|SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
|-----------------------------------------------------------------

|(Mark One)[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 | 
|------------- | ----------------------------------------------------------------------------------- | 

|For the fiscal year ended March 31, 2002


OR
|---------------------------------------------

|[  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ___ to ___ | 
|---- | -------------------------------------------------------------------------------------------------------------------------------- | 

|Commission
file number 0-6355


Group 1 Software, Inc.(Exact name
of registrant as specified in its charter)
|------------------------------------------------------------------------------------------------------------

|DELAWARE
(State or other jurisdiction
of incorporation or organization) | 52-0852578(IRS Employer Identification No.)
|----------------------------------------------------------------------- | -------------------------------------------

|4200 Parliament Place, Suite 600, Lanham, MD
(Address of principal executive offices) | 20706-1860(ZIP Code)
|------------------------------------------------------------------------------------- | --------------------

|Registrants telephone number, including area code: (301) 918-0400


Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.50 par value


Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.


YES [X]       NO [  ]


Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the
Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )


The aggregate market
value of the voting stock held by non-affiliates of the Registrant on June 18,
2002 was $85,386,788


The number of shares of the
Registrants Common Stock outstanding on June 18, 2002 was 6,946,001


DOCUMENTS
INCORPORATED BY REFERENCE:


Definitive proxy statement
to be filed with the Securities and Exchange Commission relating to
Companys 2002 Annual Meeting of Shareholders (Part III of Form 10-K).


1
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|Part I


Item 1. Business


The Company


Group 1 Software,
Inc., including its wholly owned subsidiaries (Group 1 or the
Company), is a leading provider of software solutions for data
quality, customer communications management and direct marketing applications.
Group 1 has offices throughout the United States and in Canada, the United
Kingdom, continental Europe, and Latin America. The Company is also represented
in Asia and Australia. Group 1 provides customer relationship management
(CRM)-enabling software solutions that enable more than 2,000 businesses to
market smarter by helping them find, reach, and keep their customers. Group
1s products are used to help companies realize the benefits from or
increase the return from their CRM and other relationship-management
investments.


The Companys data
quality solutions are the cornerstone of successful CRM initiatives. These
solutions enable businesses to ensure the integrity of customer and prospect
data through validation, standardization, parsing, matching, consolidation and
enhancement.


The Companys direct
marketing applications help businesses dramatically reduce mailing costs and
ensure accurate, on-time delivery of mailings, goods and services, thereby
increasing response rates and customer satisfaction. These solutions enable
businesses to reduce costs by standardizing addresses, identifying duplicate
customers, validating postal codes and maximizing postal discounts.


Group 1s customer
communications management solutions provide integrated, end-to-end document
generation technology for delivery via multiple channels, including print,
e-mail and Web. These solutions give businesses complete control of the document
lifecycle and enable them to design, generate, deliver, and archive targeted
communications, the sought-after end results of CRM programs.


The Company provides
software solutions to leading organizations in the financial services, banking,
retail, e-business, telecommunications, hospitality, publishing, utilities, high
technology and insurance industries.


Group 1 markets all of its
products in North America and certain of its products throughout the world.
Group 1 is a leading worldwide vendor of customer communications management
software and a leading vendor in North America of data quality and direct
marketing software products.


Group 1 markets its
data quality and direct marketing applications through a direct sales force in
the United States and Canada. Customer communications management solutions are
marketed directly to clients in the Americas and throughout Europe. The Company
also uses distributors to supplement direct sales efforts.


The Company believes that
the growing global adoption of CRM technologies, the increasing demand for
personalized customer communications and the operational requirement for
enterprise-wide data quality solutions can expand the market potential for Group
1s existing and future products.


Markets Served


Group 1 markets its
products within a broad span of industries to meet the needs of organizations in
the areas of customer communications management, data quality and direct
marketing. Group 1 addresses the direct marketing and data quality markets
through its Enterprise Solutions Division, a single operating segment. Group 1
addresses the customer communications management market through a separate
operating segment, its DOC1 Division.


Data Quality


Group 1s data quality
solutions are the cornerstone of successful CRM initiatives. These applications
enable businesses to ensure the integrity of customer and prospect data and
enhance that information with valuable geographic and demographic intelligence.
These solutions consolidate disparate data to help develop an accurate single
customer view, enabling businesses to increase operational efficiency, make more
informed business decisions, and maximize customer lifetime value. Available as
software applications or via hosted services, these solutions encompass many of
the Companys direct marketing applications and can be utilized in both
real-time and batch modes.


2
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|In March 2002, Group 1
launched DataSight, its flagship data quality solution. DataSight provides
enterprise-wide correction, validation, and enhancement of customer, prospect
and supplier data. The solutions sophisticated technology can be applied
to name and address as well as non-name and address data. Its functionality
includes data validation, standardization, parsing, householding, and
user-defined consolidation of duplicate customer records. This technology,
available in both real-time and batch modes, offers businesses an integrated,
enterprise-wide view of all customer-focused data. The product features a unique
set of intuitive user interfaces, designed for both technical experts and
business users, to manage all data quality processes.


The Group 1 Data Quality
Connector for Siebel can be easily integrated into Siebel Systems leading
CRM solution to provide accurate, consolidated customer and prospect data in
both batch and interactive modes. The Data Quality Connector identifies and
merges duplicate records and validates, corrects and formats address data for
over 220 countries and dependencies worldwide. This solution helps give users a
single, integrated view of their customers and the products and services they
are utilizing across the enterprise, thereby improving target marketing
effectiveness, enhancing customer relationships through improved service and
strengthening the bottom line.


Group 1s GeoTAX
system provides businesses with the most accurate tax jurisdiction assignment
solution available. GeoTAX is a comprehensive suite of tools that standardizes
addresses and appends accurate state, county, municipal place, and special tax
jurisdiction information to customer address records. With tax jurisdictions
constantly changing and new tax jurisdiction assignment requirements mandated by
federal and state laws, the potential liability resulting from inaccurate tax
assignment poses a significant problem. To ensure businesses utilize accurate
address information for tax jurisdiction assignment, GeoTAX provides exclusive
access to the most current taxation boundary files through a database that
tracks and updates on a monthly basis taxation boundary files nationwide.


Group 1s HotData is a
one-stop-shop for an organizations online data quality and augmentation
needs, offering real-time hosted services for Web sites, call centers, customer
databases and highly distributed applications. HotData provides the flexibility
to verify, standardize and append customer, prospect and business data for
real-time environments as well as databases and CRM applications. The hosted
service incorporates global address verification, the ability to update the
addresses of customers who have recently moved, Dun & Bradstreet business
information, geographic intelligence, area code updating and tax jurisdiction
assignment.


Geographic Coding Plus
helps companies turn simple customer address data into practical and powerful
information. By adding highly accurate census geography data, demographic data
and lifestyle data to customer addresses, Geographic Coding Plus offers
businesses a gateway to increased customer and prospect understanding.


The DM1 solution enables
companies to build one-to-one relationships by identifying and better
understanding customers and prospects, permitting the generation of more
efficient targeted offers and responses. Also available as a hosted solution,
DM1 offers essential data hygiene and enhancement capabilities through Group
1s leading data quality solutions and adds best-of-class technologies for
querying, OLAP (on-line analytical processing), data visualization, modeling and
reporting, mapping and campaign management.


Direct Marketing


Group 1s direct
marketing applications increase target marketing effectiveness and customer
satisfaction by facilitating on-time, accurate delivery of mailings, goods and
services. This is accomplished by cleaning, coding and standardizing address
data, validating postal codes, presorting mailings and identifying and
eliminating duplicate records. By using these solutions, businesses can take
advantage of substantial discounts by complying with the United States Postal
Service (USPS) and Canada Post Corporation (CPC) standards governing mail
preparation and sortation. Group 1 also offers the industrys most
comprehensive international direct marketing solutions  validating,
correcting and/or formatting address data for over 220 countries and
dependencies worldwide.


Group 1s direct
marketing applications include CODE-1 Plus, CODE-1 Plus International, Canadian
CODE-1 Plus, MailStream Plus, SortStream Canada, MOVEforward, and MOVEforward
Canada along with many additional products that provide significant operational
benefits. Group 1s CODE-1 Plus and MailStream Plus products are,
respectively, Coding Accuracy Support System (CASS)-certified and Presort
Accuracy Validation and Evaluation (PAVE)-certified by the USPS. Group 1s
Canadian CODE-1 Plus and SortStream Canada are recognized under the CPCs
Software Evaluation Recognition Program (SERP) for address validation and postal
presortation. To ensure accuracy and data quality, CODE-1 Plus and Canadian
CODE-1 Plus validate, correct, and format each address element. MailStream Plus
gives mailers the most powerful software solution available to presort mail for
the highest postal discounts offered by the USPS for nearly every class of mail.
MOVEforward and MOVEforward Canada access business and residential address
changes, ensuring that communications reach the intended recipients.


3
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|US mailers currently can
save nearly 25% of the cost of first-class postage and up to 31% of the cost of
standard mail by using MailStream Plus and CODE-1 Plus. Significant savings can
also be achieved with other classes of mail. Similar benefits are provided to
Canadian mailers using Group 1s products accepted under the
CPCs SERP program. Canadian clients can avoid the $0.05 per piece
surcharge by demonstrating an address accuracy level of at least 95%.


CODE-1 Plus International
uses postal address files obtained directly from postal administrations
worldwide to validate and correct addresses for over 120 countries. For an
additional 100 countries and dependencies, CODE-1 Plus International can format
address data. Additionally, Group 1 is the only North American vendor partnered
with the Universal Postal Union (UPU), a specialized agency of the United
Nations, to incorporate the UPUs Universal POST*CODE® DataBase. The
database contains locality and street-level data for all United Nations
countries. Many U.S. businesses have been reluctant to conduct international
direct marketing campaigns due to the historically poor quality of international
address data and the complexity of dealing with such data. Available for batch
or real-time address validation, CODE-1 Plus International makes multinational
direct marketing much easier to implement.


Group 1s data
management applications, Merge/Purge Plus, Business Merge/Purge, Generalized
Selection, and List Conversion Plus, provide substantial cost savings by
enhancing the effectiveness of direct marketing initiatives. This is
accomplished by validating, parsing, matching and de-duplicating customer and
prospect information for more efficient list processing. These applications
enable businesses to focus marketing efforts on specific groups based on
geographic and demographic criteria and analyze response rates from specific
segments of their target market.


Customer Communications Management


Group 1s
Customer Communications Management solutions give businesses complete control of
the document lifecycle, from content design, generation, and presentment to
archive, retrieval and payment. Through its core DOC1 suite, Group 1 offers an
integrated customer communications management solution for e-mail, print and Web
delivery of targeted correspondence. Personalized, high impact communications
with customers and prospects are the sought-after end results of all CRM
initiatives.


The Company believes that
there is substantial demand for a single-source solution combining customer data
with advanced document design, generation and mutichannel delivery. Using Group
1 to develop and deliver millions of customer communications each month are over
500 businesses worldwide, including telecommunications companies, insurance
companies, brokerages, credit card processors, public utilities, health care
providers and banks.


DOC1 is the industrys
leading enterprise-wide document generation suite and the only single-source
solution for generation of print and Web-based documents. Using DOC1, companies
can market more intelligently and communicate more effectively with customers
and prospects.


DOC1 Designer enables users
to create and maintain dynamic business communications. With an intuitive
Windows-based user interface, documents can be formatted in multiple languages
with full color, dynamic graphics, and variable data. DOC1 Generate uses the
rules and content from DOC1 Designer to compose documents for batch or real-time
outputs. DOC1 Print offers the industrys most comprehensive output
solution, producing AFP, Metacode, PostScript, PCL, as well as PDF, HTML and XML
for e-billing.


DOC1 Present provides
businesses with a variety of ways to electronically deliver business documents
to their customers. Delivery methods include Web, standard e-mail and secure
e-mail. Organizations can utilize DOC1 Present for electronic statement
presentment or develop internal applications using its robust development tools.
DOC1 Pay, offered in conjunction with DOC1 Present, adds electronic payment
functionality. This enables online electronic payment of delivered e-bills.


DOC1 Interactive enables
business users to create personalized, professional correspondence such as
contracts, letters and policies quickly and easily. Front-office employees can
author one-to-one business correspondence through a managed Microsoft Word
environment for delivery via print, e-mail, or Web browser.


DOC1 Archive offers
real-time storage, compression and high-speed retrieval of business documents
and enables users to archive and view millions of documents and maintain years
of historical billing and statement data online. DOC1 Archive employs
next-generation compression and indexing techniques and utilizes
industry-standard hardware, thereby minimizing the investment traditionally
required in storage of archived documents.


DOC1 Marketer combines
campaign management, data mining, and powerful one-to-one messaging. DOC1
Marketer provides browser-based access to enriched customer data with advanced,
easy-to-use predictive modeling via Group 1s award-winning Model 1
solution.


4
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|DOC1 supports all major
printing architectures and can operate in centralized, distributed or desktop
environments. When integrated with Group 1s MailStream Plus and
CODE-1 Plus, DOC1 produces documents in a sequence that qualifies for
significant United States Postal Service (USPS) presorting discounts.


Products, Services and Support


Products


As of March 31, 2002,
Group 1 offered over 50 software products that run on more than 20
different operating systems and hardware platforms. Group 1s products
each can operate on a stand-alone basis or in conjunction with other
Group 1 products to create an integrated system that can be tailored to a
clients requirements.


The DOC1 production engine
can run under MVS, Windows NT, Windows 2000, UNIX (Sun Solaris, HP/UX, IBM AIX,
and TRU64), Open VMS, OS/400 or PC DOS. DOC1 is printer-independent and produces
AFP, Metacode, HP/PCL, PostScript, HTML, XML, PDF and line data output.


Most products of the
Enterprise Solutions Division are offered in an open systems format enabling
operation on all major platforms. This approach provides consistent performance
across the enterprise, regardless of computer platform and allows users to
migrate from one platform to another without lost productivity or added
training.


Professional Services


Group 1s broad
range of professional services include data analysis, data migration,
integration with other systems, document analysis, consultation and design,
installation and training, and file conversion. These services are designed to
assist clients in obtaining maximum utilization from their Group 1 products
and in improving other operational areas. Professional services, including
operations support, business analysis, programming services, technical education
and training, and operational reviews, are provided at the clients
location and at Group 1 training facilities throughout the U.S. and in
Canada and the United Kingdom.


Support


Effective support of our
customers and products has been a substantial factor in Group 1s success
to date and will continue to be in the foreseeable future. Customer support is
primarily provided by telephone for assistance in product installation and
problem resolution. Automated call tracking, client-specific call routing,
electronic newscast, e-mail messages and on-line discussion bulletin board
services via the technical support Web site are also provided for customers
utilizing Group 1s maintenance and enhancement program. On-site visits by
qualified company personnel are also available, if necessary. Other offerings
include e-mail support, integration support, and premium support plans.


Group 1 customers are
afforded educational opportunities through our Annual Users Conference and
the over 20 local User Groups. In addition, two National User Groups advise
Group 1 on a variety of issues. The thirty-member National User Group for the
Enterprise Solutions Division includes a cross-section of customers representing
various platforms, products, and industries. The Customer Communications
Management Division also has an active Users Group that meets twice a
year.


For DM1 customers, Group 1
maintains systems in our Las Vegas, Nevada facility duplicating each
customers environment. Group 1 Software Europe also has modem links
with many of its customers to provide high levels of mission-critical support.


Group 1 offers with
its product licenses an annual service agreement that provides telephone support
and continuing updates and enhancements, if and when available, to its products
and documentation. The education department offers educational and training
seminars specific to Group 1 products.


In the fiscal years ended
March 31, 2002, 2001 and 2000, maintenance and enhancement fees represented
approximately 49%, 42%, and 40%, respectively, of Group 1s revenue.


5
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|Customers


Group 1s
customer base includes more than 2,000 clients who have licensed one or more of
its products. Group 1 provides software solutions to corporate leaders in a
variety of industry segments, as indicated by the following brief list of
customers:


Insurance and Financial Services
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | American
Express
| | - |  | ----------------

| |  |  | Citicorp
| | - |  | --------

| |  |  | Lehman
Brothers
| | - |  | ---------------

| |  |  | Bank
of Ireland
| | - |  | ---------------

| |  |  | Banco
Itau (Brazil)
| | - |  | -------------------

| |  |  | Charles
Schwab
| | - |  | --------------

| |  |  | ABN
Amro
| | - |  | --------

| |  |  | Bank
of America
| | - |  | ---------------

| |  |  | CIGNA
| | - |  | -----

|Retailers
|---------

| |  |  | U.S.
Postal Service
| | - |  | -------------------

| |  |  | J.C.
Penney
| | - |  | -----------

| |  |  | L.L.
Bean
| | - |  | ---------

| |  |  | Neiman
Marcus
| | - |  | -------------

| |  |  | Sears
| | - |  | -----

|Telecommunications
|------------------

| |  |  | AT&T
| | - |  | ----

| |  |  | Saudi
Telecom
| | - |  | -------------

| |  |  | Verizon
| | - |  | -------

|Utilities
|---------

| |  |  | Entergy
| | - |  | -------

| |  |  | Pacific
Gas and Electric
| | - |  | ------------------------

| |  |  | Scottish
Power
| | - |  | --------------

| |  |  | London
Electricity
| | - |  | ------------------

|Direct Marketers
|----------------

| |  |  | Publishers
Clearinghouse
| | - |  | ------------------------

| |  |  | Lands
End
| | - |  | ---------

|Government and Non-profit
|-------------------------

| |  |  | Internal
Revenue Service
| | - |  | ------------------------

| |  |  | U.S.
Senate
| | - |  | -----------

| |  |  | AARP
| | - |  | ----

| |  |  | Veterans
Administration
| | - |  | -----------------------

|E-Business
|----------

| |  |  | CyberSource
| | - |  | -----------

| |  |  | NetFlix
| | - |  | -------

| |  |  | EarthLink
| | - |  | ---------

|No customer accounts for
more than 10% of the Companys revenue.


Licensing


Most Group 1 products
are licensed on a perpetual right to use basis pursuant to
non-exclusive license agreements. Those products that incorporate third-party
databases are licensed on an annual basis. Group 1 does not sell or
transfer title to its software products to clients. A client is generally
entitled to use a product only for internal purposes on a single computer at a
single location. Group 1 offers its customers a wide variety of license
agreements, from single user to enterprise-wide. Certain postal products are
required under USPS and CPC regulations (CASS and SERP, respectively) to have
defined expiration dates (quarterly or monthly) and must be under subscription
or re-licensing arrangements with Group 1 to continue to qualify for postal
discounts.


Group 1 generally
warrants that its products will perform substantially in accordance with their
standard documentation for the defined warranty period. The software is
generally licensed in conjunction with a first year maintenance agreement to
provide service and support for twelve months from the date of the license
agreement. The hosted on-line services are offered under annual, renewable
service agreements.


Sales and Marketing


Group 1 markets all of
its software products in North America and Europe through a direct sales and
sales support organization of over 100 Associates located in the Americas and
Europe. To serve existing clients and to attract new customers, Group 1 has
two sales and support offices in the Washington, DC area and nine other regional
offices in the New York City, Chicago, Los Angeles, Las Vegas, Atlanta, Dallas,
Minneapolis, Miami and Toronto, Canada areas. Group 1s European
headquarters is located in the London metropolitan area.


The Group 1 sales
organization is supported by a comprehensive marketing program administered from
Group 1s Lanham, Maryland headquarters. Marketing is conducted
through direct mail, print advertising, an active Web site, trade show
exhibitions, speaking engagements, product training seminars, telemarketing and
a broad variety of public relations activities including media relations and
industry analyst briefings.


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|Group 1s domestic
distributors and partners include PeopleSoft, Siebel Systems, Pitney Bowes, SPL
Worldgroup, Ernst and Young, IBM, Xerox, Portal, CSC, Daleen, USHA,
CommercialWare, CSG, SCT, Convergys, Systems Research and Development (SRD)
ProQuest and others. Through its Group 1 Software Europe subsidiary,
Group 1 has entered into software distribution and support agreements for
the DOC 1 product suite with partner distribution companies throughout
Europe. International distributors of Group 1s products include Pitney
Bowes, Xerox, IBM, SAP, OBIMD, Business Document, Accenture and L&K.
Group 1 has entered into agreements with a number of leading software and
hardware vendors. Group 1 distributes products manufactured by Informatica,
iWay, Dun & Bradstreet, Claritas, GDT, UNICA Technologies, Business
Document, Sigaba and others.


Product Development


The software and service
industry is characterized by rapid change in hardware and software technology
and in user needs, requiring a continual expenditure for product development.
Businesses are also placing emphasis on products and services that can be
deployed across the enterprise and in real-time. Technology trends such as the
increasing adoption of XML and the promise of Web services require constant
evaluation. These operational requirements and technology trends in conjunction
with input received from existing customers will continue to guide Group
1s product direction for the foreseeable future.


Group 1 must be able
to provide new products and to modify and enhance existing products on a
continuing basis to meet the requirements of its customers and of regulatory
agencies, particularly the USPS and CPC. Group 1 may also have to adapt its
products to accommodate future changes in hardware and operating systems. To
date, Group 1 has been able to adapt its products to such changes and
believes that it will be able to do so in the future. Most of the Companys
products are developed internally. The Company also purchases technology,
licenses intellectual property rights and oversees third party development of
certain products.


Quality assurance testing
of Group 1s new or enhanced products is conducted by teams of
experienced individuals from all segments of Group 1s organization
under the direction of testing specialists. Whether the product or technology is
developed internally or acquired from another company, Group 1 considers it
important to control the marketing, distribution, enhancement and future
direction of each of its products and technologies.


Significant investment was
made during the year in new software development, which in the Enterprise
Solutions division focused on improving the core data quality technology to take
advantage of the opportunities that Group 1 believes exist. The Company released
DataSight, its flagship data quality solution during the year. It also developed
its Data Quality Connector for Siebel to provide robust data quality technology
to users of the leading CRM solution. The Companys HotData hosted services
offering was also launched, wedding the technology acquired from HotData with
Group 1s DataQuality.net transactional Web service. Furthermore, the
Company introduced MOVEforward Canada, which tracks business and residential
address changes and updated its entire suite of data management applications.


Substantial investments
were also made in all DOC1 products, most notably the launch of an integrated
DOC1 suite offering complete control over the document lifecycle. With the
acquisition of Vision-R Technologies, DOC1 Archive was introduced, adding
archive and retrieval functionality to the DOC1 suite. DOC1 Present and DOC1 Pay
were also introduced, incorporating the technology from the acquisition of
TriSense Software and adding electronic delivery and payment to the DOC1 suite.


During fiscal 2002, Group 1
released product updates for all its regulatory products that enabled the
Companys direct marketing customers in the U.S. and Canada to meet the
requirements of the USPS and CPC and continue to benefit from substantial postal
discounts.


Competition


The software and service
industry is highly competitive, and little published data is available regarding
Group 1s relative position in the markets in which it operates.
Although no major competitor currently competes against Group 1 across its
entire product line, competitive products are available from a number of
different vendors offering features similar to those of Group 1s products.
Group 1s existing and potential competitors include companies having
greater financial, marketing and technical resources than Group 1. There
can be no assurance that one or more of these competitors will not develop
products that are equal or superior to the products Group 1 expects to
market. In addition, many potential clients for Group 1s products
have in-house capabilities to develop computer software programs that can
provide some or all of the functionality of Group 1s products.


Group 1 believes that
the principal, distinguishing competitive factors in the selection of its
software products are price/performance characteristics, marketing and sales
expertise, ease of use, product features and functions, reliability and quality
of technical support, ease of integration of the product line and the
Companys financial strength. Group 1 believes that it competes
favorably with regard to these factors. A major competitive asset is that
Group 1 offers a comprehensive array of complementary products that work
together to facilitate more effective and efficient target marketing and
customer relationship management. Group 1s primary strengths are the
technical capabilities of its personnel and products, marketing and sales
expertise, service and support, and industry product leadership.


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|Intangible Asset Protection


Group 1 regards its
software, in source and object code, related manuals and documentation as
proprietary. Group 1 relies upon a combination of contract, trade secret,
patents and copyright laws to protect its products. The license agreements under
which clients use Group 1s products often restrict the clients
use to its own operations and always prohibit unauthorized disclosure to third
persons. Notwithstanding these, it may be possible for other persons to obtain
copies of Group 1s products. Furthermore, with the increasing number
of patents issued for computer programming, notwithstanding Group 1s
efforts to assure to the contrary, Group 1 may in the future find that it has
inadvertently infringed on a newly issued patent. Group 1 believes that
because of the rapid pace of technological change in the technology industry and
changes in postal regulations that affect several core products, copyright,
patent, and trade secret protection are less significant than factors such as
the knowledge and experience of Group 1s management and other
personnel and their ability to develop, enhance, market and acquire new
products.


Group 1 has U.S. federal
registrations on over 30 trademarks, including CODE-1 Plus, DM1, DOC1, GROUP 1
SOFTWARE, GEOTAX, HotData and Model1. The Company also has registrations in
Australia, Canada, Chile the European Union, Japan and South Korea for selected
trademarks. In addition, Group 1 maintains over 35 U.S. common law trademarks.


Employees


As of March 31, 2002, the
Company employed 457 persons on a full-time basis, of whom 365 were based in the
United States and 92 were based internationally. Of the total, 122 were engaged
in sales and marketing, 197 in product development and support, 52 in
professional services and 86 in finance, administration and corporate
operations. None of the Companys Associates is represented by a labor
union. The Company has not experienced any work stoppages and believes its
employee relations to be good.


Item 2. Properties


The Companys
executive and administrative offices are located in Lanham, Maryland, a
Washington, DC suburb, where the Company leases 68,598 square feet under a lease
that expires in 2015. These facilities also include Group 1s
headquarters and principal operations base. Group 1 has options to lease
additional space at specified periods during the term and to extend its lease.
In North America, Group 1 leases additional offices in the Chicago, Dallas,
Austin, Los Angeles, Las Vegas, Atlanta, New York City, Minneapolis, Miami,
Toronto, and the Herndon, Virginia metropolitan areas. Outside North America,
the Company leases an office in the London metropolitan area.


Item 3. Legal Proceedings


The Company is not a party
to any legal proceedings, which in its belief, after review by legal counsel,
could have a material adverse effect on the consolidated financial position,
cash flows or results of operations of the Company.


Item 4. Submission of Matters to a Vote of Security Holders


None


8
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART II


Item 5. Market for Registrants Common Stock and Related Stockholder Matters


The trading of the common
stock of the Company is reported on the NASDAQ National Market System under the
symbol GSOF. The table below sets forth the highest and lowest closing prices
between dealers for the quarters indicated. These prices, as reported by NASDAQ,
do not include retail markup, markdown or commissions and may not necessarily
represent actual transactions.


Closing Common Stock Prices
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2002                        | High |  | Low |       | 2001 | High |       | Low |                            
|--------------------------- | ---- |  | --- | ----- | ---- | ---- | ----- | --- | ---------------------------
|First  June 30, 2001       |      |  | $   | 18.60 |      | $    | 10.09 |     | First  June 30, 2000      
|Second  September 30, 2001 |      |  | $   | 19.65 |      | $    | 9.97  |     | Second  September 30, 2000
|Third  December 31, 2001   |      |  | $   | 16.40 |      | $    | 8.75  |     | Third  December 31, 2000  
|Fourth  March 31, 2002     |      |  | $   | 16.55 |      | $    | 12.99 |     | Fourth  March 31, 2001    

|No cash dividends have been
paid on the Companys common stock. The Company pays dividends on the 6%
Cumulative Convertible Preferred Stock. The Board of Directors intends to
retain, for the foreseeable future, the Companys earnings for use in the
development of the business.


At June 15, 2002, there
were approximately 2,195 holders of record of the Companys common stock,
including persons who wish to be identified as having an interest in shares held
or recorded in street name with broker-dealers.


The Company has three stock
option programs currently in effect, and three predecessor plans for which
option grants are still outstanding. Options granted under all plans were
granted at 100% of the fair market value of the common stock at the date of
grant.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             
|-----------------------------
|
|
|
|                             
|Equity compensation plans    
|approved by security holders:
|                             
|Plan of 1998 for officers    
|and employees                
|                             
|Plan of 1995 for officers    
|and employees                
|                             
|Plan of 1986 for officers    
|and employees                
|                             
|Plan of 1995 for             
|non-employee directors       
|                             
|Pre-merger plan for          
|non-employee directors       
|                             
|Plan of 1992 for             
|non-employee directors       
|                             
|Equity compensation plans not
|approved by security holders 
|                             
|Total                        
|                             

|9
|-

|Item 6. Selected Financial Data(In thousands except per share amounts)
|----------------------------------------------------------------------

|                                             | Year Ended March 31, | 
|-------------------------------------------- | -------------------- | 
|
|Statement of Earnings Data:                  |                      | 
|Revenue                                      |                      | 
|Income before provision for income taxes and |                      | 
|minority interest                            |                      | 
|Net income available to common stockholders  |                      | 
|Basic earnings per share                     |                      | 
|Basic weighted average shares outstanding    |                      | 
|Diluted earnings per share                   |                      | 
|Diluted weighted average shares outstanding  |                      | 
|                                            
|Balance Sheet Data:                          |                      | 
|Cash, cash equivalents and short-term        |                      | 
|investments, available for sale              |                      | 
|Working capital                              |                      | 
|Total assets                                 |                      | 
|Notes payable and capital lease obligations, |                      | 
|excluding current portion                    |                      | 
|Stockholders equity                         |                      | 
|                                            

|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations


Results of Operations


Forward-looking Statements


Any
statements in this Annual Report on Form 10-K concerning the Companys
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; together with other statements that
are not historical facts, are forward-looking statements as that
term is defined under the Federal Securities Laws. Forward looking statements
may include words such as believes, is developing,
will continue to be in the future, anticipates and
expects. Actual results may differ materially from the expectations
expressed or implied in the forward-looking statements. Forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, changes
in currency exchange rates, changes and delays in new product introduction,
customer acceptance of new products, changes in government regulations, changes
in pricing or other actions by competitors and general economic conditions, as
well as other risks detailed in the Companys other filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
update any forward-looking statement.


Fiscal 2002 as Compared with Fiscal 2001


For
the year ended March 31, 2002, Group 1s revenue was $89.4 million
compared with $94.2 million for the prior year. Group 1 had net income
available to common stockholders for the year of $4.4 million compared with $8.8
million for fiscal 2001. The decrease in profitability is attributed to
decreased revenues and operating income in both the Enterprise Solutions and
DOC1 segments. These decreases are due primarily to unfavorable economic and
market conditions and acquired businesses in fiscal 2002 and are discussed in
further detail below.


All
of Group 1s operations are in the two business segments defined as
the Enterprise Solutions Division and DOC1 Division. Enterprise Solutions
revenue accounted for 67% and 63% of Group 1s total revenue in fiscal 2002
and fiscal 2001, respectively. DOC1 revenue was 33% and 37% of total revenue for
fiscal 2002 and fiscal 2001. International revenues accounted for 15% and 16% of
Group 1s total revenue in fiscal 2002 and fiscal 2001, respectively.


Software
license fees and related revenue of $33.0 million decreased 18% from the prior
year. As a percentage of total revenue, software license and related revenue was
37% and 43% for fiscal years 2002 and 2001, respectively. The decrease was due
to lower license fee revenue in both business segments further described below.


The
Enterprise Solutions segments data quality/direct marketing software
license fees decreased 9% for fiscal year 2002 compared with fiscal year 2001.
Included in data quality/direct marketing license fees were a decrease in GeoTax
and Code 1 Plus licenses offset partially by an increase in Canadian Data
Quality and Mailing Efficiency products.


10
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|License
fees from the Enterprise Solutions segments Database Marketing systems
decreased $0.4 million for fiscal year 2002. The decrease resulted from lower
sales of the Model 1 and DM1 products.


Licensing
of DOC1 software decreased by 28% in fiscal 2002 over the prior fiscal year. The
decrease is due to lower license fees sold both domestically and
internationally.


Maintenance
and services revenue of $56.4 million for the year increased 4% over the prior
year. Maintenance and service revenue accounted for 63% and 57% of total revenue
in fiscal 2002 and fiscal 2001, respectively. Recognized maintenance fees were
$43.6 million in fiscal 2002 and $39.0 million in fiscal 2001, an increase of
12%. Professional service and educational training revenues were $12.8 million
in fiscal 2002 and $15.2 million in fiscal 2001, a decrease of 15%.


Enterprise
Solutions recognized maintenance increased 9% over the prior year to $33.7
million. DOC1 recognized maintenance increased 23% to $9.9 million in fiscal
2002. The increase in maintenance revenue is due to the recognition of a higher
level of maintenance deferrals based on higher aggregate sales from prior
periods and increased maintenance renewals based on an increase in the installed
customer base in both business segments. The Company expects moderate growth in
recognized maintenance in the upcoming year in both of its business segments.


Professional
services revenue from the Enterprise Solutions segment decreased to $4.1 million
in fiscal 2002 from $4.6 million in fiscal 2001, a decrease of 9%. DOC1 services
revenue decreased 18% in fiscal 2002 to $8.7 million. These decreases are
associated with the decreased license revenue in both segments, which were
affected by unfavorable economic and market conditions. As the Company foresees
a growing need for integrating complex solutions, it anticipates increased
revenue from these services.


Total
costs of revenue for fiscal 2002 were $32.9 million versus $31.3 million for
fiscal 2001, representing 37% and 33% of total revenue, respectively. Costs of
revenue include software license expense and maintenance and service expense.
Software license expense consists of the amortization of software development
costs, royalty payments to third party vendors, and the costs of documentation
and quality assurance. Maintenance and service expense consist primarily of
consulting, education and support personnel salaries and related costs as well
as the costs to distribute the product, including the costs of the media on
which it is delivered and shipping and handling costs.


Software
license expense increased to $12.0 million in fiscal 2002 representing 37% of
software license and related revenue compared with $11.3 million in fiscal 2001
representing 28% of software license and related revenue. The increase as a
percent of revenue is primarily due to lower license fees in fiscal 2002 along
with higher royalty expense associated with the sale of third party products.


Maintenance
and service expense increased to $20.8 million in fiscal 2002 from $20.1 million
in fiscal 2001, 37% of maintenance and service revenue in both years. The
expense as a percent of revenue is expected to decrease as services revenue
increases and higher utilization of services personnel is achieved.


Included
in maintenance and service expense are professional service and educational
training costs of $12.5 million which were 98% of professional services revenue
during 2002 and $12.6 million and 83% of professional services revenue for the
prior year. The increase in expense as a percentage of services revenue is due
to increased staffing and contracting costs. Services expense as a percent of
revenue is expected to decrease as services revenue increases and higher
utilization of service personnel is achieved.


Costs
of maintenance were $8.3 million for fiscal 2002 representing 19% of maintenance
revenue compared with costs of $7.5 million and 19% of maintenance revenue in
fiscal 2001. The Company anticipates that these costs will remain relatively
close to their current levels.


Total
operating costs of $50.4 million were 56% of revenue in fiscal 2002 compared
with $50.8 million or 54% of revenue during fiscal 2001. The various components
of operating costs are discussed below.


Software
development costs incurred subsequent to establishment of the softwares
technological feasibility are capitalized. Capitalization ceases when the
software is available for general release to customers. All costs not meeting
the requirements for capitalization are expensed in the period incurred.
Software development costs include direct labor cost and overhead. Capitalized
software development costs are amortized by the greater of (a) the ratio that
current gross revenues for the product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product including the
period being reported on. At the balance sheet date, the Company evaluates the
net realizable value of the capitalized costs and adjusts the current period
amortization for any impairment of the capitalized asset value. Amortization of
capitalized software is included in the cost of license fees.


11
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Costs
for research and development, before capitalization, incurred in fiscal 2002 and
2001, were $17.4 million, $13.3 million, respectively. Research and development
expenses (after capitalization of certain software development costs) totaled
$10.3 million in fiscal 2002 and $6.5 million in 2001, representing 12% and 7%
of total revenue, respectively. The increase in costs is due to the three
acquisitions made by the Company during the year along with new product
initiatives in both of the Companys operating segments.


Sales
and marketing expenses totaled $28.9 million or 32% of revenue in fiscal 2002
and $30.8 million or 33% of revenue in fiscal 2001. The decrease in costs as a
percentage of revenue is due to lower incentive compensation for sales personnel
during fiscal 2002 because of lower revenue. The Company expects these costs to
remain relatively close to current levels as a percentage of revenue. Sales and
marketing costs for the Enterprise Solutions products were 29% of total
Enterprise Solutions revenue for fiscal 2002 and 32% for fiscal 2001. DOC1
selling and marketing costs were 39% of total DOC1 revenue for fiscal 2002 and
33% for fiscal 2001.


General
and administrative expenses were $11.3 million or 13% of total revenue in fiscal
2002 compared with $13.4 million or 14% for fiscal 2001. The decrease is
attributable to lower bonus compensation and lower bad debt expense. The Company
expects general and administrative expenses to remain relatively close to
current levels as a percentage of revenue.


Net
non-operating income was $1.1 million in fiscal 2002 compared with net
non-operating income of $2.9 million in fiscal 2001. This decrease represents
lower interest income due to lower interest rates, lower translation gains on
foreign currency and higher interest expense associated with the outstanding
notes from the TriSense and Vision-R acquisitions. The Company expects
non-operating income to remain relatively flat. The Company does not expect to
benefit from gains on foreign currency transactions. No short-term borrowing
requirements are expected; this expectation could be affected substantially by
newly-identified investment opportunities including acquisitions.


The
Companys effective tax rate was 39.2% in fiscal 2002 and 40.6% in fiscal
2001. The current years rate is the net effect of a 44.5% domestic tax
rate combined with a 30.7% foreign tax rate on taxable net income. The decreased
effective rate is primarily due to a higher proportion of foreign taxable income
in fiscal 2002.


Fiscal 2001 as Compared with Fiscal 2000


For
the year ended March 31, 2001, Group 1s revenue was $94.2 million
compared with $82.5 million for the prior year. Group 1 had net income
available to common stockholders for the year of $8.8 million compared with $6.2
million for fiscal 2000. The increase in profitability was attributed to
increased revenues and operating income in both the Enterprise Solutions and
DOC1 segments as well as increased interest income resulting from the
Companys higher cash and equivalents balance.


Enterprise
Solutions revenue accounted for 63% and 65% of Group 1s total revenue in
fiscal 2001 and fiscal 2000, respectively. DOC1 revenue was 37% and 35% of total
revenue for fiscal 2001 and fiscal 2000. International revenues accounted for
16% of Group 1s total revenue in fiscal 2001 and 14% in fiscal 2000.
The increase in international revenue as a percent of total revenue was due to
increased sales of the DOC1 product in Europe and Latin America.


Software
license fees and related revenue of $40.0 million represented an increase of 3%
over the prior year. As a percentage of total revenue, software license and
related revenues were 43% and 47% for fiscal years 2001 and 2000, respectively.


The
Enterprise Solutions segments data quality/direct marketing software
license fees were flat for fiscal year 2001 compared with fiscal year 2000.
Included in data quality/direct marketing license fees were an increase in
GeoTax licenses along with an increase in Code 1 Plus licenses. These increases
were offset by lower license sales of the Companys international coding
products.


License
fees from the Enterprise Solutions segments Database Marketing systems
decreased $0.8 million for fiscal year 2001. The decrease resulted from lower
sales of the Model 1 product.


12
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Licensing
of DOC1 software increased by 1% in fiscal 2001 over the prior fiscal year. The
increase was due primarily to increased European and Latin American sales offset
by slightly lower U.S. sales in fiscal 2001 as compared with fiscal 2000.


Maintenance
and services revenue of $54.2 million for the year increased 24% over the prior
year. Maintenance and service revenue accounted for 57% and 53% of total revenue
in fiscal 2001 and fiscal 2000, respectively. Recognized maintenance fees were
$39.0 million in fiscal 2001 and $32.6 million in fiscal 2000, an increase of
20%. Professional service and educational training revenues were $15.2 million
in fiscal 2001 and $11.1 million in fiscal 2000, an increase of 37%.


Enterprise
Solutions recognized maintenance increased 16% over the prior year to $31.0
million. DOC1 recognized maintenance increased 35% to $8.0 million in fiscal
2001 from fiscal 2000. The increase in maintenance revenue was due to the
recognition of a higher level of maintenance deferrals based on higher aggregate
sales from prior periods and increased maintenance renewals based on an increase
in the installed customer base in both business segments.


Professional
services revenue from the Enterprise Solutions segment increased to $4.6 million
in fiscal 2001 from $3.0 million in fiscal 2000, an increase of 47%. DOC1
services revenue increased 33% in fiscal 2001 to $10.6 million.


Total
costs of revenue for fiscal 2001 were $31.4 million versus $28.0 million for
fiscal 2000, representing 33% and 34% of total revenue, respectively. Costs of
revenue include software license expense and maintenance and service expense.
Software license expense consists of the amortization of software development
costs, royalty payments to third party vendors, and the costs of documentation
and quality assurance. Maintenance and service expense consist primarily of
consulting, education and support personnel salaries and related costs as well
as the costs to distribute the product, including the costs of the media on
which it is delivered, shipping and handling costs.


Software
license expense decreased to $11.3 million in fiscal 2001 representing 28% of
software license and related revenue compared with $12.3 million in fiscal 2000
representing 32% of software license and related revenue. The decrease as a
percent of revenue was primarily due to higher license revenue, lower software
amortization expense and lower royalty expense on sales of third party products.


Maintenance
and service expense increased to $20.1 million in fiscal 2001 from $15.7 million
in fiscal 2000, 37% and 36% of maintenance and service revenue, respectively.
The increase in expense as a percent of revenue was due to the higher percentage
of service revenue relative to maintenance revenue.


Included
in maintenance and service expense above are professional service and
educational training costs of $12.6 million which were 83% of professional
services revenue during 2001 and $8.8 million and 79% of professional services
revenue for the prior year. The increase in expense as a percentage of services
revenue was due to increased staffing and contracting costs.


Costs
of maintenance were $7.5 million for fiscal 2001 representing 19% of maintenance
revenue compared with costs of $7.0 million and 21% of maintenance revenue in
fiscal 2000. The decreased costs as a percentage of maintenance revenue were
primarily due to increased maintenance revenue partially offset by higher
information technology costs associated with supporting internal systems.


Total
operating costs of $50.8 million amounted to 54% of revenue in fiscal 2001
compared with $44.7 million or 54% of revenue during fiscal 2000. The various
components of operating costs are discussed below.


Research
and development expenses (after capitalization of certain software development
costs) totaled $6.5 million in fiscal 2001 and $4.2 million in 2000,
representing 7% and 5% of total revenue, respectively. Costs for research and
development, before capitalization, incurred in fiscal 2001and 2000, were $13.3
million, $11.1 million, respectively. The increase in costs was due to increased
investment in new product initiatives in all of the Companys major product
groups.


Sales
and marketing expenses totaled $30.8 million or 33% of revenue in fiscal 2001
and $26.1 million or 32% of revenue in fiscal 2000. The increase in costs as a
percentage of revenue was primarily due to higher sales incentive costs for both
Enterprise Solutions and DOC1 products. Sales and marketing costs for the
Enterprise Solutions products were 32% of total Enterprise Solutions revenue for
both fiscal 2001 and fiscal 2000. DOC1 selling and marketing costs were 33% and
31% of total DOC1 revenue for fiscal 2001 and fiscal 2000, respectively.


13
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|General
and administrative expenses were $13.4 million or 14% of total revenue in fiscal
2001 compared with $14.3 million or 17% for fiscal 2000. The decrease was
attributable to lower bonus compensation and lower bad debt expense due to cash
collections.


Net
non-operating income was $2.9 million in fiscal 2001 compared with net
non-operating income of $1.1 million in fiscal 2000. This increase represents
higher interest income generated from higher cash and short-term investment
balances as well as gains arising from foreign currency translation.


The
Companys effective tax rate was 40.6% in fiscal 2001 and 42.5% in fiscal
2000. The current years rate is the net effect of a 45% domestic tax rate
combined with a 33% foreign tax rate on taxable net income. The decreased
effective rate is primarily due to higher foreign taxable income in fiscal 2001.


Seasonality and Inflation


Group 1
in the past has experienced greater sales and earnings in the January-March
quarter, the fourth quarter of its fiscal year; there can be no assurance,
however, that this will occur in the future. This seasonal factor is believed to
be attributable to buying patterns of major accounts and also to fiscal year
incentives for Group 1s sales representatives. Group 1s
revenue and resultant earnings have shown substantial variation on a
quarter-to-quarter basis. The Companys license agreements represent the
culmination of sales cycles averaging three to six months. Any significant
lengthening in the sales cycle can have the effect of moving revenue from one
quarter into the next, contributing to quarter-to-quarter variations.


Prices
remain stable for Group 1s products. Inflation directly affects
Group 1s cost structure principally in the areas of Associate
compensation and benefits, occupancy and support services and supplies.


Liquidity and Capital Resources


The
Companys working capital was $27.0 million at March 31, 2002 as compared
with $29.7 million a year earlier. The current ratio was 1.6 to 1 at March 31,
2002 and 1.7 to 1 at March 31, 2001. Note that the current portion of deferred
revenue related to maintenance contracts is included in current liabilities.
Accordingly, working capital and current ratios may not be directly comparable
to such data for companies in other industries where similar revenue deferrals
are not typical.


The
Company provides for its funding requirements through cash generated from
operations. Additionally, the Company maintains a $10 million line of credit
arrangement with a commercial bank, expiring October 31, 2002. The line of
credit bears interest at the banks prime rate or Libor plus 150 basis
points, at Group 1s option. The line of credit is not collateralized but
requires Group 1 to maintain certain operating ratios. At March 31, 2002 and at
March 31, 2001, there were no borrowings outstanding under the line of credit.


During
fiscal 2002, net income before preferred stock dividends of $4.4 million along
with non-cash expenses of $11.9 million provided a total of $16.3 million cash
from operating activities. A decrease in accounts receivable increased cash by
$6.4 million during the year. This decrease in receivables was due to improved
cash collections and lower revenue during the year. Deferred revenues decreased
cash by $0.5 million. A decrease in accrued expenses and compensation decreased
cash by $2.8 million. This was due to payments of fiscal 2001 accrued corporate
bonuses and other incentive compensation, which were not accrued during fiscal
2002 due to lower earnings. Other working capital items decreased cash by $0.3
million. Cash flows used in investing activities consist of expenditures for
investments in software development and capital equipment of $10.2 million,
$16.7 million net cash used for purchases of marketable securities and $6.1
million paid for acquisitions. Proceeds from the exercise of stock options of
$0.9 million were partially offset by principal payments on capital leases and
preferred dividends and the repurchase of common stock of $0.2 million for a
total of $0.7 million cash provided by financing activities.


Group 1
continually evaluates the credit and market risks associated with outstanding
receivables. In the course of this review, Group 1 considers many factors
specific to the individual client as well as to the concentration of receivables
within industry groups.


As
of March 31, 2002, the Companys capital resource commitments consisted
primarily of non-cancelable operating lease commitments for office space and
equipment. The Company believes that its current minimum lease obligations and
other short-term and long-term liquidity needs can be met from its existing cash
and short-term investment balances and cash flows from operations. The Company
believes that its long-term liquidity needs are minimal and no large capital
expenditures are currently planned, except for the continuing investment in
software development costs, which the Company believes can be funded from
operations during the next twelve months.


14
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
following table lists the Companys contractual obligations and commercial
commitments (in thousands):
|----------------------------------------------------------------------------------------------------------

|                      
|----------------------
|
|                      
|Capital Leases        
|                      
|Operating Leases      
|                      
|Notes payable         
|                      
|Total Contractual Cash
|Obligations           
|                      

|Critical Accounting Policies


The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
Cautionary Advice Regarding Disclosure About Critical Accounting
Policies (FR 60), in December 2001. FR 60 requires companies
to disclose those accounting policies considered most critical. Note 1 to the
audited financial statements includes a summary of the Companys
significant accounting policies. Of those policies, the Company has identified
the following as the most critical because they require significant judgment and
estimates on the part of management in their application:


Revenue
Recognition: Revenues are primarily derived from the sale of software
licenses and from the sale of related services, which include maintenance and
support, consulting and training services. Revenues from license arrangements
are recognized upon delivery of the product when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable and
collectibility is probable. If the agreement includes acceptance criteria,
revenue is not recognized until the Company can demonstrate that the software or
service can meet the acceptance criteria. If an ongoing vendor obligation exists
under the license arrangement, revenue is deferred based on vendor-specific
objective evidence of the undelivered element. If vendor-specific objective
evidence does not exist for all undelivered elements, all revenue is deferred
until sufficient evidence exists or all elements have been delivered. Revenues
from annual maintenance and support are deferred and recognized ratably over the
term of the contract. Revenues from consulting and training services are
deferred and recognized when the services are performed and collectibility is
deemed probable.


The
amount of deferred revenue at March 31, 2002 to be recognized during the
subsequent years is (in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 2003            |  |  | $ | 28,833 |  |  |  | 
| |  |  | --------------- |  |  | - | ------ |  |  |  | 
| |  |  | 2004            |  |  |   | 165    |  |  |  | 
| |  |  | 2005            |  |  |   | 30     |  |  |  | 
| |  |  | 2006 and beyond |  |  |   | 2      |  |  |  | 
| |  |  |                
| |  |  |                 |  |  | $ | 29,030 |  |  |  | 
| |  |  |                

|Contracts
for professional services are negotiated individually. The Company generally
recognizes revenues from professional service contracts on a time and materials
basis as the work is performed. Revenues from fixed price professional service
contracts are recognized using the percentage-of-completion method as work is
performed, measured primarily by the ratio of labor hours incurred to total
estimated labor hours for each specific contract. When the total estimated cost
of a contract is expected to exceed the contract price, the total estimated loss
is charged to expense in the period when the information is known. As of March
31, 2002, the Company has not incurred any losses on contracts in progress.


Revenue
from arrangements where the Company provides Web based services is recognized
over the contract period. Any fees paid or costs incurred prior to the customer
relationship period, such as license fees, consulting, customization or
development services, are deferred and recognized ratably over the subsequent
contract period, which is typically one to two years.


Revenue
from products licensed to original equipment manufacturers is recorded when
products have been shipped and the appropriate documentation has been received
by Group 1, provided all other revenue recognition criteria have been satisfied.
Revenue from sales through value added resellers or distributors is recorded
when a license agreement is signed with an end user.


Capitalized
Software: In accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Accounting for the Costs of Computer Software
to be Sold, Leased, or Otherwise Marketed, software development costs are
expensed as incurred until technological feasibility has been established, at
which time such costs are capitalized until the product is available for general
release to customers. Software development costs capitalized include direct
labor costs and fringe labor overhead costs attributed to programmers, software
engineers, quality control and field certifiers working on products after they
reach technological feasibility but before they are generally available to
customers for sale. Capitalized costs are amortized over the estimated product
life of three to five years, using the greater of the straight-line method or
the ratio of current product revenues to total projected future revenues. At the
balance sheet date, the Company evaluates the net realizable value of the
capitalized costs and adjusts the current period amortization for any impairment
of the capitalized asset value.


15
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Goodwill:
In June 2001, the Financial Accounting Standards Board (FASB) approved Statements of
Financial Accounting Standards (SFAS) No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. The Company elected to adopt SFAS No. 142 as of
April 1, 2001. SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets. In accordance with this Statement, the Company
ceased amortization of goodwill as of April 1, 2001. Goodwill will be tested for
impairment at least annually at the reporting unit level. Goodwill will be tested for
impairment on an interim basis if an event occurs or circumstances change that would
more-likely-than-not reduce the fair value of a reporting unit below its carrying value.
In accordance with FAS 142 provisions, the Company completed the transitional and the
annual goodwill impairment test as of April 1, 2001 and concluded that goodwill of its
reporting units was not impaired. The Company also completed its annual goodwill
impairment test and concluded that goodwill of its reporting units was not impaired.


Goodwill
represents the excess of the aggregate purchase price over the fair market value
of the tangible and intangible assets acquired in various acquisitions and,
prior to fiscal year 2002, was amortized on a straight-line basis over the
estimated economic useful life ranging from nine to fifteen years. Goodwill, net
of accumulated amortization, was $12.7 million and $4.0 million at March 31,
2002 and 2001, respectively. There was no goodwill amortization expense during
fiscal year 2002 in accordance with SFAS Nos. 141 and 142, as discussed above.
Amortization charged to operations amounted to $526,000 and $748,000 for fiscal
2001 and 2000, respectively.


Recent Accounting Pronouncements


In
August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. The
provisions of this Statement will be effective for the Companys fiscal
year 2003. The adoption of this Statement is not expected to have a significant
impact on the Companys financial position and results of operations.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk


The
Company has a subsidiary in the United Kingdom with offices throughout
continental Europe. Additionally, the Company uses third party distributors to
market and distribute its products in other international regions. Transactions
conducted by the subsidiary are typically denominated in the local country
currency, while transactions conducted by the distributors are typically
denominated in pounds sterling. As a result, the Company is primarily exposed to
foreign exchange rate fluctuations as the financial results of its subsidiary
and third party distributors are translated into U.S. dollars in consolidation.
As exchange rates vary, these results, when translated, may vary from
expectations and impact overall expected profitability. Through and as of March
31, 2002, however, the Companys exposure was not material to the financial
statements taken as a whole. The Company has not entered into any foreign
currency hedging transactions with respect to its foreign currency market risk.
The Company does not have any financial instruments subject to material market
risk.


Risk Factors


Our total revenue and operating results may fluctuate.


We
may experience a shortfall in revenue or earnings or otherwise fail to meet
public market expectations, which could materially and adversely affect our
business and the market price of our common stock. Our total revenue and
operating results may fluctuate significantly because of a number of factors,
many of which are outside of our control. These factors include, but are not
necessarily limited to:


16
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

| |  | Level
of product, services and price competition;
|- |  | -------------------------------------------------

| |  | 
| |  | 

| |  | Length
of our sales cycle and customer licensing patterns;
|- |  | ----------------------------------------------------------

| |  | 
| |  | 

| |  | The
size and timing of individual license transactions;
|- |  | -------------------------------------------------------

| |  | 
| |  | 

| |  | Delay
or deferral of customer purchase and implementations of our products;
|- |  | ---------------------------------------------------------------------------

| |  | 
| |  | 

| |  | Success
in expanding or maintaining our direct sales force and indirect distribution channels;
|- |  | ----------------------------------------------------------------------------------------------

| |  | 
| |  | 

| |  | Timing
of new product introductions and product enhancements;
|- |  | -------------------------------------------------------------

| |  | 
| |  | 

| |  | Appropriate
mix of products licensed and services sold;
|- |  | -------------------------------------------------------

| |  | 
| |  | 

| |  | Levels
of international transactions;
|- |  | -------------------------------------

| |  | 
| |  | 

| |  | Activities
of and acquisitions by competitors;
|- |  | ----------------------------------------------

| |  | 
| |  | 

| |  | Labor
turnover and timing of new hires and the allocation of our resources;
|- |  | ---------------------------------------------------------------------------

| |  | 
| |  | 

| |  | Changes
in the economy and foreign currency exchange rates; and
|- |  | ---------------------------------------------------------------

| |  | 
| |  | 

| |  | Our
ability to develop and market new products and control costs
|- |  | ----------------------------------------------------------------

| |  | 
| |  | 

| |  | Satisfactory
completion of services we provide
|- |  | ----------------------------------------------

| |  | 
| |  | 

| |  | Performance
of key third party service providers
|- |  | ------------------------------------------------

|One
or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly.


Our quarterly operating results may fluctuate.


Our
total revenue and operating results may vary drastically from quarter to
quarter. The main factors that may affect these fluctuations are:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
discretionary nature of our customers purchase and budget cycles;
|- |  | ----------------------------------------------------------------------

| |  | 
| |  | 

| |  | The
potential delays in recognizing revenue from license transactions;
|- |  | ----------------------------------------------------------------------

| |  | 
| |  | 

| |  | The
timing of new product releases;
|- |  | -----------------------------------

| |  | 
| |  | 

| |  | Seasonal
variations in operating results;
|- |  | -----------------------------------------

| |  | 
| |  | 

| |  | Variations
in the fiscal or quarterly cycles of our customers;
|- |  | --------------------------------------------------------------

| |  | 
| |  | 

| |  | The
size and complexity of our license transactions; and
|- |  | --------------------------------------------------------

| |  | 
| |  | 

| |  | Domestic
and international business conditions.
|- |  | -----------------------------------------------

|Each
customers decision to purchase our products and services is discretionary
and is subject to its budget cycles. In addition, the timing of license revenue
is difficult to predict because of the length of our sales cycle, which has
ranged to date from one to eighteen months. We base our operating expenses on
anticipated revenue trends. Because a high percentage of these expenses are
relatively fixed, a delay in recognizing revenue from license transactions could
cause significant variations in operating results from quarter to quarter and
could result in operating losses. If these expenses precede, or are not
subsequently followed by, increased revenues, our operating results could be
materially and adversely affected.


As
a result of these and other factors, revenues for any quarter are subject to
significant variation and we believe that period-to-period comparisons of our
results of operations are not necessarily meaningful. The reader should not rely
on these comparisons as indications of future performance.


We need to integrate acquisitions and manage growth successfully.


Our
business strategy includes pursuing opportunities to grow our business, both
internally and through selective acquisitions and strategic alliances. Our
ability to implement this strategy depends, in part, on our success in making
such acquisitions and strategic alliances on satisfactory terms and successfully
integrating them into our operations. These acquisitions may initially cause
dilution of earnings and may impose significant strains on our management,
operating systems and financial resources. Failure to manage this growth, or
unexpected difficulties encountered during expansion, could have an adverse
effect on our business, operating results and financial condition.


We
acquired three companies during the fiscal year and the Companys ongoing
strategy includes pursuing additional acquisitions. We may not be able to
successfully assimilate the additional personnel, operations, acquired
technology and products into our business. In particular, we will need to
assimilate and retain key professional services, sales, development and
marketing personnel. Key personnel from the acquired companies may in the future
decide to pursue other opportunities. In addition, it may be necessary to
integrate products of these companies with our technology, and it is uncertain
whether we may accomplish this easily or at all. These integration difficulties
could disrupt our ongoing business, distract management and employees or
increase expenses. Acquisitions are inherently risky, and we may also face
unexpected costs, which may adversely affect operating results in any quarter.


17
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Due
to these and other factors, we may not meet expectations of securities analysts
or investors with respect to revenues or other operating results of the combined
company, which could adversely affect our stock price


Economic conditions could adversely affect our revenue growth and ability to forecast revenue


The
revenue growth and profitability of our business depends on the overall demand
for our software products and services. Because our sales are primarily to major
corporate customers our business is subject to fluctuations based on overall
economic conditions. The general weakening of the global economy has caused a
decrease in our software license revenues in 2002. A softening of demand for
computer software caused by continued weakening of the economy, domestically or
internationally, may result in a continued decrease in revenues and growth
rates.


Our
revenue pipeline estimates may not consistently correlate to actual revenues in
a particular quarter or over a long period of time. A slowdown in the economy,
domestically or internationally, has caused and may continue to cause customer
purchasing decisions to be delayed, reduced in amount or canceled, all of which
have reduced and could continue to reduce the rate of conversion of the pipeline
into contracts. A variation in the pipeline or in the conversion of the pipeline
into contracts could cause us to plan or budget improperly and thereby could
adversely affect our business, financial condition or results of operations. In
addition, primarily due to a substantial portion of our license contracts
closing in the latter part of the quarter, management may not be able to adjust
our cost structure in response to a variation in the conversion of the pipeline
into contracts in a timely manner, thereby adversely affecting our business,
financial condition or results of operations.


We may not be able to
compete effectively in the Internet-related products and services market.


Group
1s Web service applications communicate through public and private
networks over the Internet. The success of our products may depend, in part, on
our ability to continue developing products that are compatible with the
Internet. We cannot predict with any assurance whether the demand for
Internet-related products and services will increase or decrease in the future.
The increased commercial use of the Internet could require substantial
modification and customization of our products and the introduction of new
products.


Critical
issues concerning the commercial use of the Internet, including security,
privacy, demand, reliability, rate of adoption, cost, ease of use,
accessibility, quality of service and potential tax or other government
regulation, remain unresolved and may affect the use of the Internet as a medium
to support the functionality of our products and distribution of our software.
If these critical issues are not favorably resolved, our business, operating
results and financial condition could be materially and adversely affected.


Our continued success
will require us to keep pace with technological developments, evolving industry standards
and changing customer needs.


The
software market in which we compete is characterized by (i) rapid technological
change, (ii) frequent introductions of new products, (iii) changing customer
needs and (iv) evolving industry standards. To keep pace with technological
developments, evolving industry standards and changing customer needs, we must
support existing products and develop new products. We may not be successful in
developing, marketing and releasing new products or new versions of our products
that respond to technological developments, evolving industry standards or
changing customer requirements. We may also experience difficulties that could
delay or prevent the successful development, introduction and sale of these
enhancements. In addition, these enhancements may not adequately meet the
requirements of the marketplace and may not achieve any significant degree of
market acceptance. If release dates of any future products or enhancements to
Group 1s products are delayed, or if these products or enhancements fail
to achieve market acceptance when released, our business, operating results and
financial condition could be materially and adversely affected. In addition, new
products or enhancements by our competitors may cause customers to defer or
forego purchases of our products, which could have a material adverse effect on
our business, financial condition and results of operations.


Software errors or defects in our products could reduce revenues.


Software
products frequently contain errors or failures, especially when first introduced
or when new versions are released, and could be affected by viruses. We have, in
the past, been forced to delay the commercial release of products until software
problems have been corrected. We could lose revenues as a result of software
viruses, errors or defects, including defects in third party products with which
our products work. Testing errors may also be found in new products or releases
after commencement of commercial shipments, resulting in loss of revenue or
delay in market acceptance, damage to our reputation, or increased service and
warranty costs, any of which could have a material adverse effect upon our
business, operating results and financial condition.


18
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|If we do not
successfully manage our growth, our business may be negatively impacted.


If
we fail to manage our growth effectively, our business, financial condition and
results of operations could be materially and adversely affected. Our business
has grown rapidly in recent years. This growth has placed a significant strain
on our management systems and resources. In addition, this growth may require us
to implement new systems or upgrade current systems, and the failure to
successfully implement such new or improved systems could materially and
adversely affect our business. To manage future growth, we must continue to (i)
implement and improve our financial, operational and management controls,
reporting systems and procedures on a timely basis and (ii) expand, train and
manage our employee work force.


Failure to meet
regulatory requirements set by the USPS and CPC could have a negative impact on revenues.


We
are required to maintain many of our products in accordance with regulatory
standards set by the U.S. and Canadian Postal authorities. Failure to meet these
requirements could adversely affect our business, financial condition and
results of operations.


Our expanding distribution channels may create additional risks.


Failure
to minimize channel conflicts could materially and adversely affect our
business, operating results and financial condition. We have a number of
relationships with resellers, which assist us in obtaining broad market
coverage. We have generally avoided exclusive relationships with resellers of
our products. Discount policies and reseller licensing programs are intended to
support each distribution channel with a minimum level of channel conflicts.


If we do not maintain
our relationships with third party vendors, interruptions in the supply of our products
may result.


We
may not be able to replace the functionality provided by the third-party
software and data currently offered with our products if that software oe data
becomes obsolete or incompatible with future versions of our products or is not
adequately maintained or updated. Portions of our products incorporate software
or data that was developed and is maintained by third-party software developers
or data providers. Although we believe there are other sources for these
products and data, any significant interruption in the suply could adversely
impact our sales unless and until we can secure another source. We depend in
part on these third parties ability to enhance their current products and
data, to develop new products and update data on a timely and cost-effective
basis and to respond to emerging industry standards and other technological
changes. The absence of or any significant delay in the replacement of
functionality provided by third-party software in our products could materially
and adversely affect our sales.


If we acquire additional
companies, products or technologies, we may face risks similar to those faced in our
other acquisitions.


We
may continue to make other investments in complementary companies, products or
technologies. We may not realize the anticipated benefits of any other
acquisition or investment. If we acquire another company, we will likely face
the same risks, uncertainties and disruptions as discussed above with respect to
our other acquisitions. In addition, our profitability may suffer because of
acquisition-related costs or amortization costs for acquired goodwill and other
intangible assets.


We may not be able to protect our proprietary information.


We
rely primarily on a combination of patent, copyright, trade secret and trademark
laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also believe that the technological and creative skills
of our personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are essential to establishing and
maintaining a technology leadership position. Notwithstanding these, it may be
possible for other persons to obtain copies of Group 1s products.
Group 1 believes that because of the rapid pace of technological change in
the technology industry and changes in postal regulations that affect several
core products, copyright and trade secret protection are less significant than
factors such as the knowledge and experience of Group 1s management
and other personnel and their ability to develop, enhance, market and acquire
new products. Policing unauthorized use of our products is difficult. In
addition, the laws of some foreign countries do not protect our proprietary
rights as fully as do the laws of the United States. Our means of protecting our
proprietary rights in the United States or abroad may not be adequate.


Although
we do not believe that we are infringing on any proprietary rights of others,
third parties may claim that we have infringed on their intellectual property
rights. Furthermore, former employers of our former, current or future employees
may assert claims that such employees have improperly disclosed to us the
confidential or proprietary information of such former employers. Any such
claims, with or without merit, could (i) be time consuming to defend, (ii)
result in costly litigation, (iii) divert managements attention and
resources, (iv) cause product delays in product and services deliveries and (v)
require us to pay monetary damages or enter into royalty or licensing
agreements. A successful claim of product infringement against us and our
failure or inability to license or create a workaround for such infringed or
similar technology may materially and adversely affect our business, operating
results and financial condition.


19
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|We
license certain software from third parties. These third-party software licenses
may not continue to be available to us on acceptable terms. The loss of, or
inability to maintain, any of these software licenses could result in shipment
delays or reductions. This could materially and adversely affect our business,
operating results and financial condition.


Our international operations involve unique risks.


Our
international operations are subject to a variety of risks, including (i)
foreign currency fluctuations, (ii) economic or political instability, (iii)
shipping delays and (iv) various trade restrictions. Any of these risks could
have a significant impact on our ability to deliver products on a competitive
and timely basis. Significant increases in the level of customs duties, export
quotas or other trade restrictions could also have an adverse effect on our
business, financial condition and results of operations. In situations where
direct sales are denominated in foreign currency, any fluctuation in foreign
currency or the exchange rate may adversely affect our business, financial
condition and results of operations.


Our stock price may continue to be volatile.


The
trading price of our common stock is subject to significant fluctuations in
response to variations in quarterly operating results, the gain or loss of
significant contracts, changes in earning estimates by analysts, announcements
of technological innovations or new products by us or our competitors, general
conditions in the software and computer industries and other events or factors.
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price for many companies in
industries similar or related to ours and that have been unrelated to the
operating performance of these companies. These market fluctuations have
adversely affected and may continue to adversely affect the market price of our
common stock.


Item 8. Financial Statements and Supplementary Data


See
pages 22 through 41.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


None.


20
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Report of Independent
Accountants


To the Board of Directors and Stockholders of
Group 1 Software, Inc.


In our opinion, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, of comprehensive income, of stockholders equity and of cash
flows present fairly, in all material respects, the financial position of Group
1 Software, Inc. and its subsidiaries at March 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Companys management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


/s/
PricewaterhouseCoopers LLP


McLean, Virginia
June 14, 2002


21
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|GROUP 1 SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
|-----------------------------------------------------------------------------------

|                                                              | MARCH 31, | 
|------------------------------------------------------------- | --------- | 
|
|ASSETS                                                        |           | 
|Current assets:                                               |           | 
|Cash and cash equivalents                                     |           | 
|Short-term investments, available for sale                    |           | 
|Trade and installment accounts receivable, less               |           | 
|allowance for doubtful accounts of $2,058 and $2,197          |           | 
|Deferred income taxes                                         |           | 
|Prepaid expenses and other current assets                     |           | 
|                                                              |           | 
|Total current assets                                          |           | 
|                                                             
|Installment accounts receivable, long-term                    |           | 
|Property and equipment, net                                   |           | 
|Computer software, net                                        |           | 
|Goodwill                                                      |           | 
|Other assets                                                  |           | 
|                                                              |           | 
|Total assets                                                  |           | 
|                                                              |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                          |           | 
|Current liabilities:                                          |           | 
|Accounts payable                                              |           | 
|Current portion of notes payable and capital lease obligation |           | 
|Accrued expenses                                              |           | 
|Accrued compensation                                          |           | 
|Current deferred revenues                                     |           | 
|                                                              |           | 
|Total current liabilities                                     |           | 
|                                                             
|Notes payable and capital lease obligations, net of current   |           | 
|portion                                                       |           | 
|Deferred revenues, long-term                                  |           | 
|Deferred income taxes                                         |           | 
|                                                              |           | 
|Total liabilities                                             |           | 
|                                                              |           | 
|Commitments and contingencies                                 |           | 
|                                                             
|Stockholders equity:                                         |           | 
|6% cumulative convertible preferred stock $0.25 par           |           | 
|value; 1,200 shares authorized; 48 shares issued and          |           | 
|outstanding (aggregate involuntary liquidation                |           | 
|preference $950)                                              |           | 
|Common stock $0.50 par value; 50,000 shares authorized;       |           | 
|6,918 and 6,654 issued and outstanding                        |           | 
|Additional paid-in capital                                    |           | 
|Retained earnings                                             |           | 
|Accumulated other comprehensive loss                          |           | 
|Treasury stock, 620 and 497 shares, at cost                   |           | 
|                                                              |           | 
|Total stockholders equity                                    |           | 
|                                                              |           | 
|Total liabilities and stockholders equity                    |           | 
|                                                              |           | 

|See notes to consolidated financial statements.


22
|----------------------------------------------------

|GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|--------------------------------------------------------------------------------------------------

|                                                                  | Year Ended March 31, | 
|----------------------------------------------------------------- | -------------------- | 
|
|Revenue:                                                          |                      | 
|Software license and related revenue                              |                      | 
|Maintenance and services                                          |                      | 
|                                                                  |                      | 
|Total revenue                                                     |                      | 
|                                                                  |                      | 
|Cost of revenue:                                                  |                      | 
|Software license expense                                          |                      | 
|Maintenance and service expense                                   |                      | 
|                                                                  |                      | 
|Total cost of revenue                                             |                      | 
|                                                                  |                      | 
|Gross profit                                                      |                      | 
|                                                                 
|Operating expenses:                                               |                      | 
|Research and development, net (see Note 1 for gross expenditures) |                      | 
|Sales and marketing                                               |                      | 
|General and administrative                                        |                      | 
|                                                                  |                      | 
|Total operating expenses                                          |                      | 
|                                                                  |                      | 
|Income from operations                                            |                      | 
|Non-operating income:                                             |                      | 
|Interest income                                                   |                      | 
|Interest expense                                                  |                      | 
|Other non-operating income (expense)                              |                      | 
|                                                                  |                      | 
|Total non-operating income                                        |                      | 
|                                                                  |                      | 
|Income before provision for income taxes                          |                      | 
|                                                                 
|Provision for income taxes                                        |                      | 
|                                                                  |                      | 
|Net income                                                        |                      | 
|                                                                 
|Preferred stock dividend requirements                             |                      | 
|                                                                  |                      | 
|Net income available to common stockholders                       |                      | 
|                                                                  |                      | 
|                                                                 
|Basic earnings per share                                          |                      | 
|                                                                  |                      | 
|Diluted earnings per share                                        |                      | 
|                                                                  |                      | 
|Basic weighted average shares outstanding                         |                      | 
|                                                                  |                      | 
|Diluted weighted average shares outstanding                       |                      | 
|                                                                  |                      | 

|See notes to consolidated financial statements.


23
|----------------------------------------------------

|GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|-------------------------------------------------------------------------------------

|                                         | Year Ended March 31, | 
|---------------------------------------- | -------------------- | 
|
|Net income                               |                      | 
|                                        
|Foreign currency translation adjustments |                      | 
|                                         |                      | 
|Comprehensive income                     |                      | 
|                                         |                      | 

|See notes to consolidated financial statements.


24
|----------------------------------------------------

|GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
|-------------------------------------------------------------------------------------

|                                     | Preferred Stock | Common Stock |  |    |  | Treasury Stock |        
|------------------------------------ | --------------- | ------------ |  | -- |  | -------------- | -------
|
|                                     |                 |              |  |    |  |                |        
|Balance, March 31, 1999              |                 |              |  | 48 |  |                | $   916
|                                    
|Dividends to preferred stockholders  |                 |              |  |   |  |                |       
|Issuance of stock upon exercise of   |                 |             
|options                              |                 |              |  |   |  |                |       
|Loss on foreign currency translation |                 |              |  |   |  |                |       
|Tax benefit related to stock options |                 |              |  |   |  |                |       
|Net income                           |                 |              |  |   |  |                |       
|                                     |                 |              |  |    |  |                |        
|Balance, March 31, 2000              |                 |              |  | 48 |  |                | 916    
|                                    
|Dividends to preferred stockholders  |                 |              |  |   |  |                |       
|Issuance of stock upon exercise of   |                 |             
|options                              |                 |              |  |   |  |                |       
|Loss on foreign currency translation |                 |              |  |   |  |                |       
|Tax benefit related to stock options |                 |              |  |   |  |                |       
|Issuance of warrants to acquire      |                 |             
|common stock in exchange for         |                 |             
|services                             |                 |              |  |   |  |                |       
|Net income                           |                 |              |  |   |  |                |       
|                                     |                 |              |  |    |  |                |        
|Balance, March 31, 2001              |                 |              |  | 48 |  |                | 916    
|                                    
|Dividends to preferred stockholders  |                 |              |  |   |  |                |       
|Issuance of stock upon exercise of   |                 |             
|options                              |                 |              |  |   |  |                |       
|Treasury shares purchased            |                 |              |  |   |  |                |       
|Loss on foreign currency translation |                 |              |  |   |  |                |       
|Tax benefit related to stock options |                 |              |  |   |  |                |       
|Issuance of warrants for             |                 |              |  |   |  |                |       
|acquisition costs                    |                 |             
|Net income                           |                 |              |  |   |  |                |       
|                                     |                 |              |  |    |  |                |        
|Balance, March 31, 2002              |                 |              |  | 48 |  |                | $   916
|                                     |                 |              |  |    |  |                |        

|See notes to consolidated financial statements.


25
|----------------------------------------------------

|GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|---------------------------------------------------------------------------

|                                                         | Year Ended March 31, | 
|-------------------------------------------------------- | -------------------- | 
|
|Cash flows from operating activities:                    |                      | 
|Net income                                               |                      | 
|Adjustments to reconcile net income from                 |                      | 
|operations to net cash provided by operating activities: |                      | 
|Amortization expense                                     |                      | 
|Depreciation expense                                     |                      | 
|Provision for doubtful accounts                          |                      | 
|Net loss on disposal of assets                           |                      | 
|Deferred income taxes                                    |                      | 
|Tax benefit from exercises of  stock options             |                      | 
|Foreign currency transaction (gain) loss                 |                      | 
|Issuance of common stock warrants in exchange for        |                      | 
|services                                                 |                      | 
|Changes in assets and liabilities:                       |                      | 
|Accounts receivable                                      |                      | 
|Prepaid expenses and other current assets                |                      | 
|Other assets                                             |                      | 
|Deferred revenues                                        |                      | 
|Accounts payable                                         |                      | 
|Accrued expenses and accrued compensation                |                      | 
|                                                         |                      | 
|Net cash provided by operating activities                |                      | 
|                                                         |                      | 
|Cash flows from investing activities:                    |                      | 
|Purchases and development of computer software           |                      | 
|Purchases of property and equipment                      |                      | 
|Payment for acquisitions, net of cash acquired           |                      | 
|Purchases of marketable securities                       |                      | 
|Proceeds from sale and maturities of marketable          |                      | 
|securities                                               |                      | 
|                                                         |                      | 
|Net cash used in investing activities                    |                      | 
|                                                         |                      | 
|Cash flows from financing activities:                    |                      | 
|Proceeds from exercise of stock options                  |                      | 
|Repayment of principal on capital lease obligations      |                      | 
|Dividends paid on preferred stock                        |                      | 
|Repurchase of common stock                               |                      | 
|                                                         |                      | 
|Net cash provided by financing activities                |                      | 
|                                                         |                      | 
|Net increase (decrease) in cash and cash equivalents     |                      | 
|                                                        
|Effect of exchange rate on cash and cash equivalents     |                      | 
|                                                        
|Cash and cash equivalents at beginning of period         |                      | 
|                                                         |                      | 
|Cash and cash equivalents at end of period               |                      | 
|                                                         |                      | 

|See notes to consolidated financial statements.


26
|----------------------------------------------------

|Group 1
Software, Inc.Notes to
Consolidated Financial Statements


(1) Summary of Significant Accounting Policies


Organization


The
accompanying consolidated financial statements are for Group 1 Software,
Inc. (Group 1), which was incorporated in June 1967. Unless
otherwise indicated in the Notes to the consolidated financial statements, the
term Company will refer to the operations of Group 1 and its
subsidiaries. Group 1 Software, Inc. develops, acquires, markets and
supports software solutions for customer communication management, data quality
and direct marketing. The Company distributes all of its products in North
America and its customer relationship communication solutions throughout the
world.


Principles of Consolidation


The
consolidated financial statements of the Company include the accounts of
Group 1 Software, Inc. and its wholly owned subsidiaries. All material
inter-company transactions and balances have been eliminated in consolidation.


Estimates


The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.


Revenue Recognition


Revenues
are primarily derived from the sale of software licenses and from the sale of
related services, which include maintenance and support, consulting and training
services. Revenues from license arrangements are recognized upon delivery of the
product when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and collectibility is probable. If
the agreement includes acceptance criteria, revenue is not recognized until the
Company can demonstrate that the software or service can meet the acceptance
criteria. If an ongoing vendor obligation exists under the license arrangement,
revenue is deferred based on vendor-specific objective evidence of the
undelivered element. If vendor-specific objective evidence does not exist for
all undelivered elements, all revenue is deferred until sufficient evidence
exists or all elements have been delivered. Revenues from annual maintenance and
support are deferred and recognized ratably over the term of the contract.
Revenues from consulting and training services are deferred and recognized when
the services are performed and collectibility is deemed probable.


The
amount of deferred revenue at March 31, 2002 to be recognized during the
subsequent years is (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 2003            |  |  | $ | 28,833 |  |  |  | 
| |  |  | --------------- |  |  | - | ------ |  |  |  | 
| |  |  | 2004            |  |  |   | 165    |  |  |  | 
| |  |  | 2005            |  |  |   | 30     |  |  |  | 
| |  |  | 2006 and beyond |  |  |   | 2      |  |  |  | 
| |  |  |                
| |  |  |                 |  |  | $ | 29,030 |  |  |  | 
| |  |  |                

|Contracts
for professional services are negotiated individually. The Company generally
recognizes revenues from professional service contracts on a time and materials
basis as the work is performed. Revenues from fixed price professional service
contracts are recognized using the percentage-of-completion method as work is
performed, measured primarily by the ratio of labor hours incurred to total
estimated labor hours for each specific contract. When the total estimated cost
of a contract is expected to exceed the contract price, the total estimated loss
is charged to expense in the period when the information is known. As of March
31, 2002, the Company has not incurred any losses on contracts in progress.


Revenue
from arrangements where the Company provides Web-based services is recognized
over the contract period. Any fees paid or costs incurred prior to the customer
relationship period, such as license fees, consulting, customization or
development services, are deferred and recognized ratably over the subsequent
contract period, which is typically one to two years.


27
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Revenue
from products licensed to original equipment manufacturers is recorded when
products have been shipped and the appropriate documentation has been received
by Group 1, provided all other revenue recognition criteria have been satisfied.
Revenue from sales through value added resellers or distributors is recorded
when a license agreement is signed with an end user.


Cash and Cash Equivalents


The
Company considers all highly liquid investments with maturities of three months
or less at the time the investments are acquired to be cash equivalents. Cash
equivalents for the Company are solely investments in commercial paper.


Short-term Investments


The
Company classifies its short-term investments as available-for-sale. Short-term
investments are comprised of debt securities with original maturities of more
than three months when purchased. All securities held mature within one year of
the balance sheet date. As of March 31, 2002 the Company had available-for-sale
investments of $24.7 million. The Company had available-for-sale investments of
$8.0 million as of March 31, 2001. The investments are adjusted to market value
at the end of each accounting period. Unrealized gains and losses, net of
applicable taxes, are charged or credited to accumulated other comprehensive
income, a separate component of stockholders equity. Realized gains and
losses on the sale of investments, as determined on a specific identification
basis, are included in the consolidated statements of operations. To date,
unrealized gains and losses have not been material. Interest income is
recognized when earned.


Property and Equipment


Property
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives: two years for laptop computers, three
years for other computers, five years for office equipment and ten years for
furniture. Leasehold improvements are amortized on a straight-line basis over
the shorter of their useful lives or the term of the respective leases.
Expenditures for maintenance and repairs are charged to expense as incurred.
When assets are retired or sold, the cost and the accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
results of operations.


Internal Use Software


Internal
use software and web site development costs are capitalized in accordance with
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, and Emerging Issues Task
Force (EITF) Issue No. 00-02, Accounting for Web Site Development
Costs. Qualifying costs incurred during the application development stage,
which consist primarily of outside services and purchased software license
costs, are capitalized and amortized over the estimated useful life of the
asset. All other costs are expensed as incurred. As of March 31, 2002 and 2001,
costs qualifying for capitalization totaled $1,180,000 and $2,171,000 net of
accumulated amortization of $3,078,000 and $2,438,000, respectively. These costs
are included as part of property, plant and equipment, net in the accompanying
consolidated balance sheets. Amortization is computed using the straight-line
method over the estimated useful lives of the assets, generally three years, and
is included in general and administrative expenses.


Research and Product Development


In
accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed, software development costs are expensed as incurred
until technological feasibility has been established, at which time such costs
are capitalized until the product is available for general release to customers.
Software development costs capitalized include direct labor costs and fringe
labor overhead costs attributed to programmers, software engineers, quality
control and field certifiers working on products after they reach technological
feasibility but before they are generally available to customers for sale.
Capitalized costs are amortized over the estimated product life of three to five
years, using the greater of the straight-line method or the ratio of current
product revenues to total projected future revenues. At the balance sheet date,
the Company evaluates the net realizable value of the capitalized costs and
adjusts the current period amortization for any impairment of the capitalized
asset value. Developed and acquired software costs, net of accumulated
amortization, are $22,873,000 and $18,936,000 million at March 31, 2002 and
2001, respectively, and are included in computer software, net in the
accompanying consolidated balance sheets. Amortization expense related to
developed and acquired software costs was $7,084,000, $8,091,000 and $9,047,000
for the years ended March 31, 2002, 2001 and 2000, respectively and is included
in cost of software license revenues. During the years ended March 31, 2002,
2001 and 2000, respectively, the Company capitalized software development costs
of $7,097,000, $6,736,000 and $6,834,000 and purchased software of $82,000,
$983,000 and $2,221,000. Research and product development costs not subject to
SFAS No. 86 are expensed as incurred and relate mainly to the development of new
products and on-going maintenance of existing products. Total costs for research
and development, before capitalization, incurred in fiscal 2002, 2001, and 2000
were $17,442,000, $13,264,000 and $11,055,000, respectively.


28
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Goodwill


In
June 2001, the Financial Accounting Standards Board (FASB) approved Statements
of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible
Assets. The Company elected to adopt SFAS No. 142 as of April 1, 2001.
SFAS No. 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets. In accordance with this Statement, the Company
ceased amortization of goodwill as of April 1, 2001. Goodwill will be tested for
impairment at least annually at the reporting unit level. Goodwill will be
tested for impairment on an interim basis if an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting unit
below its carrying value. In accordance with FAS 142 provisions, the Company
completed the transitional and the annual goodwill impairment test and concluded
that goodwill of its reporting units was not impaired.


Goodwill
represents the excess of the aggregate purchase price over the fair market value
of the tangible and intangible assets acquired in various acquisitions and,
prior to fiscal year 2002, was amortized on a straight-line basis over the
estimated economic useful life ranging from nine to fifteen years. Goodwill, net
of accumulated amortization, was $12.7 million and $4.0 million at March 31,
2002 and 2001, respectively. There was no goodwill amortization expense during
fiscal year 2002 in accordance with SFAS No. 142, as discussed above.
Amortization charged to operations amounted to $526,000 and $748,000 for fiscal
2001 and 2000, respectively.


Foreign Currency Translation


The
functional currency for the Companys international subsidiary is the
applicable local currency. The financial statements of the international
subsidiary are translated into U.S. dollars using exchange rates in effect at
period end for assets and liabilities and average exchange rates during each
reporting period for results of operations. Adjustments resulting from
translation of financial statements are included in stockholders equity as
accumulated other comprehensive income. The Company does not attempt to hedge
its foreign currency exposures. Foreign currency losses of $82,000 in 2002,
$1,284,000 in 2001, and $16,000 in 2000 are included in accumulated other
comprehensive income. Gains and losses arising from transactions denominated in
a currency other than the Companys functional currency are included in the
consolidated statements of operations.


Stock-based Compensation Plans


The
Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and
complies with the disclosure provisions of SFAS 123, Accounting for Stock
Based Compensation. Under APB 25, compensation cost is recognized over the
vesting period based on the difference, if any, on the date of grant between the
fair market value of the Companys stock and the amount an employee must
pay to acquire the stock. The Companys policy is to grant options with an
exercise price equal to the quoted market price of the Companys stock on
the grant date. The Companys stock-based awards issued to non-employees
are accounted for under the fair value method.


Income Taxes


The
Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the asset and liability tax consequences of temporary differences by applying
currently enacted statutory tax rates applicable to future years to differences
between the financial statements carrying amounts and the tax bases of existing
assets and liabilities. The Company does not provide for U.S. income tax
liabilities on undistributed earnings of its foreign subsidiaries which are
considered indefinitely reinvested.


Earnings per Share of Common Stock


Basic
earnings per share (EPS) is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS is computed using the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding during the
period. Potentially dilutive common stock equivalents consist of convertible
preferred stock (computed using the if converted method) and stock options and
warrants (computed using the treasury stock method). Potentially dilutive common
stock equivalents are excluded from the computation if the effect is
anti-dilutive. Share and per share data presented reflect the three-for-two
stock split effective February 2000.


29
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Reconciliation
of shares used in basic EPS calculations to the shares used in the diluted EPS
calculation is as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------

|                                              | Year Ended March 31, | 
|--------------------------------------------- | -------------------- | 
|
|Weighted average shares outstanding-basic     |                      | 
|Effect of dilutive securities:                |                      | 
|Stock options and warrants                    |                      | 
|Preferred shares                              |                      | 
|                                              |                      | 
|Weighted average shares outstanding - diluted |                      | 
|                                              |                      | 

|There
were 885,000, 387,000, and 957,000 potentially dilutive common stock options and
warrants in 2002, 2001 and 2000, respectively. There were additional potentially
dilutive convertible preferred shares of 47,500 in 2002 and in 2000. These were
not included in the earnings per share calculation due to their anti-dilutive
effect.


Concentration of Credit Risk


Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash, cash equivalents, short-term investments and
accounts receivable. The Company places its cash and cash equivalents and
short-term investments in highly rated commercial paper with maturities of less
than one year. The Company has established guidelines relative to credit ratings
and maturities that seek to maintain safety and liquidity.


The
Company designs, develops, manufactures, markets and supports computer software
systems to customers in diversified industries throughout the world. The Company
performs ongoing credit evaluations of its customers financial condition
and generally requires no collateral. The Companys installment receivables
are predominately with clients (service bureaus) who provide data processing
services to the direct marketing industry. Certain of these service bureau
clients may have limited capital and insufficient assets to secure their
liability to the Company. The service bureau industry is also highly competitive
and subject to general economic cycles as they impact advertising and direct
marketing expenditures. These customers represent approximately $0.9 million or
75% of the installment receivables balance at March 31, 2002 versus $1.8 million
or 68% at March 31, 2001. The Company maintains an allowance for uncollectible
accounts receivable based upon the expected collectibility of revenue or all
accounts receivable. For the years ended March 31, 2002 and 2001, no one
customer accounted for 10% or more of revenue or net accounts receivable.


Impairment of Long-Lived Assets


SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, specifies circumstances in which
certain long-lived assets must be reviewed for impairment. If such review
indicates that the carrying amount of an asset exceeds the sum of its expected
future cash flows, the assets carrying value must be written down to fair
value. Based on managements assessment as of March 31, 2002, the Company
has determined that no impairment of long-lived assets exists.


Fair Value of Financial Instruments


The
carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
notes payable approximate their fair value due to the short maturity of these
instruments.


Other Comprehensive Income (Loss)


Other
comprehensive income (loss) is comprised of foreign currency translation
adjustments and unrealized gains and losses on available-for-sale marketable
securities, net of related tax effects. To date, unrealized gains and losses on
available-for-sale marketable securities have not been significant.


Segment Reporting


Segment
information has been prepared in accordance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. SFAS No. 131
replaced the industry segment approach with the
management approach to reporting financial information about an
enterprises segments. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Companys reportable segments. SFAS No.
131 also requires disclosures about products and services, geographic areas and
major customers.


30
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Recent Accounting Pronouncements


In
August 2001, FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business. The
provisions of this Statement will be effective for the Companys fiscal
year 2003. The adoption of this Statement is not expected to have a significant
impact on the Companys financial position and results of operations.


Reclassification


Certain
prior year amounts have been reclassified to conform with the current year
presentation. In accordance with EITF No. 01-14, service revenue and service
cost of revenue were increased $902,000 and $778,000 in 2001 and 2000,
respectively. Software purchased for internal use, net, of $1,298,000 as of
March 31, 2001 was reclassified from Computer software, net to
Property and equipment, net in the consolidated balance sheet.


(2) Accounts Receivable


Accounts
receivable are comprised of the following (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | March 31, |                                  
| |  | --------- | ---------------------------------
|
| |  |           | Trade                            
| |  |           | Installment accounts receivable, 
| |  |           | interest typically at 8.5% to 13%
| |  |           | Allowance for doubtful accounts  
| |  |           |                                  
| |  |           |                                  
| |  |           | Less non-current portion of      
| |  |           | installment accounts receivable  
| |  |           |                                  
| |  |           | Current portion                  
| |  |           |                                  

|(3) Prepaid Expenses and Other Current Assets


Prepaid expenses and other current assets are comprised of the following (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------

| |  | March 31, |                     
| |  | --------- | --------------------
|
| |  |           | Prepaid expenses    
| |  |           | Prepaid commissions 
| |  |           | Prepaid royalties   
| |  |           | Other current assets
| |  |           |                     
| |  |           |                     
| |  |           |                     

|Prepaid commissions and royalties primarily relate to amounts paid, as of the balance sheet date, on
initial maintenance and enhancement contracts and contracts being recognized under the percentage-of-completion
method which have been deferred into future periods.


31
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) Property and Equipment


Property and equipment is comprised of the following (in thousands):
|-------------------------------------------------------------------------------------------------

| |  | March 31, |                                               
| |  | --------- | ----------------------------------------------
|
| |  |           | Computer equipment                            
| |  |           | Furniture and fixtures                        
| |  |           | Leasehold improvements                        
| |  |           | Software purchased and developed              
| |  |           | for internal use                              
| |  |           |                                               
| |  |           |                                               
| |  |           | Less accumulated depreciation and amortization
| |  |           |                                               
| |  |           |                                               
| |  |           |                                               

|(5) Computer Software


Computer software is comprised of the following (in thousands):
|---------------------------------------------------------------------------------------

| |  | March 31, |                              
| |  | --------- | -----------------------------
|
| |  |           | Developed software           
| |  |           | Acquired software            
| |  |           |                              
| |  |           |                              
| |  |           | Less accumulated amortization
| |  |           |                              
| |  |           |                              
| |  |           |                              

|(6) Accrued Expenses


Accrued expenses are as follows (in thousands):
|----------------------------------------------------------------------

| |  | March 31, |                              
| |  | --------- | -----------------------------
|
| |  |           | Accrued sales and other taxes
| |  |           | Accrued royalties            
| |  |           | Accrued sales incentives     
| |  |           | Income taxes payable         
| |  |           | Accrued interest expense     
| |  |           | Other accrued expenses       
| |  |           |                              
| |  |           |                              
| |  |           |                              

|(7) Line of Credit


The
Company has a $10 million unsecured line of credit facility with a financial
institution which expires October 31, 2002. The line of credit bears interest at
the banks prime rate (4.75% at March 31, 2002), or Libor (2.03% at March
31, 2002) plus 150 basis points at the Companys option. The line of credit
is not collateralized but requires Group 1 to maintain certain operating ratios.
At March 31, 2002 and March 31, 2001 there were no borrowings outstanding under
the line of credit.


32
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) Stockholders Equity


Preferred Stock


On
January 22, 1993, the Company issued Preferred Stock, par value $0.25 per share,
to be designated 6% Cumulative Convertible Preferred Stock
consisting of 147,500 shares. On September 24, 1998 the Company repurchased
100,000 preferred shares and currently has 47,500 shares issued and outstanding.
Dividends have been paid semi-annually in January and July since July, 1993. The
6% Preferred Stock is convertible at any time at the sole option of the holder
into fully paid and non-assessable Common Stock, at the rate of 1.5 shares of
Common Stock for each share of preferred stock, subject to a specified
adjustment rate.


The
Company has the right to redeem the outstanding 6% Preferred Stock, in whole or
in part, at any time by paying to the holders thereof in cash the redemption
price of $20 per share, together with all accrued and unpaid dividends thereon.


Stock Split


In
February 2000 the Company effected a three-for-two split of the outstanding
shares of common stock. Accordingly, all data shown in the accompanying
consolidated financial statements and notes has been retroactively adjusted to
reflect the stock split.


Stock Buyback Program


In
September 2001 the Companys Board of Directors authorized a stock
repurchase program of up to $10 million of the Companys common stock. As
of March 31, 2002, the Company has repurchased 5,000 shares of common stock at a
total cost of $49,000. The transactions were effected through open market
purchases.


Stock Option Plans


The
Company has three stock option programs currently in effect, and three
predecessor plans for which option grants are still outstanding. Options granted
under all plans were granted at 100% of the fair market value of the common
stock at the date of grant.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             
|-----------------------------
|
|
|
|                             
|Equity compensation plans    
|approved by security holders:
|                             
|Plan of 1998 for officers    
|and employees                
|                             
|Plan of 1995 for officers    
|and employees                
|                             
|Plan of 1986 for officers    
|and employees                
|                             
|Plan of 1995 for             
|non-employee directors       
|                             
|Pre-merger plan for          
|non-employee directors       
|                             
|Plan of 1992 for             
|non-employee directors       
|                             
|Equity compensation plans not
|approved by security holders 
|                             
|Total                        
|                             

|33
|--

|The
following table summarizes information about the fixed stock options outstanding
at March 31, 2002:
|-------------------------------------------------------------------------------------------------------

|Ranges ofexercise prices |  | Numbers ofoptionsoutstanding |  | Weightedaverageexerciseprice |  | Weightedaverageremainingcontractuallife in years |  | Numbers ofoptionsexercisable |  | Weightedaverageexerciseprice | 
|------------------------ |  | ---------------------------- |  | ---------------------------- |  | ------------------------------------------------ |  | ---------------------------- |  | ---------------------------- | 
|$3.51$7.00              |  | 1,170,932                    |  | $  5.98                      |  | 6.35                                             |  | 865,520                      |  | $  5.93                      | 
|$7.01$10.50             |  | 268,059                      |  | $  9.02                      |  | 5.93                                             |  | 164,801                      |  | $  8.79                      | 
|$10.51$14.00            |  | 104,350                      |  | $12.94                       |  | 9.40                                             |  | 20,400                       |  | $13.71                       | 
|$14.01$17.50            |  | 351,000                      |  | $15.74                       |  | 7.86                                             |  | 85,301                       |  | $16.03                       | 
|$17.51$21.00            |  | 404,725                      |  | $19.61                       |  | 8.82                                             |  | 106,586                      |  | $19.33                       | 
|$21.01$24.50            |  | 5,700                        |  | $22.63                       |  | 7.93                                             |  | 2,400                        |  | $22.63                       | 
|                         |  |                              |  |                              |  |                                                  |  |                              |  |                             
|Total                    |  | 2,304,766                    |  | $10.57                       |  | 7.11                                             |  | 1,245,008                    |  | $  8.31                      | 
|                         |  |                              |  |                              |  |                                                  |  |                              |  |                             

|Activity
under the Companys stock option plans discussed above is summarized as
follows:
|-----------------------------------------------------------------------------------------

|                                        | Year Ended March 31, |          
|--------------------------------------- | -------------------- | ---------
|
|
|Options outstanding beginning of period |                      | 2,578,713
|Options exercised                       |                      | (260,988 
|Options canceled                        |                      | (237,409 
|Options granted                         |                      | 224,450  
|                                        |                      |          
|Options outstanding end of period       |                      | 2,304,766
|Options exercisable at end of period    |                      | 1,245,008
|Weighted-average fair value of options  |                     
|granted during the period               |                      |          

|The
Company accounts for the activity under the Plans in accordance with APB 25.
Accordingly, no compensation expense has been recognized for the Plans. Had
compensation expense been determined based on the fair value of the stock
options for awards under the Plans in accordance with SFAS 123, the
Companys net income available to common stockholders and earnings per
common share would have been decreased to the pro forma amounts indicated below
(in thousands, except per share data):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2002 |                                             | 2001 |         | 2000 |       
| | ---- | ------------------------------------------- | ---- | ------- | ---- | ------
| |      | Net income available to common stockholders |      |         |      |       
| |      | As reported                                 |      | $4,370  |      | $8,849
| |      | Pro forma                                   |      | $   217 |      | $5,377
| |      | Basic earnings per share                    |      |         |     
| |      | As reported                                 |      | $0.70   |      | $1.46 
| |      | Pro forma                                   |      | $0.03   |      | $0.89 
| |      | Diluted earnings per share                  |      |         |     
| |      | As reported                                 |      | $0.63   |      | $1.28 
| |      | Pro forma                                   |      | $0.03   |      | $0.78 

|The
fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the years ended March 31, 2002, 2001 and 2000
respectively: dividend yield of 0%, expected volatility of 107%, 110% and 116%
respectively, a risk-free interest rate of 4.47%, 6.03% and 5.84% respectively,
and an expected term of 4.28, 4.09 and 3.89 years respectively.


34
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) Income Taxes


The
provision for income taxes consists of the following components (in thousands):
|------------------------------------------------------------------------------------------------------

| | Years Ended March 31, | 
| | --------------------- | 
|
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 
| |                       | 

|The provision
for income taxes varied from that computed using the statutory federal income
tax rate as follows:
|----------------------------------------------------------------------------------------------------------------

| | Year Ended March 31, | 
| | -------------------- | 
|
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 

|Deferred
tax assets and liabilities which result from temporary differences in the
recognition of certain revenues and expenses for financial and income tax
reporting purposes consist of the following (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | March 31, | 
| | --------- | 
|
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
|
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 
| |           | 

|The
Company has consolidated research and development tax credit carry-forwards of
approximately $300,000 which will expire in 2021 through 2022.


U.S.
and international withholding taxes have not been provided on undistributed
earnings of foreign subsidiaries. The Company remits only those earnings which
are considered to be in excess of the reasonably anticipated working capital
needs of the foreign subsidiaries with the balance considered to be permanently
reinvested in the operations of such subsidiaries.


35
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) Benefit Programs


The
Company maintains a 401(k) retirement savings plan and trust for the benefit of
the Companys employees which provides for a contribution to be made by the
Company out of current operating earnings based upon the contributions made by
participating Company employees with established limits. The Companys
contributions for the years ended March 31, 2002, 2001 and 2000 were $688,000,
$548,000, and $325,000, respectively.


(11) Supplemental Cash Flow Information


The
following supplemental information summarizes the disclosures pertaining to the
Statements of Cash Flows (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year Ended March 31, | 
| | -------------------- | 
|
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 
| |                      | 

|(12) Commitments and Contingencies


Legal


From
time to time, the Company may become involved in litigation relating to claims
arising from the ordinary course of business. The Company believes that there
are no claims or actions pending or threatened against it, either individually
or in the aggregate, the ultimate disposition of which would have a material
adverse effect on the Company.


Leasing Arrangements


The
Company leases its office facilities and some of its equipment under operating
and capital lease arrangements, some of which contain renewal options and
escalation clauses for operating expenses and inflation. Deferred rent at March
31, 2002 was $267,000.


36
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company is obligated for the following minimum operating and capital lease
rental payments that have initial and remaining non-cancelable lease terms in
excess of one year (in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Operating |                                                | Capital |  |  
| |  | --------- | ---------------------------------------------- | ------- |  | -
| |  |           | 2003                                           |         |  | $
| |  |           | 2004                                           |         |  |  
| |  |           | 2005                                           |         |  |  
| |  |           | 2006                                           |         |  |  
| |  |           | 2007                                           |         |  |  
| |  |           | 2008 and thereafter                            |         |  |  
| |  |           |                                                |         | 
| |  |           | Total minimum lease payments                   |         |  | $
| |  |           |                                                |        
| |  |           | Amount representing interest                   |         |  |  
| |  |           |                                               
| |  |           | Net minimum lease payments                     |         |  |  
|
| |  |           | Current portion of capital lease obligations   |         |  |  
| |  |           |                                               
| |  |           | Long-term portion of capital lease obligations |         |  |  
| |  |           |                                               

|Total
rent expense under operating leases for fiscal years ended March 31, 2002, 2001,
and 2000 was $4,154,000, $3,127,000, and $3,095,000, respectively.


(13) Segment Information


The
Company has two reportable segments, Enterprise Solutions and DOC1. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The following table presents certain
financial information relating to each reportable segment:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | Year Ended March 31, | 
|-------------------- | -------------------- | 
|
|                    
|Revenue              |                      | 
|Enterprise Solutions |                      | 
|DOC1                 |                      | 
|                     |                      | 
|Total revenue        |                      | 
|                     |                      | 
|Gross Profit         |                      | 
|Enterprise Solutions |                      | 
|DOC1                 |                      | 
|Other                |                      | 
|                     |                      | 
|Total gross profit   |                      | 
|                     |                      | 

|All
of the Companys tax provisions and tax benefits are retained and analyzed
at the corporate level and are not allocated to the individual segments.
Amortization of capitalized software associated with the Enterprise Solutions
Software segment is $4.7 million, $5.8 million, and $6.9 million for 2002, 2001
and 2000, respectively. Amortization of capitalized software associated with the
DOC1 Software segment is $2.3 million, $2.2 million, and $2.1 million for 2002,
2001 and 2000, respectively.


Prior
to April 1, 2001, all of the Companys assets were retained and analyzed at
the corporate level and were not allocated to individual segments. As of March
31, 2002, the identifiable assets of the Companys reportable segments were
as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Enterprise Solutions |  |  | $ | 34,267  |  |  |  | 
| |  |  | -------------------- |  |  | - | ------- |  |  |  | 
| |  |  | DOC1                 |  |  |   | 45,233  |  |  |  | 
| |  |  | Corporate            |  |  |   | 32,379  |  |  |  | 
| |  |  |                     
| |  |  | Total assets         |  |  | $ | 111,879 |  |  |  | 
| |  |  |                     

|37
|--

|The
changes in the carrying amount of goodwill for the twelve months ended March 31,
2002 for each reportable segment were as follows (in thousands):
|-----------------------------------------------------------------------------------------------------------------------------------------------------

| | EnterpriseSolutions |  | DOC1                                       | 
| | ------------------- |  | ------------------------------------------ | 
| |                     |  | Balance as of April 1, 2001                | 
| |                     |  | Goodwill acquired                          | 
| |                     |  | Effect of currency translation on goodwill | 
| |                     |  |                                            | 
| |                     |  | Balance as of March 31, 2002               | 
| |                     |  |                                            | 

|                                      | Year Ended March 31, | 
|------------------------------------- | -------------------- | 
|
|Revenue                               |                      | 
|U.S. operations                       |                      | 
|European operations                   |                      | 
|Eliminations                          |                      | 
|                                      |                      | 
|Total revenue                         |                      | 
|                                      |                      | 
|Operating income                      |                      | 
|U.S. operations                       |                      | 
|European operations                   |                      | 
|                                      |                      | 
|Total operating income                |                      | 
|                                      |                      | 
|Identifiable non-current assets       |                      | 
|U.S. operations                       |                      | 
|European operations                   |                      | 
|Eliminations                          |                      | 
|                                      |                      | 
|Total identifiable non-current assets |                      | 
|                                      |                      | 

|It
is managements belief that intercompany sales between geographic areas are
accounted for at prices consistent with market conditions as evidenced by
unaffiliated transactions. U.S. operations include shipments to
customers in the United States, licensing to OEMs, and exports of finished goods
directly to international customers, primarily in Canada. International revenue,
which includes European operations and exports, were 15%, 16% and 13% of total
revenue in 2002, 2001 and 2000.


(14) Business Combinations


TriSense Business Combination


On
April 30, 2001, the Company acquired various assets of TriSense Software, Ltd.
(TriSense) for $1,545,000 in cash, a promissory note with the
present value of $5,997,000, and $423,000 in acquisition costs. The promissory
note is payable in two installments of $3,280,000, including interest, due on
each of the first and second anniversary dates of closing. The results of
operations of TriSense have been included with those of the Company since the
date of acquisition. The cash consideration for the acquisition was paid from
the Companys working capital.


TriSense
developed and marketed electronic bill presentment and payment (EBPP) software.
Integration of TriSenses PaySense EBPP offering enables the Company to
create an integrated solution providing digital and paper generation and
delivery of customer-focused business documents as well as electronic payments.


38
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
total purchase price of $7,965,000 was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition as follows (in thousands):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Tangible assets     |  |  | $ | 373   |   |  |  | 
| |  |  | ------------------- |  |  | - | ----- | - |  |  | 
| |  |  | Liabilities assumed |  |  |   | (137  | ) |  |  | 
| |  |  | Computer software   |  |  |   | 1,179 |   |  |  | 
| |  |  | Goodwill            |  |  |   | 6,550 |   |  |  | 
| |  |  |                    
| |  |  |                     |  |  | $ | 7,965 |   |  |  | 
| |  |  |                    

|Tangible
assets are being depreciated over their estimated useful lives of two to five
years. Computer software is being amortized by the greater of (a) the ratio that
current gross revenues for the product bear to the total of current and
anticipated future gross revenues for the product or (b) the straight-line
method over the estimated useful life of five years.


The
$6,550,000 of goodwill was assigned to the DOC1 Software segment and is expected
to be deductible for tax purposes. Pursuant to the Companys adoption of
SFAS No. 142, the goodwill is not amortized, but will be periodically tested for
impairment.


HotData Business Combination


On
May 11, 2001, the Company acquired various assets of HotData, Inc., Ltd.
(HotData) for $2,000,000 in cash, future payments in the amount of
10% of the net revenue, as defined, generated from the HotData license and
service fees over the thirty-six months following the date of closing, and
$225,000 in acquisition costs. The results of operations of HotData have been
included with those of the Company since the date of acquisition. The cash
consideration for the acquisition was paid from the Companys working
capital. Additional consideration to be paid based on future net revenue will be
recorded at its fair value as an additional cost of the acquisition when such
additional consideration is earned.


HotData
provides automated batch processing for address validation, move update, and
appending of various demographic and geographic data over the Internet. The
combination of the HotData technology and the Companys DataQuality.net
offering will create a comprehensive hosted services environment that is capable
of providing the functionality of all of the Companys core Data Quality
products over the web.


The
total purchase price of $2,225,000 was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Tangible assets     |  |  | $ | 957    |   |  |  | 
| |  |  | ------------------- |  |  | - | ------ | - |  |  | 
| |  |  | Liabilities assumed |  |  |   | (1,190 | ) |  |  | 
| |  |  | Computer software   |  |  |   | 330    |   |  |  | 
| |  |  | Goodwill            |  |  |   | 2,128  |   |  |  | 
| |  |  |                    
| |  |  |                     |  |  | $ | 2,225  |   |  |  | 
| |  |  |                    

|Tangible
assets are being depreciated over their estimated useful lives of two to five
years. Computer software is being amortized by the greater of (a) the ratio that
current gross revenues for the product bear to the total of current and
anticipated future gross revenues for the product or (b) the straight-line
method over the estimated economic life of five years.


The
$2,128,000 of goodwill was assigned to the Enterprise Solutions Software segment
and is expected to be deductible for tax purposes. Pursuant to the
Companys adoption of SFAS No. 142, the goodwill will not be amortized, but
will be periodically tested for impairment.


Vision-R eTechnologies Business Combination


On
December 4, 2001, the Company acquired various assets of Vision-R eTechnologies
(Vision-R) for $1,000,000 in cash, a $1,250,000 note payable with
the present value of $1,115,000, earn-out payments over the next 36 months not
to exceed $1,000,000, and $220,000 in acquisition costs. The results of
operations of Vision-R have been included with those of the Company since the
date of acquisition. The cash consideration was paid from the Companys
working capital. Additional earn-out consideration will be recorded at its fair
value as additional cost of the acquisition when such additional consideration
is earned.


The
Vision-R product, renamed DOC1 Archive, provides highly scalable electronic
archive and retrieval software solutions. The acquisition adds next-generation,
real-time storage, compression and high-speed retrieval of business documents to
Group 1s DOC1 customer communications management suite.


39
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
total purchase price of $2,335,000 was allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition. Computer software acquired was valued at $2,323,000. Tangible
assets were valued at $78,000 and $66,000 was assigned to liabilities assumed.
Tangible assets acquired are being depreciated over their estimated useful lives
of one to two years. Computer software is being amortized by the greater of (a)
the ratio that current gross revenues for the product bear to the total of
current and anticipated future gross revenues for the product or (b) the
straight-line method over the estimated economic life of five years.


The
following unaudited pro forma consolidated results of operations for the twelve
months ended March 31, 2002, 2001 and 2000 have been prepared as if the
acquisitions of TriSense, HotData and Vision-R had occurred as of the beginning
of fiscal 2000 after giving effect to purchase accounting adjustments relating
to amortization of intangible assets, interest expense on the notes payable
issued to finance the TriSense and Vision-R purchases, and reduction of income
tax provision and interest income (in thousands, except per share data):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Twelve months endedMarch 31,(Unaudited) | 
| | --------------------------------------- | 
|
| |                                         | 
| |                                         | 
| |                                         | 
| |                                         | 

|The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisitions had been completed as of the beginning of each of
the periods presented, nor are they necessarily indicative of future
consolidated results. The pro forma results do not include amortization expense
of acquired goodwill.


(15) Acquired Intangible Assets


(in thousands)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Gross CarryingAmount |                                | AccumulatedAmortization as ofMarch 31, 2002 |  | 
| |  | -------------------- | ------------------------------ | ------------------------------------------- |  | 
| |  |                      | Amortized intangible assets:   |                                             |  | 
| |  |                      | Computer software              |                                             |  | 
|
| |  |                      | Unamortized intangible assets: |                                             | 
| |  |                      | Goodwill                       |                                             |  | 

|The
aggregate amortization expense for the year ended March 31, 2002 was $427,000.
The following table summarizes aggregate amortization expense for each of the
five succeeding fiscal years (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | For year ending March 31, 2003 |  | $ 768 |  |  | 
| |  | ------------------------------ |  | ----- |  |  | 
| |  | For year ending March 31, 2004 |  | $ 768 |  |  | 
| |  | For year ending March 31, 2005 |  | $ 768 |  |  | 
| |  | For year ending March 31, 2006 |  | $ 768 |  |  | 
| |  | For year ending March 31, 2007 |  | $ 333 |  |  | 

|40
|--

|(16) Goodwill and Other Intangible Assets - Adoption of SFAS No. 142


The
Company adopted SFAS No. 142 as of April 1, 2001. Upon adoption, the Company
ceased amortization of goodwill. The reconciliation of reported net income to
the adjusted net income and adjusted earnings-per-share amounts is as follows
(in thousands, except earnings-per-share amounts):
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For the Year Ended March 31, | 
| | ---------------------------- | 
|
| |                              | 
| |                              | 
| |                              | 
| |                              | 
| |                              | 
|
| |                              | 
|
| |                              | 
| |                              | 
| |                              | 
| |                              | 
| |                              | 
|
| |                              | 
|
| |                              | 
| |                              | 
| |                              | 
| |                              | 
| |                              | 

|In
accordance with FAS No. 142, the Company completed the transitional goodwill
impairment test as of April 1, 2001 and concluded that goodwill of its reporting
units was not impaired. The Company also completed its annual goodwill
impairment and concluded that goodwill of its reporting units was not impaired.


(17) Quarterly Financial Data (Unaudited)


Quarterly
unaudited financial information for the years ended March 31, 2002 and 2001 was
as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | FirstQuarter |                                             | SecondQuarter |  | ThirdQuarter |        | FourthQuarter |   |       
| |  | ------------ | ------------------------------------------- | ------------- |  | ------------ | ------ | ------------- | - | ------
|
|
| |  |              | Fiscal Year 2002:                           |               |  |              |        |               |   |       
| |  |              | Revenue                                     |               |  | $            | 20,847 |               | $ | 22,294
| |  |              | Gross profit                                |               |  |              | 12,231 |               |   | 13,985
| |  |              | Income before taxes                         |               |  |              | 144    |               |   | 1,407 
| |  |              | Net income available to common stockholders |               |  |              | 72     |               |   | 941   
| |  |              | Basic earnings per share                    |               |  | $            | 0.01   |               | $ | 0.15  
| |  |              | Diluted earnings per share                  |               |  | $            | 0.01   |               | $ | 0.14  
|
| |  |              | Fiscal Year 2001:                           |               |  |              |        |              
| |  |              | Revenue                                     |               |  | $            | 20,245 |               | $ | 22,374
| |  |              | Gross profit                                |               |  |              | 12,730 |               |   | 14,647
| |  |              | Income before taxes                         |               |  |              | 1,896  |               |   | 2,900 
| |  |              | Net income available to common stockholders |               |  |              | 1,117  |               |   | 1,690 
| |  |              | Basic earnings per share                    |               |  | $            | 0.19   |               | $ | 0.28  
| |  |              | Diluted earnings per share                  |               |  | $            | 0.16   |               | $ | 0.24  

|41
|--

|PART III


Item 10. Directors and Executive Officers of the Registrant


The
Directors and Executive Officers of the Company are as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------

|Name                 | Age |    | Position
|-------------------- | --- | -- | --------
|James V. Manning     |     | 55 |         
|Robert S. Bowen      |     | 64 |         
|Mark D. Funston      |     | 42 |         
|Alan P. Slater       |     | 46 |         
|Stephen R. Bebee     |     | 48 |         
|Andrew W. Naden      |     | 44 |         
|                     |     |    |         
|Kenneth T. Chow      |     | 42 |         
|Timothy R. Waggoner  |     | 39 |         
|Edward Weiss         |     | 51 |         
|Elizabeth Walter     |     | 37 |         
|Jeffrey Deming       |     | 38 |         
|John C. Renehan      |     | 39 |         
|Timothy D. King      |     | 35 |         
|Thomas S. Buchsbaum  |     | 52 |         
|Richard H. Eisenberg |     | 64 |         
|James P. Marden      |     | 48 |         
|Charles A. Mele      |     | 45 |         
|Charles J. Sindelar  |     | 65 |         
|Bruce J. Spohler     |     | 41 |         

|The Company
knows of no family relationships between any of the above.


The
Board of Directors is divided into three classes. One class of the Directors is
elected annually, and their terms extend until the annual meeting of
stockholders three years following their election and until their successors are
elected and qualified. The terms of Messrs. Sindelar, Marden and Mele will
expire in 2004. The terms of Messrs. Manning, Eisenberg and Spohler will expire
in 2003. The terms of Messrs. Bowen, Slater and Buchsbaum will expire in 2002.
Each of the officers shall continue in his capacity until his successor is
appointed and qualified.


Mr.
James V. Manning has been Chairman of the Board of the Company since February 1994 and a
Director since 1992. He was Chief Executive Officer of Medical Manager, Inc., and its
predecessor, from 1995 to 1998. Prior to that, he was Senior Executive Vice President -
Finance of Medco Containment Services, Inc. for more than five years. Since May 1989, he
has been a director of WebMD Corporation or its predecessors, Medical Manager, Inc. and
Synetic Inc.


Mr.
Robert S. Bowen has been a Director and Chief Executive Officer of the Company for more
than five years. Prior to the merger of Group 1 into the Company, Mr. Bowen was also
Director, Chairman of the Board and Chief Executive Officer of Group 1 since January 1984.


Mr.
Mark D. Funston has been Vice President or Executive Vice President, Chief
Financial Officer, of the Company since September 1996 and was a Director from
December 1996 through September 1998. Prior to joining the Company, he was
Divisional Chief Financial Officer for COMSAT RSI, a division of COMSAT, Inc.


Mr.
Alan P. Slater has been a Director and President, DOC1 Division, since June
2001, and prior to that Executive Vice President starting in April 1992. From
October 1987 to April 1992, he was Vice President of Sales.


Mr.
Stephen R. Bebee has been Executive Vice President of the Company since January 1997.
From April 1992 to December 1996 he was Vice President of Sales. From January 1991 to
April 1992 he was Branch Sales Manager.


Mr.
Andrew W. Naden has been Executive Vice President of the Company since June
2001. Prior to that, he was Chief Executive Officer of Overturf Productivity
Management. Prior to that, he served as Co-Operations Officer and Director of
Solutions for the Insight Division of Software AG, and before that as an
operating officer for Maryland Public Television in the Public Broadcasting
Service (PBS).


42
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Mr.
Kenneth T. Chow is Vice President of Marketing and has been Vice President, Business
Development and E-Commerce or Executive Director of Marketing since joining the Company
in October 1999. Prior to joining the Company, Mr. Chow was Vice President of Marketing
for Network Alchemy, Inc. from 1998 to 1999. Prior to that, he had assumed progressively
more responsible positions in sales management, marketing and business development for
One Touch Systems, Inc. from 1995 to 1998.


Mr.
Edward Weiss has been Secretary and General Counsel of the Company since January 1990.


Mr.
Timothy R. Waggoner has been Corporate Chief Technology Officer since August 2001. Prior
to that he served as Chief Technology Officer since December 1999, and in various
management and pre-sales representative positions since joining the Company in 1996.


Ms.
Elizabeth Walter has been Vice President of Sales, DOC1 Division, since June 1998. Prior
to that, she served in other sales management and sales representative positions since
joining the Company in 1990.


Mr.
Jeffrey Deming has been Vice President of Operations, DOC1 Division, since 1998.
Prior to that, he served in other operational and technical-support management
positions since joining the Company in 1996.


Mr.
John C. Renehan has been Vice President, Finance, of the Company since January
2001. Prior to that, he had been Controller of the Company since June 1996 and
prior to that he served as Financial Analyst for the Company starting in 1995.


Mr.
Timothy D. King has been Vice President, Postal Affairs since March 2002. Prior
to that, he served as Director of Product Management for e-commerce, since
January 2000, and in other Product Management and customer support positions
since joining the Company in November 1992.


Mr.
Richard H. Eisenberg has been a Director of the Company since February 1994. Since April
1, 2001, Mr. Eisenberg has been President of GNBC, Inc. and for at least five years prior
to that, President of Great Northern Brokerage Corporation.


Mr.
James P. Marden has been a Director of the Company since 1992. From 1998 to 2001, Mr.
Marden served as Senior Executive Vice President, Corporate Development, for Medical
Logistics, Inc. From 1994 to May 1997, Mr. Marden was Chairman of The Entertainment
Connection, Inc. He was Vice President - Acquisitions for Medco Containment Services,
Inc. from 1991 to 1994 and held a similar position at Synetic, Inc. from 1993 to 1994.


Mr.
Charles A. Mele has been a Director of the Company since 1992. Mr. Mele has been
Executive Vice President/General Counsel of WebMD Corporation since September 2000. From
April 1994 until September 2000, he served as Vice President and a director of Synetic,
Inc. and then Medical Manager, Inc. Prior to April 1994, he was Executive Vice President
and General Counsel of Medco Containment Services, Inc. for more than five years.


Mr.
Charles J. Sindelar has been a Director of the Company since 1992. Mr. Sindelar has been
Vice President of Motorola, Inc. since August 2000. From August 1999 to August 2000, he
was Senior Vice President - Business Development and General Manager of the Digital Video
Group ZNS of Zenith Electronics Corporation. From January 1996 to August 1999, he was
Vice President and General Manager of the Digital Video Group Network Systems of Zenith
Electronics Corporation.


Mr.
Bruce J. Spohler has been a Director since 1997. He has been Managing Director, High
Yield, of CIBC Oppenheimer for more than five years.


Mr.
Thomas S. Buchsbaum has been a Director since September 1998. Since April 1997, he has
been employed by Dell Computer Corporation in various Vice Presidential positions and
currently serves as its Vice President of Defense and Intelligence Systems. Prior to
that, for more than five years, he was Executive Vice President of Zenith Data Systems.
Mr. Buchsbaum is also a Director of Dick Blick Company.


Item 11. Executive
Compensation


The
information required in response to this item is contained in the
registrants definitive proxy statement, to be filed pursuant to Regulation
14A, under the caption, Executive Compensation and such information
is incorporated herein by reference.


43
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 12. Security
Ownership of Certain Beneficial Owners and Management


The
information required in response to this item is contained in the
registrants definitive proxy statement, to be filed pursuant to Regulation
14A, under introductory paragraphs and under the captions Principal
Stockholders and Election of Directors and such information is
incorporated herein by reference.


Item 13. Certain
Relationships and Related Transactions


The
information required in response to this item is contained in the
registrants definitive proxy statement, to be filed pursuant to Regulation
14A, under the caption, Executive Compensation  Certain
Transactions, and such information is incorporated herein by reference.


44
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART IV


Item 14. Exhibits,
Financial Statement Schedules and Reports on Form 8-K
|----------------------------------------------------------------------------------

| |  | a) |  | The
following documents are filed as part of this report
| |  | -- |  | --------------------------------------------------------

| |  | 1. |  | Consolidated
Financial Statements:
| |  | -- |  | ----------------------------------

| | The
following documents are submitted in Item 8:
| | ------------------------------------------------

| |  | Page Number
| |  | -----------

| | Report of Independent Accountants                              | 21
| | -------------------------------------------------------------- | --
|
| | Consolidated Balance Sheets as of March 31, 2002 and 2001      | 22
|
| | Consolidated Statements of Operations for the years            |   
| | ended March 31, 2002, 2001 and 2000                            | 23
|
| | Consolidated Statements of Comprehensive Income for the years  |   
| | ended March 31, 2002, 2001 and 2000                            | 24
|
| | Consolidated Statements of Stockholders Equity  for the years |   
| | ended March 31, 2002, 2001 and 2000                            | 25
|
| | Consolidated Statements of Cash Flows for the years            |   
| | ended March 31, 2002, 2001 and 2000                            | 26
|
| | Notes to Consolidated Financial Statements for the years       |   
| | ended March 31, 2002, 2001 and 2000                            | 27

| |  | 2. |  | Financial
Statement Schedule
| |  | -- |  | ----------------------------

| | Report of Independent Accountants on Financial Statement      |   
| | ------------------------------------------------------------- | --
| | Schedule                                                      | 49
|
| | Schedule II:  Valuation and Qualifying Accounts for the Years |   
| | Ended March 31, 2002, 2001 and 2000                           | 50

|Schedules
other than those listed above have been omitted since they are either not
required or the information is included elsewhere in the financial statements or
notes thereto.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | b) |  | Reports
on form 8-K
| |  | -- |  | -------------------

| | Agreement
for purchase and sale of assets by and between TriSense Software, Ltd. and Group 1
Software, Inc. dated April 30, 2001 (incorporated by reference to Exhibit 10.59 to the
Companys Report on Form 8-K dated May 14, 2001).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Agreement
for purchase and sale of assets by and between HotData Software, Inc. and Group 1
Software, Inc. dated May 11, 2001 (incorporated by reference to Exhibit 10.60 to the
Companys Report on Form 8-K dated May 25, 2001).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Announcement
of program to repurchase up to $10 million of Group 1 Software, Inc. common stock dated
September 25, 2001.
| | ------------------------------------------------------------------------------------------------------------------------

| | Agreement
for purchase and sale of assets by and between Vision-R eTechnologies, Inc. and Group 1
Software, Inc. dated December 4, 2001 (incorporated by reference to Exhibit 10.61 to the
Companys Report on Form 8-K dated December 10, 2001).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|45
|--

|
|

| |  | 3. |  | List
of Exhibits.
| |  | -- |  | -----------------

| |  | 2.01 |  | Agreement
and Plan of Merger, dated June 23, 1998 by and between COMNET Corporation and Group 1
Software, Inc. (incorporated by reference to the Companys Prospectus filed August 18,
1998.)
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.01 |  | Articles
of Incorporation and Bylaws, as amended 1985, (incorporated by reference to Exhibit
3.7 to Group 1s Annual Report on Form 10-K for the year ended March 31, 1991).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.02 |  | Bylaws
 Amended as of January 22, 1992, (incorporated by reference to Exhibit 3.8 to Group 1s
Quarterly Report on Form 10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 3.03 |  | Amendments
to Certificate of Incorporation filed January 22, 1993.
| |  | ---- |  | ------------------------------------------------------------------

| |  | 3.04 |  | Amended
and Restated Certificate of Incorporation of Group 1 Software, Inc., dated November 28,
2000.
| |  | ---- |  | -----------------------------------------------------------------------------------------------------

| |  | 4.01 |  | Purchase
Agreement between the Company and Medco Containment Services, Inc., dated as of January
28, 1992 (incorporated by reference to Exhibit 4.47 to the Companys Quarterly Report on
Form 10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.02 |  | Agreement
Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1
and Robert S. Bowen, dated as of January 28, 1992, (incorporated by reference to Exhibit
4.48 to the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1991).
| |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.03 |  | Agreement
Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1
and Dr. Milton Kaplan, dated as of January 28, 1992, (incorporated by reference to
Exhibit 4.49 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 1991).
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.04 |  | Agreement
Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between Group 1
and John Spohler, dated as of January 28, 1992, (incorporated by reference to Exhibit
4.50 to the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1991).
| |  | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.05 |  | Agreement
Regarding Satisfaction of Debt, Release of Pledge and Issuance of Stock between the
Company and Leonard J. Smith, dated as of January 28, 1992, (incorporated by reference to
Exhibit 4.51 to Group 1s Quarterly Report on Form 10-Q for the quarter ended
December 31, 1991).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.06 |  | Stock
Option Agreement between the Company and James V. Manning, dated as of August 16, 1991,
(incorporated by reference to Exhibit 4.53 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.07 |  | Stock
Option Agreement between the Company and James Marden, dated as of August 16, 1991,
(incorporated by reference to Exhibit 4.55 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.08 |  | Stock
Option Agreement between the Company and Robert S. Bowen, dated as of August 16, 1991,
(incorporated by reference to Exhibit 4.56 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.09 |  | Stock
Option Agreement between the Company and Ronald F. Friedman, dated as of August 16, 1991,
(incorporated by reference to Exhibit 4.57 to the Companys Quarterly Report on Form
10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.10 |  | Intentionally
deleted
| |  | ---- |  | ---------------------

| |  | 4.11 |  | Stock
Option Agreement between the Company and Charles J. Sindelar, dated as of August 16,
1991, (incorporated by reference to Exhibit 4.59 to the Companys Quarterly Report
on From 10-Q for the quarter ended December 31, 1991).
| |  | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.12 |  | Agreement
among the Company and Robert S. Bowen, Milton Kaplan, Leonard J. Smith and John Spohler
regarding certain registration rights, dated as of January 28, 1992, (incorporated by
reference to Exhibit 4.60 to the Companys Quarterly Report on Form 10-Q for the
quarter ended December 31, 1991).
| |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 4.13 |  | Certificate
of Designation of 6% Convertible Preferred Stock, filed January 22, 1993.
| |  | ---- |  | -------------------------------------------------------------------------------------

|46
|--

|
|

| |  | 4.14 |  | 1995
Incentive Stock Option, Non-Qualified Stock Option and Stock Appreciation Unit Plan
| |  | ---- |  | ----------------------------------------------------------------------------------------

| |  | 4.15 |  | 1995
Non-Employee Directors Stock Option Plan
| |  | ---- |  | ----------------------------------------------

| |  | 10.01 |  | Tax
Sharing Agreement among Group 1 Software, Inc., COM-MED Systems, Inc., ADMS, Inc. and
COMNET Corporation, dated April 1, 1991, (incorporated by reference to Exhibit 10.97 to
the Companys Annual Report on Form 10-K for the year March 31, 1991).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.02 |  | Indemnification
Agreement between the Company and James P. Marden, (incorporated by reference to Exhibit
10.107 to the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1991).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.03 |  | Indemnification
Agreement between the Company and Ronald F. Friedman , (incorporated by reference to
Exhibit 10.108 to the Companys Quarterly Report on Form 10-Q for the quarter ended
December 31, 1991).
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.04 |  | Indemnification
Agreement between the Company and Robert S. Bowen, (incorporated by reference to Exhibit
10.110 to the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1991).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.05 |  | Indemnification
Agreement, dated February 24, 1992, between COMNET Corporation and Charles A. Mele
(incorporated by reference to Exhibit 10.27 to the Companys Annual Report on Form
10-K for the year ended March 31, 2000).
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.06 |  | Indemnification
Agreement between COMNET Corporation and Charles J. Sindelar (incorporated by reference
to Exhibit 10.28 to the Companys Annual Report on Form 10-K for the year ended
March 31, 2000).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.07 |  | Lease
covering Company office facilities in Lanham, MD - 1993.
| |  | ----- |  | --------------------------------------------------------------

| |  | 10.08 |  | Fourth
Amendment to Employment Agreement, dated as of March 1, 1994, by and between Group 1
Software, Inc., and Ronald F. Friedman (incorporated by reference to Exhibit 10.321 to
the Companys Annual Report on Form 10-K for the year ended March 31, 2000).
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.09 |  | COMNET
Corporation, Deferred Compensation Plan (incorporated by reference to Exhibit 10.41 to
the Companys Annual Report on Form 10-K for the year ended March 31, 2000).
| |  | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.10 |  | Definitive
Agreement for purchase of assets of DataDesigns, Inc., dated August 23, 1995
(incorporated by reference to Exhibit 10.42 to the Companys Annual Report on Form
10-K for the year ended March 31, 2000).
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.11 |  | Third
Amendment to Lease, dated April 15, 1994, by and between COMNET Corporation and
Quadrangle Development Corporation (incorporated by reference to Exhibit 10.45 to the
Companys Annual Report on Form 10-K for the year ended March 31, 2000).
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.12 |  | Line
of Credit Loan Agreement with Crestar Bank, dated October 10, 1996 (incorporated by
reference to Exhibit 10.48 to the Companys Annual Report on Form 10-K for the year
ended March 31, 2000).
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.13 |  | Agreement
for Purchase and Sale of Assets by and between Intertrak Corporation and Group 1
Software, Inc. dated September 4, 1997 (incorporated by reference to Exhibit 10.55 to the
Companys Annual Report on Form 10-K for the year ended March 31, 2000).
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.14 |  | Agreement
to repurchase preferred and common stock from Merck &Co Inc. dated September 25, 1998
(incorporated by reference to Exhibit 10.56 to the Companys Annual Report on Form
10-K for the year ended March 31, 2000).
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.15 |  | Amended
and Restated Employment Agreement between Robert S. Bowen and Group 1 Software, Inc.,
dated as of July 17, 2000.
| |  | ----- |  | ------------------------------------------------------------------------------------------------------------------------

| |  | 10.16 |  | Agreement
for purchase and sale of assets by and between TriSense Software, Ltd. and Group 1
Software, Inc. dated April 30, 2001 (incorporated by reference to Exhibit 10.59 to the
Companys Report on Form 8-K dated May 14, 2001).
| |  | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|47
|--

|
|

| |  | 10.17 |  | Agreement
for purchase and sale of assets by and between HotData Software, Inc. and Group 1
Software, Inc. dated May 11, 2001 (incorporated by reference to Exhibit 10.60 to the
Companys Report on Form 8-K dated May 25, 2001).
| |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.18 |  | Sixth
Amendment to Lease to headquarters in Lanham, MD, dated March 27, 2001, by and between
Group 1 Software, Inc. and Mack-Cali Realty L.P.
| |  | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | 10.19 |  | Agreement
between the Company and Ronald F. Friedman, dated May 31, 2001.
| |  | ----- |  | -------------------------------------------------------------------------

| |  | *10.20 |  | Agreement
for purchase and sale of assets by and between Vision-R eTechnologies, Inc. and Group 1
Software, Inc. dated December 4, 2001 (incorporated by reference to Exhibit 10.61 to the
Companys Report on Form 8-K dated December 10, 2001).
| |  | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | *22.0 |  | Subsidiaries
of Group 1 Software, Inc.
| |  | ----- |  | --------------------------------------

| |  | *23.1 |  | Consent
of PricewaterhouseCoopers LLP.
| |  | ----- |  | --------------------------------------

|*
Filed herewith.


48
|----------------------

|Report of Independent Accountants on
Financial Statement Schedule


To the Board of Directors and Stockholders of
Group 1 Software, Inc.


Our
audits of the consolidated financial statements referred to in our report dated
June 14, 2002, which report and consolidated financial statements are included
in this Annual Report on Form 10-K, also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.


PricewaterhouseCoopers LLP
McLean, Virginia
June 14, 2002


49
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SCHEDULE II
Group 1 Software, Inc.
Valuation and Qualifying Accounts For the Years Ended March 31, 2002, 2001, and 2000
(in thousands)
|--------------------------------------------------------------------------------------------------------------------------------------

|Description               |  | Balance atBeginningof Year |   | AdditionsCharged toCosts andExpenses |  | DeductionsDescribe(1) |       | Balanceat endof year |  
|------------------------- |  | -------------------------- | - | ------------------------------------ |  | --------------------- | ----- | -------------------- | -
|Year ended March 31, 2002 |  |                            |   |                                      |  |                       |       |                      |  
|Allowance for doubtful    |  |                           
|accounts                  |  |                            | $ | 2,197                                |  | $                     | 225   |                      | $
|Year ended March 31, 2001 |  |                           
|Allowance for doubtful    |  |                           
|accounts                  |  |                            | $ | 3,317                                |  | $                     | 475   |                      | $
|Year ended March 31, 2000 |  |                           
|Allowance for doubtful    |  |                           
|accounts                  |  |                            | $ | 3,383                                |  | $                     | 1,050 |                      | $

|(1) The decrease in
allowance for doubtful accounts is the result of accounts receivable written off
during the year.


50
|--------------------------------------------------------------------------------------------------------------------------

|SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) 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.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

GROUP 1 SOFTWARE, INC.

|Date: June 28, 2002 |  | (Registrant)
By:       
|------------------- |  | -----------------------
|                    |  | Chief Executive Officer

|Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Signature                       |  | Title                                                                                                 |  | Date         
|------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | -------------
|                               
|                               
|Robert S. Bowen      |  | Chief ExecutiveOfficer and Director(Principal Executive Officer)                                      |  | June 28, 2002
|                               
|                               
|Mark D. Funston      |  | Executive, Vice PresidentChief Financial OfficerTreasurer (Principal Financial andAccounting Officer) |  | June 28, 2002
|                               
|                               
|Alan P. Slater       |  | President, DOC1 Division and Director                                                                 |  | June 28, 2002
|                               
|                               
|James V. Manning     |  | Chairman of the Board                                                                                 |  | June 28, 2002
|                               
|                               
|Thomas S. Buchsbaum  |  | Director                                                                                              |  | June 28, 2002
|                               
|                               
|Richard H. Eisenberg |  | Director                                                                                              |  | June 28, 2002
|                               
|                               
|James P. Marden      |  | Director                                                                                              |  | June 28, 2002
|                               
|                               
|Charles A. Mele      |  | Director                                                                                              |  | June 28, 2002
|                               
|                               
|Charles J. Sindelar  |  | Director                                                                                              |  | June 28, 2002
|                               
|                               
|Bruce J. Spohler     |  | Director                                                                                              |  | June 28, 2002

51

|Index of Exhibits


PAGE NUMBER
|-------------------------------

|*10.20 |  | Agreement
for the purchase and sale of assets by and between Vision-R eTechnologies and Group 1
Software, Inc.
|------ |  | --------------------------------------------------------------------------------------------------------------

|*22.0 |  | Subsidiaries
of Group 1 Software, Inc.
|----- |  | --------------------------------------

|*23.1 |  | Consent
of PricewaterhouseCoopers, LLP
|----- |  | --------------------------------------

|*
Filed herewith.




52
|------------------------