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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q




(Mark One)

|    |  |                                                                    
|--- |  | -------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
|    |  | EXCHANGE ACT OF 1934                                               
|    |  |                                                                    
|    |  | For the quarterly period ended June 30, 2003                       

OR

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

Commission File Number: 000-24193

ATLANTIC DATA SERVICES, INC.

(Exact Name of Registrant as Specified in its Charter)


|                                                                             |  |                                                   
|---------------------------------------------------------------------------- |  | --------------------------------------------------
|MASSACHUSETTS
(State or Other Jurisdiction of
Incorporation or Organization) |  | 04-2696393
(I.R.S. Employer
Identification Number)

One Batterymarch Park
Quincy, Massachusetts 02169
(Address of Principal Executive Offices) (Zip Code)

(617) 770  3333
(Registrants Telephone Number, Including Area Code)

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 whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).   Yes
[    ]   No [ X ]

As of July 31, 2003, there were 13,136,124 shares of the Registrants Common
Stock, $.01 par value per share, outstanding.





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TABLE OF CONTENTS



|                                        |                                                                                                                    |                                                      |  |  |  |  |  | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- |  |  |  |  |  | 
|PART I                                 
|                                        | ITEM 1: FINANCIAL STATEMENTS                                                                                      
|                                        |                                                                                                                    | Condensed Consolidated Balance Sheets               
|                                        |                                                                                                                    | Condensed Consolidated Statements of Operations     
|                                        |                                                                                                                    | Condensed Consolidated Statements of Cash Flows     
|                                        |                                                                                                                    | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                        | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                      RESULTS OF OPERATIONS
|                                        | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                
|                                        | ITEM 4: CONTROLS AND PROCEDURES                                                                                   
|PART II OTHER INFORMATION              
|                                        | ITEM 1: LEGAL PROCEEDINGS                                                                                         
|                                        | ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                                          
|SIGNATURES                             
|EXHIBIT INDEX                          
|EX-31.1 Certification of CEO           
|EX-31.2 Certification of CFO           
|EX-32.1 Section 906 Certification - CEO
|EX-32.2 Section 906 Certification - CFO



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ATLANTIC DATA SERVICES, INC.

TABLE OF CONTENTS

|                                                                                                              |  |      |    | 
|------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                              |  | Page
|                                                                                                              |  |     
|PART I - FINANCIAL INFORMATION                                                                                |  |      |    | 
|ITEM 1:   Financial Statements                                                                                |  |      |    | 
|Condensed Consolidated Balance Sheets as of June 30, 2003 (Unaudited)
and March 31, 2003                      |  |      | 3  | 
|Condensed Consolidated Statements of Operations for the Three Months
Ended June 30, 2003 and 2002 (Unaudited) |  |      | 4  | 
|Condensed Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 2003 and 2002 (Unaudited) |  |      | 5  | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                              |  |      | 6  | 
|ITEM 2:   Managements Discussion and Analysis of Financial Condition and
Results of Operations               |  |      | 12 | 
|ITEM 3:   Quantitative and Qualitative Disclosures about Market Risk                                          |  |      | 17 | 
|ITEM 4:   Controls and Procedures                                                                             |  |      | 18 | 
|PART II - OTHER INFORMATION                                                                                   |  |      |    | 
|ITEM 1:   Legal Proceedings                                                                                   |  |      | 19 | 
|ITEM 6:   Exhibits and Reports on Form 8-K                                                                    |  |      | 19 | 
|SIGNATURES                                                                                                    |  |      | 20 | 
|EXHIBIT INDEX                                                                                                 |  |      | 21 | 

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PART I




ITEM 1: FINANCIAL STATEMENTS




ATLANTIC DATA SERVICES, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)

|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |        | 
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------ | -------- | ------ | --------- | ------ | ------ | ------ | 
|                                           |                                                                                                                                                                                      |                            |        | June 30, |        | March 31,
|                                           |                                                                                                                                                                                      |                            |        | 2003     |        | 2003     
|                                           |                                                                                                                                                                                      |                            |        |          |        |          
|Assets                                     |                                                                                                                                                                                      |                            |        |          |        |           |        |       
|Current assets:                            |                                                                                                                                                                                      |                            |        |          |        |           |        |       
|                                           | Cash and cash equivalents                                                                                                                                                            |                            | $      | 25,638   |        |           | $      | 27,329 |       
|                                           | Short-term investments                                                                                                                                                               |                            |        | 11,132   |        |           |        | 8,982  |       
|                                           | Accounts receivable, net of allowance for doubtful accounts of
$275 at June 30, 2003 and at March 31, 2003                                                                           |                            |        | 2,396    |        |           |        | 2,517  |       
|                                           | Tax refund receivable                                                                                                                                                                |                            |        |         |        |           |        | 850    |       
|                                           | Other current assets                                                                                                                                                                 |                            |        | 338      |        |           |        | 190    |       
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|                                           |                                                                                                                                                                                      | Total current assets       |        |          | 39,504 |           |        |        | 39,868 | 
|Property and equipment, net                |                                                                                                                                                                                      |                            | 176    |          |        |           | 177    |       
|Other assets                               |                                                                                                                                                                                      |                            | 192    |          |        |           | 196    |       
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|Total assets                               |                                                                                                                                                                                      | $                          | 39,872 |          |        | $         | 40,241 |       
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|Liabilities and stockholders equity       |                                                                                                                                                                                      |                            |        |          |        |           |        |       
|Current liabilities:                       |                                                                                                                                                                                      |                            |        |          |        |           |        |       
|                                           | Accounts payable                                                                                                                                                                     |                            | $      | 432      |        |           | $      | 350    |       
|                                           | Accrued expenses and other liabilities                                                                                                                                               |                            |        | 1,001    |        |           |        | 982    |       
|                                           | Deferred revenue                                                                                                                                                                     |                            |        | 381      |        |           |        | 443    |       
|                                           | Federal and state income taxes payable                                                                                                                                               |                            |        | 363      |        |           |        | 363    |       
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|                                           |                                                                                                                                                                                      | Total current liabilities  |        |          | 2,177  |           |        |        | 2,138  | 
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|Commitments and contingencies (Note 8)     |                                                                                                                                                                                      |                            |       |          |        |           |       |       
|Stockholders equity:                      |                                                                                                                                                                                      |                            |        |          |        |           |        |       
|                                           | Preferred stock, $.01 par value, 1,000,000 authorized, no shares
issued or outstanding                                                                                               |                            |        |         |        |           |        |       |       
|                                           | Common stock, $.01 par value, 60,000,000 shares authorized,
13,136,124 shares issued and outstanding at June 30, 2003
and 13,135,457 shares issued and outstanding at March 31, 2003 |                            |        | 131      |        |           |        | 131    |       
|                                           | Additional paid-in capital                                                                                                                                                           |                            |        | 27,637   |        |           |        | 27,635 |       
|                                           | Retained earnings                                                                                                                                                                    |                            |        | 9,927    |        |           |        | 10,337 |       
|                                           |                                                                                                                                                                                      | Total stockholders equity |        |          | 37,695 |           |        |        | 38,103 | 
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       
|Total liabilities and stockholders equity |                                                                                                                                                                                      | $                          | 39,872 |          |        | $         | 40,241 |       
|                                           |                                                                                                                                                                                      |                            |        |          |        |           |        |        |       

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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ATLANTIC DATA SERVICES, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)

|                                                                           |                                                                              |                          |        |                    |       |      |        |       |       | 
|-------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------ | ------ | ------------------ | ----- | ---- | ------ | ----- | ----- | 
|                                                                           |                                                                              |                          |        | Three Months Ended
|                                                                           |                                                                              |                          |        | June 30,          
|                                                                           |                                                                              |                          |        |                   
|                                                                           |                                                                              |                          |        | 2003               |       | 2002
|                                                                           |                                                                              |                          |        |                    |       |     
|Revenues                                                                   |                                                                              | $                        | 4,190  |                    |       | $    | 6,935  |      
|Cost of revenues                                                           |                                                                              |                          | 2,631  |                    |       |      | 3,776  |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Gross profit                                                               |                                                                              |                          | 1,559  |                    |       |      | 3,159  |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Operating expenses:                                                        |                                                                              |                          |        |                    |       |      |        |      
|                                                                           | Sales and marketing                                                          |                          |        | 417                |       |      |        | 539   |      
|                                                                           | General and administrative                                                   |                          |        | 1,677              |       |      |        | 1,541 |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|                                                                           |                                                                              | Total operating expenses |        |                    | 2,094 |      |        |       | 2,080 | 
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Income (loss) from operations                                              |                                                                              |                          | (535   | )                  |       |      | 1,079  |      
|Interest income, net                                                       |                                                                              |                          | 125    |                    |       |      | 186    |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Income (loss) from continuing operations before provision for
income taxes |                                                                              |                          | (410   | )                  |       |      | 1,265  |      
|Provision for income taxes                                                 |                                                                              |                          |       |                    |       |      | 455    |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Income (loss) from continuing operations                                   |                                                                              |                          | (410   | )                  |       |      | 810    |      
|Discontinued operations:                                                   |                                                                              |                          |        |                    |       |      |        |      
|                                                                           | Income on disposal of business (less applicable income
tax provision of $27) |                          |        |                   |       |      |        | 48    |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|                                                                           |                                                                              | Net income (loss)        |        | $                  | (410  | )    |        | $     | 858   | 
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Earnings (loss) per share from continuing operations:                      |                                                                              |                          |        |                    |       |      |        |      
|                                                                           | Basic                                                                        |                          | $      | (0.03              | )     |      | $      | 0.06  |      
|                                                                           | Diluted                                                                      |                          | $      | (0.03              | )     |      | $      | 0.06  |      
|Earnings per share from discontinued operations:                           |                                                                              |                          |        |                    |       |      |        |      
|                                                                           | Basic                                                                        |                          | $      |                   |       |      | $      | 0.01  |      
|                                                                           | Diluted                                                                      |                          | $      |                   |       |      | $      |      |      
|Earnings (loss) per share from net income:                                 |                                                                              |                          |        |                    |       |      |        |      
|                                                                           | Basic                                                                        |                          | $      | (0.03              | )     |      | $      | 0.07  |      
|                                                                           | Diluted                                                                      |                          | $      | (0.03              | )     |      | $      | 0.06  |      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Shares used in computing earnings (loss) per share (basic)                 |                                                                              |                          | 13,136 |                    |       |      | 13,039 |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      
|Shares used in computing earnings (loss) per share (diluted)               |                                                                              |                          | 13,136 |                    |       |      | 13,216 |      
|                                                                           |                                                                              |                          |        |                    |       |      |        |      

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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ATLANTIC DATA SERVICES, INC.

Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |     |      |  
|---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------- | ------ | ------------------ | ---- | ---- | ------ | --- | ---- | -
|                                                                                         |                                                                                  |                                        |        | Three Months Ended
|                                                                                         |                                                                                  |                                        |        | June 30,          
|                                                                                         |                                                                                  |                                        |        |                   
|                                                                                         |                                                                                  |                                        |        | 2003               |      | 2002
|                                                                                         |                                                                                  |                                        |        |                    |      |     
|Cash flows from operating activities:                                                    |                                                                                  |                                        |        |                    |      |      |        |    
|Net income (loss)                                                                        |                                                                                  | $                                      | (410   | )                  |      | $    | 858    |    
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                                  |                                        |        |                    |      |      |        |    
|                                                                                         | Discontinued operations                                                          |                                        |        |                   |      |      |        | (48 | )   
|                                                                                         | Depreciation and amortization                                                    |                                        |        | 35                 |      |      |        | 88  |     
|                                                                                         | Accrued interest                                                                 |                                        |        | (56                | )    |      |        | (26 | )   
|                                                                                         | Tax refund receivable                                                            |                                        |        | 850                |      |      |        |    |     
|                                                                                         | Change in assets and liabilities (net of effect of acquisition
and disposition): |                                        |        |                    |      |      |        |     |     
|                                                                                         |                                                                                  | Accounts receivable                    |        |                    | 121  |      |        |     | (519 | )
|                                                                                         |                                                                                  | Prepaid expenses and other assets      |        |                    | (144 | )    |        |     | (68  | )
|                                                                                         |                                                                                  | Accounts payable                       |        |                    | 82   |      |        |     | 76   |  
|                                                                                         |                                                                                  | Accrued expenses and other liabilities |        |                    | 19   |      |        |     | (206 | )
|                                                                                         |                                                                                  | Deferred revenue                       |        |                    | (62  | )    |        |     | (85  | )
|                                                                                         |                                                                                  | Federal and state income taxes payable |        |                    |     |      |        |     | 479  |  
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Net cash provided by operating activities of continuing
operations                       |                                                                                  |                                        | 435    |                    |      |      | 549    |    
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Cash flows from investing activities:                                                    |                                                                                  |                                        |        |                    |      |      |        |    
|Purchase of short-term investments                                                       |                                                                                  |                                        | (2,699 | )                  |      |      | (2,006 | )  
|Sale of short-term investments                                                           |                                                                                  |                                        | 89     |                    |      |      | 363    |    
|Maturity of short-term investments                                                       |                                                                                  |                                        | 500    |                    |      |      |        |    
|Purchase of property and equipment                                                       |                                                                                  |                                        | (16    | )                  |      |      | (5     | )  
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Net cash used in investing activities of continuing
operations                           |                                                                                  |                                        | (2,126 | )                  |      |      | (1,648 | )  
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Net decrease in cash and cash equivalents                                                |                                                                                  |                                        | (1,691 | )                  |      |      | (1,099 | )  
|Cash and cash equivalents, beginning of period                                           |                                                                                  |                                        | 27,329 |                    |      |      | 15,457 |    
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Cash and cash equivalents, end of period                                                 |                                                                                  | $                                      | 25,638 |                    |      | $    | 14,358 |    
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    
|Supplemental disclosure of cash flow information:                                        |                                                                                  |                                        |        |                    |      |      |        |    
|Cash paid during the period for taxes                                                    |                                                                                  | $                                      |       |                    |      | $    | 12     |    
|                                                                                         |                                                                                  |                                        |        |                    |      |      |        |    

The accompanying notes are an integral part of these condensed consolidated
financial statements.

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ATLANTIC DATA SERVICES, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared by Atlantic Data Services, Inc. (the Company) in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended June 30, 2003 are
not necessarily indicative of the results that may be expected for future
periods of the full fiscal year. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Companys Annual Report on Form
10-K for the year ended March 31, 2003.

The balance sheet at March 31, 2003 has been derived from the audited financial
statements at that date, but does not include all the information and footnotes
required by generally accepted accounting principles for complete financial
statements.

2.     Summary of Significant Accounting Policies

Revenue Recognition

The Company primarily derives its revenue by providing consulting services on a
time and materials basis and, to a lesser extent, on a fixed price basis.
Revenues recognized under fixed price contracts are not material. Under the
Companys consulting arrangements, revenue is recognized as services are
performed over the term of the arrangement. Deferred revenue represents cash
collected and/or billings in advance of the performance of services. Also
included in revenues for the quarters ended June 30, 2003 and 2002 are
reimbursable contract-related travel and entertainment expenses of $500,000 and
$869,000, respectively, which are separately billed to customers.

Earnings per Common Share

The Company follows SFAS No. 128, Earnings per Share (SFAS No. 128). SFAS
No. 128 requires the presentation of two amounts, basic earnings (loss) per
share and diluted earnings (loss) per share. Basic earnings (loss) per share
is calculated by dividing income (loss) from continuing operations,
discontinued operations and net income (loss) by the weighted average number of
shares of common stock outstanding during the period. Diluted earnings (loss)
per share is computed using the weighted average number of common stock
outstanding during the period, plus the dilutive effect of common stock
equivalents.

Short-Term Investments

Short-term investments consist primarily of high-grade commercial paper,
municipal bonds and corporate debt with original maturities at the date of
purchase greater than three months and less than twelve months. All short-term
investments have been classified as held to maturity and are carried at
amortized cost, which approximates fair value, due to the short period of time
to maturity.

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Stock-Based Compensation

Proceeds from the exercise of stock options under the Companys stock plans are
credited to common stock at par value and the excess is credited to additional
paid-in capital. There are no charges or credits to income for stock options.

The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans other than for restricted
stock. The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an amendment of Financial Accounting
Standards Board (FASB) Statement No. 123 (SFAS No. 148); therefore, no
compensation expense was recognized for the Companys stock option plans.

Had compensation expense for the Companys stock option plans been determined
based on the fair value at the grant date for awards under these plans,
consistent with the methodology prescribed under SFAS No. 148, the Companys
net income and earnings per share would have approximated the pro forma amounts
indicated below:

|                                                                      |  |                                           |       |          |  |   |      |  
|--------------------------------------------------------------------- |  | ----------------------------------------- | ----- | -------- |  | - | ---- | -
|                                                                      |  | For the Quarter Ended                    
|                                                                      |  |                                          
|                                                                      |  | June 30,                                  |       | June 30,
|                                                                      |  | 2003                                      |       | 2002    
|                                                                      |  |                                           |       |         
|                                                                      |  | (in thousands, except for per share data)
|Reported net income (loss)                                            |  |                                           | ($410 | )        |  | $ | 858  |  
|                                                                      |  |                                           |       |          |  |   |      |  
|Reported basic earnings (loss) per share                              |  |                                           | (0.03 | )        |  |   | 0.07 |  
|Reported diluted earnings (loss) per share                            |  |                                           | (0.03 | )        |  |   | 0.06 |  
|                                                                      |  |                                           |       |          |  |   |      |  
|Adjustment to compensation expense for
stock-based awards, net of tax |  |                                           | (106  | )        |  |   | (90  | )
|                                                                      |  |                                           |       |          |  |   |      |  
|Pro forma net income (loss)                                           |  |                                           | (516  | )        |  |   | 768  |  
|Pro forma basic earnings (loss) per share                             |  |                                           | (0.04 | )        |  |   | 0.06 |  
|Pro forma diluted earnings (loss) per share                           |  |                                           | (0.04 | )        |  |   | 0.06 |  
|                                                                      |  |                                           |       |          |  |   |      |  

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3.     Earnings Per Share

The following table sets forth the computation of basic earnings (loss) per
share and diluted earnings (loss) per share for the three months ended June 30,
2003 and 2002:

|                                                                                                             |                                             |                                          |        |                                       |       |      |        |   |      | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------- | ---------------------------------------- | ------ | ------------------------------------- | ----- | ---- | ------ | - | ---- | 
|                                                                                                             |                                             |                                          |        | Three Months Ended June 30,          
|                                                                                                             |                                             |                                          |        |                                      
|                                                                                                             |                                             |                                          |        | 2003                                  |       | 2002
|                                                                                                             |                                             |                                          |        |                                       |       |     
|                                                                                                             |                                             |                                          |        | (in thousands, except per share data)
|Numerator for earnings (loss) per common share and earnings (loss)
per common share assuming dilution:       |                                             |                                          |        |                                       |       |      |        |  
|                                                                                                             |                                             | Income (loss) from continuing operations |        | $                                     | (410  | )    |        | $ | 810  | 
|                                                                                                             |                                             | Income from discontinued operations      |        |                                       |      |      |        |   | 48   | 
|                                                                                                             |                                             |                                          |        |                                       |       |      |        |   |      | 
|                                                                                                             |                                             | Net income (loss)                        |        |                                       | (410  | )    |        |   | 858  | 
|                                                                                                             |                                             |                                          |        |                                       |       |      |        |   |      | 
|Denominator:                                                                                                 |                                             |                                          |        |                                       |       |      |        |  
|Denominator
for basic earnings (loss) per share - weighted average
shares                                    |                                             |                                          | 13,136 |                                       |       |      | 13,039 |  
|                                                                                                             | Dilutive
effect of potential common shares: |                                          |        |                                       |       |      |        |   |     
|                                                                                                             |                                             | Employee stock options                   |        |                                       |      |      |        |   | 177  | 
|                                                                                                             |                                             |                                          |        |                                       |       |      |        |   |      | 
|Denominator
for diluted earnings (loss) per share - adjusted
weighted average shares and assumed conversions |                                             |                                          | 13,136 |                                       |       |      | 13,216 |  
|                                                                                                             |                                             |                                          |        |                                       |       |      |        |   |      | 
|Basic earnings (loss) per share:                                                                             |                                             |                                          |        |                                       |       |      |        |  
|                                                                                                             |                                             | Continuing operations                    |        | $                                     | (0.03 | )    |        | $ | 0.06 | 
|                                                                                                             |                                             | Discontinued operations                  |        |                                       |      |      |        |   | 0.01 | 
|                                                                                                             |                                             | Net income (loss)                        |        |                                       | (0.03 | )    |        |   | 0.07 | 
|                                                                                                            
|Diluted earnings (loss) per share:                                                                           |                                             |                                          |        |                                       |       |      |        |  
|                                                                                                             |                                             | Continuing operations                    |        | $                                     | (0.03 | )    |        | $ | 0.06 | 
|                                                                                                             |                                             | Discontinued operations                  |        |                                       |      |      |        |   |     | 
|                                                                                                             |                                             | Net income (loss)                        |        |                                       | (0.03 | )    |        |   | 0.06 | 

In addition, as of June 30, 2003, there were options outstanding to purchase
1,099,125 shares that were potentially anti-dilutive. Such options were not
included in the denominator as their effect on earnings (loss) per share would
have been anti-dilutive.

4.     Major Customers

The nature of the Companys business results in the Company deriving
significant amounts of revenue from a small number of customers in a particular
period. For the quarter ended June 30, 2003, three customers accounted for
38.4%, 26.9%, and 10.0% of the Companys revenues. For the quarter ended June
30, 2002, two customers accounted for 55.1% and 27.5% of the Companys
revenues.

5.     Income Taxes

Management continues to evaluate the positive and negative evidence bearing
upon the realizability of its deferred tax assets and believes that a full
valuation allowance against these assets, which are comprised principally of
net operating loss carryforwards and various accruals, is appropriate. The
information
considered in making this determination includes the amounts and trends of
income in prior years and projections of future income in fiscal 2004 and
beyond. While the business was profitable in fiscal 2003, management believes
that significant uncertainty continues to exist relative to the Company
achieving sustained profitability and believes it is more likely then not that
the deferred tax asset will not be realizable in the future. Management will
continue to reevaluate the positive and negative evidence periodically.

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6.     Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, Accounting for Obligations
Associated with the Retirement of Long-Lived Assets (SFAS No. 143). SFAS
No. 143 provides the accounting requirements for retirement obligations
associated with tangible long-lived assets. SFAS No. 143 is effective for
financial statements for fiscal years beginning after June 15, 2002. The
adoption of SFAS No. 143 did not have a material impact on the Companys
financial statements.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others an interpretation of FASB Nos. 5,
57, and 107 and rescission of FIN 34. The Interpretation requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken by issuing the guarantee. The
Interpretation also requires additional disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under
certain guarantees it has issued. The accounting requirements for the initial
recognition of guarantees became applicable on a prospective basis for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for all guarantees outstanding, regardless of when
they were issued or modified as of December 15, 2002. The adoption of FIN 45
did not have a material effect on the Companys consolidated financial
statements. The Company has the following guarantee:

To the extent permitted under Massachusetts law and the Companys Second
Amended and Restated Articles of Organization and to the extent provided for in
the Companys corporate by-laws, the Company will indemnify its officers and
directors for certain events or occurrences while the director or officer is or
was serving at our request in such capacity. The maximum potential amount of
future payments the Company could be required to make under these
indemnification obligations is unlimited; however, the Company has a Directors
and Officers liability insurance policy that limits its exposure and enables
the Company to recover a portion of any future amounts paid, provided that such
insurance policy provides coverage. As these indemnification obligations were
in effect prior to December 31, 2002, these obligations were grandfathered
under the provisions of FIN 45. Accordingly, the Company has not accrued a
liability for these agreements as of June 30, 2003.

In February 2003, the FASB issued Emerging Issues Task Force 00-21 (EITF
00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21
requires revenue arrangements with multiple deliverables to be divided into
separate units of accounting. If the deliverables in the arrangement meet
certain criteria, arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values. Applicable
revenue recognition criteria should be considered separately for separate units
of accounting. The guidance in EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company does not expect that the adoption of EITF 00-21 will have a material
impact on its financial position and results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS No.
150), which establishes standards for how an issuer of financial instruments
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within the scope of SFAS No. 150 as a liability
(or an asset in some circumstances) if, at inception, the monetary value of the
obligation is based solely or predominantly on a fixed monetary amount known at
inception, variations in something other than the fair value of the issuers
equity shares or variations inversely related to changes in the fair value of
the issuers equity shares. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company did not enter into any such financial instruments during the
quarter ended June 30, 2003 and does not expect the adoption of this statement
to have a material impact on its financial statements.

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7.     Proposed Transaction

On May 5, 2003, the Company announced that it received a preliminary expression
of interest to engage in a going private transaction from a group consisting of
two current members of management who are also Directors of the Company, one of
its outside Directors and an entity affiliated with one of its outside
Directors. The Board of Directors has appointed an independent committee
composed entirely of independent directors of the Board to consider the
proposal and enter into negotiations with the proposed buyout group regarding
the proposal.

On July 22, 2003, the Company announced that it had entered into an agreement
and plan of merger (the Merger Agreement) with ADS Acquisition Company, LLC
(Acquisition Company), a wholly-owned subsidiary of ADS Acquisition Parent,
LLC (Acquisition Parent). The sole members of Acquisition Parent (the
Principals) are Robert W. Howe, Chairman and Chief Executive Officer of
Atlantic Data Services, Inc. (ADS), William H. Gallagher, President and Chief
Operating Officer (and a director) of ADS, Lee M. Kennedy, a director of ADS,
and affiliates of General Atlantic Partners, LLC, a global private equity firm
that is a major stockholder of ADS. David C. Hodgson, a director of ADS, is a
Managing Member of General Atlantic Partners, LLC. The Principals together hold
approximately 65% of the Company outstanding common stock.

Under the Merger Agreement, each share of Company common stock outstanding at
the time of the Merger (other than 3,400,000 shares held by the Principals),
will be converted into the right to receive $3.25 per share in cash or
approximately $32.3 million in the aggregate (the Merger Consideration). As
of the date hereof, the Company has approximately 13,136,124 shares issued and
outstanding. Under the Merger Agreement, Acquisition Company will merge into
the Company, and the Company will become a subsidiary of Acquisition Parent.

The Board of Directors of the Company, acting on the recommendation of the
independent committee, unanimously approved and adopted the Merger Agreement
and recommended that the Companys stockholders approve the Merger Agreement.
The special committees financial advisor has opined that, as of July 21, 2003,
the Merger Consideration was fair from a financial point of view to the
Companys stockholders other than the Principals. The closing of the Merger is
subject to customary conditions, including approval of the Companys
stockholders.

As soon as practicable, the Company will file a proxy statement relating to the
Merger with the Securities and Exchange Commission, and will schedule a special
meeting of the Companys stockholders to vote on a proposal to approve the
Merger Agreement. The Acquisition Parent and each of the Principals intend to
vote their shares of the Companys common stock in favor of the Merger
Agreement and have entered into a voting agreement to that effect, which will
be sufficient to approve the Merger Agreement and the Merger. Although the
Merger Agreement can be approved without the affirmative vote of any public
stockholders, the public stockholders will be entitled to contractual appraisal
rights substantially equivalent to statutory appraisal rights under
Massachusetts law.

8.     Commitments and Contingencies

On June 4, 2003, the Company and each of its directors were served with a
complaint filed as a purported class action lawsuit in Massachusetts state
court by a stockholder of the Company, purportedly on behalf of all other
stockholders of the Company other than the defendants. The complaint alleges,
among other things, that the Company and its directors have breached or may
have breached fiduciary duties owed to the Companys stockholders in connection
with the Companys May 5, 2003 announcement that it had received from certain
of its directors and stockholders a preliminary expression of interest to
engage in a going private transaction. On July 25, 2003, a second,
substantially similar complaint was filed in Massachusetts state court against
the Company, each of the Companys directors and ADS Acquisition Company, LLC.
This second

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complaint is brought by a stockholder of the Company, also
purportedly on behalf of all other stockholders other than the defendants, and
alleges similar breaches of fiduciary duty in connection with the proposed
going private transaction. As with the first complaint, the Company believes
that the second complaint is without merit and
intends to contest it vigorously. While the Company believes that the
litigation will have no material adverse impact on its financial
condition, results of operations or cash flows, the litigation
process is inherently uncertain and the Company can make no
assurances as to the ultimate outcome of this matter.

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ATLANTIC DATA SERVICES, INC.

FORWARD LOOKING STATEMENTS

This Report includes forward-looking statements, which are made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
You can identify these forward-looking statements when you see us using words
such as expect, anticipate, believe, intend, may, predict, and
other similar expressions. These forward-looking statements cover, among other
items: events, conditions and financial trends that may affect our future
plans of operation, business strategy, growth of operations and financial
position, including statements regarding revenue and earnings or loss per share
projections, concentration of revenues among a limited number of customers,
expected capital expenditures for fiscal 2004 and sufficiency of cash to meet
working capital and capital expenditure requirements for the next twelve
months. In addition, these forward-looking statements cover statements
regarding the consummation of the proposed going private transaction, the
filing by the Company of a proxy statement and the holding of a special meeting
of stockholders to vote on the proposed transactions and the merger agreement.
Any forward-looking statements are not guarantees of future performance and are
necessarily subject to a number of risks and uncertainties, some of which are
beyond our control. These risks and uncertainties include, among others:
variability of our quarterly operating results due to, among other things, the
number, size and scope of customer projects commenced and completed during a
quarter, changes in employee utilization rates and changes in average billing
rates; our dependence on the financial services industry; general economic
uncertainty; concentration of revenues and our dependence on major customers;
risks associated with fixed price contracts; our dependence on key personnel;
intense competition in the IT consulting industry; and risks associated with
potential acquisitions. Because of these risks and uncertainties, the
forward-looking events discussed in this Report might not transpire.




|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 2: |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

We provide information technology (IT) strategy consulting and systems
integration services to the financial services industry. We offer rapid,
cost-effective IT solutions to the business challenges faced by financial
services companies through our in-depth financial services experience,
technological expertise and project management skills. Our service offerings
are organized around four practice areas: Customer Relationship Management
(CRM), Conversions and Consolidations, IT Strategy and Consulting, and
e-Business.

Our revenues are derived primarily from professional fees billed to customers
on a time and materials basis, or, in certain instances, on a fixed price
basis. Included in revenues are reimbursable contract-related travel and
entertainment expenses, which are separately billed to customers.
Substantially all of our contracts, other than fixed price contracts, are
terminable by the customer following limited notice and without significant
penalty to the customer. Revenues from fixed price contracts represented
approximately 1.4% and 1.1% of our revenues for the quarters ended June 30,
2003 and 2002, respectively.

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We have derived, and expect to continue to derive, a significant portion of our
revenues from a relatively limited number of customers. Revenues from our five
largest customers for the quarters ended June 30, 2003 and 2002 were 86.2% and
95.9%, respectively, as a percentage of revenues. For the quarter ended June
30,
2003, Citizens Financial Corporation, Zions Bancorporation, IntraNet Inc., a
TSA Company, FleetBoston Financial Corporation, and Wells Fargo Services
Company accounted for approximately 38.4%, 26.9%, 10.0%, 8.2% and 2.7%,
respectively, of revenue. For the quarter ended June 30, 2002, Citizens
Financial Corporation, Zions Bancorporation, FleetBoston Financial Corporation,
IntraNet Inc., a TSA Company and Metavante Corporation accounted for
approximately 55.1%, 27.5%, 6.0 %, 4.9% and 2.4%, respectively, of revenue.

Cost of revenues consists primarily of salaries and employee benefits for
personnel dedicated to customer assignments, fees paid to subcontractors for
work performed in connection with customer assignments, and reimbursable
contract-related travel and entertainment expenses incurred by us in connection
with the delivery of our services.

Sales and marketing expenses consist primarily of salaries, employee benefits,
travel expenses and promotional costs. General and administrative expenses
consist primarily of expenses associated with our management, finance and
administrative groups, including recruiting, training, depreciation and
amortization and occupancy costs.

Recent Developments

On May 5, 2003, the Company announced that it received a preliminary expression
of interest to engage in a going private transaction from a group consisting of
two current members of management who are also Directors of the Company, one of
its outside Directors and an entity affiliated with one of its outside
Directors. The Board of Directors has appointed an independent committee
composed entirely of independent directors of the Board to consider the
proposal and enter into negotiations with the proposed buyout group regarding
the proposal.

On July 22, 2003, the Company announced that it had entered into an agreement
and plan of merger with ADS ADS Acquisition Company, LLC (Acquisition
Company), a wholly-owned subsidiary of ADS Acquisition Parent, LLC
(Acquisition Parent). The sole members of Acquisition Parent (the
Principals) are Robert W. Howe, Chairman and Chief Executive Officer of
Atlantic Data Services, Inc. (ADS), William H. Gallagher, President and Chief
Operating Officer (and a director) of ADS, Lee M. Kennedy, a director of ADS,
and affiliates of General Atlantic Partners, LLC, a global private equity firm
that is a major stockholder of ADS. David C. Hodgson, a director of ADS, is a
Managing Member of General Atlantic Partners, LLC. The Principals together hold
approximately 65% of the Company outstanding common stock.

Under the Merger Agreement, each share of Company common stock outstanding at
the time of the Merger (other than 3,400,000 shares held by the Principals),
will be converted into the right to receive $3.25 per share in cash or
approximately $32.3 million in the aggregate. As of the date hereof, the
Company has approximately 13,136,124 shares issued and outstanding. Under the
merger agreement, Acquisition Company will merge into the Company, and the
Company will become a subsidiary of Acquisition Parent.

The Board of Directors of the Company, acting on the recommendation of the
independent committee, unanimously approved and adopted the merger agreement
and recommended that the Companys stockholders approve the merger agreement.
The independent committees financial advisor has opined that, as of July 21,
2003, the Merger Consideration was fair from a financial point of view to the
Companys stockholders other than the Principals. The closing of the merger is
subject to customary conditions, including approval of the Companys
stockholders.

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As soon as practicable, the Company will file a proxy statement relating to the
Merger with the Securities and Exchange Commission, and will schedule a special
meeting of the Companys stockholders to vote on a proposal to approve the
merger agreement. The Acquisition Parent and each of the Principals intend to
vote
their shares of the Companys common stock in favor of the merger agreement and
have entered into a voting agreement to that effect, which will be sufficient
to approve the merger agreement and the merger. Although the merger agreement
can be approved without the affirmative vote of any public stockholders, the
public stockholders will be entitled to contractual appraisal rights
substantially equivalent to statutory appraisal rights under Massachusetts law.

Outlook

With respect to our earnings projections for the future, we continue to be
cautious about our outlook for the next quarter and are currently estimating
our second quarter revenues will be in the $4.3 million to $4.7 million range,
with net loss in the range of ($.01) to ($.04) per share.

Variability of Quarterly Operating Results

Variations in our revenues and operating results have occurred from quarter to
quarter and may continue to occur as a result of a number of factors.
Quarterly revenues and operating results can depend on:



| |  | the number, size and scope of customer projects commenced and completed during a quarter,                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in employee utilization rates,                                                                                                                                               
| 
| |  | changes in average billing rates,                                                                                                                                                    
| 
| |  | the number of working days in a quarter,                                                                                                                                             
| 
| |  | the timing of introduction of new service offerings, both by us and our competitors,                                                                                                 
| 
| |  | changes in pricing, both by us and our competitors,                                                                                                                                  
| 
| |  | loss of a significant customer,                                                                                                                                                      
| 
| |  | increased competition from our competitors,                                                                                                                                          
| 
| |  | loss of key personnel,                                                                                                                                                               
| 
| |  | other factors that adversely impact the financial services industry,                                                                                                                 
| 
| |  | general economic conditions,                                                                                                                                                         
| 
| |  | potential acquisitions and our ability to successfully integrate the acquired business or technologies into our existing
business and operations, and                                
| 
| |  | our ability to develop and introduce new service offerings, improve existing service offerings and develop and maintain the
skills necessary to keep pace with changing technologies.

The timing of revenues is difficult to forecast because our sales cycle is
relatively long, ranging from one to six months for new projects with existing
customers and three to six months for new customers, and may depend on factors
such as the size and scope of projects or other factors that adversely impact
the financial services industry and general economic conditions. In addition,
the relatively long length of our sales cycle may negatively impact the
operating results for any particular quarter as a result of increased sales and
marketing expenses without associated increases in revenues in the particular
quarter. Furthermore, many of our projects are, and may be in the future,
terminable without customer penalty. An unanticipated termination of a major
project or loss of a major customer could require us to maintain or terminate
underutilized employees, resulting in a higher than expected number of
unassigned persons or higher than expected severance expenses.

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Quarter Ended June 30, 2003 Compared to Quarter Ended June 30, 2002

Revenues

Revenues decreased 39.6% for the quarter ended June 30, 2003 over the quarter
ended June 30, 2002, from $6.9 million to $4.2 million. This decrease was
predominately due to a 39.4% decrease in the volume of services delivered to
customers due to the continued IT spending reductions in the U.S., as well as a
decrease in the amount of revenue from contract-related travel and
entertainment expenses as a percentage of total revenue to 11.9% from 12.5% for
the quarter ended June 30, 2002.

Cost of Revenues

Cost of revenues decreased 30.3% to $2.6 million from $3.8 million for the
quarter ended June 30, 2003 compared to the quarter ended June 30, 2002,
representing 62.8% and 54.5%, respectively, of revenues in each quarter. The
dollar decrease in cost of revenues was primarily due to a decrease in the
average number of billable personnel from 85 for the quarter ended June 30,
2002 to 66 for the quarter ended June 30, 2003. The percentage increase was
due to a decrease in the utilization rate from 98.7% for the quarter ended June
30, 2002 to 81.2% for the quarter ended June 30, 2003.

Sales and Marketing

Sales and marketing expenses were $417,000 for the quarter ended June 30, 2003
and $539,000 for the quarter ended June 30, 2002, representing 10.0% and 7.8%
of revenues, respectively. The dollar decrease resulted primarily from a
decrease in the base salaries paid to certain individuals in our sales and
marketing group in the quarter ended June 30, 2003 as compared to the quarter
ended June 30, 2002. The increase in sales and marketing expense as a
percentage of revenues is due to the significant decrease in revenue compared
to the corresponding period of the prior fiscal year.

General and Administrative

General and administrative expenses increased 8.8% to $1.7 million from $1.5
million for the quarter ended June 30, 2003 compared to the quarter ended June
30, 2002, representing 40.0% and 22.2% of revenues, respectively. The dollar
increase is primarily due to an increase in professional fees related to the
proposed going private transaction. The increase in general and administrative
expense as a percentage of revenues is due to the increase in expenses, as well
as the 39.6% decrease in revenues on which the percentage is calculated.

Interest Income, Net

Interest income, net decreased $61,000 from $186,000 for the quarter ended June
30, 2002 to $125,000 for the quarter ended June 30, 2003. This decrease was
principally due to interest rate decreases. Interest expense is immaterial.

Provision for Income Taxes

Due to the loss before taxes, there was no provision for taxes for the quarter
ended June 30, 2003. For the quarter ended June 30, 2002, there was a
provision of $455,000.

Due to varying state and local income tax rates and depending on our levels of
profitability, our effective tax rate may vary from period to period, depending
on the states in which we do business.

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Discontinued Operations

On March 29, 2002, we announced our decision to discontinue the operations of
Cool Springs Associates, Inc., d/b/a EarningsInsights. Consequently, we
incurred a charge of $1.9 million, net of income tax benefit, relating to the
write-off of EarningsInsights assets and an accrual for estimated losses
during the phase-out period. For the quarter ended June 30, 2002, we reversed
$48,000 of estimated accruals, net of tax provision, primarily due to a
termination and release agreement with our landlord signed on May 2, 2002
partially releasing us from our lease commitment on the discontinued operation.

Liquidity and Capital Resources

We have no long-term debt and continue to operate primarily debt-free. Working
capital was $37.3 million at June 30, 2003. Our days sales in accounts
receivable at June 30, 2003 was 53 compared to 48 days at June 30, 2002. While
we believe that the risk with respect to collection of accounts receivable is
minimized by the creditworthiness of our customers, primarily banks and other
financial institutions, and because of our credit and collection policies,
there can be no assurance that we will not encounter collection problems in the
future. We attempt to further minimize this risk by performing ongoing credit
valuations of our customers and maintaining an allowance for potential credit
losses. We believe that our allowance for doubtful accounts and collection
policies are adequate.

Capital expenditures for the remainder of fiscal 2004 are expected to be
approximately $100,000 and will be used principally for computers and other
equipment.

We expect that existing cash and cash equivalent balances, together with cash
which may be provided from operations, will be sufficient to meet the Companys
working capital and capital expenditure requirements for at least the next
twelve months.

To date, inflation has not had a material impact on the Companys financial
results.

Recently Issued Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets (SFAS No. 143). SFAS No. 143 provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. SFAS
No. 143 is effective for financial statements for fiscal years beginning after
June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on
the Companys financial statements.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FIN 34. The Interpretation
requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken by issuing the
guarantee. The Interpretation also requires additional disclosures to be made
by a guarantor in its interim and annual financial statements about its
obligations under certain guarantees it has issued. The accounting
requirements for the initial recognition of guarantees became applicable on a
prospective basis for guarantees issued or modified after December 31, 2002.
The disclosure requirements are effective for all guarantees outstanding,
regardless of when they were issued or modified as of December 15, 2002. The
adoption of FIN 45 did not have a material effect on the Companys consolidated
financial statements. The Company has the following guarantee:

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To the extent permitted under Massachusetts law and the Companys Second
Amended and Restated Articles of Organization and to the extent provided for in
the Companys corporate by-laws, the Company will indemnify its officers and
directors for certain events or occurrences while the director or officer is or
was serving at our request in such capacity. The maximum potential amount of
future payments the Company could be required to make under these
indemnification obligations is unlimited; however, the Company has a
Directors and Officers liability insurance policy that limits its exposure and
enables the Company to recover a portion of any future amounts paid, provided
that such insurance policy provides coverage. As these indemnification
obligations were in effect prior to December 31, 2002, these obligations were
grandfathered under the provisions of FIN 45. Accordingly, the Company has not
accrued a liability for these agreements as of June 30, 2003.

In February 2003, the FASB issued Emerging Issues Task Force 00-21 (EITF
00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21
requires revenue arrangements with multiple deliverables to be divided into
separate units of accounting. If the deliverables in the arrangement meet
certain criteria, arrangement consideration should be allocated among the
separate units of accounting based on their relative fair values. Applicable
revenue recognition criteria should be considered separately for separate units
of accounting. The guidance in EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company does not expect that the adoption of EITF 00-21 will have a material
impact on its financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting For Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS No.
150), which establishes standards for how an issuer of financial instruments
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within the scope of SFAS No. 150 as a liability
(or an asset in some circumstances) if, at inception, the monetary value of the
obligation is based solely or predominantly on a fixed monetary amount known at
inception, variations in something other than the fair value of the issuers
equity shares or variations inversely related to changes in the fair value of
the issuers equity shares. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June 15,
2003. The Company did not enter into any such financial instruments during the
quarter ended June 30, 2003 and does not expect the adoption of this statement
to have a material impact on its financial statements.




ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates due to investments
in instruments made for non-trading purposes. The interest rate risk relates
primarily to our portfolio of short-term investment grade securities. As of
June 30, 2003 we did not, nor do we intend to, use derivative financial
instruments for speculative trading purposes.

The majority of our sales are denominated in U.S. dollars and take place in
North America.

We believe that interest rate risk and foreign currency exchange rate risk are
both immaterial to the Company.

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ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of
members of our management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of June 30, 2003. Based on that
evaluation, our Chief Executive Officer
and our Chief Financial Officer have concluded that as of the Evaluation Date,
our disclosure controls and procedures were effective in enabling us to record,
process, summarize and report the information required to be included in this
quarterly report within the required time period.

Changes in Internal Controls over Financial Reporting

There have been no significant changes in our internal controls over financial
reporting or, to our knowledge, in other factors that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

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PART II

OTHER INFORMATION




ITEM 1: LEGAL PROCEEDINGS

On June 4, 2003, the Company and each of its directors were served with a
complaint filed as a purported class action lawsuit in Massachusetts state
court by a stockholder of the Company, purportedly on behalf of all other
stockholders of the Company other than the defendants. The complaint alleges,
among other things, that the Company and its directors have breached or may
have breached fiduciary duties owed to the Companys stockholders in connection
with the Companys May 5, 2003 announcement that it had received from certain
of its directors and stockholders a preliminary expression of interest to
engage in a going private transaction. The Company believes that the action is
without merit and intends to contest it vigorously. On July 25, 2003, a
second, substantially similar complaint was filed in Massachusetts state court
against the Company, each of the Companys directors and ADS Acquisition
Company, LLC. This second complaint is brought by a stockholder of the
company, also purportedly on behalf of all other stockholders other than the
defendants, and alleges similar breaches of fiduciary duty in connection with
the proposed going private transaction. As with the first complaint, the
Company believes that the second complaint is without merit and intends to
contest it vigorously. While the Company believes that the
litigation will have no material adverse impact on its financial
condition, results of operations or cash flows, the litigation
process is inherently uncertain and the Company can make no
assurances as to the ultimate outcome of this matter.




ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

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

| |  |              |  |                                       
| |  | ------------ |  | --------------------------------------
| |  | Exhibit 31.1 |  | Rule 13a-14(a)/15d-14(a) Certification
| |  |              |  |                                       
| |  | Exhibit 31.2 |  | Rule 13a-14(a)/15d-14(a) Certification
| |  |              |  |                                       
| |  | Exhibit 32.1 |  | Section 1350 Certification            
| |  |              |  |                                       
| |  | Exhibit 32.2 |  | Section 1350 Certification            

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

On May 6, 2003, the Company filed a Form 8-K with the Securities and
Exchange Commission announcing that it had issued a press release on the
Companys results for the fourth quarter and fiscal year ended March 31, 2003.

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##### Table of Contents






SIGNATURES

Pursuant to the requirement 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.

ATLANTIC DATA SERVICES, INC.

|      |  |                 |  |                                                                           
|----- |  | --------------- |  | --------------------------------------------------------------------------
|Date: |  | August 06, 2003 |  | By: /s/ Robert W. Howe
Robert W. Howe
Chairman and Chief Executive Officer

|      |  |                 |  |                                                                                                                                          
|----- |  | --------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Date: |  | August 06, 2003 |  | By: /s/ Paul K. McGrath
Paul K. McGrath
Senior Vice President and Chief Financial
   Officer (Principal Financial and Accounting
Officer)

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EXHIBIT INDEX

|             |  |                                       
|------------ |  | --------------------------------------
|Exhibit No.  |  |                                       
|             |  |                                       
|             |  |                                       
|Exhibit 31.1 |  | Rule 13a-14(a)/15d-14(a) Certification
|             |  |                                       
|Exhibit 31.2 |  | Rule 13a-14(a)/15d-14(a) Certification
|             |  |                                       
|Exhibit 32.1 |  | Section 1350 Certification            
|             |  |                                       
|Exhibit 32.2 |  | Section 1350 Certification            

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