<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

[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

[ ]  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: 0-25674

                        SMARTFORCE PUBLIC LIMITED COMPANY
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                <C>
      Republic of Ireland                               Not Applicable
      -------------------                               --------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>

                              900 CHESAPEAKE DRIVE
                         REDWOOD CITY, CALIFORNIA 94063
          (Address of principal executive offices, including zip code)


                                 (650) 817-5900
              (Registrant's telephone number, including area code)



Indicate by check mark whether 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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past ninety (90) days.

                                 Yes [X] No [ ]


The number of American Depositary Shares ("ADSs") (issued or issuable in
exchange for Registrant's outstanding Ordinary Shares) outstanding as of April
30, 2001 was 52,588,830.


<PAGE>   2
                        SMARTFORCE PUBLIC LIMITED COMPANY

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                               Page
                                                                                              Number
PART I.  FINANCIAL INFORMATION
<S>                                                                                             <C>
         Item 1.  Financial Statements

                  Condensed Consolidated Balance Sheets as of December 31, 2000 and as
                  of March 31, 2001 ........................................................     2

                  Condensed Consolidated Statements of Operations for the three months
                  ended March 31, 2000 and 2001 ............................................     3

                  Condensed Consolidated Statements of Cash Flows for the three months
                  ended March 31, 2000 and 2001 ............................................     4

                  Notes to Condensed Consolidated Financial Statements .....................     5

         Item 2.  Management's Discussion and Analysis of Financial Condition and
                  Results of Operations ....................................................     8

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk ...............    22

PART II. OTHER INFORMATION

         Item 1.  Legal Proceedings ........................................................    23

         Item 2.  Changes in Securities ....................................................    23

         Item 6.  Exhibits and Reports on Form 8-K .........................................    24

                  Signature ................................................................    24
</TABLE>


                                       1
<PAGE>   3



PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

                        SMARTFORCE PUBLIC LIMITED COMPANY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                   December 31,     March 31,
                                                                      2000            2001
                                                                    ---------       ---------
<S>                                                                 <C>             <C>
ASSETS
 CURRENT ASSETS
  Cash .......................................................      $  65,412       $  48,442
  Short-term investments .....................................         42,545          42,984
  Accounts receivable, net ...................................         76,458          81,472
  Inventories ................................................            369             306
  Recoverable and deferred tax assets, net ...................          2,517           2,326
  Prepaid expenses ...........................................         12,467          19,899
                                                                    ---------       ---------
           Total current assets ..............................        199,768         195,429
  Intangible assets ..........................................         73,194          70,606
  Property and equipment, net ................................         29,388          30,659
  Investment .................................................          3,616           3,616
  Deferred tax assets ........................................           --               182
  Other assets ...............................................         28,817          33,049
                                                                    ---------       ---------
           Total assets ......................................      $ 334,783       $ 333,541
                                                                    =========       =========
LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES
  Accounts payable ...........................................      $   6,961       $   2,247
  Accrued payroll and related expenses .......................          9,926           7,465
  Other accrued liabilities ..................................         22,118          20,225
  Deferred revenues ..........................................         48,381          50,043
                                                                    ---------       ---------
           Total current liabilities .........................         87,386          79,980

NON-CURRENT LIABILITIES
  Minority equity interest ...................................            307             307
  Other liabilities ..........................................          1,452           1,440
                                                                    ---------       ---------
           Total non-current liabilities .....................          1,759           1,747

SHAREHOLDERS' EQUITY
  Ordinary Shares, IR9.375p par value: 120,000,000
       shares authorized at December 31, 2000 and
       March 31, 2001; issued and outstanding:
       51,970,046 and 51,944,277 shares at December
       31, 2000 and 52,568,499 and 52,542,730 at
       March 30, 2001,respectively ...........................         7,656             7,715

  Additional paid-in capital .................................        232,640         239,418
  Accumulated profit .........................................          6,191           6,137
  Capital redemption reserve .................................            296             296
  Other comprehensive income .................................         (1,143)         (1,750)
  Treasury stock .............................................             (2)             (2)

           Total shareholders' equity ........................        245,638         251,814
                                                                    ---------       ---------
               Total liabilities and shareholders' equity ....      $ 334,783       $ 333,541
                                                                    =========       =========
</TABLE>


            See notes to condensed consolidated financial statements

Note: The balance sheet does not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.

                                        2
<PAGE>   4

                        SMARTFORCE PUBLIC LIMITED COMPANY

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                     Three months
                                                                    ended March 31,
                                                                  2000           2001
                                                                --------       --------
<S>                                                             <C>            <C>
Revenues .................................................      $ 28,534       $ 61,284
Cost of revenues .........................................         4,667          9,737
                                                                --------       --------
Gross profit .............................................        23,867         51,547
Operating expenses:
     Research and development ............................         8,500         12,425
     Sales and marketing .................................        23,193         31,710
     General and administrative ..........................         4,464          5,674
     Amortization of acquired intangibles ................         1,717          2,323
                                                                --------       --------
         Total operating expenses ........................        37,874         52,132
                                                                --------       --------
Loss from operations .....................................       (14,007)          (585)
Other income, net ........................................         1,154            842
                                                                --------       --------
Income /(loss) before provision for income taxes .........       (12,853)           257
Benefit/(provision) for income taxes .....................         1,114           (310)
                                                                --------       --------
Net loss                                                        $(11,739)      $    (53)
                                                                ========       ========
Net loss per share - Basic ...............................      $  (0.23)      $  (0.00)
                                                                ========       ========
Shares used in computing net loss per share - Basic ......        50,353         52,334
                                                                ========       ========
Net loss per share - Diluted .............................      $  (0.23)      $  (0.00)
                                                                ========       ========
Shares used in computing net loss per share - Diluted ....        50,353         52,334
                                                                ========       ========
</TABLE>



            See notes to condensed consolidated financial statements

Note: The statement of operations does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.



                                       3

<PAGE>   5

                        SMARTFORCE PUBLIC LIMITED COMPANY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   Three months ended
                                                                                         March 31,
                                                                                    2000           2001
                                                                                  --------       --------
<S>                                                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ...................................................................      $(11,739)      $    (53)
Adjustments to reconcile net loss to net cash used
   by operating activities:
   Depreciation and amortization ...........................................         4,681          6,092
   Accrued interest on short-term investments ..............................          (575)           436
   Changes in operating assets and liabilities:
     Accounts receivable ...................................................        15,251         (6,093)
     Inventories ...........................................................          (249)            63
     Deferred tax assets ...................................................        (1,101)            (1)
     Prepaid expenses and other assets .....................................        (5,595)       (11,938)
     Accounts payable ......................................................           846         (4,628)
     Accrued payroll and related expenses and other accrued liabilities ....        (7,145)        (4,111)
     Deferred revenues .....................................................         2,941          2,170
                                                                                  --------       --------
          Net cash used by operating activities ............................        (2,685)       (18,063)
                                                                                  --------       --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment ......................................        (3,828)        (4,956)
  Payment to acquire assets of Advanced Education Systems ..................          (271)          --
  Proceeds from sale of short-term investments .............................        43,000         41,006
  Payment to acquire investments ...........................................           (50)          --
  Payments to acquire short-term investments ...............................       (44,071)       (41,881)
                                                                                  --------       --------
     Net cash used in investing activities .................................        (5,220)        (5,831)
                                                                                  --------       --------
CASH FLOWS FROM FINANCING ACTIVITIES

  Proceeds from issuance of ordinary shares, net ...........................         3,748          6,836
                                                                                  --------       --------
    Net cash provided by financing activities ..............................         3,748          6,836
                                                                                  --------       --------
  Effect of exchange rate changes on cash and cash equivalents .............           367             89
                                                                                  --------       --------
  Net decrease in cash and cash equivalents ................................        (3,790)       (16,970)
  Cash and cash equivalents at beginning of period .........................        69,260         65,412
                                                                                  --------       --------
  Cash and cash equivalents at end of period ...............................      $ 65,470       $ 48,442
                                                                                  ========       ========
</TABLE>


            See notes to condensed consolidated financial statements

Note: The statements of cash flows does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.



                                       4
<PAGE>   6




                        SMARTFORCE PUBLIC LIMITED COMPANY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS

     These interim unaudited condensed and consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, the Company believes that the disclosures are adequate to ensure that
the information presented is not misleading. The accompanying interim financial
statements should be read in conjunction with the financial statements and
related notes included in our Annual Report to Shareholders as amended on Form
10-K/A for the year ended December 31, 2000. In the opinion of management, all
adjustments (consisting of normal recurring accruals), considered necessary for
a fair presentation of financial position, results of operations and cash flows
at the dates and for the periods presented have been included. The results of
operations for the periods presented are not necessarily indicative of the
results expected for the full financial year or for any future period.

NOTE 2. COMPUTATION OF NET INCOME PER SHARE

     Basic net income per share is calculated using the weighted average number
of our ordinary shares outstanding during the period including the issuance of
ordinary shares as a result of pooling of interests, at the beginning of the
earliest period presented or subsequent date of incorporation of the pooled
entity as applicable. Diluted net income per share is similarly calculated using
the combined weighted average number of ordinary and dilutive potential ordinary
shares, (as determined using the treasury stock method), such as shares issuable
pursuant to the exercise of options outstanding including the issuance of
ordinary and dilutive potential ordinary shares as a result of pooling of
interests.

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

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                  March 31,
                                                            2000           2001
---------------------------------------------------------------------------------
              (dollars in thousands, except per share amounts)
<S>                                                       <C>            <C>
Numerator:
         Numerator for basic and diluted
           net loss per share - loss
           available to common shareholders ........      $(11,739)      $    (53)
                                                          ========       ========
Denominator:
         Denominator for basic net loss
           per share - weighted average shares .....        50,353         52,334
         Effect of dilutive securities:
         Employee stock options ....................          --             --
         Denominator for diluted net loss
           per share - adjusted weighted average
           shares and assumed conversion ...........        50,353         52,334
                                                          ========       ========
Basic net loss per share ...........................      $  (0.23)      $  (0.00)
                                                          ========       ========
Diluted net loss per share .........................      $  (0.23)      $  (0.00)
                                                          ========       =========
</TABLE>



                                       5
<PAGE>   7

NOTE 3.  COMPREHENSIVE INCOME

     Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," establishes rules for the reporting and display of
comprehensive income and its components.

     The following table sets forth the calculation of comprehensive income on
an interim basis:

<TABLE>
<CAPTION>
                                                            Three months ended
                                                                 March 31,
                                                            2000           2001
                                                          --------       --------
         (dollars in thousands)
<S>                                                       <C>            <C>
Net loss ...........................................      $(11,739)      $    (53)
Other Comprehensive loss
       Cumulative effect of change in accounting
       Principle (SFAS 133) ........................          --            3,703
       Movement on cash flow hedges ................          --           (3,208)
       Foreign currency translation adjustment .....            (1)        (1,102)
                                                          --------       --------
Total Comprehensive loss ...........................      $(11,740)      $   (660)
                                                          ========       ========
</TABLE>


NOTE 4. SEGMENT GEOGRAPHIC AND CUSTOMER INFORMATION

     The Company presents financial information for its three reportable
operating segments: Americas, Europe Middle East Africa ("EMEA") and Ireland.
The Americas and EMEA segments are sales operations and Ireland is the Company's
Research and Development operation.

     The Company and its subsidiaries operate in one industry segment, the
development and marketing of e-learning solutions. Operations outside of Ireland
consist principally of sales and marketing.

     The Company's products are developed in Ireland and sold to the Company's
distribution subsidiaries in other geographic segments. These inter segment
revenues are determined on arms length bases pursuant to which a fair profit is
earned by the Irish development subsidiary and which is designed to comply with
the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrators. All such inter segment revenues and costs of revenues are
eliminated on consolidation.

     The Company's Chief Operating Decision Maker ("CODM"), the Company's
Chairman, President and CEO, allocates resources and evaluates performance based
on a measure of segment profit or loss from operations. The accounting policies
of the reportable segments are the same as described in the summary of
significant accounting policies. The Company's CODM does not view segment
results below operating profit (loss), therefore, net interest income, other
income and the provision for income taxes are not broken out by segment below.
The Company does not account for nor report to the CODM its assets or capital
expenditures by segment, thus asset information is not provided on a segment
basis.

     A summary of the segment financial information reported to the CODM is as
follows:
<TABLE>
<CAPTION>
                                                              QUARTER ENDED MARCH 31, 2001
                                                      -------------------------------------------
                                                                                                   CONSOLIDATED
                                          AMERICAS         EMEA         IRELAND       ALL OTHER        TOTAL
                                          --------       --------       --------      ---------       --------
                                                                     (dollars in thousands)
<S>                                       <C>            <C>            <C>           <C>            <C>
Revenues--External .................      $ 44,758       $  8,066       $  6,399      $  2,061       $ 61,284
Inter segment Revenues .............          --             --           25,645          --           25,645
Depreciation and Amortization ......         4,002             69          1,792           230          6,093
Segment Operating Income/(Loss) ....       (12,034)          (808)        15,427        (3,170)          (585)
</TABLE>


                                       6
<PAGE>   8
<TABLE>
<CAPTION>
                                                              QUARTER ENDED MARCH 31, 2001
                                                      -------------------------------------------
                                                                                                   CONSOLIDATED
                                          AMERICAS         EMEA         IRELAND       ALL OTHER        TOTAL
                                          --------       --------       --------      ---------       --------
                                                                     (dollars in thousands)
<S>                                       <C>            <C>            <C>           <C>            <C>
Revenues--External .................      $ 22,764       $  4,399       $     82      $  1,289       $ 28,534
Inter segment Revenues .............          --             --           13,624          --           13,624
Depreciation and Amortization ......         2,011            108            829         1,733          4,681
Segment Operating Income/(Loss) ....       (12,305)        (1,690)         2,849        (2,861)       (14,007)
</TABLE>


     Revenues from external customers, based on the location of the customer,
are categorized by geographical areas as follows:

<TABLE>
<CAPTION>
                                QUARTER ENDED MARCH 31,
                                -----------------------
                                  2000          2001
                                 -------      -------
                                (dollars in thousands)
Revenues
<S>                              <C>          <C>
  Ireland .................      $ 1,061      $ 1,008
  United States ...........       18,285       42,546
  United Kingdom ..........        4,909        6,710
  Other countries .........        4,279       11,020
                                 -------      -------
  Total ...................      $28,534      $61,284
                                 =======      =======
</TABLE>


     Long-Lived assets are those assets that can be directly associated with a
particular geographic area. These assets are categorized by geographical areas
as follows:

<TABLE>
<CAPTION>
                                           MARCH 31,
                                      2000          2001
                                    --------      --------
                                    (dollars in thousands)
Long-Lived Assets
<S>                                 <C>           <C>
     Ireland .................      $ 13,743      $ 63,677
     United States ...........        38,661        56,930
     Other countries .........        65,519        17,323
                                    --------      --------
Total ........................      $117,923      $137,930
                                    ========      ========
</TABLE>

     The Company regards its e-learning solutions as homogenous products and
services.

NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS

     The Financial Accounting Standards Board issued Statement No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("Statement 133")
in June 1998. Statement 133, which requires all derivative instruments to be
recognized as either assets or liabilities on the balance sheet at their fair
value, provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. As amended, this statement is
effective for fiscal years beginning after June 15, 2000. The Company applied
the new rules prospectively to transactions beginning in the first quarter of
2001. The cumulative effect of the change in accounting principle due to the
adoption of Statement 133 resulted in the recognition of a net loss of $170,811
in the income statement and a net gain of $3.7 million in other comprehensive
income. During the three months ended March 31, 2001, the amount recorded in
earnings relating to cash flow ineffectiveness was $159,540. During the three
months ended March 31, 2001, we recorded a net loss of $3.2 million in respect
of the movement on the cash flow hedges held at March 31, 2001.

                                       7
<PAGE>   9

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

OVERVIEW

     We provide comprehensive, integrated e-Learning solutions that help
businesses deploy knowledge across their extended enterprise of employees,
customers, suppliers, distributors and other business partners. Our hosted
e-Learning platform provides access to a comprehensive offering of learning
events and resources. Our platform allows organizations to customize their
e-Learning environment to meet their corporate objectives and to train their
employees and business partners quickly, efficiently and effectively. Our
e-Learning solutions also provide individuals access to dynamic, continuously
updated learning events so they can personalize their e-Learning environment to
meet their specific educational and career objectives. Our platform also
includes a learning management system to help managers track and assess the
effectiveness of their training initiatives as well as a variety of assessment
and feedback tools to help users better understand their educational progress.

     Prior to 2000, we derived our revenues primarily under a software license
model pursuant to license agreements under which customers license usage of
delivered software products for a period of one, two or three years. On each
anniversary date during the term of multi-year license agreements, customers
have been generally allowed to exchange any or all of the licensed products for
an equivalent number of alternative products within our library. The first year
license fee has historically been generally recognized as revenue at the time of
delivery of all products, provided a signed contract or other persuasive
evidence of an arrangement exists, our fees are fixed or determinable and
collections of accounts receivable are probable. Subsequent annual license fees
under the software license model are recognized on each anniversary date,
provided a signed contract or other persuasive evidence of an arrangement
exists, our fees are fixed or determinable and collections of accounts
receivable are probable. Revenues from license agreements providing product
exchange rights other than annually during the term of the agreement are
deferred and recognized ratably over the contract period.

     During 2000 we migrated the majority of our business from the software
license model to an e-Learning rental model, under which we rent to our
customers access to our learning environment for a certain period of time, such
as one, two or three years. Under the e-Learning rental model, revenue derived
from e-Learning rental agreements is generally deferred and recognized ratably
over the term of the relevant agreement, rather than annually in advance as was
the case under the historical software license model, provided a signed contract
or other persuasive evidence of an arrangement exists, our fees are fixed or
determinable and collections of accounts receivable are probable.

     The cost of satisfying any post contract support, or PCS, is accrued at the
time revenue is recognized, as PCS fees are included in the annual license fee,
the estimated cost of providing PCS during the agreements is insignificant and
unspecified upgrades or enhancements offered have been and are expected to be
minimal and infrequent. For multi-element agreements where vendor specific
objective evidence exists to allocate the total fee among the various elements
of the agreement each element is recognized as appropriate. Where no such vendor
specific objective evidence exists revenue is recognized ratably over the life
of the agreement.

     In addition, we derive revenues from sales of our products, which are
recognized upon shipment, net of allowances for estimated future returns and for
excess quantities in distribution channels, provided persuasive evidence of an
arrangement exists, our fees are fixed or determinable, and collections of
accounts receivable are probable.

     Our e-Learning agreements may have other accounting and operating model
consequences that are materially different from our software licensing
structure. For example, in the second quarter of 1999, we entered into an
agreement with a major customer to provide an outsourced virtual university for
technical education. Under the contract, the customer has licensed educational
software from us, and has also contracted for professional services, management


                                       8
<PAGE>   10

fees, on-line mentoring services and certain other items. In addition, the
agreement provides for the reselling by us of third parties' instructor-led
training to the customer. Revenues from the non-software licenses component of
this agreement, which represent a substantial majority of the firmly contracted
amount with the customer and all of the potential incremental revenues over the
firmly contracted amount, will generally be recognized as services are
performed, which will have the effect of deferring revenue. Since that time an
increasing number of customers, including most of our largest customers, have
purchased a variety of different products and services from us, with different
revenue recognition and operating model profiles. We expect to continue to
experience increasing numbers of customers who fit this profile in the future. 1

     Moreover, the gross margins associated with the non-software license and
non-rental components (and in particular the resale of third-party
instructor-led training) are expected to be substantially lower than the gross
margins typically associated with our software license agreements. 2

     In recent years, we have entered into several content development and
marketing alliances with key vendors of technology software under which we
develop e-Learning content for training on specific products. Under certain of
our development and marketing alliances, our partners have agreed to fund
certain product development costs. We recognize such funding as revenues on a
percentage of completion basis, and the costs associated with such revenues are
reflected as cost of revenues. These agreements have the effect of shifting
expenses associated with developing certain new products from research and
development to cost of revenues. We expect that cost of revenues may fluctuate
from period to period in the future based upon many factors. We do not expect
funding from development partners to contribute significantly to revenues in
future years.

RECENT DEVELOPMENTS

     ACQUISITIONS

     On April 2, 2001, we acquired icGlobal, providers of industry-acclaimed
Learning Management System (LMS) software. The LMS software enables global
organizations, content providers and institutions to develop, track and manage
all e-Learning events and instructor-led-training, empowering administrators to
manage their entire learning environment. We issued to the shareholders of
icGlobal the right to acquire 100,000 ADSs as consideration for the outstanding
securities of icGlobal. The transaction will be accounted for under the purchase
method of accounting in accordance with generally accepted accounting
principles.

--------------------------------------------------------------------------------
1    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

2    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.


                                       9
<PAGE>   11
     The combination of the operation of icGlobal with our operations will
result in an increase in our research and development expenses. In addition, the
amortization of goodwill and any intangible assets acquired as part of icGlobal,
will negatively impact the results of operations in future periods.
Unanticipated contingencies that would substantially increase the costs of
combining the operation of icGlobal with us may occur. 3

RESULTS OF OPERATIONS

     The following table sets forth certain consolidated statements of
operations data as a percentage of revenues:

<TABLE>
<CAPTION>
                                                              Three months
                                                             ended March 31,
                                                            2000         2001
                                                            -----        -----
<S>                                                         <C>          <C>
Revenues ...........................................          100%         100%
Cost of revenues ...................................         16.4         15.9
                                                            -----        -----
Gross Profit .......................................         83.6         84.1
Operating expenses:
     Research and development ......................         29.8         20.3
     Sales and marketing ...........................         81.3         51.7
     General and administrative ....................         15.6          9.3
       Amortization of acquired intangibles ........          6.0          3.8
                                                            -----        -----
         Total operating expenses ..................        132.7         85.1
                                                            -----        -----
Loss from operations ...............................        (49.1)        (1.0)
Other income, net ..................................          4.1          1.4
                                                            -----        -----

(Loss)/income before provision for income taxes ....        (45.0)         0.4
Benefit/(provision) for income taxes ...............          3.9         (0.5)
                                                            -----        -----
Net loss ...........................................        (41.1)%       (0.1)%
                                                            =====        =====
</TABLE>

REVENUES

     Revenues increased to $61.3 million in the three months ended March 31,
2001 from $28.5 million in the three months ended March 31, 2000.

     Following the introduction of SmartForce e-Learning in January 2000 we
commenced the migration of our business from the software license model to an
e-Learning rental model where revenue is generally deferred and recognized
ratably over the term of the agreement rather than annually in advance as was
the case under the software license model. As a result of the rapid customer
adoption of SmartForce e-Learning and the resulting move to an e-Learning rental
model in the first quarter of 2000, revenues for that quarter decreased
significantly compared to the three months ended March 31, 1999. During 2000 we
continued our customer migration to SmartForce e-Learning which resulted in the
deferral of revenue from 2000 into 2001. The increase in

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3    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

                                       10
<PAGE>   12
revenues for the three months ended March 31, 2001 as compared to the three
months ended March 31, 2000, is primarily attributable to the transition of the
majority of our business from the software license model to the e-Learning
rental model as well as increased revenue from our e-Learning solutions as a
result of increases in the number of sales and sales related personnel and the
expansion of our e-Learning offerings during 2000 and the three months ended
March 31, 2001.

     Revenues in the United States for the three months ended March 31, 2001
were $42.5 million (or 69% of revenues) compared to $18.3 million (or 64% of
revenues) for the three months ended March 31, 2000.

     Revenues in the United Kingdom for the three months ended March 31, 2001
were $6.7 million (or 11% of revenues), compared to $4.9 million (or 17% of
revenues) for the three months ended March 31, 2001. Revenues in Ireland for the
three months ended March 31, 2001 were $1.0 million (or 2% of revenues) compared
to $1.0 million (or 4% of revenues) for the three months ended March 31, 2000.

     In addition, revenues from outside the United States, United Kingdom and
Ireland (principally from Australia, Europe (other than the United Kingdom and
Ireland), Canada, Asia, South Africa and the Middle East) for the three months
ended March 31, 2001 were $11 million (or 18% of revenues), compared to $4.3
million (or 15% of revenues) for the three months ended March 31, 2000.

     Because a significant portion of our business is conducted outside the
United States, we are subject to a number of risks associated with doing
business in other countries, including risks related to currency fluctuations.

COST OF REVENUES

     Cost of revenues includes the cost of materials (such as packaging and
documentation), royalties to third parties, the portion of development costs
associated with funded development projects, hosting, the cost of providing
professional services, fulfillment, shipping and handling costs and the
amortization of the cost of purchased products.

     Gross margins increased to 84.1% in the three months ended March 31, 2001
from 83.6% in the three months ended March 31, 2000. The higher gross margin for
the three months ended March 31, 2001 was attributable to increased revenues in
the three months ended March 31, 2001 as compared to the three months ended
March 31, 2000, and a certain portion of our cost of revenues being fixed. This
increase in gross margin for the three months ended March 31, 2001, as compared
to March 31, 2000, was partially offset by a modest increase in the proportion
of revenues derived from services.

     We expect that cost of revenues may fluctuate from period to period in the
future based upon many factors, including the rate at which we continue to
migrate our customers to our e-Learning solutions, the revenue mix (including
between software, services and partner's products) and the timing of expenses
associated with development and marketing alliances. In particular, we expect
that services may represent an increasing proportion of our revenues. 4

OPERATING EXPENSES

     Our operating expenses increased in dollar terms in the three months ended
March 31, 2001 as compared to the three months ended March 31, 2000, primarily
as a result of the growth in our business and our ongoing investments in our
e-learning solutions. Operating expenses as a percentage of revenues decreased
in the three months ended March 31, 2001 as compared to the three months ended
March 31, 2000, primarily as a result of the rapid adoption of our e-learning
solutions in the first quarter of 2000 which resulted in the deferral of
revenues into future periods and consequently a significant increase in
operating expenses as a percentage of revenues.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses consist primarily of salaries and
benefits, related overhead costs, travel expenses and fees paid to outside
consultants.

     Research and development expenses increased in the three months ended March
31, 2001 to $12.4 million from $8.5 million in the three months ended March 31,
2000. The increase in research and development in the three months ended March
31, 2001 as compared to the three months ended March 31, 2000 is due primarily
to the hiring of additional research and development personnel and the continued
development of our e3 application architecture, all of which are required to
further develop and expand our e-Learning solutions.

--------------------------------------------------------------------------------
4    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.


                                       11
<PAGE>   13

     We believe that significant investment in research and development is
required to build-out our e-Learning infrastructure and to remain competitive in
the information technology and business skills education and training market. We
therefore expect research and development expenses to increase in future
periods. 5

     Software development costs are accounted for in accordance with Statement
of Financial Accounting Standards No. 86, under which we are required to
capitalize software development costs after technological feasibility has been
established. To date, development costs after establishment of technological
feasibility have been immaterial, and all software development costs have been
expensed as incurred.

SALES AND MARKETING EXPENSES

     Sales and marketing expenses consist primarily of salaries and commissions,
travel expenses, advertising and promotional expenses and related overhead
costs.

     These expenses increased to $31.7 million in the three months ended March
31, 2001 from $23.2 million for the three months ended March 31, 2000. The
increase was primarily attributable to increases in the number of sales and
marketing personnel to accommodate the growth in sales, higher absolute dollar
commission costs associated with increased revenues, and increases in
advertising and promotional expenses to build the SmartForce brand and market
our e-Learning solutions. We expect to continue to increase sales and marketing
expenses in the future to build the SmartForce brand and to support an increase
in our sales force and expansion of our marketing efforts. 6

GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses consist primarily of salaries and
benefits, travel expenses, legal, accounting and consulting fees and related
overhead costs for administrative officers and support personnel.

     General and administrative expenses increased to $5.7 million for the three
months ended March 31, 2001 as compared to $4.5 million for the three months
ended March 31, 2000. The increase in general and administrative expenses is due
primarily to increases in the number of general and administrative staff to
accommodate the growth in operations. We anticipate general and administrative
expenses will increase in absolute dollars in future periods due to increases in
staffing and infrastructure to support our e-Learning infrastructure and
acquisitions. 7

AMORTIZATION OF ACQUIRED INTANGIBLES

     Amortization of acquired intangibles for the three months ended March 31,
2001 was $2.3 million as compared to $1.7 million for the three months ended
March 31, 2000. Amortization of acquired intangibles increased due to the
additional amortization of acquired intangibles in the three months ended March
31, 2001, as compared to the three months ended March 31, 2000 as a result of
the acquisitions of AES and Learning Productions in March and April 2000,
respectively. We expect that amortization of acquired intangibles will increase
in future periods as a result of the acquisition of icGlobal.

--------------------------------------------------------------------------------
5    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

6    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

7    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

                                       12
<PAGE>   14

OTHER INCOME, NET

     Other income, net, comprises interest income, interest expense, foreign
currency exchange gains and losses and gains and losses due to hedge
ineffectiveness.

     We recognized other income, net, of $0.8 million for the three months ended
March 31, 2001, as compared to other income, net, of $1.1 million for the three
months ended March 31, 2000. Other income decreased primarily due to lower
interest income resulting from lower prevailing interest rates and foreign
exchange losses. Included in other income, net, was net exchange losses of $0.4
million for the three months ended March 31, 2001, compared to net exchange
losses of $0.2 million for the three months ended March 31, 2000. The net
exchange losses incurred were primarily as a result of adopting Statement 133 on
January 1, 2001 and the strengthening of the U.S. dollar against the Euro and
other currencies.

     Our consolidated financial statements are prepared in dollars, although
several of our subsidiaries have functional currencies other than the dollar,
and a significant portion of our revenues, costs and assets and those of our
subsidiaries are denominated in currencies other than their respective
functional currencies. We have significant subsidiaries in the United Kingdom,
Australia, the Netherlands and Canada whose functional currencies are their
local currencies and the majority of whose sales and operating expenses other
than cost of goods sold are denominated in their respective local currencies. In
addition, our Irish subsidiaries, whose functional currency is the U.S. dollar,
incur substantial operating expenses denominated in Irish pounds. Fluctuations
in exchange rates may have a material adverse effect on our results of
operations, particularly our operating margins, and could result in exchange
losses, as it has done in the three months ended March 31, 2001. The impact of
future exchange rate fluctuations on our results of operations cannot be
accurately predicted.

     As of March 31, 2001 we have entered into forward currency exchange
contracts to hedge identified expenses denominated in Irish pounds. We have not
sought to hedge the risks associated with fluctuations in the exchange rates of
other currencies against the U.S Dollar, but may undertake such transactions in
the future. Any hedging techniques implemented by us may not be successful in
eliminating or reducing the effects of currency fluctuations. Fluctuations in
exchange rates may have a material adverse effect on our results of operations,
particularly our operating margins, and could result in exchange losses. The
impact of future exchange rate fluctuations on the results of operations cannot
be accurately predicted. 8

     Other income, net may fluctuate in future periods as a result of movements
in cash, cash equivalents and short-term investment balances, interest rates,
foreign currency exchange rates, ineffectiveness of foreign currency exchange
contracts, asset and investment disposals and write downs.

PROVISION FOR INCOME TAXES

     We operate as a holding company with operating subsidiaries in several
countries, and each subsidiary is taxed based on the laws of the jurisdiction in
which it operates. Because taxes are incurred at the subsidiary level, and one
subsidiary's tax losses cannot be used to offset the taxable income of
subsidiaries in other tax jurisdictions, our consolidated effective tax rate may
increase to the extent that we report tax losses in some subsidiaries and
taxable income in others.

     We have significant operations and generate a majority of our taxable
income in the Republic of Ireland, and certain of our Irish operating
subsidiaries are taxed at rates substantially lower than tax rates in effect in
the United States and other countries in which we have operations. Two Irish
subsidiaries currently qualify for a 10% tax rate and another Irish subsidiary
is income tax exempt. If such subsidiaries were no longer to qualify for such
tax rates or if the tax laws were rescinded or changed, our operating results
could be materially adversely affected. Moreover, because we incur income

--------------------------------------------------------------------------------
8    This paragraph consists of forward-looking statements reflecting our
     current expectations. Our actual future performance may differ materially
     from our current expectations. You are strongly encouraged to review the
     section entitled "Additional Risk Factors That Could Affect Operating
     Results" commencing on page 15 and discussions elsewhere in this Quarterly
     Report on Form 10-Q of the factors that could affect future performance.


                                       13
<PAGE>   15

tax in several countries, an increase in our profitability in one or more of
these countries could result in a higher overall tax rate. In addition, if tax
authorities were to challenge successfully the manner in which profits are
recognized among our subsidiaries, our taxes could increase and our cash flow
and net income could be materially adversely affected.

     We recorded a tax provision of $0.3 million, at an effective tax rate of
12% before amortization of acquired intangibles, in the three months ended March
31, 2001. We recorded a tax benefit of $1.1 million, at an effective tax rate of
10% before amortization of acquired intangibles, in the three months ended March
31, 2000 as a result of the loss for 2000, which was recognized for tax purposes
by one of our Irish subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES

    Cash and short-term investments at March 31, 2001 were $91 million compared
to $108 million at December 31, 2000. Working capital was $115.4 million as of
March 31, 2001 compared to $112.4 million as of December 31, 2000. The decrease
in cash and short term investments is due principally to cash outflows from
operations and investments in property and equipment to support the building of
our e-Learning infrastructure and expanded operations.

     CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used by operating activities
was $18.1 million for the three months ended March 31, 2001 compared to net cash
used by operating activities of $2.7 million for the three months ended March
31, 2000. During the three months ended March 31, 2001, cash outflows from
operations increased from that for the three months ended March 31, 2000,
primarily as a result of the increase in accounts receivable and prepaid
expenses and other assets from December 31, 2000 to March 31, 2001 as compared
to the movement in accounts receivable and prepaid expenses and other assets
from December 31, 1999 to March 31, 2000. The increase in the accounts
receivable balance is a function of the revenue for the current and earlier
periods and the timing of payments in respect of receivables.

     CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used by investing activities
was $5.8 million for the three months ended March 31, 2001 compared to net cash
used by investing activities of $5.2 million for the three months ended March
31, 2000. The increase in cash outflow from investing activities was primarily
due to increased capital expenditure required to continue to build our
e-Learning infrastructure and to support our expanding operations. We expect to
continue to make significant investments to our e-Learning infrastructure and
information systems to support our e-Learning solutions and the growth in
operations. 9

     CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities increased to $6.8 million for the three months ended March 31, 2001
from $3.7 million for the three months ended March 31, 2000. The increase is
attributable to increased employee stock option exercises during the three
months ended March 31, 2001 as compared with the three months ended March 31,
2000.

     We believe our existing cash, cash equivalents and short-term investments
and cash to be generated from operations will be sufficient to meet our expected
working capital and capital expenditure requirements for at least the next
twelve months. 10 We may from time to time consider the acquisition of
complementary businesses, products or technologies, which may require additional
financing or pursue other strategic capital raising.

--------------------------------------------------------------------------------
9    This paragraph consists of forward-looking statements reflecting our
current expectations. Our actual future performance may differ materially from
our current expectations. You are strongly encouraged to review the section
entitled "Additional Risk Factors That Could Affect Operating Results"
commencing on page 15 and discussions elsewhere in this Quarterly Report on Form
10-Q of the factors that could affect future performance.

10   This statement is a forward-looking statement and actual results may differ
materially depending on a variety of factors, including variable operating
results or presently unexpected uses of cash such as mergers and acquisitions.


                                       14
<PAGE>   16

ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS

IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

     In addition to historical statements, this Quarterly Report on Form 10-Q
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Words such as "anticipates", "expects", "intends",
"plans", "believes", "seeks", "estimates" and similar expressions identify such
forward looking statements. These forward looking statements are not guarantees
of future performance and are subject to certain risks and uncertainties that
could cause actual results to differ materially from those expressed or
forecasted. Actual results may vary because of factors such as product ship
schedules, life cycles, terms and conditions, product mix, competitive products
and pricing, customer demand, technological shifts, litigation and other issues
discussed elsewhere in this Quarterly Report and in our most recent Annual
Report, as amended on Form 10-K/A for the fiscal year ended December 31, 2000.
These forward-looking statements reflect management's opinions only as of the
date hereof, and we assume no obligation unless required by law to revise or
publicly release the results of any revision to these forward-looking
statements. Risks and uncertainties include, but are not limited to, those
discussed in the section entitled "Additional Risk Factors That Could Affect
Operating Results." Other risks and uncertainties are disclosed in our SEC
filings, including our Annual Report, as amended on Form 10-K/A, for the year
ended December 31, 2000. Historical results are not necessarily indicative of
trends in operating results for any future period.

     In addition to the other factors identified in this Quarterly Report on
Form 10-Q, the following risk factors could materially and adversely affect our
future operating results and could cause actual events to differ materially from
those predicted in our forward looking statements relating to our business.
These risk factors should be carefully considered in evaluating SmartForce and
its business because such factors currently have a significant impact on
SmartForce's business, operating results and financial condition.

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

     We have in the past experienced fluctuations in our quarterly operating
results and anticipate that these fluctuations will continue and could intensify
in the future. As a result, we believe that our quarterly revenue, expenses and
operating results are likely to vary significantly in the future. Thus, it is
likely that in some future quarters our results of operations will be below the
expectations of public market analysts and investors, which could have a severe
adverse effect on the price of our ADSs. For example, our revenue for the
quarter ended September 30, 1998 did not increase at a rate comparable to prior
quarters. As a direct result, the trading price of our ADSs decreased rapidly
and significantly, having an extreme adverse effect on the value of an
investment in our securities.

     Our operating results have historically fluctuated, and may in the future
continue to fluctuate, as a result of factors, which include:

o    the size and timing of new and renewal agreements
o    the rate at which we continue to migrate our customers to our e-Learning
     solutions
o    the number and size of outsourced virtual university agreements or other
     agreements providing for professional services or the resale of
     instructor-led training
o    the mix of revenue between content, e-Learning platform, services and
     partner's products
o    royalty rates
o    the announcement, introduction and acceptance of new products, product
     enhancements and technologies by us and our competitors
o    the mix of sales between our field sales force, our other direct sales
     channels and our telesales sales channels
o    the impact of any unanticipated decline in net revenues in any particular
     quarter as compared to the relatively fixed nature of our expense levels in
     the short term
o    general conditions in our market or the markets served by our customers in
     the U.S. and or the International economy
o    competitive conditions in the industry


                                       15
<PAGE>   17

o    the loss of significant customers
o    delays in availability of existing or new products
o    the spending patterns of our customers
o    litigation costs and expenses
o    currency fluctuations
o    the length of sales cycles

WE HAVE RECENTLY INTRODUCED FULLY INTEGRATED, INTERNET-BASED LEARNING SOLUTIONS,
AN AREA IN WHICH WE HAVE LIMITED EXPERIENCE.

     In the fourth quarter of 1999 we introduced SmartForce e-Learning, a hosted
Internet-based learning solution. While the results of our efforts to migrate
our business to the e-Learning model during 2000 exceeded our expectations, we
have relatively limited experience with these solutions, which makes our
historical results of limited value in predicting the potential success of this
initiative. The ultimate success of this initiative will depend on our ability
to build-out and maintain our e-Learning infrastructure, to market and sell the
new e-Learning solutions to existing and prospective customers, to create a
significant subscriber base for our e-Learning destination Web site, to host,
operate and manage our destination site, and to attract and retain key
management and technical personnel.

     We may not be successful in these efforts and the economic terms of any
arrangements that might be expected may not be as favorable as the traditional
licensing agreements. We believe that a lack of success in this regard could
have a material negative effect on us. Moreover, to the extent that we are
successful in our efforts to enter into e-Learning agreements with our
customers, those arrangements are expected to have accounting and operating
model consequences that would also be materially different from the consequences
of our traditional software licensing model.

OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS WHICH MAY ADVERSELY
IMPACT OUR BUSINESS.

     Our operating results are subject to seasonal fluctuations, based in part
on customers' annual budgetary cycles and in part on the annual nature of sales
quotas. These seasonal trends have in the past caused revenues in the first
quarter of a year to be less, perhaps substantially so, than revenues for the
immediately preceding fourth quarter. We expect that these seasonal trends could
continue to adversely affect our revenues. In addition, we have in past years
added significant headcount in the sales and marketing and research and
development functions in the first quarter, and to a lesser extent, the second
quarter. Because these headcount additions do not immediately contribute
significant revenues, our operating margins in the earlier part of the year tend
to be significantly lower than in the later parts of the year. In addition, many
technology companies also experience a seasonal downturn in demand during the
summer months. These seasonal trends may have a material adverse effect on our
results of operations.

WE RELY ON STRATEGIC ALLIANCES THAT MAY NOT CONTINUE IN THE FUTURE.

     We have developed strategic alliances to develop and market many of our
products, and we believe that an increasing proportion of our future revenues
may be attributable to products developed and marketed through these and other
future alliances. However, these relationships are not exclusive and we may be
unable to continue to develop future products through these alliances in a
timely fashion or may be unable to negotiate additional alliances in the future
on acceptable terms or at all.

     The marketing efforts of our partners may also disrupt our direct sales
efforts. Our development and marketing partners could pursue their existing or
alternative training programs in preference to and in competition with those
being developed by us. In the event that we are unable to maintain or expand our
current development and marketing alliances or enter into new development and
marketing alliances, our operating results and financial condition could be
materially adversely affected. Furthermore, we are required to pay royalties to
our development and marketing partners on products developed with them, which
reduces our gross margins. We expect that cost of revenues may fluctuate from
period to period in the future based upon many factors, including the revenue
mix (between content, e-Learning platform, services and partner's products) and
the timing of expenses associated with development and marketing alliances. In
addition, the

                                       16
<PAGE>   18

collaborative nature of the development process under these alliances may result
in longer development times and less control over the timing of product
introductions than for e-Learning offerings developed solely by us. Our
strategic alliance partners may from time to time renegotiate the terms of our
agreement with them and could result in changes to the royalty arrangements,
which could adversely effect our results of operations.

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

     The market for interactive education and training is influenced by rapidly
changing technology, evolving industry standards, changes in customer
requirements and preferences and frequent introductions of new products and
services embodying new technologies. New methods of providing interactive
education in a technology-based format are being developed and offered in the
marketplace, including intranet and Internet offerings. Many of these new
offerings involve new and different business models and contracting mechanisms.
In addition, multimedia and other product functionality features are being added
to the educational software. Accordingly, our future success will depend upon
the extent to which we are able to develop and implement products which address
these emerging market requirements on a cost effective and timely basis. Product
development is risky because it is difficult to foresee developments in
technology, coordinate technical personnel and identify and eliminate design
flaws. Any significant delay in releasing new products could have a material
adverse effect on the ultimate success of our products and could reduce sales of
predecessor products. We may not be able to introduce new products on a timely
basis. In addition, new products introduced by us may fail to achieve a
significant degree of market acceptance or, once accepted, may fail to sustain
viability in the market for any significant period. If we are unsuccessful in
addressing the changing needs of the marketplace due to resource, technological
or other constraints, or in anticipating and responding adequately to changes in
customers' software technology and preferences, our business and results of
operations would be materially adversely affected.

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

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


                                       17
<PAGE>   19

     Our facilities in the State of California, including our corporate
headquarters and other critical business operations, are currently subject to
electrical blackouts as a consequence of a shortage of available power. In the
event these blackouts continue to increase in severity, they could disrupt the
operations of our affected facilities and our business could be seriously
harmed. In addition, in connection with the shortage of available power, prices
for electricity have risen dramatically, and will likely to continue to increase
in the foreseeable future. Such price changes will increase our operating costs,
which could adversely impact our profitability.

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

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

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

WE MAY FAIL TO INTEGRATE ADEQUATELY ACQUIRED PRODUCTS, TECHNOLOGIES AND
BUSINESSES.

     As a result of the consummation of a number of acquisitions our operating
expenses have increased. The integration of these businesses may not be
successfully completed in a timely fashion, or at all. Further, the revenues
from the acquired businesses may not be sufficient to support the costs
associated with those businesses, without adversely affecting our operating
margins. Any failure to successfully complete the integration in a timely
fashion or to generate sufficient revenues from the acquired businesses could
have a material adverse effect on our business and results of operations.

     In April 2001 we acquired icGlobal, providers of industry acclaimed
Learning Management System software. Difficulties in combining the company's
products and technologies with our own could have an adverse impact on our
ability to fully benefit from our existing and future investment in this
business and on the future prospects for our business, management and
professional education software products.

     We regularly evaluate acquisition opportunities and are likely to make
acquisitions in the future that would provide additional product or service
offerings, additional industry expertise or an expanded geographic presence. We
may be unable to locate attractive opportunities or acquire any that we locate
on attractive terms. Future acquisitions could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect our results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concerns, risks
of entering markets in which we have no or limited prior experience and the
potential loss of key employees of acquired companies. We may be unable to
integrate successfully any operations, personnel or products that have been
acquired or that might be acquired in the future and our failure to do so could
have a material adverse effect on our results of operations.

RAPID EXPANSION OF OUR OPERATIONS COULD STRAIN OUR PERSONNEL AND SYSTEMS.


                                       18
<PAGE>   20

     We have recently experienced rapid expansion of our operations, which has
placed, and is expected to continue to place, significant demands on our
executive, administrative, operational and financial personnel and systems. Our
future operating results will substantially depend on the ability of our
officers and key employees to manage changing business conditions and to
implement and improve our operational, financial control and reporting systems.
In particular, we require significant improvement in our order entry,
fulfillment and management information systems in order to support our expanded
operations. If we are unable to respond to and manage changing business
conditions, our business and results of operations could be materially adversely
affected.

OUR EXPENSE LEVELS ARE FIXED IN THE SHORT TERM AND WE MAY BE UNABLE TO ADJUST
SPENDING TO COMPENSATE FOR UNEXPECTED REVENUE SHORTFALLS.

     Our expense levels are based in significant part on our expectations
regarding future revenues and are fixed to a large extent in the short term.
Accordingly, we may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant revenue
shortfall would therefore have a material adverse effect on our results of
operations. This risk materialized in the third quarter of 1998, where profit
was dramatically negatively affected by a shortfall in revenues as against
management's expectations.

WE DEPEND ON A FEW KEY PERSONNEL TO MANAGE AND OPERATE US.

     Our success is largely dependent on the personal efforts and abilities of
our senior management. Failure to retain these executives, or the loss of
certain additional senior management personnel or other key employees, could
have a material adverse effect on our business and future prospects.

     We are also dependent on the continued service of our key sales, content
development and operational personnel and on our ability to attract, motivate
and retain highly qualified employees. In addition, we depend on writers,
programmers, Web designers and graphic artists. We expect to continue to hire
additional content development, programmers, sales and marketing, information
systems and accounting staff. However, we may be unsuccessful in attracting,
retaining or motivating key personnel. The inability to hire and retain
qualified personnel or the loss of the services of key personnel could have a
material adverse effect upon our current business, new product development
efforts and future business prospects.

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

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

     Our primary source of direct competition comes from third-party suppliers
of instructor-led information technology, business, management and professional
skills education and training as well as suppliers of computer-based training
and e-Learning solutions. We also face indirect competition from internal
education and training departments of our potential customers. We also compete
to a lesser extent with consultants, value-added resellers and network
integrators. Certain of these value-added resellers also market products
competitive with ours. We expect that as organizations increase their dependence
on outside suppliers of training, we will face increasing competition from these
other suppliers as education and training managers more frequently compare
training products provided by outside suppliers.

     Growing competition may result in reduced revenue and gross margins and
loss of market share, any one of which have a material adverse effect on our
business. Many of our current and potential competitors have substantially
greater financial, technical, sales, marketing and other resources, as well as
greater name price competition, and we expect that we will face increasing price
pressures from competitors as managers demand more value for their training
budgets.


                                       19
<PAGE>   21

Accordingly, we may be unable to provide e-Learning solutions that compare
favorably with new instructor-led techniques, other interactive training
software or new e-Learning solutions or competitive pressures may require us to
reduce our prices significantly.

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

     Due to our multinational operations, our business is subject to
fluctuations based upon changes in the exchange rates between the currencies in
which we collect revenues or pay expenses. In particular, the value of the U.S.
dollar against the Euro and related currencies impacts our operating results.
Our expenses are not necessarily incurred in the currency in which revenue is
generated, and, as a result, we are required from time to time to convert
currencies to meet our obligations. These currency conversions are subject to
exchange rate fluctuations, and changes to the value of the Euro, pound sterling
and other currencies relative to the U.S. dollar could adversely affect our
business and results of operations.

OUR CORPORATE TAX RATE MAY INCREASE, WHICH COULD ADVERSELY IMPACT OUR CASH FLOW,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     We have significant operations and generate a majority of our taxable
income in the Republic of Ireland, and some of our Irish operating subsidiaries
are taxed at rates substantially lower than tax rates in effect in the United
States and other countries in which we have operations. If our Irish
subsidiaries were no longer to qualify for these lower tax rates or if the
applicable tax laws were rescinded or changed, our operating results could be
materially adversely affected. Moreover, because we incur income tax in several
countries, an increase in our profitability in one or more of these countries
could result in a higher overall tax rate. In addition, if U.S. or other foreign
tax authorities were to change applicable tax laws or successfully challenge the
manner in which our subsidiaries' profits are currently recognized, our taxes
could increase, and our business, cash flow, financial condition and results of
operations could be materially adversely affected.

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

     Our success depends on our ability to protect our rights in our
intellectual property and trade secrets. We rely upon a combination of
copyright, trademark and trade secret laws and customer license agreements, and
other methods to protect our proprietary rights. We also enter into
confidentiality agreements without employees, consultants and third parties to
seek to limit and protect the distribution of our proprietary information
regarding this technology. However, we have not signed protective agreements in
every case. Unauthorized parties may copy aspects of our products, services or
technology or obtain and use information that we regard as proprietary. Other
parties may breach confidentiality agreements and other protective contracts we
have executed. We may not become aware of, or have adequate remedies in the
event of, a breach. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect trade secrets or to determine the
validity and scope of the proprietary rights of others. This litigation could
result in substantial costs and diversion of management and technical resources.

SOME MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD
RESULT IN COSTLY LITIGATION OR REQUIRE US TO REENGINEER OR CEASE SALES OF OUR
PRODUCTS OR SERVICES.

     Third parties could in the future claim that our current or future products
infringe their intellectual property rights. Any claim, with or without merit,
could result in costly litigation or require us to reengineer or cease sales of
our products or services, any of which could have a material adverse effect on
our business. Infringement claims could also result in an injunction in the use
of our products or require us to enter into royalty or licensing agreements.
Licensing agreements, if required, may not be available on terms acceptable to
us or at all. Though no legal actions are pending at this time, from time to
time we learn of parties that claim broad intellectual property rights in the
e-Learning area that might implicate our offerings. These parties or others
could initiate actions against us in the future.

WE ARE SUBJECT TO A PENDING LEGAL PROCEEDING AND MAY BECOME SUBJECT TO
ADDITIONAL PROCEEDINGS AND ADVERSE DETERMINATIONS IN THESE PROCEEDINGS COULD
HARM OUR BUSINESS.


                                       20
<PAGE>   22
     Since the end of the third quarter of 1998, a class action lawsuit has been
pending in the United States District Court for the Northern District of
California against us, one of our subsidiaries, SmartForce USA and certain of
our former and current officers and directors alleging violation of the federal
securities laws. It has been alleged in this lawsuit that we misrepresented or
omitted to state material facts regarding our business and financial condition
and prospects in order to artificially inflate and maintain the price of our
ADSs, and misrepresented or omitted to state material facts in our registration
statement and prospectus issued in connection with our merger with ForeFront,
which also is alleged to have artificially inflated the price of our ADSs.

     We believe that this action is without merit and intend to vigorously
defend ourselves against it. Although we cannot presently determine the outcome
of this action, an adverse resolution of this matter could significantly
negatively impact our financial position and results of operations.

     We may be from time to time involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. An adverse
resolution of these matters could significantly negatively impact our financial
position and results of operations.

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

     We expect that international operations will continue to account for a
significant portion of our revenues, and intend to continue to expand our
operations outside of the United States. Operations outside of the United States
are subject to inherent risks, including difficulties or delays in developing
and supporting non-English language versions of our products and services,
political and economic conditions in various jurisdictions, in staffing and
managing foreign subsidiary operations, longer account receivable payment cycles
and potential adverse tax consequences. Any of these factors could have a
material adverse effect on our future operations outside of the United States,
which could negatively impact our future operating results.

BECAUSE MANY USERS OF OUR E-LEARNING SOLUTIONS ACCESS THEM OVER THE INTERNET,
FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET COULD HARM OUR BUSINESS.

     Many of our users access our e-Learning solutions over the Internet. Any
factors that adversely affect Internet usage could disrupt the ability of those
users to access our e-Learning solutions, which would adversely effect customer
satisfaction and therefore our business. Factors which could disrupt Internet
usage include slow access to download times, security concerns, network problems
or service disruptions that prevent users from accessing an Internet server and
delays in, or disputes concerning, the development of industry wide Internet
standards and protocols.

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

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

THE MARKET PRICE FOR OUR ADSS MAY FLUCTUATE AND MAY NOT BE SUSTAINABLE.

     Our initial public offering of our ADSs was completed in April 1995. There
can be no assurance that a viable public market for our ADSs will be sustained.
The market price of our ADSs has fluctuated significantly since our initial
public offering and is likely to continue to be volatile. We believe that
factors, such as the following, could cause the price of our ADSs to fluctuate,
perhaps substantially:

     o    announcements of developments related to ourselves or our competitors'
          business
     o    announcements of new products or enhancements by ourselves or our
          competitors
     o    sales of our ADSs into the public market
     o    developments in our relationships with our customers, partners and
          distributors
     o    shortfalls or changes in revenues, gross margins, earnings or losses
          or other financial results which differ from public market
          expectations
     o    changes in the public market expectation of our performance or
          industry performance
     o    changes in market valuations of competitors
     o    regulatory developments
     o    additions or departures of key personnel
     o    fluctuations in results of operations and
     o    general conditions in our market or the markets served by our
          customers or in the U.S. and or the International economy.


                                       21
<PAGE>   23

     In addition, in recent years the stock market in general, and the market
for shares of technology stocks in particular, has experienced extreme price and
volume fluctuations, which have often been unrelated to the operating
performance of affected companies. The market price of our ADSs may continue to
experience significant fluctuations in the future, including fluctuations that
are unrelated to our performance.

     To succeed we must continue to expand our content offerings, upgrade our
technology and distinguish our solution. We may not be able to do successfully.
Any failure by us to anticipate or respond adequately to changes in technology
and customer preferences or any significant delays in content development or
implementation could impact our ability to capture market share.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     Our exposure to market risk for changes in interest rates relate primarily
to our cash and short term investment portfolio. We do not use any derivative
financial instruments in our cash and short term investment portfolio. The
primary objective of our investment activities is to preserve capital while
maximizing yields without significantly increasing risk. We achieve this by
investing our excess cash in deposits with major banks and in U.S. Treasury and
U.S. agency obligations and in debt securities of corporations with strong
credit ratings. Due to the nature of our investments, we believe that there is
no material risk exposure. All investments are carried at market value, which
approximates cost.

     The table below presents the principal amount and related weighed average
interest rates for our cash and short term investment portfolio. Our short term
investments are all in fixed rate instruments. The principal amounts approximate
fair value at March 31, 2001.

     TABLE OF CASH AND SHORT TERM INVESTMENTS:

<TABLE>
<CAPTION>
                                                                 AVERAGE
                                                   PRINCIPAL     INTEREST
                                                    AMOUNT        RATE
<S>                                                 <C>            <C>
     MARCH 31, 2001
     (Dollars in thousands)
     Cash and cash equivalents ...............      $48,442         5%
     Short term investments ..................       42,984         5%
                                                    -------
     Total cash and investment securities ....      $91,426
                                                    =======
</TABLE>

FOREIGN CURRENCY RISK

     Due to our multinational operations, our business is subject to
fluctuations based upon changes in the exchange rates between the currencies in
which we collect revenues or pay expenses and the U.S. dollar Our expenses are
not necessarily incurred in the currency in which revenue is generated, and, as
a result, we are required from time to time to convert currencies to meet our
obligations. These currency conversions are subject to exchange rate
fluctuations, in particular changes to the value of the Euro and pound sterling
relative to the U.S. dollar, which could adversely affect our business and the
results of operations.

     At March 31, 2001, we had forward exchange contracts of $52 million
outstanding. All contracts at March 31, 2001 expire at various times throughout
2001 and 2002. Our hedging policy is designed to reduce the impact of foreign
currency exchange movements between the Irish pound and U. S. Dollar by hedging
identifiable Irish pound denominated commitments. Our accounting policies for
these instruments are based on our designation of such instruments as cash flow
hedges. We do not use forward currency exchange contracts for speculative
trading purposes.

     Our outstanding foreign currency forward exchange contracts at March 31,
2001, are presented in the table below. The weighted average exchange rate
quoted represents the financial currency to the U.S. dollar.

<TABLE>
<CAPTION>
                                                                 Weighted
                                                                 Average
Functional                                Expected Maturity      Exchange
Currency               Amount               Quarter Ended          Rate
---------              ------               -------------          -----
<S>                 <C>                  <C>                      <C>
Irish pounds        $ 7,000,000          June 30, 2001            1.1695
Irish pounds        $ 7,000,000          September 30, 2001       1.2112
Irish pounds        $ 8,000,000          December 31, 2001        1.1707
Irish pounds        $10,000,000          March 31, 2002           1.0722
Irish pounds        $10,000,000          June 30, 2002            1.0939
Irish pounds        $ 5,000,000          September 30, 2002       1.1154
Irish pounds        $ 5,000,000          December 31, 2002        1.1187
</TABLE>



                                       22
<PAGE>   24

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Since the end of the third quarter of 1998, a class action lawsuit has been
filed in United States District Court for the Northern District of California
against us, one of our subsidiaries, SmartForce USA and certain of our former
and current officers and directors alleging violation of the federal securities
laws. It has been alleged in this lawsuit that we misrepresented or omitted to
state material facts regarding our business and financial condition and
prospects in order to artificially inflate and maintain the price of our ADSs,
and misrepresented or omitted to state material facts in our registration
statement and prospectus issued in connection with our merger with ForeFront,
which also is alleged to have artificially inflated the price of our ADSs.

     We believe that this action is without merit and intend to vigorously
defend ourselves against it. Although we cannot presently determine the outcome
of this action, an adverse resolution of this matter could significantly
negatively impact our financial position and results of operations.

ITEM 2.  CHANGES IN SECURITIES

     On April 2, 2001 we issued to the icGlobal shareholders the right to
acquire an aggregate of 100,000 ADSs as consideration for our acquisition of the
outstanding securities of icGlobal. The issuance of the ADSs was, exempt from
the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof, as the transaction did not involve a public
offering.


                                       23
<PAGE>   25

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          There are no exhibits attached to this Quarterly Report on Form 10-Q.

     (b)  Reports on Form 8-K

          We did not file any report on Form 8-K with the Securities and
          Exchange Commission in the three months ended March 31, 2001.


                                    SIGNATURE

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

                                    SMARTFORCE PLC


Date: May 15, 2001                  By: /s/ Gregory M. Priest
                                        ------------------------------------
                                        Gregory M. Priest
                                        Chairman of the Board, President and
                                        Chief Executive Officer

Date: May 15, 2001                   By: /s/ David C. Drummond
                                         -----------------------------------
                                         David C. Drummond
                                         Director, Executive Vice President
                                         of Finance and
                                         Chief Financial Officer



                                       24