|SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


FORM 10-Q


Quarterly Report Under
Section 13 or 15(d) of the


Securities Exchange Act
of 1934
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|For the Quarter Ended June 30, 2001 | Commission file number 0-6355
|----------------------------------- | -----------------------------

|Group 1
Software, Inc.
|----------------------

|Incorporated in Delaware | IRS EI No. 52-0852578
|------------------------ | ---------------------

|4200 Parliament Place,
Suite 600, Lanham, MD 20706-1860


Telephone Number: (301)
918-0400


Indicate by check mark
whether the registrant (1) has filed 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 ___
|------- |  | ------

|Class                        | Shares Outstanding EffectiveAugust 7, 2001
|---------------------------- | ------------------------------------------
|Common Stock, $.50 par value | 6,852,947                                 

|1
|-

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

|                                                                   | June 30,2001 | March 31,2001
|------------------------------------------------------------------ | ------------ | -------------
|
|ASSETS                                                             |              |              
|Current assets:                                                    |             
|Cash and cash equivalents                                          |              | $   23,435   
|Short-term investments, available-for-sale                         |              | 16,825       
|Trade and installment accounts receivable, less                    |             
|allowance of $2,143 and $2,197                                     |              | 17,891       
|Deferred income taxes                                              |              | 1,762        
|Prepaid expenses and other current assets                          |              | 3,968        
|                                                                   |              |              
|Total current assets                                               |              | 63,881       
|Installment accounts receivable, long-term                         |              | 623          
|Property and equipment, net                                        |              | 6,306        
|Computer software, net                                             |              | 20,509       
|Goodwill                                                           |              | 12,682       
|Other assets                                                       |              | 114          
|                                                                   |              |              
|Total assets                                                       |              | $ 104,115    
|                                                                   |              |              
|                                                                   |             
|LIABILITIES AND STOCKHOLDERS EQUITY                               |             
|Current liabilities:                                               |             
|Accounts payable                                                   |              | $     2,116  
|Current portion of note payable and capital lease                  |             
|Obligation                                                         |              | 2,964        
|Accrued expenses                                                   |              | 3,761        
|Accrued compensation                                               |              | 3,985        
|Current deferred revenues                                          |              | 28,277       
|                                                                   |              |              
|Total current liabilities                                          |              | 41,103       
|Note payable and capital lease obligations, net of current portion |              | 3,089        
|Deferred revenues, long-term                                       |              | 424          
|Deferred income taxes                                              |              | 4,150        
|                                                                   |              |              
|Total liabilities                                                  |              | 48,766       
|                                                                   |              |              
|Commitments and contingencies                                      |             
|Stockholders equity:                                              |             
|6% cumulative convertible preferred stock $0.25 par value;         |             
|1,200 shares authorized; 48 shares issued and outstanding          |             
|(aggregate involuntary liquidation preference $950)                |              | 916          
|Common stock $0.50 par value; 50,000 shares authorized; 6,852      |             
|and 6,654 shares issued and outstanding                            |              | 3,426        
|Additional paid in capital                                         |              | 32,424       
|Retained earnings                                                  |              | 24,605       
|Accumulated other comprehensive income                             |              | (1,484       
|Less treasury stock, 615 and 497 shares, at cost                   |              | (4,538       
|                                                                   |              |              
|Total stockholders equity                                         |              | 55,349       
|                                                                   |              |              
|Total liabilities and stockholders equity                         |              | $ 104,115    
|                                                                   |              |              

|See notes to consolidated
financial statements.



2
|----------------------------------------------------

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

|                                            | For the Three Month PeriodEnded June 30,
|------------------------------------------- | ----------------------------------------
|
|Revenue:                                    |                                         
|Software license and related revenue        |                                         
|Maintenance and services                    |                                         
|                                            |                                         
|Total revenue                               |                                         
|                                            |                                         
|Cost of revenue:                            |                                         
|Software license expense                    |                                         
|Maintenance and service expense             |                                         
|                                            |                                         
|Total cost of revenue                       |                                         
|                                            |                                         
|Gross profit                                |                                         
|Operating expenses:                         |                                         
|Research and development                    |                                         
|Sales and marketing                         |                                         
|General and administrative                  |                                         
|                                            |                                         
|Total operating expenses                    |                                         
|                                            |                                         
|Income (loss) from operations               |                                         
|Non-operating income                        |                                         
|Interest income                             |                                         
|Interest expense                            |                                         
|Other non-operating income                  |                                         
|                                            |                                         
|Total non-operating income                  |                                         
|                                            |                                         
|Income from operations before provision     |                                         
|for income taxes                            |                                         
|                                            |                                         
|Provision for income taxes                  |                                         
|                                            |                                         
|                                            |                                         
|Net income                                  |                                         
|Preferred stock dividend requirements       |                                         
|                                            |                                         
|Net income available to common stockholders |                                         
|                                            |                                         
|Basic earnings per share                    |                                         
|                                            |                                         
|Diluted earnings per share                  |                                         
|                                            |                                         
|Basic weighted average shares outstanding   |                                         
|                                            |                                         
|Diluted weighted average shares outstanding |                                         
|                                            |                                         

|See notes to consolidated
financial statements.



3
|----------------------------------------------------

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

|                                                                        | For the Three Month PeriodEnded June 30,
|----------------------------------------------------------------------- | ----------------------------------------
|
|Cash flows from operating activities:                                   |                                         
|Net income                                                              |                                         
|Adjustments to reconcile net income from                                |                                         
|operations to net cash provided by operating activities:                |                                         
|Amortization expense                                                    |                                         
|Depreciation expense                                                    |                                         
|Provision for doubtful accounts                                         |                                         
|Deferred income taxes                                                   |                                         
|Tax benefit from disqualifying disposition of                           |                                         
|incentive stock options                                                 |                                         
|Foreign currency transaction gain                                       |                                         
|Changes in assets and liabilities:                                      |                                         
|Accounts receivable                                                     |                                         
|Prepaid expenses and other current assets                               |                                         
|Other assets                                                            |                                         
|Deferred revenues                                                       |                                         
|Accounts payable                                                        |                                         
|Accrued expenses and accrued compensation                               |                                         
|                                                                        |                                         
|Net cash provided by operating activities                               |                                         
|                                                                        |                                         
|Cash flows from investing activities:                                   |                                         
|Purchase and development of computer software                           |                                         
|Purchase of property and equipment                                      |                                         
|Purchase of marketable securities                                       |                                         
|Sale of marketable securities                                           |                                         
|Payment for acquisitions, net of cash acquired                          |                                         
|                                                                        |                                         
|Net cash used in investing activities                                   |                                         
|                                                                        |                                         
|Cash flows from financing activities:                                   |                                         
|Proceeds from exercise of stock options                                 |                                         
|Repayment of principal on capital lease obligations                     |                                         
|                                                                        |                                         
|Net cash provided by financing activities                               |                                         
|                                                                        |                                         
|Net increase (decrease) in cash and cash equivalents                    |                                         
|Effect of exchange rate on cash and cash equivalents                    |                                         
|Cash and cash equivalents at beginning of period                        |                                         
|                                                                        |                                         
|Cash and cash equivalents at end of period                              |                                         
|                                                                        |                                         
|Supplemental disclosure of non-cash investing and financing activities: |                                         
|Warrants issued in exchange for services                                |                                         
|Mature shares tendered in payment for stock option exercises            |                                         
|Note payable issued for acquisition                                     |                                         
|Liabilities assumed in acquistions                                      |                                         
|Warrants issued in lieu of cash payments for acquistion costs           |                                         

|See notes to consolidated
financial statements.



4
|----------------------------------------------------

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

|                                         | For the Three Month Period EndedJune 30,
|---------------------------------------- | ----------------------------------------
|
|Net income                               |                                         
|Foreign currency translation adjustments |                                         
|                                         |                                         
|Comprehensive income (loss)              |                                         
|                                         |                                         

|See notes to consolidated
financial statements.



5
|----------------------------------------------------

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


1. The consolidated
financial statements for the three months ended June 30, 2001 and 2000 are
unaudited. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included and are of a recurring nature in the
normal course of business. Limited footnote information is presented in
accordance with quarterly reporting requirements. The results of operations for
the three months ended June 30, 2001 are not necessarily indicative of the
results for the year ending March 31, 2002. The information contained in the
annual report on the Form 10-K for the year ended March 31, 2001, should be
referred to in connection with the unaudited interim financial information.


2. Certain prior period
amounts have been reclassified to conform to current period presentation.
Software purchased for internal use, net, of $1,350,000 and $1,298,000 as of
June 30 and March 31, 2001, respectively, was reclassified from Computer
software, net to Property and equipment, net in the
Consolidated Balance Sheets.


3. Research and development
expense, before the capitalization of computer software development costs,
amounted to approximately $4,247,000 and $3,271,000 for the three months ended
June 30, 2001 and 2000, respectively. Capitalization of computer software
development costs for the three month periods ending June 30, 2001 and 2000 were $1,846,000
and $1,760,000, respectively.


4. Earnings per share


Earnings per share (EPS) is
computed in accordance with SFAS No. 128, Earnings Per Share. Basic
EPS is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS is computed using the weighted average number of shares of common stock and
potentially dilutive securities outstanding during the period. Potentially
dilutive securities consist of convertible preferred stock (using the if
converted method) and stock options and warrants (using the treasury stock
method). Potentially dilutive securities are excluded from the computation if
the effect is anti-dilutive.


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

|                                     | For the Three Month Period EndedJune 30,
|------------------------------------ | ----------------------------------------
|
|Weighted average common shares       |                                         
|outstanding-basic                    |                                         
|Effect of dilutive securities:       |                                         
|Stock options and warrants           |                                         
|                                     |                                         
|Weighted average shares outstanding- |                                         
|diluted                              |                                         
|                                     |                                         

|There were additional
potentially dilutive convertible securities of 47,500 in the three months ended
June 30, 2001 and 2000 which were not included in the earnings per share
calculation due to their anti-dilutive effect.


5. In June 2001, the Financial
Accounting Standards Board (FASB) approved Statements of Financial Accounting Standards
(SFAS) No. 141, Business Combinations and No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 addresses financial accounting and reporting for business
combinations. All business combinations in the scope of this Statement shall be accounted
for using the purchase method of accounting. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001, and business combinations accounted
for by the purchase method for which the date of acquisition is July 1, 2001, or later.
Certain transition provisions of SFAS No. 141 apply to business combinations for which
the acquisition date was before July 1, 2001, that were accounted for using the purchase
method, as of the date SFAS No. 142 is initially applied in its entirety. As discussed
below, the Company early adopted SFAS No. 142. Accordingly, SFAS No. 141 transition
provisions were applied as of April 1, 2001. The full adoption of SFAS No. 141 will not
have a material effect on the Companys consolidated financial statements.

6
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The Company elected to
adopt SFAS No. 142 as of April 1, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. In
accordance with this Statement, the Company ceased amortization of goodwill as
of April 1, 2001. Goodwill will be tested for impairment at least annually at
the reporting unit level. Goodwill will be tested for impairment on an interim
basis if an event occurs or circumstances change that would more-likely-than-not
reduce the fair value of a reporting unit below its carrying value. Intangible
assets that are subject to amortization will be reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed.


6. Legal Contingencies


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


7. Segment Information


The following table presents
certain financial information relating to each reportable segment:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              | Three Months Ended June 30,
|--------------------------------------------- | ---------------------------
|
|Segment Information (in thousands)            |                            
|Revenue:                                      |                            
|Enterprise Solutions Software                 |                            
|Customer Relationship Communications Software |                            
|                                              |                            
|Total revenue                                 |                            
|                                              |                            
|Gross Profit:                                 |                            
|Enterprise Solutions Software                 |                            
|Customer Relationship Communications Software |                            
|                                              |                            
|Total gross profit                            |                            
|                                              |                            

|Amortization of capitalized
software associated with the Enterprise Solutions Software segment was
$1,131,000 million and $1,814,000 for the three months ended June 30, 2001 and
2000, respectively. Amortization of capitalized software associated with the
Customer Relationship Communications Software segment was $544,000 and $624,000
for the three month periods ended June 30, 2001 and 2000, respectively.

7
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Prior to April 1, 2001, all
of the Companys assets were retained and analyzed at the corporate level
and were not allocated to the individual segments. As of June 30, 2001, the
Company determined that the identifiable assets for its reportable segments were
as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Enterprise Solutions Software                 |  | $  35,659 | 
|--------------------------------------------- |  | --------- | 
|Customer Relationship Communications Software |  | 26,306    | 
|Corporate                                     |  | 42,150    | 
|                                              |  |          
|Total assets                                  |  | $104,115  | 
|                                              |  |          

|The changes in the carrying
amount of goodwill for the three months ended June 30, 2001 for each reportable
segment were as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Enterprise SolutionsSoftware |        | Customer RelationshipCommunications Software |       
|--------------------------- | ---------------------------- | ------ | -------------------------------------------- | ------
|Balance as of April 1, 2001 |                              | $2,369 |                                              | $1,635
|Goodwill acquired           |                              | 2,128  |                                              | 6,550 
|                            |                              |        |                                              |       
|Balance as of June 30, 2001 |                              | $4,497 |                                              | $8,185
|                            |                              |        |                                              |       

|8. Business Combinations


TriSense Business Combination


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


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

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

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

|Tangible assets     |  | $    373 |  
|------------------- |  | -------- | -
|Liabilities assumed |  | (143     | )
|Computer software   |  | 1,185    |  
|Goodwill            |  | 6,550    |  
|                    |  |         
|                    | 
|                    |  | $ 7,965  |  
|                    |  |         

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


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


HotData Business Combination


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


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


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

|                    | 
|------------------- | 
|Tangible assets     | 
|Liabilities assumed | 
|Computer software   | 
|Goodwill            | 
|                    | 
|                    | 
|                    | 
|                    | 

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


9
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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


The following unaudited pro
forma consolidated results of operations for the three months ended June 30,
2001 and June 30, 2000 have been prepared as if the acquisitions of TriSense and
HotData had occurred as of the beginning of fiscal 2002 and 2001, after giving
effect to purchase accounting adjustments relating to amortization of intangible
assets, interest expense on the note payable issued to finance the TriSense
purchase, and reduction of income tax provision and interest income:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(thousands, except per share data)        | Three months ended June 30,
|----------------------------------------- | ---------------------------
|
|Revenue                                   |                            
|Net loss available to Common Stockholders |                            
|Loss per share                            |                            
|Weighted average common shares            |                            
|outstanding                               |                            

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


9. Acquired Intangible Assets
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(in thousands)                 | Gross CarryingAmount | Accumulated Amortization as ofJune 30, 2001
|------------------------------ | -------------------- | -------------------------------------------
|Amortized intangible assets:   |                      |                                            
|Computer software              |                      | $  1,466                                   
|                               |                     
|Unamortized intangible assets: |                     
|Goodwill                       |                      | $14,820                                    

|The aggregate amortization
expense for the three months ended June 30, 2001 was $45,000. The
aggregate amortization expense for the year ended March 31, 2002 is estimated at
$265,000. The following table summarizes aggregate amortization expense for each
of the five succeeding fiscal years (in thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|10. Goodwill and Other Intangible
Assets - Adoption of SFAS No. 142


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

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

|                                | Three months ended June 30,
|------------------------------- | ---------------------------
|
|Reported net income             |                            
|Add back: Goodwill amortization |                            
|                                |                            
|Adjusted net income             |                            
|                                |                            
|Basic earnings per share:       |                            
|Reported net income             |                            
|Goodwill amortization           |                            
|                                |                            
|Adjusted net income             |                            
|                                |                            
|Diluted earnings per share:     |                            
|Reported net income             |                            
|Goodwill amortization           |                            
|                                |                            
|Adjusted net income             |                            
|                                |                            

|Item 2. Managements
Discussion and Analysis of Results of Operations and Financial Condition



Results of Operations


Any statements in this
quarterly report on Form 10-Q concerning the Companys business outlook or
future economic performance; anticipated profitability, revenues, expenses or
other financial items; together with other statements that are not historical
facts, are forward-looking statements as that term is defined under
the Federal Securities laws. Forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from those stated in such statements. Such risks, uncertainties and
factors include, but are not limited to, changes in currency exchange rates,
changes and delays in new product introduction, customer acceptance of new
products, changes in government regulations, changes in pricing or other actions
by competitors and general economic conditions, as well as other risks detailed
in the Companys filings with the Securities and Exchange Commission.


For the three months ended
June 30, 2001 and 2000, the Company had revenues of $20.7 million and $20.1
million, respectively. Net income available to common stockholders for the three
months ended June 30, 2001 was $0.1 million or $0.01 per share compared with net
income available to common stockholders of $1.1 million or $0.16 per share in
the same period in the prior year. The decrease in profitability for the three
months ended June 30, 2001 is primarily due to a decrease in Customer
Relationship Communications licenses and lower margins on professional services
revenue in both of the Companys operating segments. The acquisitions of
TriSense and Hotdata also had a negative impact on profitability (see footnote
8).


All of Group 1s
operations are based in the two business segments defined as Enterprise
Solutions Software and Customer Relationship Communications Software. Enterprise
Solutions revenue accounted for 70% and 66% of Group 1s total revenue for
the first fiscal quarter of 2002 and 2001, respectively. Customer Relationship
Communications revenue was 30% and 34% of total revenue for the first quarter of
fiscal 2002 and fiscal 2001, respectively. International revenues accounted for
13% and 16% of Group 1s total revenue in the first quarter of fiscal
2002 and 2001, respectively. The decrease in international revenue as a percent
of total revenue is due to lower sales in Europe and Latin America.

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

|Software license and
related revenue of $7.2 million for the first fiscal quarter of 2002 decreased
6% from $7.6 million the same period the prior year. As a percent of total
revenue, first quarter software license and related revenues were 35% in fiscal
2002 compared with 38% in fiscal 2001.


License fees from
Enterprise Solutions Software increased 16% in the three month period ended June
30, 2001 as compared to the same period in the prior year. The specifics of
Enterprise Solutions license fees are discussed below.


For the three months ended
June 30, 2001, license fees from database marketing products were relatively
flat as compared to the same period in the prior year. Included in these numbers
was an increase of $0.1 million in the Companys Model 1 license fees
offset by a slight decrease in DM 1 license revenues.


The Companys data
quality software license fees for the three months ended June 30, 2001 increased
19% as compared to the same period in the prior year. The increase for the three
month period is primarily due to higher sales of Group 1s Code 1 Plus
product for data quality applications.


License fees from Customer
Relationship Communications Software for the three months ended June 30, 2001
decreased 39% from the same period in the prior year. The decrease in license
fees for the three month period was due to lower domestic license revenues along
with lower sales in Europe and Latin America.


Maintenance and service
revenue of $13.6 million for the first quarter of fiscal 2002 increased 9% over
the prior years comparable period. Maintenance and service revenue
accounted for 65% of total revenue for the quarter ended June 30, 2001, compared
with 62% of total revenue in the same period in the prior year. Recognized
maintenance fees included in maintenance and service revenue were $10.4 million
for the quarter ended June 30, 2001 and $9.6 million for the same period the
prior year, an increase of 8%. The increase in maintenance revenue is due to the
recognition of a higher level of maintenance deferrals based on higher aggregate
sales from prior periods and from increased maintenance renewals based on an
increase in the installed customer base in both business segments.


For the quarter ended June
30, 2001, Enterprise Solutions recognized maintenance increased 6% to $8.2
million over the same period in the prior year. Customer Relationship
Communications recognized maintenance increased 18% to $2.2 million in the
quarter ended June 30, 2001 compared to the comparable period in the prior year.


Professional and
educational service revenue from the Enterprise Solutions segment increased 11%
to $1.0 million in the quarter ended June 30, 2001 from the same period in the
prior year. Customer Relationship Communications service revenue increased 14%
to $2.1 million in the quarter ended June 30, 2001 from the same period the
prior fiscal year. The increase in professional and educational service revenue
in both segments is due to new service contracts in the U.S. with Customer
Relationship Communications service revenue being offset by lower European
service contracts.


Total cost of revenue for
the first quarter of fiscal 2002 was $8.5 million versus $7.3 million in the
same period of fiscal 2001. The separate components of cost of revenue are
discussed below.


Software license expense
decreased for the three month period ended June 30, 2001 to $2.5 million from
$3.1 million for the same period in the prior year representing 35% and 40% of
software license and related revenues, respectively. The decrease in expense as
a percent of software license revenue was due to lower royalty and amortization
expenses.

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

|Maintenance and service
expense increased to $6.0 million in the current quarter from $4.2 million in
the comparable period in fiscal 2001, representing 44% and 34% of maintenance
and service revenue, respectively. The increase in expense as a percentage of
revenue for the quarter can be attributed to proportionately higher service
revenue which has lower gross margins than maintenance revenue as discussed
below.


Included in maintenance and
service expense discussed above are professional and educational service costs
of $3.8 million compared with $2.3 million for the comparable period in the
prior year. The increase in professional and educational service expense is due
to higher expense associated with Enterprise Solutions services due to increased
staffing and contracting costs.


Costs of maintenance were
$2.2 million for the first fiscal quarter of 2002 representing 21% of
maintenance revenue. Costs of maintenance for the same quarter in the prior year
were $1.9 million, representing 20% of maintenance revenue. The increase in
expense for the first fiscal quarter is due to increased customer and internal
support costs.


Total operating costs of
$12.6 million amounted to 61% of revenue for the quarter ended June 30, 2001
compared with $11.7 million or 58% of revenue for the prior year period. The
various components of operating costs are discussed below.


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


Total research and
development expense before capitalization of certain development costs was $4.2
million or 20% of revenue for the three month period ended June 30, 2001
compared with $3.3 million or 16% in the prior year.


Research and development
expenses (after capitalization of certain software development costs) totaled
$2.4 million for the first fiscal quarter of 2002 and $1.5 million for the same
period of fiscal 2001, representing 12% and 8% of revenue, respectively. The
increase in expense is due to increased spending on new product initiatives in
both the Enterprise Solutions and Customer Relationship Communications segments,
along with additional expenses related to the TriSense and HotData acquisitions
(see footnote 8).


Sales and marketing
expenses totaled $7.4 million or 36% of revenue in the first quarter of fiscal
2002 and $6.5 million or 32% in the prior year same period. Sales and marketing
costs for the Enterprise Solutions products were 30% of Enterprise Solutions
revenue in the first fiscal quarter of 2002 and 31% for the same period the
prior year. Customer Relationship Communications selling and marketing costs
were 49% for the three month period ended June 30, 2001 and 34% for the same
period the prior year. The increase in cost as a percent of revenue for the
current quarter versus the prior year quarter in Customer Relationship
Communications was due to higher marketing and pre-sales support costs and lower
revenue.


General and administrative
expenses were $2.8 million or 13% of total revenue compared with $3.6 million or
18% of revenue for the three months ended June 30, 2001 and 2000, respectively.
The decrease in general and administrative expenses is primarily related to a
decrease in compensation accruals due to lower operating income for the Company
and due to one-time costs in the prior year associated with the issuance of
warrants.


13
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|Net non-operating income
was $0.5 million for the quarter ended June 30, 2001 as compared with $0.8
million for the same period in the prior year. This decrease represents interest
expense on the note issued for the TriSense acquisition and lower foreign
currency translation gains in the current quarter.


The Companys
effective tax rates were 40% for the three month periods ended June 30, 2001,
and 2000. The current years rate is the net effect of a 44% effective tax
rate on domestic taxable income and a 33% rate on foreign taxable income.


Liquidity and Capital
Resources


The Companys working
capital was $22.8 million at June 30, 2001, as compared to $29.7 million at
March 31, 2001. The current ratio was 1.6 to 1 at June 30, 2001 and 1.7 to 1 at
March 31, 2001.


The Company provides for
its cash requirements through cash funds generated from operations.
Additionally, the Company maintains a $10 million line of credit arrangement
with a commercial bank, expiring October 31, 2001. The line of credit bears
interest at the banks prime rate or Libor plus 150 basis points, at Group
1s option. The line of credit is not collateralized but requires Group 1
to maintain certain operating ratios. At June 30, 2001 and at March 31, 2001,
there were no borrowings outstanding under the line of credit.


For the three months ended
June 30, 2001, net cash provided by operating activities was $3.2 million. This
amount included net income of $0.1 million plus non-cash expenses of $2.9
million. Also included in cash provided by operating activities was a $5.9
million decrease in accounts receivable, offset by a $1.0 million decrease in
deferred revenues, a $4.8 million decrease in accrued expenses and accrued
compensation and a $0.2 million increase in other assets. The decrease in
accounts receivable is due to increased cash collections. Investment in
purchased and developed software of $2.2 million, and capital equipment of $0.4
million, a increase of $8.9 million in short-term investments and $4.8 million
net cash payments related to the TriSense and HotData acquisitions resulted in
$16.2 million used in investing activities. For the three months ended June 30,
2001, $0.4 million was provided by financing activities.


The Companys exposure
to market risk for changes in interest rates relates primarily to its cash
equivalents and short-term investments. The Company does not invest in
derivative financial instruments. Excess cash is invested in short-term, fixed
income financial instruments. These fixed rate investments are subject to
interest rate risk and may fall in value if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels at June 30, 2001, the fair market value of the portfolio would decline by
an immaterial amount. The Company has the ability to hold its fixed income
investments until maturity and, therefore, does not expect operating results or
cash flows to be materially affected by a sudden change in market interest rates
on its investment portfolio.


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


As of June 30, 2001, the
Companys capital resource commitments consisted primarily of
non-cancelable operating lease commitments for office space and equipment. The
Company believes that its current minimum lease obligations and other short-term
and long-term liquidity needs can be met from its existing cash and short-term
investment balances and cash flows from operations. The Company believes that
its long-term liquidity needs are minimal and no large capital expenditures are
anticipated, except for the continuing investment in capitalized software
development costs, which the Company believes can be funded from operations
during the next twelve months.


14
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|Recent Accounting Pronouncements


In
June 2001, the Financial Accounting Standards Board (FASB) approved Statements of
Financial Accounting Standards (SFAS) No. 141, Business Combinations and No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 addresses financial accounting and
reporting for business combinations. All business combinations in the scope of this
Statement shall be accounted for using the purchase method of accounting. The provisions
of SFAS No. 141 apply to all business combinations initiated after June 30, 2001, and
business combinations accounted for by the purchase method for which the date of
acquisition is July 1, 2001, or later. Certain transition provisions of SFAS No. 141
apply to business combinations for which the acquisition date was before July 1, 2001,
that were accounted for using the purchase method, as of the date SFAS No. 142 is
initially applied in its entirety. As discussed below, the Company early adopted SFAS No.
142. Accordingly, SFAS No. 141 transition provisions were applied as of April 1, 2001.
The full adoption of SFAS No. 141 will not have a material effect on the Companys
consolidated financial statements.


The Company elected to
adopt SFAS No. 142 as of April 1, 2001. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets. In
accordance with this Statement, the Company ceased amortization of goodwill as
of April 1, 2001. Goodwill will be tested for impairment at least annually at
the reporting unit level. Goodwill will be tested for impairment on an interim
basis if an event occurs or circumstances change that would more-likely-than-not
reduce the fair value of a reporting unit below its carrying value. Intangible
assets that are subject to amortization will be reviewed for impairment in
accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of.


Legal Contingencies


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


Quantitative and Qualitative
Disclosures about Market Risk


The
Company has a subsidiary in the United Kingdom with offices in Germany, Italy
and Denmark. Additionally, the Company uses third party distributors to market
and distribute its products in other international regions. Transactions
conducted by the subsidiary are typically denominated in the local country
currency, while transactions conducted by the distributors are typically
denominated in pounds sterling. As a result, the Company is primarily exposed to
foreign exchange rate fluctuations as the financial results of its subsidiary
and third party distributors are translated into U.S. dollars in consolidation.
As exchange rates vary, these results, when translated, may vary from
expectations and impact overall expected profitability. Based on the
Companys overall currency rate exposure at June 30, 2001 a 10% change in
foreign exchange rates would have had an immaterial effect on the Companys
financial position, results of operations and cash flows. The Company has not
entered into any foreign currency hedging transactions with respect to its
foreign currency market risk. The Company does not have any financial
instruments subject to material market risk.


Euro Currency


The
European Unions adoption of the Euro currency raises a variety of issues
associated with the Companys European operations. Although the transition
from national currencies to the Euro will be phased in over several years, the
Euro became the single currency for most European countries on January 1, 1999.
The Company is assessing Euro issues related to its treasury operations, product
pricing, contracts and accounting systems. Although the evaluation of these
issues is still in process, management currently believes that the
Companys existing or planned hardware and software systems will
accommodate the transition to the Euro and any required operating changes will
not have a material effect on future results of operations or financial
condition.

15
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|Part II
Other Information


Item 1. Legal Proceedings
|-----------------------------------------------------

| | NONE
| | ----

|Item 2. Changes in Securities
|-----------------------------

| | NONE
| | ----

|Item 3. Defaults Upon Senior
Securities
|---------------------------------------

| | NONE
| | ----

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

| | NONE
| | ----

|Item 5. Other Information
|-------------------------

| | NONE
| | ----

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

| | Form
8-K filed May 14, 2001 for the purchase and sale of assets by and between TriSense
Software, Ltd. and Group1 Software, Inc. dated April 30, 2001.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------

| | Form
8-K filed May 25, 2001 for the purchase and sale of assets by and between HotData, Inc.
and Group 1 Software, Inc. dated May 11, 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------

| | Form
8-KA filed July 13, 2001 for the purchase and sale of assets by and between TriSense
Software, Ltd. and Group1 Software, Inc. dated April 30, 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------

| | Form
8-KA filed July 24, 2001 for the purchase and sale of assets by and between HotData, Inc.
and Group 1 Software, Inc. dated May 11, 2001.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

|16
|--

|Signatures


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

| | Group 1 Software, Inc./s/ Mark FunstonMark FunstonChief Financial OfficerAugust 14, 2001
| | ----------------------------------------------------------------------------------------