<PAGE>
 
                                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 September 30, 1998

   [_]  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


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



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


                            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 90 days.

                               Yes [X]  No [_]


The number of American Depositary Shares (issued or issuable in exchange for
Registrant's issued and outstanding Ordinary Shares) outstanding as of October
31, 1998 was 44,355,890.
<PAGE>
 
                      CBT GROUP PUBLIC LIMITED COMPANY

                              TABLE OF CONTENTS

<TABLE> 
<CAPTION> 
                                                                                     Page
                                                                                    Number
                                                                                    ------
<S>           <C>                                                                  <C> 
PART I.        FINANCIAL INFORMATION

   Item 1.     Financial Statements

               Condensed Consolidated Balance Sheets as of December 31, 1997           3
               and as of September 30, 1998

               Condensed Consolidated Statements of Operations for the three           4
               and nine month periods ended September 30, 1997 and 1998

               Condensed Consolidated Statements of Cash Flows for the nine            5
               month periods ended September 30, 1997 and 1998

               Notes to Condensed Consolidated Financial Statements                    6

   Item 2.     Management's Discussion and Analysis of Financial Condition             7
               and Results of Operations

PART II.       OTHER INFORMATION

   Item 1.     Legal Proceedings                                                      21

   Item 6.     Exhibits and Reports on Form 8-K                                       22
</TABLE> 

                                       2
<PAGE>
 
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS

                                 CBT GROUP PLC
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (dollars in thousands) 
<TABLE> 
<CAPTION> 
                                                                                   DECEMBER 31,           SEPTEMBER 30,
                                                                                       1997                   1998
                                                                                                          (Unaudited)
<S>                                                                               <C>                   <C>
                                           ASSETS
Current Assets
Cash                                                                                    $ 35,505                $ 63,086
Short term investments                                                                    36,038                  36,217
Accounts receivable, net                                                                  40,031                  43,484
Inventories                                                                                  615                     701
Deferred tax assets, net                                                                     140                     234
Prepaid expenses                                                                           4,198                   5,830
                                                                                        --------                --------
              Total Current assets                                                       116,527                 149,552
Intangible assets                                                                          5,600                   4,502
Property and equipment, net                                                               10,207                  16,569
Investment                                                                                   200                     550
Deferred tax assets, net                                                                     342                      47
Other assets                                                                               8,453                  13,883
                                                                                        --------                --------
              Total  assets                                                              141,329                 185,103
                                                                                        ========                ========
                                 LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Borrowings under bank overdraft facility and overdrafts                                       13                      54
Accounts Payable                                                                           4,820                   5,927
Accrued payroll and related expenses                                                       6,411                   3,579
Other accrued liabilities                                                                 16,715                  21,427
Deferred revenues                                                                          4,551                   1,859
                                                                                        --------                --------
                     Total Current Liabilities                                            32,510                  32,846
Non Current Liabilities
Other accrued liabilities                                                                    519                     287
Minority equity interest                                                                     622                     622
                                                                                        --------                --------
                     Total Non Current Liabilities                                         1,141                     909
Shareholders' Equity
Ordinary Shares: 30,000,000 shares authorized , IR37.5p par value, at                      6,372                   6,678
December 31, 1997 and 120,0000 shares authorized, par value IR9.375p at
September 30, 1998;
Issued and outstanding: 10,511,190 shares at December 31, 1997 and
44,213,526 shares at September 30, 1998
Additional paid-in-capital                                                                97,868                 126,432
Accumulated surplus                                                                        2,984                  17,302
Deferred compensation                                                                       (112)                      -
Cumulative translation adjustment                                                            566                     936
                                                                                        --------                --------
Shareholders' equity                                                                     107,678                 151,348
                                                                                        --------                --------
              Total liabilities and shareholders' equity                                 141,329                 185,103
                                                                                        ========                ========
</TABLE>
Note:  The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited financial statements at that date and has been restated
to reflect the acquisition of The ForeFront Group, Inc (see note 2 below). In
addition, the balance sheet does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

                                       3
<PAGE>
 
                                 CBT GROUP PLC
                                        
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (dollars in thousands, except per share amounts)
                                        
<TABLE>
<CAPTION>
                                                     Three Months                        Nine Months
                                                     ------------                        -----------
                                                  Ended September 30,                Ended September 30,
                                                  -------------------                -------------------
                                                  1997           1998                1997           1998
                                                  ----           ----                ----           ----
                                             (Unaudited)       (Unaudited)       (Unaudited)     (Unaudited)
<S>                                         <C>               <C>               <C>             <C>
Revenues                                        $35,136          $35,182           $91,618         $119,963
Cost of revenues                                  5,657            5,998            15,511           18,639
                                                -------          -------           -------         --------
Gross profit                                     29,479           29,184            76,107          101,324
Operating expenses:
  Research and development                        5,105            5,762            14,267           18,756
  Sales and marketing                            14,680           17,684            40,923           53,174
  General and administrative                      2,624            4,179             8,588           10,987
  Acquired research and development               3,650               --             4,097               --
  Cost of acquisitions                              242               --             1,168            5,505
                                                -------          -------           -------         --------
    Total operating expenses                     26,301           27,625            69,043           88,422
                                                -------          -------           -------         --------
Income from operations                            3,178            1,559             7,064           12,902
Other income, net                                 2,599            1,786             3,819            3,689
                                                -------          -------           -------         --------
Income before provision for income taxes          5,777            3,345            10,883           16,591
Provision for income taxes                        1,043              468             2,379            2,273
                                                -------          -------           -------         --------
Net income                                        4,734            2,877             8,504           14,318
                                                =======          =======           =======         ========
Net income per equivalent ADS (1) - Basic         $0.12            $0.07             $0.21            $0.33
                                                =======          =======           =======         ========
ADSs used in computing net income per            40,984           43,944            40,146           43,262
 equivalent ADS - Basic                         =======          =======           =======         ========
Net income per equivalent ADS (1) -               $0.11            $0.06             $0.19            $0.31
 Diluted                                        =======          =======           =======         ========
ADSs used in computing net income per            44,983           46,498            44,247           46,222
 equivalent ADS - Diluted                       =======          =======           =======         ========
</TABLE>

(1)  Net income per equivalent ADS gives effect to the two-for-one split of
     Registrants' ADSs effected in March 1998. Prior periods have been restated
     to give effect to such split.

                                       4
<PAGE>
 
                                      CBT GROUP PLC
                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               INCREASE (DECREASE) IN CASH
                                 (dollars in thousands)

<TABLE> 
<CAPTION> 
                                                                                  Nine Months Ended
                                                                                     September 30,
                                                                                 1997             1998
                                                                              -----------      -----------
                                                                              (Unaudited)      (Unaudited)
<S>                                                                           <C>              <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                     $ 8,504          $14,318
Adjustments to reconcile net income to net cash provided
 by operating activities:
 Depreciation and amortization                                                   3,096            4,306
 (Gain) / Loss on Disposal of Assets                                            (1,869)             178 
 Accrued interest on short-term investments                                        193              347
 Compensation Expense                                                               66              112
 Non cash acquired Research and Development costs                                4,097                -
 Changes in operating assets and liabilities:
  Accounts receivable                                                           (8,088)          (3,474)
  Inventories                                                                      (45)             (62)
  Deferred tax assets                                                                -              201
  Prepaid expenses and other assets                                             (3,962)          (7,091)
  Accounts payable                                                                 631            1,211
  Accrued payroll and related expenses and other accrued liabilities             3,256            1,651
  Deferred revenues                                                             (1,868)          (2,606)
                                                                               --------         --------
Net cash provided by operating activities                                        4,011            9,091
                                                                               --------         --------

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                                             (4,207)          (9,814)
 Proceeds from disposal of property and equipment                                1,869                -
 Net Cash paid for Lantec acquisition                                           (1,803)               -
 Payments to acquire short-term investments                                     (1,390)         (78,980)
 Proceeds from disposal of investments                                               -           78,454
 Payments to acquire investment                                                   (200)            (350)
                                                                               --------         --------

 Net cash used in investing activities                                          (5,731)         (10,690)
                                                                               --------         --------

CASH FLOWS FROM FINANCING ACTIVITIES
 Repayment of bank loans                                                          (794)               -
 (Repayments) / Proceeds under bank overdraft facility                            (138)              41
 Proceeds from issuance of preferred shares in subsidiary                          605                -
 Proceeds from issuance of ordinary shares, net                                 11,238           28,870
                                                                               --------         --------

Net cash provided by financing activities                                       10,911           28,911
                                                                               --------         --------

Effect of exchange rate changes on cash                                            (30)             269
                                                                               --------         --------

Net increase in cash                                                             9,161           27,581
Cash at beginning of period                                                     17,560           35,505
                                                                               --------         --------

Cash at end of period                                                          $26,721          $63,086
                                                                               ========         ========

</TABLE> 

                                       5
<PAGE>
 
                                 CBT GROUP PLC

          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. The
 accompanying interim financial statements should be read in conjunction with
 the financial statements and related notes included in the Company's Annual
 Report to Shareholders (Form 10-K) for the year ended December 31, 1997. 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  ACQUISITION OF THE FOREFRONT GROUP, INC.

 On May 29, 1998, CBT Group PLC ("CBT," or the "Company") completed the
 acquisition of The ForeFront Group, Inc ("ForeFront"). The Company issued
 approximately 2.2 million ADSs in connection with the acquisition and assumed
 options, warrants and other rights to acquire ForeFront common stock that can
 be exercised for approximately 1.0 million ADSs. The transaction is being
 accounted for as a "pooling of interests" in accordance with U.S. generally
 accepted accounting principles.

NOTE 3  SHARE SPLIT

 On March 9, 1998 the Company effected a two-for-one split of its issued and
 outstanding ADSs.  Subsequent thereto, the Company's shareholders approved a
 proposal at the Company's 1998 Annual General Meeting to subdivide each of the
 Ordinary Shares of IR37.5p into four Ordinary Shares of IR9.375p (the "Ordinary
 Share Split"). As a consequence of the Ordinary Share Split, effective May 22,
 1998 each ADS represents and is exchangeable for one Ordinary Share (the "Ratio
 Change"). Aside from the Ratio Change, the Ordinary Share Split had no effect
 on the ADSs and had no effect on the number of ADSs outstanding.

NOTE 4  NEW ACCOUNTING STANDARDS

 The Company adopted Statement of Financial Accounting Standard (SFAS) No. 130,
 "Reporting Comprehensive Income" as of January 1, 1998. SFAS No. 130 requires
 disclosure of total non-stockholder changes in equity in interim periods and
 additional disclosures of the components of non-stockholder changes in equity
 on an annual basis. Total non-stockholder changes in equity include all changes
 in equity during a period except those resulting from investments by and
 distribution to stockholders. The Company has restated information for all
 prior periods reported below to conform to this standard.

                                       6
<PAGE>
 
The Company's total comprehensive earnings were as follows:

<TABLE>
<CAPTION>
                                                              Nine months ended
                                                                September 30,
                                                            1997            1998
                                                            ----            ----
      (dollars in thousands)                             (Unaudited)     (Unaudited)
     <S>                                                 <C>             <C> 
      Net Income                                           $8,504         $14,318
      Foreign Currency Translation Gains                       15             370
                                                               --             ---
 
      Total Comprehensive Income                            8,519          14,688
                                                            =====          ======
</TABLE>
                                                                                

NOTE 5  COMPUTATION OF NET INCOME PER SHARE

  The Company has adopted Statement of Financial Accounting Standards (SFAS)
  No. 128. This statement requires the presentation of basic and diluted net
  income per share. Basic net income per share is computed using the weighted
  average number of ordinary shares outstanding during the period. Diluted net
  income per share is computed using the weighted average number of ordinary and
  dilutive ordinary equivalent shares outstanding during the period. Dilutive
  ordinary equivalent shares outstanding include stock options, warrants and
  exchangeable shares. The Company has restated all prior period per share data
  presented as required by SFAS No. 128. Restated numbers as computed using the
  diluted method under SFAS No. 128 approximate those computed using the
  previous method as defined in Accounting Principals Board Opinion No. 15.


NOTE 6  COMMITMENTS AND CONTINGENCIES

  See Legal Proceedings in Part II, Item 1 and "Management's Discussion and
  Analysis of Financial Condition and Results of Operations" in Part I, Item 2
  herein.


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

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 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. Forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those stated. 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 in this Quarterly
Report and in the Company's most recent annual report on Form 10-K for the year
ended December 31, 1997. These forward-looking statements reflect

                                       7
<PAGE>
 
management's opinions only as of the date hereof, and the Company assumes 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 the Company's SEC filings, including the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
and Quarterly Reports on form 10-Q for the first and second fiscal quarters of
1998 ended March 31, 1998 and June 30, 1998, respectively.

OVERVIEW

CBT Group PLC ("CBT Group" or the "Company") is a leading provider of
interactive education software designed to meet the information technology
("IT") education and training needs of businesses and organizations worldwide.
The Company develops, publishes and markets a comprehensive library of over 750
software titles covering a range of client/server, mainframe, Internet and
intranet technologies. CBT Group's products are used by 1,851 of the world's
leading corporations to train employees to develop and apply mission-critical
technologies in the workplace. CBT Group works with leading software companies,
including Cisco Systems, Inc. ("Cisco"), Informix Corporation ("Informix"),
Lotus Development Corporation ("Lotus"), Marimba, Inc. ("Marimba"), Microsoft
Corporation ("Microsoft"), Netscape Communications Corporation ("Netscape"),
Novell, Inc. ("Novell"), Oracle Corporation ("Oracle"), SAP America, Inc.
("SAP"), Rational Software ("Rational"), Intel Corporation ("Intel"), Centra
Software ("Centra") Sybase, Inc. ("Sybase") and the IBM-Netscape-Sun
Microsystems, collaborative Java education effort to develop and market vendor-
specific training. CBT Group has also formed the Internet Security Training
Consortium with Check Point Software Technologies, Inc. ("Check Point"), Cisco,
IBM, Intel, the Javasoft business unit of Sun Microsystems, Inc., Lotus,
Netscape, Network Associates, Inc. (formerly McAfee Associates, Inc.) ("Network
Associates"), RSA Data Security, Inc. ("RSA Data Security"), Security Dynamics
Technologies, Inc. ("Security Dynamics"), and VeriSign, Inc. ("VeriSign") to
address the Internet security training needs of enterprises worldwide.

The Company derives revenues primarily from license agreements under which
customers license the Company's titles for periods of one, two or three years.
The license agreement format generally allows the customer to exchange titles
for other titles in the Company's library on an annual basis if the agreement is
for more than one year.  The initial annual license fee is generally recognized
as revenue at the time of delivery of products, and subsequent annual license
fees are generally recognized on the anniversary of each delivery date. Although
in general the Company's license agreements are non-cancelable by their terms,
there can be no assurance that any customer will fulfill the contractual
obligations under its agreement. Cancellation, reduction or delay in orders by
or shipments to any of these customers could have a material adverse effect on
the Company's business and results of operations. In addition, the Company
derives revenues from sales of its courses in the form of personal user
licenses, primarily through its direct sales and telesales organizations and
resellers.

In recent years, the Company has entered into several development and marketing
alliances with key vendors of client/server software under which the Company
develops titles for training on specific products. Under certain of its
development and marketing alliances, the Company's partners have agreed to fund
certain product development costs. The Company recognizes 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. The Company expects that cost of revenues
may fluctuate from period to period in the future based upon many factors,
including, but not limited to, the timing of expenses associated with
development and marketing alliances.

                                       8
<PAGE>
 
RECENT DEVELOPMENTS

Management Changes
------------------

On October 1, 1998  Mr. James J. Buckley, the Chairman and Chief Executive
Officer and a member of the Board of Directors, and Mr. Richard Y. Okumoto, the
Senior Vice President of Finance and Chief Financial Officer and also a member
of the Board of Directors stepped down from their respective positions. The
decision was made jointly by the members of the Company's Board of Directors,
including Mr. Buckley and Mr. Okumoto. The two executives have been replaced on
an interim basis by a newly formed management committee comprised of members of
the Board of Directors. The members of the management committee are Mr. William
G. McCabe, CBT Group's former Chairman and Chief Executive Officer, Mr. Gregory
M. Priest, CBT Group's former Vice President of Finance and Chief Financial
Officer, and Mr. John M. Grillos, a member of CBT Group's Board of Directors.
The management committee will run the day-to-day operations of the Company in
the immediate term.

Subscription Rights Declaration
-------------------------------

On October 4, 1998 the Company's Board of Directors adopted a Subscription
Rights Declaration, pursuant to which one Subscription Right (a "Right") was
granted for each outstanding ordinary share of the Company. Each Right entitles
the registered holder to purchase from the Company one ordinary share at a price
of $65.00 per ordinary share, subject to adjustment. The Rights are not
currently exercisable, but would be exercisable if certain events occurred
related to a person or group acquiring or attempting to acquire beneficially 15%
or more of the outstanding ordinary shares. The Rights expire on October 4,
2008, unless cancelled or exchanged earlier by the Company.

Legal Proceedings
-----------------

Since the end of the third quarter, purported class action lawsuits were filed
in the United States District Court for the Northern District of California, the
United States District Court for the Southern District of New York and the
Superior Court of California for the County of San Mateo against CBT Group PLC,
its American operating subsidiary, CBT Systems USA Ltd. and certain of its
former and current officers and directors alleging violations of the federal
securities laws. The complaints allege that the defendants misrepresented and/or
omitted to state material facts regarding CBT's business and financial condition
and prospects during the class periods in order to artificially inflate and
maintain the price of the Company's ADSs, and misrepresented and/or omitted to
state material facts in the registration statement and prospectus issued in
connection with the merger with The ForeFront Group, Inc., artificially
inflating the price of the Company's ADSs.

The Company believes that these actions are without merit and intends to
vigorously defend itself against these claims. Although the outcome of these
actions cannot presently be determined, an adverse resolution of these matters
could have a material adverse effect on the Company's financial position and
results of operations.

On October 29, 1998, a derivative complaint was filed in the Superior Court of
California for the County of San Mateo against several present and former
officers and directors of the Company alleging that these persons violated
various duties to the Company. The derivative complaint also names the Company
as a nominal defendant. The derivative complaint is predicated on the factual
allegations contained in the class action complaints discussed above. No demand
was previously made to the Company's Board of Directors concerning the
allegations of the derivative complaint, which seeks an unspecified amount of
damages.

                                       9
<PAGE>
 
Acquisition of The ForeFront Group, Inc.
----------------------------------------

On May 29, 1998, the Company acquired The ForeFront Group, Inc., a Houston-based
provider of high-quality, cost-effective, computer-based training products and
network utilities for technical professionals. In the merger, each share of
ForeFront common stock was exchanged for 0.3137 ADSs, and the Company assumed
outstanding ForeFront stock options, warrants and other rights to acquire
ForeFront common stock. The Company issued approximately 2.2 million ADSs in
connection with the acquisition and assumed options, warrants and other rights
to acquire ForeFront common stock that can be exercised for approximately 1.0
million ADSs. The transaction is being accounted for as a "pooling of interests"
in accordance with U.S. generally accepted accounting principles.

The successful combination of CBT Group and ForeFront, including the successful
operation of ForeFront as an autonomous subsidiary of CBT Group, will require
substantial effort from each company. The diversion of the attention of
management and any difficulties encountered in the transition process could have
an adverse impact on CBT Group's ability to realize the full benefits of the
merger. The successful combination of the two companies will also require
coordination of their sales and marketing efforts.

Certain key executives of ForeFront have not continued with the combined 
company. There can be no assurance that the loss of these key executives or 
other key executives will not disrupt the integration of the two companies or 
prevent CBT Group from realizing any of the anticipated benefits of the Merger.

Share Split
-----------

On March 9, 1998 the Company effected a two-for-one split of its issued and
outstanding ADSs. Subsequent thereto, the Company's shareholders approved a
proposal at the Company's 1998 Annual General Meeting to subdivide each of the
Ordinary Shares of IR37.5p into four Ordinary Shares of IR9.375p (the "Ordinary
Share Split"). As a consequence of the Ordinary Share Split, effective May 22,
1998 each ADS represents and is exchangeable for one Ordinary Share (the "Ratio
Change"). Aside from the Ratio Change, the Ordinary Share Split had no effect on
the ADSs and had no effect on the number of ADSs outstanding.

                                       10
<PAGE>
 
RESULTS OF OPERATIONS

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

<TABLE> 
<CAPTION> 
                                                   Three Months          Nine Months
                                                   ------------          -----------
    
                                                Ended September 30    Ended September 30
                                                ------------------    ------------------

                                                 1997        1998      1997        1998
                                                 ----        ----      ----        ----
<S>                                            <C>          <C>      <C>          <C>
Revenues                                          100%        100%      100%        100%
Cost of revenues                                 16.1        17.0      16.9        15.5
                                                 ----        ----      ----        ----

Gross profit                                     83.9        83.0      83.1        84.5

Operating expenses:
 Research and development                        14.5        16.4      15.6        15.6
 Sales and marketing                             41.8        50.3      44.7        44.3
 General and administrative                       7.5        11.9       9.4         9.2
 Acquired Research and Development               10.4          --       4.4          --
 Costs of acquisitions                            0.7           -       1.3         4.6
                                                 ----        ----      ----        ----

   Total operating expenses                      74.9        78.6      75.4        73.7
                                                 ----        ----      ----        ----

Income from operations                            9.0         4.4       7.7        10.8
Other income, net                                 7.4         5.1       4.2         3.0
                                                 ----        ----      ----        ----

Income before provision for income taxes         16.4         9.5      11.9        13.8
Provision for income taxes                        3.0         1.3       2.6         1.9
                                                 ----        ----      ----        ----

Net income                                       13.4%        8.2%      9.3%       11.9%
                                                 =====       =====     =====       =====

</TABLE>

Revenues
---------

Revenues increased by 0.3% to $35.2 million in the three months ended September
30, 1998 from $35.1 million in the three months ended September 30, 1997, and
31% to $120 million in the nine months ended September 30, 1998 from $91.6
million in the nine months ended September 30, 1997. During the three months
ended September 30, 1998 the Company experienced a slowdown in the historical
quarterly revenue growth rate due in part to a decline in contract renewals and
upgrades and in new, large contracts. Customer decisions on contract renewals,
upgrades and significant new contracts were also impacted by the uncertainty
surrounding the volatility of the Company's stock price during the final weeks
of the three months ended September 30, 1998. In addition, some contracts that
were signed in the quarter generated less revenue than had historically been the
case. Also, the Company's "Channel" businesses, including the corporate
telesales operations, did not perform as well as had been anticipated. There can
be no assurance that the issues that adversely affected revenues in the third
quarter will not continue to negatively affect the Company's revenues in the
future. The growth in revenues for the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997 were primarily attributable
to an increase in the number of available courses, strong customer contract
renewals and upgrades and expanded marketing and distribution efforts during the
nine month period.

                                       11
<PAGE>
 
Revenues in the United States for the three and nine month periods ended
September 30, 1998 were $24.6 million (or 69.9% of revenues) and $85.7 million
(or 71.4% of revenues), respectively, compared to $26 million (or 74.1% of
revenues) and $67.8 million (or 74% of revenues) for the three and nine month
periods ended September 30, 1997, respectively. These increases in absolute
dollar amounts for the nine month period were primarily the result of an
increase in new corporate customers, on-line training from Scholars.com,
telesales and renewals and upgrades to existing customers. The number of
available courses continued to expand during the quarter.

Revenues in Europe for the three and nine month periods ended September 30, 1998
increased to $8.3 million (or 23.6% of revenues) and $22.5 million (or 18.8% of
revenues), respectively, from $5.1 million (or 14.5% of revenues) and $13.8
million (or 15.1% of revenues) for the three and nine month periods ended
September 30, 1997, respectively. The increases for the three and nine month
periods ended September 30, 1998 were primarily attributable to expanded
marketing and distribution efforts into Europe, an increase in the number of
translated titles available in 1998 and the growth of the telesales operation
in Europe.

In addition, revenues from outside the United States and Europe (principally
from Australia, Canada and the Middle East) in the three and nine month period
were $2.3 million (or 6.5% of revenues) and $11.8 million (or 9.8% of revenues)
respectively compared to $4 million (or 11.4% of revenues) and $10 million (or
10.9% of revenues) respectively for the three and nine month periods ended
September 30, 1997. Revenues in these regions were negatively impacted by
weakened Asia Pacific economies as well as weakening exchange rates of local
currencies relative to the U.S. Dollar.

Because a significant portion of the Company's business is conducted outside the
United States, the Company is subject to numerous risks of doing business in
other countries, including risks related to currency fluctuations.

Cost of Revenues
-----------------

Cost of revenues includes the cost of materials (such as CD-ROMs, diskettes,
packaging and documentation), royalties to third parties, the portion of
development costs associated with funded development projects and fulfillment
costs.

Gross margins for the three and nine month periods ended September 30, 1998 were
83.0% and 84.5% as compared to 83.9% and 83.1% in the three and nine month
periods ended September 30, 1997.  The higher gross margins during the nine
month period ended September 30, 1998 were primarily due to the decrease in
third party products sold by the Company's Australian subsidiary which had
higher royalty obligations than CBT products. The higher gross margins can also
be attributed to ForeFront sales, which have lower royalty obligations than
those of CBT. During 1998 the Company's operating costs increased across a
number of expense categories in order to accommodate the Company's expected
growth and expanding operations. As revenues for the quarter ended September 30,
1998 did not meet with expectations the relative expense ratios to revenues were
higher compared to the comparable quarter of 1997. The lower gross margin for
the three months ended September 30, 1998 compared to the three months ended
September 30, 1997 was due to the increase in operating costs without a
corresponding increase in revenue for the three months ended September 30, 1998.

The Company expects that cost of revenues may fluctuate from period to period in
the future based upon many factors, including the mix of titles licensed
(between titles developed exclusively by CBT and royalty-bearing titles
developed pursuant to development and marketing alliances) and the timing of
expenses

                                       12
<PAGE>
 
associated with development and marketing alliances.


Research and Development Expenses
----------------------------------

Research and development expenses consist primarily of salaries and benefits,
occupancy expenses, travel expenses and fees paid to outside consultants.
Research and development expenses in the three and nine month periods ended
September 30, 1998 increased to $5.8 million (or 16.4% of revenues) and $18.8
million (or 15.6% of revenues), respectively, from $5.1 million (or 14.5% of
revenues) and $14.3 million (or 15.6% of revenues) in the comparable periods of
the prior year. The increases in absolute levels of expenses are attributable to
overall expansion of the Company's Dublin development center, partially offset
by a faster-than-expected reduction of research and development expenses at
ForeFront. Expenses as a percentage of revenues increased in the three month
period ending September 30, 1998 compared to the three month ending September
30, 1997 as a result of the operating costs increasing during the three months
ending September 30, 1998 compared to the same period in 1997 without a
corresponding increase in revenue. These increases are primarily the result of
the hiring of additional research and development personnel required to expand
and enhance the Company's library of software products. The Company delivered 72
new interactive education software titles in the third quarter of 1998 bringing
the total for the nine months ended September 30, 1998 to 208 titles. The
Company's library currently comprises 766 titles, representing a 37 percent
increase over the number of titles at the end of 1997. The Company believes that
significant investment in research and development is required to remain
competitive in the information technology education and training market, and the
Company therefore expects research and development expenses to continue to
increase in absolute terms in future periods.

Software development costs are accounted for in accordance with Financial
Accounting Standards Board Statement No. 86, under which the Company is 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.

Sales and Marketing Expenses
-----------------------------

Sales and marketing expenses consist primarily of salaries and commissions,
advertising and promotional expenses and related overhead costs.  These expenses
increased in the three and nine month periods ended September 30, 1998 to $17.7
million (or 50.3% of revenues) and $53.2 million (or 44.3% of revenues),
respectively, from $14.7 million (or 41.8% of revenues) and $40.9 million (or
44.7% of revenues) for the comparable periods of the prior year. The increases
were primarily attributable to an increase in the number of sales and sales
related personnel to accommodate for the expected growth in operations in the
United States and, to a lesser extent, outside the United States. Marketing
expenses have also increased to accommodate the Company's expanded library of
titles. Expenses as a percentage of revenues increased in the three month period
ended September 30, 1998 compared to the three month period ended September 30,
1997 as a result of operating costs increasing during the three month period
ended September 30, 1998 compared to the same period in 1997 without a
corresponding increase in revenue. Commission costs have also increased along
with the increase in revenues during these periods. The Company expects to
increase sales and marketing expenses in the future to support an increase in
its sales force and expansion of its marketing efforts.

General and Administrative Expenses
------------------------------------

General and administrative expenses increased in the three and nine month
periods ended September 30, 1998 to $4.2 million (or 11.9% of revenues) and
$11.0 million (or 9.2% of revenues), respectively, from $2.6 million (or 7.5% of
revenues) and $8.6 million (or 9.4% of revenues) for the comparable periods of
the

                                       13
<PAGE>
 
prior year. The increases were principally the result of increased staffing and
related infrastructure cost to support the expected growth in operations.
Expenses as a percentage of revenues increased in the three months ended
September 30, 1998 compared to the three months ended September 30, 1997 as a
result of the operating costs increasing during the three months ended September
30, 1998 compared to the same period in 1997 without a corresponding increase in
revenue. The Company anticipates that general and administrative expenses will
increase in future periods due to increases in staffing and infrastructure.

Cost of acquisitions
--------------------

The costs of acquisitions for the nine months ended September 30, 1998 were
$5.5 million (or 4.6% of revenues) compared to $1.2 million (or 1.3% of
revenues) for the nine months ended September 30, 1997. The acquisition costs
during the nine months ended September 30, 1998 are non recurring costs relating
to the acquisition of ForeFront on May 29, 1998.

Other Income, Net
------------------

Other income, net, comprises interest income, interest expense, gain or loss on
sale of assets and foreign currency exchange gains and losses. The Company
recognized other income, net, of $1.8 million (5.1% of revenues) and $3.7
million (3.0% of revenues) in the three and nine month periods ended September
30, 1998, respectively, as compared to other income, net, of $2.6 million (7.4%
of revenues) and $3.8 million (4.2% of revenues) for the comparable periods of
1997. Included in the three and nine month periods September 30, 1997 is a one 
time gain on the sale of assets of $1.9 million by ForeFront, whose results have
been consolidated with CBT Group following the Merger. The increases in other
income during the three and nine months ended September 30, 1998 compared to the
corresponding periods of 1997, excluding the gain on sale of assets in 1997 of
$1.9 million, were primarily attributable to interest earned on funds held in
cash and short term investments, which had increased significantly during the
three and nine months ended September 30, 1998. Also, included in other income,
net, are exchange gains of $0.6 million and $0.5 million in the three and nine
months ended September 30, 1998, respectively compared to exchange losses of
$0.04 million and of $0.02 million for the comparable periods of 1997.

The Company's consolidated financial statements are prepared in dollars,
although several of the Company's subsidiaries have functional currencies other
than the dollar, and a significant portion of the Company's and its
subsidiaries' revenues, costs and assets are denominated in currencies other
than their respective functional currencies. Fluctuations in exchange rates may
have a material adverse effect on the Company's results of operations,
particularly its operating margins, and could result in exchange losses. The
impact of future exchange rate fluctuations on the Company's results of
operations cannot be accurately predicted. During the three months ended
September 30, 1998, the Company undertook hedging transactions against the Irish
Pound, the Company's major operational currency outside of the U.S. Dollar. To
date, the Company has not sought to hedge the risks associated with fluctuations
in the exchange rates of other functional currencies against the U.S. Dollar,
but may undertake certain transactions to hedge specific currency risks in the
future. There can be no assurance that any hedging techniques implemented by the
Company would be successful in eliminating or reducing the effects of currency
fluctuations.

Provision for Income Taxes
---------------------------

CBT Group PLC operates as a holding company with operating subsidiaries in
several countries, and each subsidiary is taxed based on the laws of the
jurisdiction in which it operates. 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, the Company's consolidated
effective tax rate may increase to the extent that the Company reports tax
losses in some subsidiaries and taxable income in others.

                                       14
<PAGE>
 
The Company has significant operations and generates a majority of its taxable
income in the Republic of Ireland, and certain of the Company's Irish operating
subsidiaries are taxed at rates substantially lower than U.S. tax rates.  The
Company's largest Irish subsidiary currently qualifies for a 10% tax rate which,
under current legislation, is in force until 2010, 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, the Company's operating
results could be materially adversely affected. Moreover, because the Company
incurs income tax in several countries, an increase in the profitability of the
Company 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 the Company's subsidiaries, the Company's
taxes could increase and its cash flow and net income could be materially
adversely affected.

The effective tax rates for the three and nine month periods ended September 30,
1998 were 14% and 13.7%, compared to 18.0% and 21.9% for the same periods in
1997. The higher effective tax rates for the three and nine month periods ended
September 30, 1997 were primarily the result of losses incurred by ForeFront
reducing overall income, however, these losses had no impact on the overall tax
charge as losses could not be offset, resulting in an increased overall tax rate
for the periods.

LIQUIDITY AND CAPITAL RESOURCES

Cash and short-term investments of $99.3 million at September 30, 1998 increased
from $71.5 million at December 31, 1997.  Working capital increased to $116.7
million at September 30, 1998 from $84.0 million at December 31, 1997.  The
increases in cash and short-term investments and working capital were primarily
the result of net income and receipts from the issuance of shares upon exercise
of employee share options, which were partially offset by the expenditures on
property and equipment to support the Company's expanded operations.

Net cash provided by operating activities was $9.1 million in the nine months
ended September 30, 1998 compared to net cash provided by operating activities
of $4.0 million for the comparable period of the prior year. Capital
expenditures were $9.8 million in the nine months ended September 30, 1998
compared to $4.2 million for the comparable period of the prior year. The
increase was primarily attributable to expenditures relating to computer
equipment and infrastructure as a result of improvements to its information
systems and capital expenditures on new corporate headquarters in Redwood City,
California, a new facility in Scottsdale, Arizona and the new research and
development and fulfillment facilities in Dublin, Ireland. The Company expects
to make additional investments in these areas during the remainder of 1998 and 
1999.

The Company believes that its existing cash, short-term investments and cash to
be generated from operations will be sufficient to meet its expected working
capital and capital expenditure requirements for at least the next twelve
months. The Company from time to time considers the acquisition of complementary
businesses, products or technologies, which may require additional financing.


RECENT ACCOUNTING PRONOUNCEMENT
-------------------------------

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position (SOP) 97-2, "Software Revenue
Recognition," which the Company has adopted for transactions entered for the
year beginning January 1, 1998. SOP 97-2 provides guidance for recognizing
revenue on software transactions and supersedes SOP 91-1, "Software Revenue
Recognition." Based on the Company's interpretations of the requirements of SOP
97-2, application of this statement did not and is not expected to have a
material impact on the Company's revenue. However, the accounting profession is

                                       15
<PAGE>
 
currently reviewing certain provisions of SOP 97-2 with the objective of
providing additional guidance on implementing its provisions. Depending upon the
outcome of this review and the issuance of implementation guidelines and
potential interpretations, the Company may be required to change its revenue
recognition policies and business practices, and such changes could materially 
adversely affect the Company's future revenues and results of operation.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,". This
statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements  and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for fiscal years commencing after December 15, 1997. The Company will
comply with the requirements of SFAS No. 131 in its annual report on Form 10-K
for the fiscal year ending December 31, 1998.

In February 1998, the Financial Accounting Standards Board issued SFAS No.132,
"Employers' Disclosures About Pensions and Other Post-Retirement Benefits." This
Statement revises employers' disclosures about pensions and other post-
retirement benefit plans. It does not, however, change the measurement of
recognition of those plans.  This Statement standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures.  Restatement of disclosures for
earlier periods is required.  This Statement is effective for the Company's
financial statements for the fiscal year ended December 31, 1998.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Opinion ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use".  This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use.  This SOP states that entities are required to capitalize certain internal-
use software costs once certain criteria are met.  Currently, the Company
generally expenses the costs of developing or obtaining internal-use software as
incurred.  The Company is currently evaluating SOP 98-1, but does not expect it
to have a material impact on its consolidated financial statements.  This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998.  Earlier application is encouraged in fiscal years for which the annual
financial statements have not been issued.


ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS

In addition to the other factors identified in this report, the following risk
factors could materially and adversely affect the Company's future operating
results and could cause actual events to differ materially from those predicted
in the Company's forward looking statements relating to its business.

Fluctuations in Operating Results
---------------------------------

The Company has in the past experienced fluctuations in its quarterly operating
results and anticipates that such fluctuations will continue and could intensify
in the future. Fluctuations in operating results may result in volatility in the
price of the Company's ADSs. For example, the Company's 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 the Company's ADSs decreased
rapidly and significantly, having an extreme adverse effect on the value of an
investment in the Company's securities.

                                       16
<PAGE>
 
Although the Company was profitable in each of the last nineteen quarters, there
can be no assurance that such profitability will continue in the future or that
the levels of profitability will not vary significantly among quarterly periods.
The Company's operating results may fluctuate as a result of many factors,
including size and timing of orders and shipments, mix of sales between products
developed solely by the Company and products developed through development and
marketing alliances, royalty rates, the announcement, introduction and
acceptance of new products, product enhancements and technologies by the Company
and its competitors, mix of sales between the Company's field sales force, its
other direct sales channels and its indirect sales channels, competitive
conditions in the industry, loss of significant customers, delays in
availability of existing or new products, spending patterns of the Company's
customers, litigation costs and expenses, currency fluctuations and general
economic conditions.

The Company's expense levels are based in significant part on its expectations
regarding future revenues and are fixed to a large extent in the short term.
Accordingly, the Company 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 the Company's
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. In addition, the Company hired
additional employees in 1998. The Company's operating margins were negatively
impacted by the increased employee expense during the three months ended
September 30, 1998, and will continue to be negatively impacted in the fourth
quarter of 1998.

Dependence on Key Personnel
---------------------------

On October 1, 1998, Mr. James J. Buckley, the Company's Chairman and Chief
Executive Officer, and Mr. Richard Y. Okumoto, the Company's Senior Vice
President of Finance and Chief Financial Officer, stepped down from their
respective positions. Messrs. Buckley and Okumoto have been replaced on an
interim basis by a newly formed management committee. The three-member
management committee is comprised of non-employee members of the Board of
Directors. The management committee, along with the Company's executive
management team and certain former executives, has run the day-to-day
operations of the Company since October 1, 1998. Although members of the
interim management committee and other current and former executives that are
currently involved in the Company possess substantial experience in running
the Company, the Company's future success depends, in large part, on the
Company's ability to retain highly-qualified executive officers to run the
Company on a full-time, permanent basis. Failure to retain such executives, or
the loss of certain additional senior management personnel or other key
employees, could have a material adverse effect on the Company's business and
future business prospects.

The Company's future success also depends on the continued service of its key
sales, product development and additional operational personnel and on its
ability to attract, motivate and retain highly qualified employees. In
addition, the Company depends on writers, programmers and graphic artists, as
well as third-party content providers. The Company expects to continue to hire
additional product development, sales and marketing, IS and accounting staff.
However, there can be no assurance that the Company will be successful in
attracting, retaining or motivating key personnel. In particular, the
Company's recent adverse operating results, stock price performance and
management changes could create uncertainties that could have a material
adverse effect on the Company's ability to attract and retain key personnel.
Although the Company has repriced all stock options in an effort to retain
and reincent employees, there can be no assurance that this strategy will be
successful, and in any event, it will have a dilutive effect on future
earnings per share. The inability to hire and retain qualified personnel or
the loss of the services of key personnel could have a material adverse effect
upon the Company's current business, new product development efforts and
future business prospects.

Competition
-----------

The IT education and training market is highly fragmented and competitive, and
the Company expects this competition to increase.  The Company expects that
because of the lack of significant barriers to entry into this market, new
competitors may enter the market in the future.  In addition, larger companies
are competing with the Company in the IT education and training market, in part
through the acquisition of the Company's competitors, and the Company expects
this trend to continue. Such competitors may also include

                                       17
<PAGE>
 
publishing companies and vendors of application software, including those
vendors with whom the Company has formed development and marketing alliances.

The Company competes primarily with third-party suppliers of instructor-led IT
education and training and internal training departments and with other
suppliers of IT education and training, including several other companies that
produce interactive software training.  To a lesser extent, the Company also
competes with consultants, value-added resellers and network integrators.
Certain of these value-added resellers also market products competitive with
those of the Company.  The Company expects that as organizations increase their
dependence on outside suppliers of training, the Company will face increasing
competition from these other suppliers as IT education and training managers
more frequently compare training products provided by outside suppliers.

Many of the Company's current and potential competitors have substantially
greater financial, technical, sales, marketing and other resources, as well as
greater name recognition, than the Company. In addition, the IT education and
training market is characterized by significant price competition, and the
Company expects that it will face increasing price pressures from competitors as
IS managers demand more value for their training budgets. Accordingly, there can
be no assurance that the Company will be able to provide products that compare
favorably with new instructor-led techniques or other interactive training
software or that competitive pressures will not require the Company to reduce
its prices significantly.

Developing Market
-----------------

The market for IT education and training is rapidly evolving. New methods of
delivering interactive education software are being developed and offered in the
marketplace, including intranet and Internet deployment and management systems.
Many of these new delivery and training management systems will 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, CBT's future success will depend upon, among other
factors, the extent to which CBT is able to develop and implement products which
address these emerging market requirements. There can be no assurance that CBT
will be successful in meeting changing market needs.

Seasonality
-----------

The software industry generally, and the Company in particular, are subject to
seasonal revenue 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, and in the future are expected to continue to cause,
revenues in the first quarter of a year to be less, perhaps substantially so,
than revenues for the immediately preceding fourth quarter. In addition, the
Company has 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, the Company's operating margins
in the earlier part of the year tend to be significantly lower than in the
later parts of the year. Because of the issues affecting the Company's third
quarter results, which will continue to negatively affect the Company for at
least the next several quarters, fourth quarter operating margins are expected
to be dramatically less than previous years' fourth quarter levels. This
reduction in operating margins is expected to continue for at least the next
several quarters. There can be no assurance, however, that operating margins
in the fourth quarter will meet even the Company's revised expectations. Many
software companies also experience a seasonal downturn in demand during the
summer months, which may also have negatively affected the Company's third
quarter results. There can be no assurance that these or other seasonal trends
will not have a material adverse effect on the Company's results of
operations.

                                       18
<PAGE>
 
Economic Conditions
-------------------

The revenue growth and profitability of the Company's business depends on the
overall demand for computer software and services as well as new developments
within the IT industry. The demand for computer software and services is
dependent on general economic and business conditions. Thus, a weakening of the
global economy could result in decreased revenues or decelerating growth rates.


Management of Expanding Operations and Acquisitions
---------------------------------------------------

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

As a result of the consummation of a number of acquisitions the Company's
operating expenses have increased.  There can be no assurance that the
integration of these businesses can be successfully completed in a timely
fashion, or at all, or that the revenues from the acquired businesses will be
sufficient to support the costs associated with those businesses, without
adversely affecting the Company's 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 the Company's business and results of operations.

The Company regularly evaluates acquisition opportunities and is likely to make
acquisitions in the future. Future acquisitions by the Company 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 the Company's 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 the Company has no or limited prior
experience and the potential loss of key employees of acquired companies. The
Company's management has had limited experience in assimilating acquired
organizations and products into the Company's operations. No assurance can be
given as to the ability of the Company to integrate successfully any operations,
personnel or products that have been acquired or that might be acquired in the
future, and the failure of the Company to do so could have a material adverse
effect on the Company's results of operations.


Risk of Increasing Taxes
------------------------

Certain of the Company's subsidiaries have significant operations and generate
significant taxable income in Ireland, and certain of the Company's Irish
subsidiaries are taxed at rates substantially lower than tax rates in effect in
the United States and in other countries in which the Company has operations.
The extent of the tax benefit could vary from period to period, and there can be
no assurance that the Company's tax situation will not change.

                                       19
<PAGE>
 
Year 2000 Risk
--------------

In the past, many information technology products were designed with two digit
year codes that cannot determine the correct century for the year.  As a result,
these hardware and software products may not function or may give incorrect
results in and beyond the year 1999. This problem has been generally referred to
as the "Year 2000" problem.

The Company has created a Year 2000 Task Force in its product development center
in Dublin, Ireland, and another in its corporate headquarters in Redwood City,
California, to identify and resolve Year 2000 issues.

The Company is utilizing internal resources to identify, test and as necessary
correct or reprogram its products and services for Year 2000 compliance It is
anticipated that all of the Company's products will be Year 2000 compliant by
June 30, 1999, allowing adequate time for testing, except for the Company's
products which will no longer be available after December 31, 1999. However,
there can be no assurances that the Company's products do not contain undetected
errors or defects associated with Year 2000 date functions that may result in
material costs to the Company.

The Company is utilizing internal resources to identify, correct, replace or
reprogram, and test its internal systems, including both information technology
("IT") and non-IT systems.  The Company has not yet determined whether any
external resources will be required. The Company's Year 2000 internal readiness
program primarily covers: taking inventory of hardware, software and embedded
systems, creating action plans to address known risks associated with such
systems, contacting vendors for assurances that their systems are or shall be
timely Year 2000 compliant, and contingency planning. The Company has initiated
an assessment of its material internal IT systems and its non-IT systems. There
can be no assurance that the Company's internal systems or the systems of other
companies on which the Company's systems rely will be timely converted or that
failure to convert timely to Year 2000 compliance will not have a material
adverse effect on the Company's systems.

The Company has thus far funded its Year 2000 plan from operating cash flows and
in the past has not separately accounted for these costs.  The Company will
incur additional costs related to its Year 2000 plan for administrative
personnel to manage the project, and may incur additional costs for outside
contractor assistance.

The Company is also subject to external forces that might affect industry and
commerce generally, such as Year 2000 compliance failures at utility or
transportation companies and related service interruptions.

The Company expects to implement successfully the systems and programming
changes necessary to address issues confronting the Company raised by the Year
2000 problem and does not expect that the cost of such actions will have a
material effect on the Company's results of operations or financial condition.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes. The
Company's inability to implement such changes could have a material adverse
effect on future results of operations.

Some commentators have stated that a significant amount of litigation will arise
out of Year 2000 compliance issues, and the Company is aware of lawsuits against
other software vendors. In addition, the Company could be affected by Year 2000
litigation against its software development partners. Because of the
unprecedented nature of such litigation and unknown impact of the Year 2000
problem, it is uncertain to what extent the Company may be affected by such
litigation.

                                       20
<PAGE>
 
The Company does not currently have information concerning the Year 2000
compliance status of its customers.  If the Company's current or future
customers fail to achieve Year 2000 compliance or if they divert technology
expenditures to focus on preparing their business for the Year 2000, capital
expenditure, software investment and training budgets may be spent on
remediation efforts rather than information technology training.  Such a
diversion of software investment and training funds could reduce the demand for
the Company's products both (a) directly, if current and potential customers
allocate less funds to information technology training, and (b) indirectly, by
delaying the purchase and implementation of new systems.  This could adversely
affect the Company's future revenues, although the impact is not known at this
time.

The Company has facilities, operations, and customers located throughout the
world.  Some commentators have reported that some countries, and organizations
within those countries, are not acting intensively to remediate their Year 2000
issues. To the extent that the businesses and governments in countries where the
Company does business do not work intensively at remediation of their Year 2000
issues, the Company may suffer significant interruptions or delays in its
operations and business.  This could have a material adverse effect on the
Company's future results of operations.


PART II.  OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

     Since the end of the third quarter purported class action lawsuits were
     filed in the United States District Court for the Northern District of
     California, the United States District Court for the Southern District of
     New York and the Superior Court of California for the County of San Mateo
     against CBT Group Plc, its American operating subsidiary, CBT Systems USA
     Ltd. and certain of its former and current officers and directors alleging
     violations of the federal securities laws. The complaints allege that the
     defendants misrepresented and/or omitted to state material facts regarding
     CBT's business and financial condition and prospects during the class
     periods in order to artificially inflate and maintain the price of the
     Company's ADSs, and misrepresented and/or omitted to state material facts
     in the registration statement and prospectus issued in connection with the
     merger with The ForeFront Group, Inc., artificially inflating the price of
     the Company's ADSs.

     The Company believes that these actions are without merit and intends to
     vigorously defend itself against these claims. Although the outcome of
     these actions cannot presently be determined, an adverse resolution of
     these matters could have a material adverse effect on the Company's
     financial position and results of operations.

     On October 29, 1998, a derivative complaint was filed in the Superior Court
     of California for the County of San Mateo against several present and
     former officers and directors of the Company alleging that these persons
     violated various duties to the Company. The derivative complaint also names
     the Company as a nominal defendant. The derivative complaint is predicated
     on the factual allegations contained in the class action complaints
     discussed above. No demand was previously made to the Company's Board of
     Directors concerning the allegations of the derivative complaint, which
     seeks an unspecified amount of damages.

                                       21
<PAGE>
 
ITEM 6.          EXHIBITS AND REPORTS ON FORM 8-K

  (a)  Exhibits
  -------------

        10.1   900 Chesapeake Drive, Redwood City, CA 94063 Lease Agreement

        11.1   Statement Regarding Computation of Net Income Per Ordinary Share.

        27.1   Financial Data Schedule.


        (b)  Reports on Form 8-K
        -------------------------

             The Company filed a report on Form 8-K with the Securities and
             Exchange Commission on September 29, 1998 reporting under Item 5
             the Company's press release dated September 28, 1998.

                                       22
<PAGE>
 
                                   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.

                                 CBT GROUP PLC

Date:  November 13, 1998          By:  /s/ William G. McCabe
                                       -----------------------
                                       Mr. William G. McCabe
                                       Member of Management Committee



Date:  November 13, 1998          By:  /s/ Gregory M. Priest
                                       ---------------------
                                       Mr. Gregory M. Priest
                                       Member of Management Committee



Date:  November 13, 1998          By:  /s/ John M. Grillos
                                       -------------------
                                       Mr. John M. Grillos
                                       Member of Management Committee

                                       23