5.9%. The decrease in the cost of license and subscription revenues which
was attributable to the decrease in product royalties associated with
RightAnswers.com was offset by increased Web site hosting services paid to a
third party. The increase in the cost of license and subscription revenues as a
percentage of revenues was a result of the rate of decrease in revenues
exceeding the rate of decrease in these costs.

     Content Segment cost of service revenues decreased to $163,000 in the first
three months of 2001 from $223,000 in the first three months of 2000. Cost of
service revenues as a percentage of revenues increased to 9.9% from 4.7%. The
decrease in the cost of service revenues was primarily attributable to a
decrease in the size of the services staff. Services staff decreased 50.0% to 4
in the first three months of 2001 from 8 in the first three months of 2000 as a
result of the layoff at the end of February 2001. The increase in the cost of
service revenues

                                        12
<PAGE>   14

as a percentage of revenues was a result of the rate of decrease in revenues
exceeding the rate of decrease in these costs.

OPERATING EXPENSES

     Sales and Marketing.  Sales and marketing expenses increased to $5.7
million, or 144.5% of revenues, in the first three months of 2001 from $4.0
million, or 57.8% of revenues, in the first three months of 2000. The increase
in both absolute dollars and as a percentage of revenues was primarily
attributable to an increase in staff during the first three months of 2001.
Although staffing increased 10.4% to 74 on March 31, 2001 (including the effects
of the restructuring) from 67 on March 31, 2000, staffing costs for the first
three months of 2001 were significantly higher because approximately two-thirds
of the 32 employees who left the Company during the quarter, left at the end of
February 2001 or later.

     Software Segment sales and marketing expenses increased to $5.3 million in
the first three months of 2001 from $3.1 million in the first three months of
2000. Sales and marketing expenses as a percentage of revenues increased to
234.3% from 142.3%. The increase in sales and marketing expenses was primarily
attributable to an increase in staff and the increased focus on the eService
software market. Staff dedicated to software activities increased 19.0% to 69 in
the first three months of 2001 from 58 in the first three months of 2000.

     Content Segment sales and marketing expenses decreased to $0.3 million in
the first three months of 2001 from $0.9 million in the first three months of
2000. Sales and marketing expenses as a percentage of revenues increased to
20.9% from 19.2%. The decrease in sales and marketing expenses was primarily
attributable to the increased focus on the eService software market. Staff
dedicated to content activities decreased 44.4% to 5 in the first three months
of 2001 from 9 in the first three months of 2000.

     Research and Development.  Research and development expenses increased to
$2.6 million, or 66.7% of revenues, in the first three months of 2001 from $2.0
million, or 28.3% of revenues, in the first three months of 2000. The increase
was primarily attributable to increased use of third party contractors to
perform research and development work.

     Software Segment research and development expenses increased to $2.1
million, or 92.2% of revenues, in the first three months of 2001 from $0.9
million, or 40.7% of revenues, in the first three months of 2000. The increase
was primarily attributable to increased use of third party contractors to
perform research and development work and an increased focus on the eService
software market.

     Content Segment research and development expenses decreased to $0.5
million, or 31.7% of revenues, in the first three months of 2001 from $1.1
million, or 22.7% of revenues, in the first three months of 2000. The decrease
was primarily attributable to increased focus on the eService software market.

     General and Administrative.  General and administrative expenses decreased
to $0.9 million, or 24.0% of revenues in the first three months of 2001 from
$1.1 million, or 15.9% of revenues in the first three months of 2000. The
decrease in general and administrative expenses corresponds to a decrease in
number of personnel. Staffing decreased 17.4% to 19 in the first three months of
2001 from 23 in the first three months of 2000. The increase in the general and
administrative expenses as a percentage of revenues was a result of the rate of
decrease in revenues exceeding the rate of decrease in these costs.

     Intangible Assets Amortization.  Intangible assets amortization remained
steady at $1.3 million, or 32.4% of revenues in the first three months of 2001
and $1.3 million, or 18.1% of revenues in the first three months of 2000.
Intangible assets amortization consists of the amortization expense in respect
of the consideration in excess of the fair value of assets acquired and
liabilities assumed in our acquisition of the Molloy Group in July 1999.

     Restructuring Charge.  Restructuring charge in the first three months of
2001 consists of costs incurred and accrued for reduction in staff and certain
facilities and services related to our shift to focus on revenue growth
opportunities in the eService software market. We recorded a restructuring
charge of $1.9 million in the first three months of 2001 which was 47.5% of
revenues. This restructuring charge includes severance benefits and costs of
$471,000, reduction and relocation of certain facilities costs of $1,231,000,
termination costs for certain services of $115,000 and equipment write off of
$39,000. As part of the restructuring plan, 55 employees were terminated

                                        13
<PAGE>   15

on February 28, 2001 primarily from our Oakmont, Pennsylvania facility.
Accordingly, office space in Oakmont was reduced. We plan to either sublet part
of this facility or all of it and move to an alternative location.

     As of March 31, 2001, $346,000 of severance benefits and costs had been
paid and $1,510,000 of the total charge remained to be paid. The remaining cash
costs will be paid in the three months ended June 30, 2001.

     As a result of the restructuring, we expect to lose most or all of our
Content Segment revenues, but expect to save approximately $4.9 million per year
in personnel costs, rent and other services related to the content subscription
business.

OTHER INCOME (EXPENSE), NET

     Other income (expense), net consists primarily of interest income received
from the investment of proceeds from our financing activities, offset by
interest expense and other fees related to our bank borrowings. Other income
(expense), net increased to $347,483 in the first three months of 2001 from
$(6,287) in the first three months of 2000. The increase was a result of
interest earned primarily on the proceeds from our initial public offering
exceeding interest paid on outstanding loans.

LIQUIDITY AND CAPITAL RESOURCES

     Historically to date, we have satisfied our cash requirements primarily
through private placements of convertible preferred stock and common stock and
our initial public offering.

     We have incurred net losses of $12,567,000 for the quarter ended March 31,
2001. We believe that we will continue to incur net losses for the foreseeable
future and that the rate at which we will incur such losses could increase from
current levels.

     Net cash used in operating activities resulted primarily from net losses.
We expect the levels of cash used by current operations to be lower during the
next four quarters due to lower personnel and office costs as a result of our
restructuring. However, sizeable increases in operating activities or lower than
anticipated levels of revenues would result in higher than anticipated levels of
cash used by operating activities.

     Net cash provided by investing activities was primarily attributable to net
sales of short term investments.

     Net cash used in financing activities resulted from repayments of capital
lease obligations and our equipment line offset by proceeds from stock option
issuances.

     As of March 31, 2001, we had $5.8 million in cash and cash equivalents.
Additionally, we had $11.5 million in investments. We believe that our existing
cash and investment balances combined with our existing credit lines will be
sufficient to meet anticipated cash requirements for this fiscal year. Thus, we
will need to raise additional funds in the next year. There can be no assurance
that additional capital will be available to us on reasonable terms, if at all,
when needed or desired. If additional financing is not available to us we may
need to dramatically change our business strategy and direction, including the
option to sell or merge our business, or liquidate.

     If we raise additional funds through the issuance of equity, equity-related
or debt securities, these securities may have rights, preferences or privileges
senior to those of the rights of our common stock. Furthermore, because of the
low trading price of our common stock, the number of shares of new equity or
equity-related securities that we may be required to issue may be greater than
it otherwise would be. As a result, our stockholders may suffer significant
additional dilution. Further, the issuance of debt securities could increase the
risk or perceived risk of our company.

     We have a secured credit facility with PNC Bank. This facility consists of
three sub-facilities: a revolving credit facility, a convertible equipment loan
and a term loan.

     The revolving credit facility provides for $7.5 million of availability
less the principal outstanding on the term loan. Any amounts drawn under this
facility bear interest at the Base Rate plus 0.50%. Base Rate is defined as the
lesser of the bank's prime rate or the Federal Funds Effective Rate plus 2%. The
availability of credit is based on a percentage of eligible accounts receivable.
At March 31, 2001, $1.4 million was available for use and $0 was outstanding
under the revolving credit facility. The revolving credit facility matures on
December 10,
                                        14
<PAGE>   16

2001. Because we have not generated enough cash to support our operating costs,
lenders may not be willing to enter into credit facilities with us in the
future.

     The convertible equipment loan is for $750,000. On June 8, 2000, the $0.4
million outstanding amount under this loan was converted to a single term loan
which matures on June 1, 2003 and bears interest at the Base Rate plus 0.75%.
Principal repayments of this loan are being made as required in 36 equal
installments which began July 1, 2000. We are not permitted to make further
borrowings under the convertible equipment loan.

     The term loan is for $2.5 million and was due in two equal installments on
June 10, 2001 and December 10, 2001. However, upon the completion of our initial
public offering, we repaid the term loan. We are not permitted to make further
borrowings under the term loan.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes methods for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. Because we do
not currently hold any derivative instruments and do not engage in hedging
activities, the adoption of SFAS No. 133 did not have a significant impact on
our financial position, results of operations or cash flows.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

     Set forth below and elsewhere in this Form 10-Q and in other documents we
file with the Securities and Exchange Commission are risks and uncertainties
that could cause actual results to differ materially from the results
contemplated by the forward-looking statements contained in this Form 10-Q.

WE WILL NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND CONTINUED BUSINESS
OPERATIONS IN 2002 AND WE CANNOT BE SURE THAT ADDITIONAL FINANCING WILL BE
AVAILABLE

     We require substantial amounts of capital to fund our business operations.
We have experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations for the foreseeable future.

     We continue to evaluate alternative means of financing to meet our needs on
terms that are attractive to us. We currently anticipate that our available
funds will be sufficient to meet our projected needs to fund operations through
the end of this fiscal year. Accordingly, we will need to raise additional
capital to fund operations during 2002. From time to time, we have considered
and discussed various financing alternatives and expect to continue such efforts
to raise additional funds to support our operational plan. However, we cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all.

     If we are not able to obtain such capital, we may need to dramatically
change our business strategy and direction, including the option to sell or
merge our business, or liquidate.

     In the past, we have funded our operating losses and capital expenditures
through proceeds from equity offerings. Changes in equity markets in the past
year have adversely affected our ability to raise equity financing and have
adversely affected the markets for debt financing for companies with a history
of losses such as ours. If we raise additional funds through the issuance of
equity, equity-linked or debt securities, those securities may have rights,
preferences or privileges senior to those of the rights of our common stock and,
in light of our current market capitalization, our stockholders may experience
substantial dilution.

WE HAVE A HISTORY OF LOSSES, ANTICIPATE THAT WE WILL CONTINUE TO INCUR LOSSES
FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY

     Our limited operating history in our current line of business and the
uncertain nature of the markets in which we compete make it difficult or
impossible to predict future results of operations. As of March 31, 2001, we had
an accumulated deficit of $49.5 million. We have not achieved profitability on a
quarterly or annual basis to date. In the first three months of 2001, we
incurred net losses of $12.6 million and in fiscal 2000, we incurred net

                                        15
<PAGE>   17

losses of $19.8 million. We expect to have decreased operating expenses as a
result of our restructuring. However, if these expenses precede or are not
followed by increased revenues, our losses will continue to grow.

OUR CORPORATE RESTRUCTURING MAY NOT PRODUCE ANY OF THE EXPECTED BENEFITS, AND
THE RESTRUCTURING CHARGE WILL HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001

     On February 28, 2001, we announced a strategic corporate restructuring
plan. There can be no assurance that we will recognize any of the expected
benefits of this restructuring plan. In 2000 and 1999, our Content Segment
business accounted for 41.3% and 61.6% of our total revenues, respectively, and
we cannot assure you that our continuing Software Segment business will be able
to offset the loss of revenues from our Content Segment business in 2001 or in
future years. In addition, in connection with our restructuring, we have taken a
restructuring charge of $1.9 million in the first quarter of 2001. This
restructuring charge will have a material adverse effect on our results of
operation for the year ending December 31, 2001.

BECAUSE OUR CURRENT LINE OF PRODUCTS IS RELATIVELY NEW, OUR HISTORICAL FINANCIAL
RESULTS ARE NOT HELPFUL IN EVALUATING OUR PROSPECTS

     We have undergone a number of changes in our business model. We began in
1991 as a provider of consulting services, and later developed and sold content
relating to technology products for use by customer service operations. In July
1999, we acquired the Molloy Group and its complementary software product suite.
Last year we integrated our product offerings with those of the Molloy Group and
launched a suite of software and content products intended to form the basis of
businesses' eService solutions.

     Since the announcement of our corporate restructuring in February 2001, we
have re-allocated our resources to the ongoing enhancement of our eService Suite
software product and have been actively engaged in discussions regarding the
sale of our content subscription business. Because our current line of software
products is relatively new, our historical financial results are not helpful in
evaluating our prospects.

BECAUSE A SIGNIFICANT PORTION OF OUR REVENUES IS DERIVED FROM NON-RECURRING
SALES TO A LIMITED NUMBER OF CUSTOMERS, BECAUSE OUR EXPENSES ARE RELATIVELY
FIXED AND BECAUSE OF OUR REVENUE RECOGNITION POLICIES, OUR QUARTERLY OPERATING
RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, AND IT IS DIFFICULT TO DRAW
CONCLUSIONS ABOUT OUR FUTURE PERFORMANCE BASED ON OUR PAST PERFORMANCE

     Our projected expense levels are based on our expectations regarding future
revenues and are relatively fixed in the short term. If revenue levels are below
expectations in a particular quarter, operating results and net income are
likely to be disproportionately adversely affected because our expenses are
relatively fixed. In addition, a significant percentage of our revenues is
typically derived from non-recurring sales to a limited number of customers, so
it is difficult to estimate accurately future revenues. Our revenues are
unpredictable and have decreased in the past few quarters from $8.4 million in
third quarter 2000 to $6.2 million in fourth quarter 2000 to $3.9 million in
first quarter 2001.

     Our quarterly results are also impacted by our revenue recognition
policies. Because we generally recognize license revenues upon installation and
training, sales orders from new customers in a quarter might not be recognized
during that quarter. Delays in the implementation and installation of our
software near the end of a quarter could also cause recognized quarterly
revenues and, to a greater degree, results of operations to fall substantially
short of anticipated levels. We often recognize revenues for existing customers
shortly after an order is received because installation and training can
generally be completed in significantly less time than for new customers.
However, we may miss recognizing expected revenues at the end of a quarter due
to delays in the receipt of expected orders by existing customers. Delays in
recognizing revenues may also occur as a result of delayed reporting by our
distributors.

     Because of these and other factors, revenues in any one quarter are not
indicative of revenues in any future period and, accordingly, we believe that
certain period-to-period comparisons of our results of operations are not
necessarily meaningful and should not be relied upon as indicators of future
performance.

                                        16
<PAGE>   18

THE ESERVICE SOLUTIONS MARKET IS NEW AND EVOLVING AND, IF IT DOES NOT GROW
RAPIDLY, OUR BUSINESS WILL BE ADVERSELY AFFECTED

     The eService solutions market is an emerging industry, and it is difficult
to predict how large or how quickly it will grow, if at all. Customer service
historically has been provided primarily in person or over the telephone with
limited reference materials available for the customer service representative.
Our business model assumes that companies which provide customer service over
the telephone will find value in aggregating institutional knowledge by using
our eService Suite and will be willing to access our content over the Internet.
Our business model also assumes that companies will find value in providing some
of their customer service over the Internet rather than by telephone. Our
success will depend on the broad commercial acceptance of, and demand for, these
eService solutions.

IF WE FAIL TO EXPAND OUR DIRECT SALES FORCE, OUR GROWTH WILL BE IMPEDED

     Our ability to achieve significant growth in the future will largely depend
on our success in recruiting and training a sufficient number of direct sales
personnel. Our products and services require a sophisticated sales effort
targeted at the senior management of our prospective customers. New hires
require training and take time to achieve full productivity. Our recent hires
and planned new hires may not become as productive as necessary, and we may be
unable to hire sufficient numbers of qualified individuals in the future. If we
fail to expand our direct sales force, our revenue may not grow or it may
decline.

IF WE FAIL TO DEVELOP NEW RELATIONSHIPS AND ENHANCE EXISTING RELATIONSHIPS WITH
THIRD-PARTY DISTRIBUTORS, SOFTWARE VENDORS AND VALUE-ADDED RESELLERS THAT HELP
SELL OUR SERVICES AND PRODUCTS, OUR REVENUES MAY NOT GROW OR MAY DECLINE

     We derive a significant portion of our product revenues from third-party
software distributors, vendors and value-added resellers. Our ability to achieve
revenue growth in the future will depend on our success in continuing to develop
new relationships and enhance existing relationships with these software
distributors, vendors and value-added resellers. Additionally, the loss of a
third-party distributor could significantly adversely affect our financial
results. In 2000, sales to Tivoli, a third-party distributor that distributed
our content products, accounted for 24% of our recognized revenues. Tivoli has
recently been acquired by another corporation, and we have been informed that
the Tivoli Service Desk product, with which RightAnswers.com is distributed,
will be discontinued. At times, we rely on these third parties to recommend and
sell our products to their customers, and to install and support our products
for their customers. Because of our reliance on these third parties, we face the
risk that these software distributors, vendors and value-added resellers may:

     - choose not to recommend, install or sell our products;

     - develop, market or recommend software applications that compete with our
       products;

     - fail to implement their products and/or our eService solutions and
       services on the schedule required by the customers;

     - encounter their own financial or operational problems;

     - change their business strategy;

     - terminate their business relationships with us; or

     - be acquired by companies who choose to limit or discontinue relationships
       with us.

WE HAVE RELATIVELY FEW MAJOR CUSTOMERS, AND THE LOSS OF ONE OR MORE OF OUR
PRINCIPAL CUSTOMERS WOULD RESULT IN DECREASED REVENUES

     Our results of operations in any given period have depended to a
significant extent upon sales to a small number of major customers. Our loss of
one or more of our major customers would result in decreased revenues. Further,
in the event of any downturn in any existing or potential customer's business or
general economic conditions, licenses and subscriptions for our products and
services may be deferred or terminated, also resulting in a decrease in our
revenues.

                                        17
<PAGE>   19

DUE TO THE LENGTHY SALES CYCLES OF OUR PRODUCTS AND SERVICES, THE TIMING OF OUR
SALES ARE DIFFICULT TO PREDICT AND MAY CAUSE US TO MISS OUR REVENUE EXPECTATIONS

     Our products and services are typically intended for use in applications
that may be critical to a customer's business. In certain instances, the
purchase of our products and services involves a significant commitment of
resources by prospective customers. As a result, our sales process is often
subject to delays associated with lengthy approval processes that accompany the
commitment of significant resources. These delays may worsen in the future as a
greater proportion of our total revenues will be derived from our eService
Suite, which has a high average contract size. For these and other reasons, the
sales cycle associated with the licensing of our products and subscription for
our services typically ranges between six and eighteen months and is subject to
a number of significant delays over which we have little or no control. While
our customers are evaluating whether our products and services suit their needs,
we may incur substantial sales and marketing expenses and expend significant
management effort. Because of the lengthy sales cycle for our products and
services, we may not realize forecasted revenues from a specific customer in the
quarter in which we expend these significant resources.

WE MAY NOT BE ABLE TO EXPAND OUR BUSINESS INTERNATIONALLY, AND, IF WE DO, WE
FACE RISKS RELATING TO INTERNATIONAL OPERATIONS

     A component of our strategy is our planned increase in efforts to attract
more international customers. We are currently exploring business opportunities
in the United Kingdom, France, Germany, Italy, Norway, Sweden and Finland. To
date, we have only limited experience in providing our products and services
internationally. If we are not able to market our products and services
successfully in international markets, our expenses may exceed our revenues. By
doing business in international markets we face risks, such as unexpected
changes in tariffs and other trade barriers, fluctuations in currency exchange
rates, difficulties in staffing and managing foreign operations, political
instability, reduced protection for intellectual property rights in some
countries, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world and potentially adverse tax
consequences, any of which could adversely impact our international operations
and may contribute further to our net losses.

IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, SALES OF OUR
PRODUCTS MAY DECREASE

     The software industry is characterized by rapid technological change,
including changes in customer requirements, frequent new product and service
introductions and enhancements and evolving industry standards. If we fail to
keep pace with the technological progress of our competitors, sales of our
products may decrease.

WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, AND THE LOSS OF THIS
TECHNOLOGY COULD DELAY IMPLEMENTATION OF OUR PRODUCTS, INJURE OUR REPUTATION OR
FORCE US TO PAY HIGHER ROYALTIES

     We rely, in part, on technology that we license from a small number of
software providers for use with our products. After the expiration of these
licenses, this technology may not continue to be available on commercially
reasonable terms, if at all, and may be difficult to replace. The loss of any of
these technology licenses could result in delays in introducing or maintaining
our products until equivalent technology, if available, is identified, licensed
and integrated. In addition, any defects in the technology we may license in the
future could prevent the implementation or impair the functionality of our
products, delay new product introductions or injure our reputation. If we are
required to enter into license agreements with third parties for replacement
technology, we could be subject to higher royalty payments.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO HIRE AND RETAIN KEY PERSONNEL,
ESPECIALLY SOFTWARE DEVELOPERS

     Our business requires the employment of highly skilled personnel,
especially experienced software developers. The inability to recruit and retain
experienced software developers in the future could result in delays in
developing new versions of our software products or the release of deficient
software products. Any such delays or defective products would likely result in
lower sales. Even though we expect further growth in the number of our
personnel, competition for this type of personnel is intense. In particular, we
have experienced

                                        18
<PAGE>   20

difficulty in hiring and retaining sales personnel, product managers, software
developers and professional services employees.

PROBLEMS ARISING FROM THE USE OF OUR PRODUCTS WITH OTHER VENDORS' PRODUCTS COULD
CAUSE US TO INCUR SIGNIFICANT COSTS, DIVERT ATTENTION FROM OUR PRODUCT
DEVELOPMENT EFFORTS AND CAUSE CUSTOMER RELATIONS PROBLEMS

     Our customers generally use our products together with products from other
companies. As a result, when problems occur in a customer's systems, it may be
difficult to identify the source of the problem. Even when these problems are
not caused by our products, they may cause us to incur significant warranty and
repair costs, divert the attention of our technical personnel from our product
development efforts and cause significant customer relations problems.

IF CERTAIN COMPANIES CEASE TO PROVIDE OPEN PROGRAM INTERFACES FOR THEIR CUSTOMER
RELATIONSHIP MANAGEMENT SOFTWARE IT WILL BE DIFFICULT TO INTEGRATE OUR SOFTWARE
WITH THEIRS. THIS WILL DECREASE THE ATTRACTIVENESS OF OUR PRODUCTS

     Our ability to compete successfully also depends on the continued
compatibility and interoperability of our products with products and systems
sold by various third parties, specifically including customer relationship
management software sold by Clarify, Oracle, Peregrine Systems, Remedy and
Siebel Systems. Currently, these vendors have open applications program
interfaces, which facilitate our ability to integrate with their systems. If any
one of them should close their programs' interface or if they should acquire one
of our competitors, our ability to provide a close integration of our products
could become more difficult and could delay or prevent our products' integration
with future systems. Inadequate integration with other vendors' products would
make our products less desirable and could lead to lower sales.

WE FACE SIGNIFICANT GOODWILL COSTS RELATED TO OUR ACQUISITION OF THE MOLLOY
GROUP WHICH WILL ADVERSELY AFFECT OUR OPERATING RESULTS FOR THE FORESEEABLE
FUTURE, AND THESE COSTS COULD INCREASE

     We face significant goodwill costs as a result of our acquisition of the
Molloy Group in July 1999. In addition, we may not achieve value from the
acquisition of the Molloy Group commensurate with the purchase price we paid. As
a result of the Molloy Group acquisition, we have recorded a significant amount
of goodwill that will adversely affect our operating results for the foreseeable
future. As of March 31, 2001, we had goodwill and other intangibles of
approximately $6.4 million, which we expect to amortize over two to four years
from the date of the acquisition. If the amount of recorded goodwill is
increased or we have future losses and are unable to demonstrate our ability to
recover the amount of the goodwill, the amount of amortization could be
increased, or the period of amortization could be shortened. This would either
increase annual amortization charges or result in the write-off of goodwill in a
one-time, non-cash charge, either of which could be significant and would likely
harm our operating results.

BECAUSE WE COMPETE IN THE EMERGING MARKET FOR ESERVICE SOLUTIONS, WE FACE
INTENSE COMPETITION FROM BOTH ESTABLISHED AND RECENTLY FORMED ENTITIES, AND THIS
COMPETITION MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY

     We compete in the emerging market for eService solutions and changes in the
eService solutions market could adversely affect our revenues and profitability.
We face competition from many firms offering a variety of products and services.
In the future, because there are relatively low barriers to entry in the
software industry, we expect to experience additional competition from new
entrants into the eService solutions market. In particular, our current
distributors or strategic partners may enter our market with competitive
products. Many of these potential competitors have well-established
relationships with our current and potential customers, extensive knowledge of
the eService industry, better name recognition, significantly greater financial,
technical, sales, marketing and other resources and the capacity to offer single
vendor solutions. It is also possible that alliances or mergers may occur among
our competitors and that these newly consolidated companies could rapidly
acquire significant market share. Greater competition may result in price
erosion for our products and services, which may significantly affect our future
operating margins.
                                        19
<PAGE>   21

IF OUR SOFTWARE PRODUCTS CONTAIN ERRORS OR FAILURES, SALES OF THESE PRODUCTS
COULD DECREASE

     Software products frequently contain errors or failures, especially when
first introduced or when new versions are released. In the past, we have
released products that contained defects, including software errors in certain
new versions of existing products and in new products after their introduction.
In the event that the information contained in our products is inaccurate or
perceived to be incomplete or out-of-date, our customers could purchase our
competitors' products or decide they do not need eService solutions at all. In
either case, sales would decrease. Our products are typically intended for use
in applications that may be critical to a customer's business. As a result, we
expect that our customers and potential customers have a great sensitivity to
product defects.

BECAUSE OUR PRODUCTS ARE CRITICAL TO THE OPERATIONS OF OUR CUSTOMERS'
BUSINESSES, WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT OF PRODUCT LIABILITY
CLAIMS

     Our products are critical to the operations of our customers' businesses.
Any defects or alleged defects in our products entail the risk of product
liability claims for substantial damages, regardless of our responsibility for
the failure. Although our license agreements with our customers typically
contain provisions designed to limit our exposure to potential product liability
claims, these provisions may not be effective under the laws of certain
jurisdictions. In addition, product liability claims, even if unsuccessful, may
be costly and divert management's attention from our operations. Software
defects and product liability claims may result in a loss of future revenue, a
delay in market acceptance, the diversion of development resources, damage to
our reputation or increased service and warranty costs.

BECAUSE WE HAVE ISSUED OPTIONS TO EMPLOYEES BELOW THE THEN CURRENT FAIR MARKET
VALUE AND MAY DO SO AGAIN IN THE FUTURE, WE WILL INCUR ADDITIONAL NON-CASH
CHARGES ASSOCIATED WITH STOCK-BASED COMPENSATION ARRANGEMENTS

     We have issued options to employees and non-employees which are subject to
various vesting schedules of up to 48 months. Because we have issued options to
employees below the then current fair market value and may do so again in the
future, we will incur additional non-cash charges for these options. This
expense could directly reduce our operating results and indirectly affect the
price of our common stock.

OUR RECENT GROWTH IN OUR SOFTWARE SEGMENT HAS PLACED A STRAIN ON OUR ABILITY TO
RAPIDLY INSTALL AND IMPLEMENT OUR SOFTWARE PRODUCTS AND TRAIN OUR CUSTOMERS'
EMPLOYEES TO USE THESE PRODUCTS. IF WE FAIL TO MANAGE OUR FUTURE GROWTH, OUR
BUSINESS COULD SUFFER

     As demand for our products increases, we need more trained personnel to
install and implement these products and to train our customers' employees in
their use. We recently expanded our software segment operations. This expansion
and the time and expense involved in training new employees has placed, and is
expected to continue to place, a significant strain on our managerial,
operational and financial resources, which has resulted in a backlog of orders
to install our products. To manage any further growth, we will need to improve
or replace our existing operational, customer service and financial systems,
procedures and controls. Our failure to manage properly these system and
procedural transitions could impair our ability to attract and service
customers, and could cause us to incur higher operating costs and delays in the
execution of our business plan.

INTEGRATION OF A NEW MANAGEMENT TEAM AND NEW PERSONNEL MAY STRAIN OUR OPERATIONS

     Four members of our senior management team have joined us since April 1,
2000. Although a significant reduction of employees occurred in conjunction with
our restructuring in February 2001 and our acquisition of the Molloy Group in
July 1999, we have continued to hire new employees. Our new employees include a
number of key managerial, sales, marketing, planning, technical and operations
personnel who have not yet been fully integrated into our organization. If we
are unable to integrate our new employees or if senior management fails to
manage our growth effectively, we could lose customers who believe they are not
receiving the support they require from us and we could face product delivery
delays and product quality problems.

                                        20
<PAGE>   22

BECAUSE OUR SUCCESS DEPENDS ON THE UNINTERRUPTED OPERATION OF OUR COMPUTER
SYSTEMS, THEIR SABOTAGE OR SIMILAR DISRUPTIONS WOULD LIKELY DAMAGE OUR ABILITY
TO SELL OUR PRODUCTS

     Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and network systems. Our network may be
vulnerable to disruptions due to electronic attacks. Because the techniques used
by computer hackers to sabotage networks change frequently and generally are not
recognized until launched against a target, we may be unable to anticipate these
techniques. An actual or perceived breach of Internet security in our internal
systems or those of our customers could adversely affect the market perception
of our products and services. Although we have typically had efficient and
uninterrupted operation of our computer and communications hardware and network
systems, our e-mail network and our network systems have been interrupted as a
result of viruses on two occasions in the past, which hampered our ability to
support our customers and our internal communications. In addition, a
substantial number of our computer and communications systems are located in
Oakmont, Pennsylvania. Our systems and operations are vulnerable to damage or
interruption from fire, power loss, telecommunications failure and similar
events.

IF OUR CUSTOMERS' SYSTEM SECURITY IS BREACHED AND CONFIDENTIAL INFORMATION IS
STOLEN, OUR BUSINESS AND REPUTATION COULD SUFFER

     Users of our products transmit their and their customers' confidential
information, such as names, addresses, social security numbers and credit card
information, over the Internet. In our license agreements with our customers, we
disclaim responsibility for the security of confidential data and have
contractual indemnities for any damages claimed against us. However, if
unauthorized third parties are successful in illegally obtaining confidential
information from users of our products, our reputation and business may be
damaged, and if our contractual disclaimers and indemnities are not enforceable,
we may be subject to liability.

OUR PLAN TO EXPAND OUR SERVICE CAPABILITY COULD ADVERSELY AFFECT GROSS PROFIT
MARGINS AND OPERATING RESULTS

     Revenues from services such as installation and training, consulting,
customer support and maintenance contracts have lower gross margins than
revenues from licenses and subscriptions. Therefore, the expected increase in
the percentage of our revenues generated from services as compared to revenues
from licenses and subscriptions will lower our overall gross margins. In
addition, the expected increase in the cost of revenues from services as a
percentage of revenues could have a negative impact on overall gross margins. In
the future, we may also choose to outsource a portion of our services business
which may reduce our services revenues. Although margins related to revenues
from services are lower than margins related to revenues from licenses and
subscriptions, our services organization currently generates gross profits, and
we are seeking to expand our services capability and our revenues from services.

BECAUSE REVENUES FROM TERM LICENSES ARE RECOGNIZED MORE SLOWLY THAN THOSE FROM
PERPETUAL LICENSES, A CHANGE TO A TERM LICENSE-BASED SALES MODEL WOULD RESULT IN
LOWER RECOGNIZED SHORT TERM REVENUES

     In the future, we may derive more revenues from licensing arrangements in
which our customers purchase a license for a fixed term. We plan to recognize
revenues from these arrangements ratably over the life of the contract. If
customer demand for these arrangements increases, we may have lower revenues in
the short term than we otherwise would, because revenues for licenses sold under
these arrangements will be recognized over time rather than upon installation
and training.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY CAUSE
US TO INCUR SIGNIFICANT COSTS IN LITIGATION AND AN EROSION IN THE VALUE OF OUR
BRANDS AND PRODUCTS

     Our business is dependent on proprietary technology and the value of our
brands. We rely primarily on patent, copyright, trade secret and trademark laws
to protect our technology and brands. We currently have two patents. One of
these patents pertains to certain proprietary data structures and the other
pertains to our Cognitive Processor. Our patents may not survive a legal
challenge to their validity or provide meaningful protection to us. Litigation
to protect our patents would be expensive and the loss of our patents would
decrease the value of our products. Defending against claims of patent
infringement would also be expensive and, if successful, we could

                                        21
<PAGE>   23

be forced to redesign our products, pay royalties, or cease selling them. In
addition, effective trademark protection may not be available for our
trademarks. The use by other parties of our trademarks would dilute the value of
our brands.

     Notwithstanding the precautions we have taken, a third party may copy or
otherwise obtain and use our software or other proprietary information without
authorization or may develop similar software independently. Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. Further, we have granted certain
third parties limited contractual rights to use proprietary information which
they may improperly use or disclose. The laws of other countries may afford us
little or no effective protection of our intellectual property. The steps we
have taken may not prevent misappropriation of our technology, and the
agreements entered into for that purpose may not be enforceable. The
unauthorized use of our proprietary technologies could also decrease the value
of our products.

THE SUCCESS OF OUR SOFTWARE PRODUCTS DEPENDS ON ITS ADOPTION BY OUR CUSTOMERS'
EMPLOYEES. IF THESE EMPLOYEES DO NOT ACCEPT THE IMPLEMENTATION OF OUR PRODUCTS,
OUR CUSTOMERS MAY FAIL TO RENEW THEIR SERVICE CONTRACTS AND WE MAY HAVE
DIFFICULTY ATTRACTING NEW CUSTOMERS

     The effectiveness of our eService Suite depends in part on widespread
adoption and use of our software by our customers' customer service personnel
and on the quality of the solutions they generate. Resistance to our software by
customer service personnel and an inadequate development of the knowledge base
may make it more difficult to attract new customers and retain old ones.

     Some of our customers have found that customer service personnel
productivity initially drops while customer service personnel become accustomed
to using our software. If an enterprise deploying our software has not
adequately planned for and communicated its expectations regarding that initial
productivity decline, customer service personnel may resist adoption of our
software.

     The knowledge base depends in part on solutions generated by customer
service personnel and, sometimes, on the importation of our customers' legacy
solutions. If customer service personnel do not adopt and use our products
effectively, necessary solutions will not be added to the knowledge base, and
the knowledge base will not adequately address service needs. In addition, if
less-than-adequate solutions are created and left uncorrected by a user's
quality-assurance processes or if the legacy solutions are inadequate, the
knowledge base will similarly be inadequate, and the value of our eService Suite
to end-users will be impaired. Thus, successful deployment and broad acceptance
of our eService Suite will depend in part on whether our customers effectively
roll-out and use our software products and the quality of the customers'
existing knowledge base of solutions.

WE DEPEND ON INCREASED BUSINESS FROM OUR NEW CUSTOMERS AND, IF WE FAIL TO GROW
OUR CLIENT BASE OR GENERATE REPEAT BUSINESS, OUR OPERATING RESULTS COULD BE
ADVERSELY AFFECTED

     If we fail to grow our customer base or generate repeat and expanded
business from our current and future customers, our business and operating
results will be seriously harmed. Some of our customers initially make a limited
purchase of our products and services for pilot programs. If these customers do
not successfully develop and deploy such initial applications, they may choose
not to purchase complete deployment or development licenses. Some of our
customers who have made initial purchases of our software have deferred or
suspended implementation of our products due to slower than expected rates of
internal adoption by customer service personnel. If more customers decide to
defer or suspend implementation of our products in the future, we will be unable
to increase our revenue from these customers from additional licenses or
maintenance agreements, and our financial position will be seriously harmed.

     In addition, as we introduce new versions of our products or new products,
our current customers may not need our new products and may not ultimately
license these products. Because the total amount of maintenance and service fees
we receive in any period depends in large part on the size and number of
licenses and subscriptions that we have previously sold, any downturn in our
software licenses and subscriptions revenues would negatively impact our future
services revenues. In addition, if customers elect not to renew their
maintenance agreements, our services revenues could be significantly adversely
affected.
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<PAGE>   24

OUR BUSINESS DEPENDS ON THE GROWTH OF THE INTERNET, THE CAPACITY AND VIABILITY
OF THE INTERNET INFRASTRUCTURE AND OUR ABILITY TO ADAPT IN A RAPIDLY CHANGING
INDUSTRY

     Our products address a new and emerging market for eService solutions to
businesses' customer service needs. Therefore, our future success depends
substantially upon the widespread adoption of the Internet as a significant
medium for commerce and business applications. If this market fails to develop
or develops more slowly than expected, demand for our products and services will
be reduced and our revenues will decrease. Consumers and businesses may reject
the Internet as a viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure, slow development of enabling
technologies or insufficient commercial support. The Internet infrastructure may
not be able to support the demands placed on it by increased usage and bandwidth
requirements. Moreover, critical issues like security, reliability, cost,
accessibility and quality of service remain unresolved and may negatively affect
the attractiveness of conducting commerce and business transactions over the
Internet. Even if the required infrastructure, standards, protocols or
complementary products, services or facilities are developed, we may incur
substantial expenses adapting our products and services to changing or emerging
technologies.

INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS

     As e-business, eService and the Internet continue to evolve, we expect that
federal, state and foreign governments will adopt laws and regulations tailored
to the Internet covering issues like user privacy, taxation of goods and
services provided over the Internet, pricing, content and quality of products
and services. If enacted, these laws and regulations could limit the market for
e-business and eService and, therefore, the market for our products and
services.

     The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a violation of the Telecommunications Act's
information and content provisions are currently unsettled. The imposition upon
us and other software and service providers of potential liability for
information carried on or disseminated through our applications could require us
to implement measures to reduce our exposure to this liability. These measures
could require us to expend substantial resources or discontinue certain
services. In addition, although substantial portions of the Communications
Decency Act, the Act through which the Telecommunications Act of 1996 imposes
criminal penalties, were held to be unconstitutional, similar legislation may be
enacted and upheld in the future. It is possible that this new legislation and
the Communications Decency Act could expose companies involved in e-business to
liability, which could limit the growth of Internet usage and e-business
generally and, therefore, the demand for eService solutions. In addition,
similar or more restrictive laws in other countries could have a similar effect
and hamper our plans to expand overseas.

THE IMPOSITION OF SALES TAX AND OTHER TAXES ON PRODUCTS SOLD BY OUR CUSTOMERS
OVER THE INTERNET COULD HAVE A NEGATIVE EFFECT ON ONLINE COMMERCE AND,
INDIRECTLY, THE DEMAND FOR OUR PRODUCTS AND SERVICES

     The imposition of new sales taxes or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products and
services. Recent federal legislation limits the imposition of state and local
taxes on Internet-related sales. Congress may choose not to renew this
legislation in 2001, in which case state and local governments would be free to
impose additional taxes on electronically purchased goods.

     We believe that most companies that sell products over the Internet do not
currently collect sales or other taxes on shipments of their products into
states or foreign countries where they are not physically present. However, one
or more states or foreign countries may seek to impose sales or other tax
collection obligations on out-of-jurisdiction companies that engage in
e-business. A successful assertion by one or more states or foreign countries
that companies that engage in e-business should collect sales or other taxes on
the sale of their products over the Internet, even though not physically in the
state or country, could indirectly reduce demand for our products.

                                        23
<PAGE>   25

PRIVACY CONCERNS RELATING TO THE INTERNET ARE INCREASING, WHICH COULD RESULT IN
LEGISLATION THAT ADVERSELY AFFECTS OUR BUSINESS AND/OR REDUCES SALES OF OUR
PRODUCTS

     Businesses use our software to capture information regarding their
customers when those customers contact them online with customer service
inquiries. Privacy concerns may cause visitors to resist providing the personal
data necessary to allow our customers to use our software products most
effectively. More importantly, even the perception of privacy concerns, whether
or not valid, may indirectly inhibit market acceptance of our products.
Recently, a high-profile public company faced adverse and widely disseminated
publicity regarding its handling of customer information. In addition,
legislative or regulatory requirements may heighten these concerns if businesses
must notify Web site users that the data captured after visiting certain Web
sites may be used by marketing entities to unilaterally direct product promotion
and advertising to that user. While we are not aware of any legislation or
regulatory requirements of this type currently in effect in the United States,
other countries and political entities, like the European Union, have adopted
this kind of legislation or regulatory requirements and the United States may do
so as well. If consumer privacy concerns are not adequately addressed, our
business could be harmed.

WE MAY BECOME INVOLVED IN SECURITIES CLASS ACTION LITIGATION WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND HARM OUR BUSINESS

     The stock market is currently experiencing significant price and volume
fluctuations that have affected the market price for the common stocks of
technology companies, particularly Internet companies like ours. These broad
market fluctuations may cause the market price of our common stock to decline.
In the past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in that type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.

OUR STOCK PRICE IS VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
STOCKHOLDERS

     The market price for our common stock is volatile and subject to
fluctuations in response to the risks described above and many others, some of
which are beyond our control. The market prices for stocks of Internet companies
and other companies whose businesses are heavily dependent on the Internet have
generally proven to be highly volatile.

THE LOW PRICE OF OUR COMMON STOCK COULD RESULT IN THE DELISTING OF OUR COMMON
STOCK.

     The shares of our common stock are currently listed on the Nasdaq national
market. If we fail to maintain the minimum Nasdaq listing requirements, our
common stock could be subject to delisting. Nasdaq listing requirements include
a series of financial tests relating to net tangible assets, public float,
number of market makers and stockholders, and maintaining a minimum bid price
for the company's share price of $1.00. Our share price has traded at levels
below $1.00 for close to 30 days and there is no guarantee that it will return
to a minimum bid price of $1.00 or higher.

     Our failure to meet Nasdaq's maintenance criteria may result in the
discontinuance of the inclusion of our securities in Nasdaq. In such event,
trading, if any, in the securities may then continue to be conducted in the non-
Nasdaq over-the-counter market in what are commonly referred to as the
electronic bulletin board and the "pink sheets." As a result, a stockholder may
find it more difficult to dispose of or obtain accurate quotations as to the
market value of the securities. In addition, we would be subject to a Rule
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such Rule, imposes various practice requirements on
broker-dealers who sell securities governed by the Rule to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transactions
prior to sale. Consequently, the Rule may have a materially adverse effect on
the ability of broker-dealers to sell the securities, which may materially
affect the ability of stockholders to sell the securities in the secondary
market.

                                        24
<PAGE>   26

     Delisting could make trading our shares more difficult for investors,
potentially leading to further declines in share price. It would also make it
more difficult for us to raise additional capital. We would also incur
additional costs under state blue sky laws to sell equity if we are delisted.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Nearly all of our revenues recognized to date have been denominated in
United States dollars and are primarily from customers in the United States. We
have a European subsidiary located in London, England, and intend to establish
other foreign subsidiaries. Revenues from international clients to date have not
been substantial, and nearly all of these revenues have been denominated in
United States dollars. In the future, a portion of the revenues we derive from
international operations may be denominated in foreign currencies. We incur
costs for our overseas office in the local currency of that office for staffing,
rent, telecommunications and other services. As a result, our operating results
could become subject to significant fluctuations based upon changes in the
exchange rates of those currencies in relation to the United States dollar.
Furthermore, to the extent that we engage in international sales denominated in
United States dollars, an increase in the value of the United States dollar
relative to foreign currencies could make our services less competitive in
international markets. Although currency fluctuations are currently not a
material risk to our operating results, we will continue to monitor our exposure
to currency fluctuations and, when appropriate, use financial hedging techniques
to minimize the effect of these fluctuations in the future. We cannot assure you
that exchange rate fluctuations will not harm our business in the future. We do
not currently utilize any derivative financial instruments or derivative
commodity instruments.

     Our interest income is sensitive to changes in the general level of United
States interest rates, particularly because the majority of our investments are
in short-term instruments. Borrowings under our existing credit lines are also
interest rate sensitive, because the interest rate charged by our bank varies
with changes in the prime rate of lending. We believe, however, that we are
currently not subject to material interest rate risk.

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<PAGE>   27

                           PART II--OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

  (a) Exhibits
      10.1 ServiceWare Technologies, Inc. Change of Control Benefit Plan

  (b) Reports on Form 8-K
      None.

                                        26
<PAGE>   28

                                   SIGNATURES

     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.

                                          SERVICEWARE TECHNOLOGIES, INC.

Date: May 15, 2001                        By:         /s/ MARK FINKEL
                                            ------------------------------------
                                                        Mark Finkel
                                                  Chief Financial Officer,
                                                  Secretary and Treasurer
                                            (Principal financial and chief
                                              accounting officer)

                                        27
<PAGE>   29

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO.    DESCRIPTION
-----------    -----------
<C>            <S>
       10.1    ServiceWare Technologies, Inc. Change of Control Benefit
               Plan
</TABLE>

                                        28