<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20548

                                    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, 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)


      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 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
November 12, 2001 was 56,592,257.
<PAGE>
                        SMARTFORCE PUBLIC LIMITED COMPANY

                                TABLE OF CONTENTS


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

             Item 1.       Financial Statements

                           Condensed Consolidated Balance Sheets as of December 31, 2000
                           and as of September 30, 2001                                                   3

                           Condensed Consolidated Statements of Operations for
                           the three and nine months ended September 30, 2000
                           and 2001                                                                       4

                           Condensed Consolidated Statements of Cash Flows for
                           the nine months ended September 30, 2000 and 2001                              5

                           Notes to Condensed Consolidated Financial Statements                           6

             Item 2.       Management's Discussion and Analysis of Financial Condition and
                           Results of Operations                                                          9

             Item 3.       Quantitative and Qualitative Disclosures About Market Risk                    23

PART II.                   OTHER INFORMATION


              Item 1.      Legal Proceedings                                                             24

              Item 2.      Changes in Securities                                                         24

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

                           Signature                                                                     25
</TABLE>




                                       2
<PAGE>
PART I          FINANCIAL INFORMATION

ITEM 1          FINANCIAL STATEMENTS

                        SMARTFORCE PUBLIC LIMITED COMPANY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                          December 31,    September 30,
ASSETS                                                                        2000             2001
                                                                              ----             ----
<S>                                                                       <C>             <C>
  CURRENT ASSETS
  Cash                                                                     $  65,412        $  78,808
  Short term investments                                                      42,545           44,002
  Accounts receivable, net                                                    76,458           88,796
  Inventories                                                                    369              232
  Recoverable and deferred tax assets, net                                     2,517            2,514
  Prepaid expenses                                                            12,467           21,204
                                                                           ---------        ---------
        Total current assets                                                 199,768          235,556
  Intangible assets                                                           73,194           71,582
  Property and equipment, net                                                 29,388           36,405
  Investments                                                                  3,616            9,616
  Other assets                                                                28,817           31,875
                                                                           ---------        ---------
        Total assets                                                       $ 334,783        $ 385,034
                                                                           =========        =========

LIABILITIES AND SHAREHOLDERS' EQUITY
  CURRENT LIABILITIES
  Accounts payable                                                         $   6,961        $   5,277
  Accrued payroll and related expenses                                         9,926           10,927
  Other accrued liabilities                                                   22,118           16,312
  Deferred revenues                                                           48,381           45,226
                                                                           ---------        ---------
        Total current liabilities                                             87,386           77,742

NON-CURRENT LIABILITIES
  Minority equity interest                                                       307              307
  Other liabilities                                                            1,452              216
                                                                           ---------        ---------
        Total non current liabilities                                          1,759              523

SHAREHOLDERS' EQUITY
  Ordinary Shares, E0.11 par value: 120,000,000 shares authorized at
     December 31, 2000 and September 30, 2001; issued and
     outstanding: 51,970,046 and 51,944,277 shares at December 31,
     2000 and 56,274,654 and 56,248,885 at September 30,
     2001, respectively                                                        7,075            7,527
  Additional paid-in capital                                                 232,640          288,285
  Accumulated profit                                                           6,191            9,437
  Capital Conversion Reserve Fund                                                581              619
  Capital redemption reserve                                                     296              296
  Other comprehensive income (loss)                                           (1,143)             607
  Treasury stock                                                                  (2)              (2)
                                                                           ---------        ---------
        Total shareholders' equity                                           245,638          306,769
                                                                           ---------        ---------
            Total liabilities and shareholders' equity                     $ 334,783        $ 385,034
                                                                           =========        =========
</TABLE>


            See notes to condensed consolidated financial statements




                                       3
<PAGE>
                        SMARTFORCE PUBLIC LIMITED COMPANY
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        Three Months               Nine Months
                                                                    Ended September 30,        Ended September 30,
                                                                    -------------------        -------------------
                                                                     2000          2001         2000          2001
                                                                     ----          ----         ----          ----
<S>                                                               <C>           <C>          <C>           <C>
Revenues                                                          $  45,572     $  68,117    $ 110,498     $ 195,549
Cost of revenues                                                      7,456        11,570       18,043        32,015
                                                                  ---------     ---------    ---------     ---------
Gross profit                                                         38,116        56,547       92,455       163,534
Operating expenses:
     Research and development                                        11,189        12,775       30,036        37,962
     Sales and marketing                                             26,423        33,825       74,429        99,243
     General and administrative                                       4,954         5,272       14,259        16,391
     Amortization of acquired intangibles                             2,323         2,539        6,280         7,347
                                                                  ---------     ---------    ---------     ---------
         Total operating expenses                                    44,889        54,411      125,004       160,943
                                                                  ---------     ---------    ---------     ---------
Income (loss) from operations                                        (6,773)        2,136      (32,549)        2,591
Other income, net                                                     1,069           709        3,260         2,101
                                                                  ---------     ---------    ---------     ---------
Income (loss) before provision (benefit) for income taxes            (5,704)        2,845      (29,289)        4,692

Provision (benefit) for income taxes                                   (338)          646       (2,301)        1,445
                                                                  ---------     ---------    ---------     ---------

Net income (loss)                                                 $  (5,366)    $   2,199    $ (26,988)    $   3,247
                                                                  =========     =========    =========     =========

Net income (loss) per share - Basic                               $   (0.10)    $    0.04    $   (0.53)    $    0.06
                                                                  =========     =========    =========     =========

Shares used in computing net income (loss) per share - Basic         51,324        55,716       50,888        53,726
                                                                  =========     =========    =========     =========


Net income (loss) per share  - Diluted                            $   (0.10)    $    0.04    $   (0.53)    $    0.05
                                                                  =========     =========    =========     =========

Shares used in computing net income (loss) per share - Diluted       51,324        61,944       50,888        60,910
                                                                  =========     =========    =========     =========
</TABLE>

            See notes to condensed consolidated financial statements




                                       4
<PAGE>
                        SMARTFORCE PUBLIC LIMITED COMPANY
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                   Nine Months Ended
                                                                                     September 30,
                                                                                2000               2001
                                                                                ----               ----
<S>                                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                            $ (26,988)         $   3,247
Adjustments to reconcile net income (loss) to net cash used
  by operating activities:
  Depreciation and amortization                                                 14,995             20,102
  Accrued interest on short term investments                                        19                293
  Changes in operating assets and liabilities:
     Accounts receivable                                                        (3,686)           (12,817)
     Inventories                                                                  (200)               136
     Deferred tax assets                                                        (2,310)                (7)
     Prepaid expenses and other assets                                          (6,933)           (11,971)
     Accounts payable                                                             (628)            (1,921)
     Accrued payroll, related expenses and other accrued liabilities            (4,766)            (5,017)
     Deferred revenues                                                          31,739             (2,933)
                                                                             ---------          ---------
Net cash provided (used) by operating activities                                 1,242            (10,888)
                                                                             ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                           (8,385)           (19,125)
  Payments to acquire Learning Productions, net assets of Advanced
  Education Systems and icGlobal net of cash acquired                           (6,893)              (256)
  Payments to acquire short term investments                                  (111,592)           (96,770)
  Proceeds from sale of short term investments                                 108,583             95,020
  Payments to acquire investments                                               (2,866)            (6,000)
                                                                             ---------          ---------
     Net cash used in investing activities                                     (21,153)           (27,131)
                                                                             ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of ordinary shares, net                                10,171             50,944
                                                                             ---------          ---------
     Net cash provided by financing activities                                  10,171             50,944
                                                                             ---------          ---------
  Effect of exchange rate changes on cash and cash equivalents                      12                471
                                                                             ---------          ---------
  Net decrease in cash and cash equivalents                                     (9,728)            13,396
  Cash and cash equivalents at beginning of period                              69,260             65,412
                                                                             ---------          ---------
  Cash and cash equivalents at end of period                                 $  59,532          $  78,808
                                                                             =========          =========
</TABLE>


            See notes to condensed consolidated financial statements




                                       5
<PAGE>
                        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 the Company's 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 (LOSS) PER SHARE

         Basic net income (loss) per share is calculated using the weighted
average number of our ordinary shares outstanding during the period. 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.

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

<TABLE>
<CAPTION>
                                                         (dollars in thousands, except per share amounts)

                                                                     THREE MONTHS                    NINE MONTHS
                                                                  ENDED SEPTEMBER 30,            ENDED SEPTEMBER 30,
                                                                  -------------------            -------------------
                                                                 2000            2001           2000            2001
                                                                 ----            ----           ----            ----
<S>                                                           <C>             <C>            <C>             <C>
Numerator:
     Numerator for basic and diluted net income
     (loss) per share - net income (loss) available           $   (5,366)     $    2,199     $  (26,988)     $    3,247
     to common shareholders                                     ========          ======      =========          ======
Denominator:
     Denominator for basic net income (loss) per
     share - weighted average shares                              51,324          55,716         50,888          53,726
     Effect of dilutive securities:
     Employee stock options                                           --           6,228             --           7,184
                                                              ----------      ----------     ----------      ----------
Denominator for diluted net income (loss) per share
- adjusted weighted average shares and assumed conversion         51,324          61,944         50,888          60,910
                                                              ==========      ==========     ==========      ==========


Basic net income (loss) per share                             $    (0.10)     $     0.04     $    (0.53)     $     0.06
                                                              ==========      ==========     ==========      ==========
Diluted net income (loss) per share                           $    (0.10)     $     0.04     $    (0.53)     $     0.05
                                                              ==========      ==========     ==========      ==========
</TABLE>




                                       6
<PAGE>
NOTE 3. COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss), net of tax, for the nine months
ended September 30, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                         Nine months ended
                                                                           September 30,
                                                                      2000              2001
                                                                      ----              ----
<S>                                                                 <C>               <C>
         (dollars in thousands)
         Net income (loss)                                          $(26,988)         $  3,247
         Other comprehensive income (loss)
                Cumulative effect of change in accounting
                Principle (SFAS 133)                                      --             3,703
                Current period changes on cash flow hedges:
                    Net amount reclassified into earnings                 --             1,032
                    Net loss on cash flow hedges                          --            (2,079)
                Foreign currency translation adjustment               (1,255)             (906)
                                                                    --------          --------

         Total comprehensive income (loss)                          $(28,243)         $  4,997
                                                                    ========          ========
</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 locations. 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
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 in the Company's Annual Report on Form 10-K/A, as amended,
for the year ended December 31, 2000. The Company's CODM does not view segment
results below operating profit (loss), therefore, net interest income, other
income and the provision (benefit) 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.




                                       7
<PAGE>
     A summary of the segment financial information reported to the CODM is as
follows:

<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED SEPTEMBER 30, 2001
                                                                       ------------------------------------
                                                                                                                        CONSOLIDATED
                                              AMERICAS             EMEA             IRELAND           ALL OTHER            TOTAL
                                              --------             ----             -------           ---------            -----
                                                                             (dollars in thousands)
<S>                                          <C>                <C>                <C>                <C>               <C>
Revenues -- external ...............         $ 149,721          $  22,266          $  16,657          $   6,905          $ 195,549
Inter segment revenues .............                --                 --             79,846                 --             79,846
Depreciation and amortization ......            13,253                198              5,879                748             20,078
Segment operating income (loss) ....           (24,201)            (2,401)            38,706             (9,513)             2,591
</TABLE>



<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED SEPTEMBER 30, 2000
                                                                       ------------------------------------
                                                                                                                        CONSOLIDATED
                                              AMERICAS             EMEA             IRELAND           ALL OTHER            TOTAL
                                              --------             ----             -------           ---------            -----
                                                                             (dollars in thousands)
<S>                                          <C>                <C>                <C>                <C>               <C>
Revenues -- external ...............         $  88,389          $  14,123          $   1,665          $   5,321          $ 110,498
Inter segment revenues .............                --                 --             52,219                 --             52,219
Depreciation and amortization ......             5,177                258              2,960              6,600             14,995
Segment operating loss .............           (14,262)            (3,445)            (6,254)            (8,588)           (32,549)
</TABLE>



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

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                                     SEPTEMBER 30,                             SEPTEMBER 30,
                                                                     -------------                             -------------
                                                               2000                 2001                 2000                 2001
                                                               ----                 ----                 ----                 ----
<S>                                                          <C>                  <C>                  <C>                  <C>
          Revenues
               Ireland .........................             $    633             $  4,383             $  2,269             $  5,897
               United States ...................               30,703               48,166               72,570              137,537
               United Kingdom ..................                6,381                5,963               16,749               18,987
               Other countries .................                7,855                9,605               18,910               33,128
                                                             --------             --------             --------             --------
               Total ...........................             $ 45,572             $ 68,117             $110,498             $195,549
                                                             ========             ========             ========             ========
</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>
                                                             SEPTEMBER 30,
                                                        2000              2001
                                                        ----              ----
                                                        (dollars in thousands)
<S>                                                   <C>               <C>
          Long Lived Assets
               Ireland .....................          $ 65,063          $ 62,026
               United States ...............            52,543            59,283
               Other countries .............            15,516            28,169
                                                      --------          --------
               Total .......................          $133,122          $149,478
                                                      ========          ========
</TABLE>

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


NOTE 5. ACQUISITIONS

     On April 2, 2001, we acquired icGlobal, a provider of 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. Such shareholders of icGlobal have also received resale registration
rights with respect to such ADSs. The transaction was accounted for under the
purchase method of accounting in accordance with generally accepted

                                       8
<PAGE>
accounting principles. We recorded goodwill and intangible assets of
approximately $3.2 million as a result of the acquisition of icGlobal. These
intangibles are being amortized on a straight line basis over 5 years.

      On August 29, 2001, we acquired substantially all of the assets of
IMPAXselling.com, a sales performance company providing global enterprises with
web-based learning solutions designed to improve sales and account management
performance. We issued 92,394 ADSs to the shareholders of IMPAXselling.com as
consideration for the assets of IMPAXselling.com. The transaction was accounted
for under the purchase method of accounting in accordance with generally
accepted accounting principles. We recorded intangible assets of approximately
$3.3 million as a result of the acquisition of IMPAXselling.com. These
intangibles are being amortized on a straight line basis over 5 years.

NOTE 6. 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 nine months ended September 30, 2001, the amount recorded in
earnings relating to cash flow ineffectiveness was a loss of $718,447. Included
in other comprehensive income (loss) for the nine months ended September 30,
2001 was a profit of $2.6 million in respect of the cash flow hedges held at
September 30, 2001.

      In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that all
business combinations be accounted for under the purchase method only and that
certain acquired intangible assets in a business combination be recognized as
assets apart from goodwill. SFAS No. 142 requires that goodwill and other
intangible assets with indefinite lives acquired in a business combination
before July 1, 2001 should not be amortized. The statement further requires that
the fair value of goodwill and other intangible assets with indefinite lives be
tested for impairment upon adoption of this statement, annually and upon the
occurrence of certain events. SFAS 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is after
June 30, 2001. The provisions of SFAS 142 will be effective for fiscal years
beginning after December 15, 2001, and will thus be adopted by the Company, as
required, in fiscal year 2002. The impact of SFAS 141 and SFAS 142 on the
Company's financial statements has not yet been determined.


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 dynamic,
continuously updated 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 platform includes a learning content management
system (LCMS) that allows organizations to create customized learning paths that
combine our learning events with internally-created and third party learning
events. Our platform also includes a learning management system (LMS) 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. We also offer "solution sets", which are
productized versions of our platform, content and tools focusing on enabling
specific business processes.

                                       9
<PAGE>
      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
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, provided a signed contract or other persuasive evidence of an
arrangement exists, the Company's fees are fixed and determinable and
collections of accounts receivable are probable. 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 professional services and the resale of
third-party instructor-led training) of these types of agreements 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.

(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 16 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 16 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance.




                                       10
<PAGE>
RECENT DEVELOPMENTS

      On October 11, 2001, we acquired SkillScape Solutions, Inc., a leading
global provider of competency management systems. We issued 157,654 ADSs and
cash of $0.6 million to the shareholders of SkillScape Solutions, Inc., as
consideration for the outstanding securities of SkillScape Solutions, Inc. The
transaction will be accounted for under the purchase method of accounting in
accordance with generally accepted accounting principles.

      The combination of the operations of other recent acquisitions, icGlobal,
IMPAXselling.com and SkillScape Solutions, Inc., 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,
IMPAXselling.com and SkillScape Solutions, Inc., will negatively impact the
results of operations in future periods as may any potential impairment of
goodwill under SFAS 142. Unanticipated contingencies that would substantially
increase the costs of combining the operations of icGlobal, IMPAXselling.com and
SkillScape Solutions, Inc., with us may occur.(3)

      As we discussed on our public conference calls on October 1, 2001 and
October 17, 2001, the terrorist events of September 11, 2001 and their
aftermath had a material adverse effect on our third quarter bookings. As we
also discussed on these conference calls, we expect that these events will
negatively affect our bookings for the fourth quarter and beyond. It is not
possible to predict the outcome of the recent escalation of hostilities between
the United States and certain countries and persons related to the events of
September 11. The continuation of these hostilities could result in further
weakness in the economy which would have a further adverse impact on our
operating results and financial condition.

(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 16 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance




                                       11
<PAGE>
RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                                          THREE MONTHS                      NINE MONTHS
                                                                       ENDED SEPTEMBER 30,              ENDED SEPTEMBER 30,
                                                                     2000             2001            2000             2001
                                                                     ----             ----            ----             ----
<S>                                                                 <C>              <C>             <C>              <C>
            Revenues                                                   100%             100%            100%             100%
            Cost of revenues                                          16.4             17.0            16.3             16.4
                                                                    ------           ------          ------           ------
            Gross Profit                                              83.6             83.0            83.7             83.6
            Operating expenses:
                 Research and development                             24.5             18.8            27.2             19.4
                 Sales and marketing                                  58.0             49.7            67.4             50.8
                 General and administrative                           10.9              7.7            12.9              8.4
                  Amortization of acquired intangibles                 5.1              3.7             5.7              3.7
                                                                    ------           ------          ------           ------
                     Total operating expenses                         98.5             79.9           113.2             82.3
                                                                    ------           ------          ------           ------
            Income (loss) from operations                            (14.9)             3.1           (29.5)             1.3
            Other income, net                                          2.4              1.0             3.0              1.1
                                                                    ------           ------          ------           ------

            Income (loss) before provision for income taxes          (12.5)             4.1           (26.5)             2.4
            Provision (benefit) for income taxes                      (0.7)             0.9            (2.1)             0.7
                                                                    ------           ------          ------           ------
            Net income (loss)                                        (11.8)%            3.2%          (24.4)%            1.7%
                                                                    ======           ======          ======           ======
      </TABLE>

REVENUES


      Revenues increased to $68.1 million in the three months ended September
30, 2001 from $45.6 million in the three months ended September 30, 2000, and
increased to $195.5 million in the nine months ended September 30, 2001 from
$110.5 million in the nine months ended September 30, 2000. The increase in
revenues in the 2001 periods as compared to the same periods in 2000 was
primarily attributable to increased customer demand for our e-Learning
solutions as well as the deferral of revenues from 2000 to 2001 as a result of
the shift in our business model.

      Revenues in the United States for the three months and nine months ended
September 30, 2001 were $48.1 million (or 71% of revenues) and $137.5 million
(or 70% of revenues), respectively, compared to $30.7 million (or 67% of
revenues) and $72.6 million (or 66% of revenues) for the three and nine month
periods ended September 30, 2000, respectively.

      Revenues in the United Kingdom for the three months and nine months ended
September 30, 2001 were $6.0 million (or 9% of revenues) and $19.0 million (or
10% of revenues), respectively, compared to $6.4 million (or 14% of revenues)
and $16.7 million (or 15% of revenues) for the three and nine month periods
ended September 30, 2000, respectively. Revenues in Ireland for the three and
nine months ended September 30, 2001 were $4.4 million (or 6% of revenues) and
$5.9 million (or 3% of revenues) compared to $0.6 million (or 2% of revenues)
and $2.2 million (or 2% of revenues) for the nine months ended September 30,
2000.

      In addition, revenues from outside the United States, United Kingdom and
Ireland (principally from Asia Pacific, Europe (other than the United Kingdom
and Ireland), Latin America, Canada, South Africa and the Middle East) in the
three and nine months ended September 30, 2001 were $9.6 million (or 14% of
revenues) and $33.1 million (or 17% of revenues), compared to $7.9 million (or
17% of revenues) and $19.0 million (or 17% of revenues) for the three and nine
months ended September 30, 2000.

      Because a significant proportion of our business is conducted outside the
United States, we are subject to a number

                                       12
<PAGE>

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 decreased slightly to 83.0% and 83.6% in the three and nine
months ended September 30, 2001, from 83.6% and 83.7% in the three and nine
months ended September 30, 2000. The lower gross margins for the three and nine
months ended September 30, 2001 were attributable to the modest increase in the
proportion of revenues derived from services in 2001 as compared to 2000.

      We expect that cost of revenues may fluctuate from period to period in the
future based upon many factors, including the rate of migration of our customers
to our e-Learning solutions, the revenue mix (including between software
licenses, professional services and products licensed from third parties) and
the timing of expenses associated with development and marketing alliances. In
particular we expect that professional services may represent an increasing
portion of our revenues. (4)

OPERATING EXPENSES

      Our operating expenses increased in dollar terms in the three and nine
months ended September 30, 2001 as compared to the three and nine months ended
September 30, 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 and nine months ended September
30, 2001 as compared to the same periods in 2000, primarily as a result of the
rapid adoption of our e-Learning solutions in 2000 which resulted in the
deferral of revenues from 2000 into future periods.

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 and nine months
ended September 30, 2001 to $12.8 million and $38.0 million, respectively, from
$11.2 million and $30.0 million in the three and nine months ended September 30,
2000. The increase in research and development is primarily the result of the
expansion of our e-Learning content and platform capabilities and the continued
enhancement of our e3 application architecture, all of which are required to
further develop and expand our e-Learning solutions.

      We believe that significant investment in research and development is
required to maintain and expand our e-Learning infrastructure and to remain
competitive in the corporate training market. We are committed to maintaining
this investment, and accordingly, research and development expenses may 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.



(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 16 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance.

(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 16 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance.




                                       13
<PAGE>
SALES AND MARKETING EXPENSES


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


      These expenses increased in absolute terms in the three and nine months
ended September 30, 2001 to $33.8 million and $99.2 million, respectively, from
$26.4 million and $74.4 million for the three and nine months ended September
30, 2000. The increase was primarily attributable to higher absolute dollar
commission costs associated with increased revenues.


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 in absolute terms in the
three and nine months ended September 30, 2001 to $5.3 million and $16.4
million, respectively, compared to $5.0 million and $14.3 million for the three
and nine months ended September 30, 2000.


AMORTIZATION OF ACQUIRED INTANGIBLES

      Amortization of acquired intangibles for the three and nine months ended
September 30, 2001 was $2.5 million and $7.3 million, respectively, compared to
$2.3 million and $6.3 million, respectively for the three and nine months ended
September 30, 2000. Amortization of acquired intangibles increased due to the
additional amortization of acquired intangibles in the three and nine months
ended September 30, 2001 as compared to the three and nine months ended
September 30, 2000, primarily as a result of the acquisition of Learning
Productions in April 2000 and icGlobal in April 2001.

      In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which will require us to discontinue the amortization of goodwill and
other intangible assets with indefinite lives acquired in business combinations
we have completed in the past. We will adopt SFAS 142, as required beginning in
2002 and thus will only continue to amortize acquired intangibles, other than
goodwill, with definite lives. The overall impact of SFAS 142 on our operating
results and financial condition have not yet been determined. However,
following the Company's adoption of SFAS 142 on January 1, 2002, we estimate
that the quarterly amortization of acquired intangibles, based on our acquired
intangibles to date, will be approximately $2.5 million. We expect the
amortization of identifiable intangible assets to increase if we continue to
acquire companies and technologies.

OTHER INCOME, NET

      Other income, net, comprises interest income, interest expense and foreign
currency exchange gains and losses.

      We recognized other income, net, of $0.7 million and $2.1 million in the
three and nine months ended September 30, 2001, respectively, as compared to
other income, net, of $1.1 million and $3.3 million in the three and nine months
ended September 30, 2000. Other income decreased primarily due to lower interest
income resulting from lower prevailing U.S. interest rates as well as foreign
exchange losses. Included in other income, net, was net exchange losses of $0.1
million and $1.0 million for the three and nine months ended September 30, 2001,
compared to net exchange losses of $0.5 million and $1.0 million for the three
and nine months ended September 30, 2000. The net exchange losses incurred were
primarily attributable to the adoption of 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




                                       14
<PAGE>
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 and nine months
ended September 30, 2001 and 2000. The impact of future exchange rate
fluctuations on our results of operations cannot be accurately predicted.

      We entered into forward currency exchange contracts to hedge identified
expenses denominated in Irish pounds. We have not sought to hedge 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.(6)

      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 movement on derivative instruments and 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 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 charge of $0.6 million and $1.4 million, at an effective
tax rate of 12%, before amortization of acquired intangibles, in the three and
nine months ended September 30, 2001. We recorded a tax benefit of $0.3 million
and $2.3 million in the three and nine months ended September 30, 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 September 30, 2001 were $122.8 million
compared to $108.0 million at December 31, 2000. Working capital was $157.8
million as of September 30, 2001 compared to $112.4 million as of December 31,
2000. The increase in cash and short term investments is due principally to the
increase in proceeds from the issuance of ordinary shares.

CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used by operating activities was
$10.9 million for the nine months ended September 30, 2001 compared to net cash
provided by operating activities of $1.2 million for the nine months ended
September 30, 2000. During the nine months ended September 30, 2001, cash
outflows from operations increased from that for the nine months ended September
30, 2000 primarily due to a decrease in deferred revenue from that at December
31, 2000 to September 30, 2001 as compared to the increase in deferred revenue
from December 31, 1999 to September 30, 2000. This decrease in deferred revenue
was offset by net income of $3.2 million for the nine months ended September 30,
2001 as compared to a net loss of $27.0 million for the nine months ended
September 30, 2000.

(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 16 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance.




                                       15
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used by investing activities was
$27.1 million in the nine months ended September 30, 2001 compared to net cash
used by investing activities of $21.1 million for the nine months ended
September 30, 2000. The increase in cash outflow from investing was primarily
due to increased capital expenditure required to continue to expand our
e-Learning infrastructure. We expect to make significant investments to our
e-Learning infrastructure and information systems to support our e-Learning
solutions and the growth in operations.(7)

CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities
increased to $50.9 million for the nine months ended September 30, 2001 compared
to $10.2 million for the nine months ended September 30, 2000. The increase is
attributable to increased employee stock option exercises during the 2001
period.

      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.(8) 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.



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.

(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 17 and discussions elsewhere in this Quarterly
      Report on Form 10-Q of the factors that could affect future performance.

(8)   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.


                                       16
<PAGE>
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:

-     the size and timing of new and renewal agreements;

-     the rate at which we continue to migrate our customers to our e-Learning
      solutions;

-     the number and size of outsourced virtual university agreements or other
      agreements providing for professional services or the resale of
      instructor-led training;

-     the mix of revenue between content, e-Learning platform, professional
      services and products licensed from third parties;

-     royalty rates;

-     the announcement, introduction and acceptance of new products, product
      enhancements and technologies by us and our competitors;

-     the mix of sales between our field sales force, our other direct sales
      channels and our telesales sales channels;

-     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;

-     general conditions in the U.S. or the international economy;

-     general conditions in our market or the markets served by our customers in
      the U.S.;

-     competitive conditions in the industry;

-     the loss of significant customers;

-     delays in availability of existing or new products;

-     the spending patterns of our customers;

-     litigation costs and expenses;

-     currency fluctuations;

-     the length of sales cycles.

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.

     In addition, the general condition of the economy, and by extension our
business, can be affected by social, political and military conditions. For
example, the terrorist events of September 11, 2001 and their aftermath had a
material adverse effect on our third quarter bookings. It is not possible to
predict the outcome of the recent escalation of hostilities between the United
States and certain countries and persons related to the events of September 11.
The continuation of these hostilities could result in further weakness in the
economy which would have an adverse impact on our operating results and
financial condition.


OUR EXPERIENCE IN SELLING FULLY INTEGRATED, INTERNET-BASED LEARNING SOLUTIONS,
IS RELATIVELY LIMITED.

      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 and market these solutions to our
customers have 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 continue to expand and enhance our
e-Learning infrastructure, to market and sell the new e-Learning solutions to
existing and prospective customers, 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, the arrangements with our
customers under the e-Learning model have had and will continue 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

                                       17
<PAGE>
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 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 occur. 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.

      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

                                       18
<PAGE>
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. In August 2001 we acquired substantially
all of the assets of Impaxselling.com, a sales performance company providing
global enterprises with web-based learning solutions designed to improve sales
and account management performance. In October 2001 we acquired SkillScape
Solutions, Inc., a provider of competency management systems. Difficulties in
combining these companies' products and technologies 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.

      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.


                                       19
<PAGE>
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. 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.


                                       20
<PAGE>
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 with our 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.

     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.


                                       21
<PAGE>
     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.

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

     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:

-    announcements of developments related to ourselves or our competitors'
     business

-    announcements of new products or enhancements by ourselves or our
     competitors

-    sales of our ADSs into the public market

-    developments in our relationships with our customers, partners and
     distributors

-    shortfalls or changes in revenues, gross margins, earnings or losses or
     other financial results which differ from public market expectations

-    changes in the public market expectation of our performance or industry
     performance

-    changes in market valuations of competitors

-    regulatory developments

-    additions or departures of key personnel

-    fluctuations in results of operations and

-    general conditions in our market or the markets served by our customers or
     in the U.S. and or the International economy.

     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.



                                       22
<PAGE>
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 investment portfolio. We do not use any derivative financial instruments
in our 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 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 investment portfolio. Our short term investments are all
in fixed rate instruments. The principal amounts approximate fair value at
September 30, 2001.


     TABLE OF CASH AND SHORT TERM INVESTMENTS:

<TABLE>
<CAPTION>
                                                                         AVERAGE
                                                          PRINCIPAL      INTEREST
     SEPTEMBER 30, 2001                                    AMOUNT          RATE
                                                          ---------      --------
     (Dollars in thousands)
<S>                                                       <C>            <C>
     Cash and cash equivalents ..................         $ 78,808         2.75%
     Short term investments .....................           44,002          3.5%
                                                          --------
     Total cash and investment securities .......         $122,810
                                                          ========
</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 September 30, 2001, we had forward exchange contracts of $38 million
outstanding. All contracts at September 30, 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 September
30, 2001, are presented in the table below. The weighted average exchange rate
quoted represents the functional currency to the U.S. dollar.

<TABLE>
<CAPTION>
Functional                                     Expected Maturity          Weighted Average
Currency                   Amount              Quarter Ended                Exchange Rate
--------                   ------              -------------                -------------
<S>                        <C>                 <C>                        <C>
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>




                                       23
<PAGE>
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Since the end of the third quarter of 1998, a class action lawsuit has been
pending in United States District Court for the Northern District of 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 August 29, 2001 we issued 92,394 ADSs to IMPAXselling.com as
consideration for our acquisition of the assets of IMPAXselling.com. On October
11, 2001 we issued 157,654 ADSs to the SkillScape Solutions, Inc., shareholders
as part consideration for our acquisition of the outstanding securities of
SkillScape Solutions, Inc. The issuance of the ADSs was, exempt from the
registration requirements of the Securities Act of 1933, pursuant to Section
4(2) thereof, as the transaction did not involve a public offering.



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

3.1    Memorandum of Association of SmartForce PLC

3.2    Articles of Association of SmartForce PLC

10.1   2001 Outside Director Option Plan

10.2   1995 Employee Share Purchase Plan

(b)  Reports on Form 8-K

         We did not file a report on Form 8-K during the three months ended
September 30, 2001.




                                       24
<PAGE>
                                    SIGNATURE

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


                                   SMARTFORCE PLC




Date: November 14, 2001            By: /s/ Gregory M. Priest
                                       -----------------------------------------
                                           Gregory M. Priest
                                           Chairman of the Board, President and
                                           Chief Executive Officer

Date: November 14, 2001            By: /s/ David C. Drummond
                                       -----------------------------------------
                                           David C. Drummond
                                           Director, Executive Vice President of
                                           Finance and Chief Financial Officer




                                       25

<PAGE>
INDEX TO EXHIBITS



3.1    Memorandum of Association of SmartForce PLC

3.2    Articles of Association of SmartForce PLC

10.1   2001 Outside Director Option Plan

10.2   1995 Employee Share Purchase Plan