|SECURITIES
AND
EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549


FORM 10-Q


Quarterly Report Under
Section 13 or 15(d) of theSecurities Exchange Act of 1934
|-------------------------------------------------------------------------------------------------------------------------------------------------------

|For the Quarter Ended September 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 [   ] | 
|-------- | -------- | 

|ClassCommon
Stock, $.50 par value |  | Shares Outstanding
EffectiveNovember 7, 20016,867,947
|--------------------------------- |  | -----------------------------------------------------

|1
|-

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

|                                                                   | September 30,2001 | March 31,2001
|------------------------------------------------------------------ | ----------------- | -------------
|
|ASSETS                                                             |                   |              
|Current assets:                                                    |                   |              
|Cash and cash equivalents                                          |                   |              
|Short-term investments, available-for-sale                         |                   |              
|Trade and installment accounts receivable, less                    |                   |              
|allowance of $2,296 and $2,197, respectively                       |                   |              
|Deferred income taxes                                              |                   |              
|Prepaid expenses and other current assets                          |                   |              
|                                                                   |                   |              
|Total current assets                                               |                   |              
|                                                                   |                   |              
|Installment accounts receivable, long-term                         |                   |              
|Property and equipment, net                                        |                   |              
|Computer software, net                                             |                   |              
|Goodwill                                                           |                   |              
|Other assets                                                       |                   |              
|                                                                   |                   |              
|Total assets                                                       |                   |              
|                                                                   |                   |              
|LIABILITIES AND STOCKHOLDERS EQUITY                               |                   |              
|Current liabilities:                                               |                   |              
|Accounts payable                                                   |                   |              
|Current portion of note payable and capital lease                  |                   |              
|obligation                                                         |                   |              
|Accrued expenses                                                   |                   |              
|Accrued compensation                                               |                   |              
|Current deferred revenues                                          |                   |              
|                                                                   |                   |              
|Total current liabilities                                          |                   |              
|                                                                   |                   |              
|Note payable and capital lease obligations, net of current portion |                   |              
|Deferred revenues, long-term                                       |                   |              
|Deferred income taxes                                              |                   |              
|                                                                   |                   |              
|Total liabilities                                                  |                   |              
|                                                                   |                   |              
|Commitments and contingencies                                      |                   |              
|                                                                   |                   |              
|Stockholders equity:                                              |                   |              
|6% cumulative convertible preferred stock $0.25 par value;         |                   |              
|1,200 shares authorized; 48 shares issued and outstanding          |                   |              
|(aggregate involuntary liquidation preference $950)                |                   |              
|                                                                   |                   |              
|Common stock $0.50 par value; 50,000 shares authorized; 6,862      |                   |              
|and 6,654 shares issued and outstanding                            |                   |              
|Additional paid in capital                                         |                   |              
|Retained earnings                                                  |                   |              
|Accumulated other comprehensive income                             |                   |              
|Less treasury stock, 618 and 497 shares, at cost                   |                   |              
|                                                                   |                   |              
|Total stockholders equity                                         |                   |              
|                                                                   |                   |              
|Total liabilities and stockholders equity                         |                   |              
|                                                                   |                   |              

|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 September 30, | For the Six Month PeriodEnded September 30,
|------------------------------------------- | --------------------------------------------- | -------------------------------------------
|
|Revenue:                                    |                                               |                                            
|Software license and related revenue        |                                               | $   8,232                                  
|Maintenance and services                    |                                               | 13,936                                     
|                                            |                                               |                                            
|Total revenue                               |                                               | 22,168                                     
|                                            |                                               |                                            
|Cost of revenue:                            |                                              
|Software license expense                    |                                               | 2,950                                      
|Maintenance and service expense             |                                               | 5,233                                      
|                                            |                                               |                                            
|Total cost of revenue                       |                                               | 8,183                                      
|                                            |                                               |                                            
|                                            |                                              
|Gross profit                                |                                               | 13,985                                     
|                                            |                                              
|Operating expenses:                         |                                              
|Research and development                    |                                               | 2,691                                      
|Sales and marketing                         |                                               | 7,386                                      
|General and administrative                  |                                               | 2,686                                      
|                                            |                                               |                                            
|Total operating expenses                    |                                               | 12,763                                     
|                                            |                                               |                                            
|Income from operations                      |                                               | 1,222                                      
|                                            |                                              
|Non-operating income                        |                                              
|Interest income                             |                                               | 441                                        
|Interest expense                            |                                               | (94                                        
|Other non-operating income (expense)        |                                               | (162                                       
|                                            |                                               |                                            
|Total non-operating income                  |                                               | 185                                        
|                                            |                                               |                                            
|Income from operations before provision     |                                               |                                            
|for income taxes                            |                                               | 1,407                                      
|Provision for income taxes                  |                                               | 452                                        
|                                            |                                               |                                            
|                                            |                                               | 955                                        
|Net income                                  |                                              
|Preferred stock dividend requirements       |                                               | (14                                        
|                                            |                                               |                                            
|Net income available to common stockholders |                                               | $      941                                 
|                                            |                                               |                                            
|Basic earnings per share                    |                                               | $     0.15                                 
|                                            |                                               |                                            
|Diluted earnings per share                  |                                               | $     0.14                                 
|                                            |                                               |                                            
|Basic weighted average shares outstanding   |                                               | 6,242                                      
|                                            |                                               |                                            
|Diluted weighted average shares outstanding |                                               | 6,934                                      
|                                            |                                               |                                            

|See notes to consolidated financial
statements.
3
|-------------------------------------------------

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

|                                                                        | For the Six Month PeriodEnded September 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                                                   |                                            
|Net loss on disposal of assets                                          |                                            
|Tax benefit from disqualifying disposition of                           |                                            
|incentive stock options                                                 |                                            
|Foreign currency transaction (gain) loss                                |                                            
|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 provided by (used in) investing activities                     |                                            
|                                                                        |                                            
|Cash flows from financing activities:                                   |                                            
|Proceeds from exercise of stock options                                 |                                            
|Repayment of principal on capital lease obligations                     |                                            
|Dividends paid                                                          |                                            
|Repurchase of common stock                                              |                                            
|                                                                        |                                            
|Net cash provided by financing activities                               |                                            
|                                                                        |                                            
|                                                                        |                                            
|Net increase (decrease) in cash and cash equivalents                    |                                            
|                                                                        |                                            
|Effect of exchange rate on cash and cash equivalents                    |                                            
|                                                                        |                                            
|Cash and cash equivalents at beginning of period                        |                                            
|                                                                        |                                            
|Cash and cash equivalents at end of period                              |                                            
|                                                                        |                                            
|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 acquisitions                                     |                                            
|Warrants issued in lieu of cash payments for acquisition 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 EndedSeptember 30, | For the Six Month PeriodEnded September 30, | 
|---------------------------------------- | --------------------------------------------- | ------------------------------------------- | 
|
|Net income                               |                                               | $   955                                     | 
|                                         |                                               |                                             | 
|Foreign currency translation adjustments |                                               | 497                                         | 
|                                         |                                               |                                             | 
|Comprehensive income                     |                                               | $1,452                                      | 
|                                         |                                               |                                             | 

|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 and six months ended September 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 and six months ended September 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 $1,298,000 as of March 31, 2001 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 $4,505,000 and $3,209,000 for the three months ended
September 30, 2001 and 2000, respectively. Capitalization of computer software
development costs for the three month periods ending September 30, 2001 and 2000
were $1,814,000 and $1,690,000, respectively. Research and development expense,
before the capitalization of computer software development costs, amounted to
approximately $8,752,000 and $6,480,000 for the six months ended September 30,
2001 and 2000, respectively. Capitalization of computer software development
costs for the six month periods ending September 30, 2001 and 2000 were
$3,660,000 and $3,450,000, 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 PeriodEnded September 30, | For the Six Month PeriodSeptember 30,
|------------------------------------------------ | --------------------------------------------- | -------------------------------------
|
|Weighted average common shares outstanding-basic |                                               | 6,242                                
|Effect of dilutive securities:                   |                                              
|Stock options and warrants                       |                                               | 692                                  
|                                                 |                                               |                                      
|Weighted average shares outstanding-diluted      |                                               | 6,934                                
|                                                 |                                               |                                      

|6
|-

|There were additional
potentially dilutive convertible securities of 47,500 in the three and six
months ended September 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.


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


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


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:


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

|
|

|                                              | Three Months EndedSeptember 30, | Six Months EndedSeptember 30,
|--------------------------------------------- | ------------------------------- | -----------------------------
|
|Revenue:                                      |                                 |                              
|Enterprise Solutions Software                 |                                 | $13,953                      
|Customer Relationship Communications Software |                                 | 8,215                        
|                                              |                                 |                              
|Total revenue                                 |                                 | $22,168                      
|                                              |                                 |                              
|Gross Profit:                                 |                                
|Enterprise Solutions Software                 |                                 | $  8,612                     
|Customer Relationship Communications Software |                                 | 5,373                        
|                                              |                                 |                              
|Total gross profit                            |                                 | $13,985                      
|                                              |                                 |                              

|Amortization of capitalized
software associated with the Enterprise Solutions Software segment was
$1,330,000 and $1,576,000 for the three months ended September 30, 2001 and
2000, respectively. Amortization of capitalized software associated with the
Customer Relationship Communications Software segment was $544,000 and $607,000
for the three month periods end September 30, 2001 and 2000, respectively.
Amortization of capitalized software associated with the Enterprise Solutions
Software segment was $2,461,000 and $3,390,000 for the six months ended
September 30, 2001 and 2000, respectively. Amortization of capitalized software
associated with the Customer Relationship Communications Software segment was
$1,088,000 and $1,231,000 for the six month periods ended September 30, 2001 and
2000, respectively.


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

|                                              |          
|--------------------------------------------- | ---------
|Enterprise Solutions Software                 | $  30,788
|Customer Relationship Communications Software | 30,666   
|Corporate                                     | 42,100   
|                                              |          
|Total assets                                  | $103,554 
|                                              |          

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

|                                           | Enterprise SolutionsSoftware | Customer RelationshipCommunicationsSoftware
|------------------------------------------ | ---------------------------- | -------------------------------------------
|Balance as of April 1, 2001                |                              | $2,369                                     
|Goodwill acquired                          |                              | 2,128                                      
|Effect of currency translation on goodwill |                              |                                           
|                                           |                              |                                            
|Balance as of September 30, 2001           |                              | $4,497                                     
|                                           |                              |                                            

|8
|-

|8.  Business Combinations


TriSense Business Combination


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


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


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


HotData 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 that is capable of providing the
functionality of all of the Companys core Data Quality products over the
web.


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

|                    |         
|------------------- | --------
|Tangible assets     | $    957
|Liabilities assumed | (1,141  
|Computer software   | 281     
|Goodwill            | 2,128   
|                    |         
|                    |         
|                    | $ 2,225 
|                    |         

|9
|-

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


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


The following unaudited pro
forma consolidated results of operations for the three and six months ended
September 30, 2001 and 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 endedSeptember 30, | Six months endedSeptember 30,
|-------------------------------------------------- | ------------------------------- | -----------------------------
|
|Revenue                                            |                                 | $22,168                      
|Net income (loss) available to common stockholders |                                 | $     941                    
|Diluted earnings (loss) per share                  |                                 | $    0.14                    
|Weighted average shares outstanding                |                                 | 6,934                        

|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 | AccumulatedAmortization as ofSeptember 30, 2001
|------------------------------ | -------------------- | -----------------------------------------------
|Amortized intangible assets:   |                      |                                                
|Computer software              |                      | $  1,466                                       
|                               |                     
|Unamortized intangible assets: |                     
|Goodwill                       |                      | $14,864                                        

|The aggregate amortization
expense for the three and six months ended September 30, 2001 was $75,000 and
$120,000, respectively. 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):


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

|
|

|                               | 
|------------------------------ | 
|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


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 endedSeptember 30, | Six months endedSeptember 30,
|-------------------------------- | ------------------------------- | -----------------------------
|
|Reported net income available to |                                 |                              
|common stockholders              |                                 | $941                         
|Add back: Goodwill amortization  |                                 |                             
|                                 |                                 |                              
|Adjusted net income              |                                 | $941                         
|                                 |                                 |                              
|                                 |                                 |                              
|Basic earnings per share:        |                                
|Reported net income available to |                                
|common stockholders              |                                 | $0.15                        
|Goodwill amortization            |                                 |                             
|                                 |                                 |                              
|Adjusted net income              |                                 | $0.15                        
|                                 |                                 |                              
|                                 |                                 |                              
|Diluted earnings per share:      |                                
|Reported net income available to |                                
|common stockholders              |                                 | $0.14                        
|Goodwill amortization            |                                 |                             
|                                 |                                 |                              
|Adjusted net income              |                                 | $0.14                        
|                                 |                                 |                              

|In accordance with FAS 142
provisions, the Company completed the transitional goodwill impairment test as
of April 1, 2001 and concluded that goodwill of its reporting units was not
impaired.


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

|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,
expectations, 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
September 30, 2001 and 2000, the Company had revenues of $22.2 million and $22.1
million, respectively. Net income available to common stockholders for the three
months ended September 30, 2001 was $0.9 million or $0.14 per share compared
with net income available to common stockholders of $1.7 million or $0.24 per
share in the same period in the prior year. Net income available to common
stockholders for the six months ended September 30, 2001 was $1.0 million or
$0.15 per share compared with net income available to common stockholders of
$2.8 million or $0.40 per share in the same period in the prior year. The
decrease in profitability is partially attributed to the $0.7 million net loss
($0.10 per share) and $1.2 million net loss ($0.16 per share) impact from
operations and interest expense associated with the acquisitions of assets of
HotData, Inc. and TriSense Software, Ltd. (see footnote 8) in the three and six
months ended September 30, 2001 and 2000, respectively.


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 63% of Group 1s total revenue for the
second fiscal quarter of both 2002 and 2001. Enterprise Solutions revenue was
66% and 64% of total revenue for the six months ended September 30, 2001 and
2000, respectively. Customer Relationship Communications revenue was 37% of
total revenue for the second quarter of both fiscal 2002 and fiscal 2001.
Customer Relationship Communications revenue was 34% and 36% of total revenue
for the six months ended September 30, 2001 and 2000, respectively.
International revenues accounted for 17% and 16% of Group 1s total
revenue in the second quarter of fiscal 2002 and 2001, respectively.
International revenues were 15% and 16% of Group 1s total revenue in the
six months ended September 30, 2001 and 2000, respectively. The Company expects
International revenue to remain at approximately these levels in the near
future.


Software license and
related revenue of $8.2 million for the second fiscal quarter of 2002 decreased
10% from $9.1 million the same period the prior year. As a percent of total
revenue, second quarter software license and related revenue was 37% in fiscal
2002 compared with 41% in fiscal 2001. For the six months ended September 30,
2001, software license and related revenue decreased 8% to $15.4 million from
$16.7 million in the prior year period. Software license and related revenue
comprised 36% of total revenue for the six months ended September 30, 2001,
compared with 40% in the prior year.


License fees from
Enterprise Solutions Software decreased 18% in the three month period ended
September 30, 2001 as compared to the same period in the prior year. For the six
month period ended September 30, 2001, license fees decreased by 1% as compared
to the same six month period the prior year. The specifics of Enterprise
Solutions license fees are discussed below.


For the three and six month
periods ended September 30, 2001, license fees from database marketing products
were down $0.3 million as compared to the same periods in the prior year. The
decrease is primarily due to lower DM1 license revenue.


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

|The Companys data
quality software license fees for the three months ended September 30, 2001
decreased 24% as compared to the same period in the prior year. For the six
month period ended September 30, 2001 data quality license fees were down by 2%
over the same period the prior year. The decrease for the three month period is
primarily due to lower sales of Group 1s Code 1 Plus and MailStream Plus
products for data quality and mailing efficiency applications offset by higher
license fees of the Companys GeoTAX tax jurisdiction software.


License fees from Customer
Relationship Communications Software for the three months ended September 30,
2001 increased 5% from the same period in the prior year. For the six months
ended September 30, 2001 license fees for Customer Relationship Communications
decreased 18% over the same period the prior year. The increase for the three
month period was due to higher domestic sales offset slightly by lower sales in
Europe. The decrease in license fees for the six month period was due to lower
domestic license revenues along with lower sales in Europe and Latin America.


Maintenance and service
revenue of $14.0 million for the second quarter of fiscal 2002 increased 7% over
the prior years comparable period. For the six month period ended
September 30, 2001 maintenance and service revenue of $27.5 million increased 8%
over the prior year period. Maintenance and service revenue accounted for 63%
and 64% of total revenue for the three and six months ended September 30, 2001,
respectively, compared with 59% and 60% of total revenue in the same periods in
the prior year. Recognized maintenance fees included in maintenance and service
revenue were $11.0 million for the quarter ended September 30, 2001 and $9.8
million for the same period the prior year, an increase of 12%. Recognized
maintenance fees were $21.4 million for the six months ended September 30, 2001,
an increase of 10% over the prior year period. 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
September 30, 2001, Enterprise Solutions recognized maintenance revenue was $8.6
million, an increase of 10% over the same period in the prior year. For the six
months ended September 30, 2001 Enterprise Solutions recognized maintenance
revenue increased 8% from the same period in the prior year to $16.8 million.
Customer Relationship Communications recognized maintenance revenue increased
19% over the prior year in both the three and six month periods ended September
30, 2001 to $2.4 million and $4.6 million, respectively.


Professional and
educational service revenue from the Enterprise Solutions segment increased 55%
to $0.9 million in the quarter ended September 30, 2001 from the same period in
the prior year. For the six months ended September 30, 2001, Enterprise
Solutions professional and educational service revenue increased 28% from the
same period in the prior year to $1.9 million. The increase in professional and
educational service revenue in the Enterprise Solutions segment is due to new
and larger service contracts for the Companys Enterprise Data Quality and
GeoTax offerings in the U.S. Customer Relationship Communications service
revenue decreased to $2.1 million in the quarter ended September 30, 2001 from
$2.7 million in the same period the prior fiscal year. For the six months ended
September 30, 2001 Customer Relationship Communications service revenue
decreased to $4.2 million from $4.6 million in the prior year. The decrease in
professional and educational service revenue in the Customer Relationship
Communications segment is due to lower service revenues in the U.S. and in
Europe.


Total cost of revenue for
the second quarter of fiscal 2002 was $8.2 million versus $7.5 million in the
same period of fiscal 2001. Total cost of revenue was $16.7 million and $14.8
million for the six months ended September 30, 2001 and 2000, respectively. The
separate components of cost of revenue are discussed below.


Software license expense
increased for the three month period ended September 30, 2001 to $3.0 million
from $2.9 million for the same period in the prior year representing 36% and 32%
of software license and related revenues, respectively. Software license expense
decreased for the six month period ended September 30, 2001 to $5.5 million from
$6.0 million for the same period in the prior year, representing 36% of software
license revenue in both periods. The increase in expense as a percent of
software license revenue for the current fiscal quarter over the prior year
quarter was due to lower license revenue.


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

|Maintenance and service
expense increased to $5.2 million in the current quarter from $4.6 million in
the comparable period in fiscal 2001, representing 38% and 35% of maintenance
and service revenue, respectively. Maintenance and service expense for the six
month period ended September 30, 2001 increased to $11.2 million from $8.8
million, representing 41% and 35% of maintenance and service revenue,
respectively. The increase in expense as a percentage of revenue can be
attributed to lower margins in Customer Relationship Communications services
revenue, discussed below, and slightly lower margins on maintenance revenue in
both segments which is also discussed below.


Included in maintenance and
service expense discussed above are professional and educational service costs
of $3.0 million and $2.7 million for the three months ending September 30, 2001
and 2000 respectively. For the six month periods ended September 30, 2001 and
2000, professional and educational services costs were $6.7 million and $5.2
million, respectively. The increase in professional and educational service
expense as a percent of revenue is due to higher expense associated with
Enterprise Solutions services due to increased staffing and contracting costs
along with lower revenue in Customer Relationship Communications services due to
a large contract completed in the second fiscal quarter of 2001.


Costs of maintenance were
$2.2 million for the second 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 19% of maintenance revenue. Costs of maintenance
were $4.4 million and $3.6 million for the six months ended September 30, 2001
and 2000, respectively, representing 21% and 19% of maintenance revenue. The
increase in expense as a percentage of revenue is due to increased customer and
internal support costs.


Total operating costs of
$12.8 million amounted to 58% of revenue for the quarter ended September 30,
2001 compared with $12.4 million or 56% of revenue for the prior year period.
For the six months ended September 30, 2001 total operating costs were $25.4
million or 59% of revenue, compared with $24.0 million or 57% of revenue for the
same period in the prior year. 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 $4.5
million or 20% of revenue for the three month period ended September 30, 2001
compared with $3.2 million or 14% in the prior year. Total research and
development expense before capitalization of certain development costs was $8.7
million or 20% of revenue for the six month period ended September 30, 2001
compared with $6.4 million or 15% in the prior year.


Research and development
expenses (after capitalization of certain software development costs) totaled
$2.7 million for the second fiscal quarter of 2002 and $1.5 million for the same
period of fiscal 2001, representing 12% and 7% of revenue, respectively.
Research and development expenses (after capitalization of certain software
development costs) totaled $5.1 million for the first six months of fiscal year
2002 and $3.0 million for the same period of fiscal 2001, representing 12% and
7% 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).


14
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|Sales and marketing
expenses totaled $7.4 million or 33% of revenue in the second quarter of fiscal
2002 and $7.0 million or 32% of revenue in the prior year same period. Sales and
marketing expenses were $14.8 million or 34% of revenue for the six months ended
September 30, 2001 and $13.5 million or 32% of revenue for the same period in
the prior year. Sales and marketing costs for the Enterprise Solutions products
were 31% of Enterprise Solutions revenue in the second fiscal quarter of 2002
and 31% for the same period the prior year. Customer Relationship Communications
selling and marketing costs were 37% for the three month period ended September
30, 2001 and 33% for the same period the prior year. Sales and marketing
expenses for the Enterprise Solutions segment were 31% for the first six months
of both fiscal 2002 and 2001. Sales and marketing expenses for the Customer
Relationship Communications segment were 42% and 33 % of revenue in the six
months ended September 30, 2001 and 2000, respectively. The increase in cost as
a percent of revenue for the current year versus the prior year in Customer
Relationship Communications was due to higher marketing and pre-sales support
costs coupled with a decrease in revenue.


General and administrative
expenses were $2.7 million or 12% of total revenue compared with $3.8 million or
17% of revenue for the three months ended September 30, 2001 and 2000,
respectively. General and administrative expenses were $5.5 million or 13% of
total revenue compared with $7.5 million or 18% of revenue for the six months
ended September 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 along with higher legal
costs and one-time costs associated with the issuance of warrants in the prior
year.


Net non-operating income
was $0.2 million for the quarter ended September 30, 2001 as compared with $0.7
million for the same period in the prior year. For the six months ended
September 30, 2001 and 2000 net non-operating income was $0.7 million and $1.4
million, respectively. This decrease represents a decrease in interest income
due to declining interest rates, interest expense on the note issued for the
TriSense acquisition and net foreign currency translation losses in the current
year.


The Companys
effective tax rates were 32% and 41% for the three month periods ended September
30, 2001, and 2000. The effective tax rates were 33% and 41% for the six months
ended September 30, 2001 and 2000, respectively. The current years rate
for the six months ended September 30, 2001 is the net effect of a 35% effective
tax rate on domestic taxable loss and a 33% rate on foreign taxable income.


Liquidity and
Capital Resources


The Companys working
capital was $23.8 million at September 30, 2001, as compared to $29.7 million at
March 31, 2001. The current ratio was 1.6 to 1 at September 30, 2001 and 1.7 to
1 at March 31, 2002.


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, 2002. The line of credit bears
interest at the banks prime rate or Libor plus 150 basis points, at Group 1s
option. The line of credit is not collateralized but requires Group 1
to maintain certain operating ratios. At September 30, 2001 and at March 31,
2001, there were no borrowings outstanding under the line of credit.


For the six months ended
September 30, 2001, net cash provided by operating activities was $7.7 million.
This amount included net income of $1.0 million plus non-cash expenses of $6.0
million. Also included in cash provided by operating activities was a $8.3
million decrease in accounts receivable, offset by a $2.7 million decrease in
deferred revenues, a $5.0 million decrease in accrued expenses and accrued
compensation. The decrease in accounts receivable is due to increased cash
collections. Investment in purchased and developed software of $4.4 million, and
capital equipment of $1.4 million, a decrease of $0.6 million in short-term
investments and $4.8 million net cash payments related to the TriSense and
HotData acquisitions resulted in $10.0 million used in investing activities. For
the three months ended September 30, 2001, $0.5 million was provided by
financing activities.


15
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|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 September 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 September 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.


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. In accordance with FAS 142 provisions, the Company
completed the transitional goodwill impairment test as of April 1, 2001 and concluded
that goodwill of its reporting units was not impaired.



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


16
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|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 September 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.


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

|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


The
following matters were submitted to, and approved by, the required vote of security
holders of the Company at the Companys annual shareholdersmeeting held on
September 25, 2001:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | I. |  | To
elect three directors to hold office until the third annual meeting of shareholders of
the Company following their election and their successors have been elected and qualified.
| |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nominees          | For | Withheld  | 
| | ----------------- | --- | --------- | 
| | James V. Manning  |     | 5,509,974 | 
| | Richard Eisenberg |     | 5,509,974 | 
| | Bruce J. Spohler  |     | 5,509,974 | 

| | All
nominees were duly elected.
| | -------------------------------

| | In
addition to the newly elected directors, the term of office as a director of Messrs.
James P. Marden, Charles J. Sindelar, Charles A. Mele, Robert S. Bowen, Alan P. Slater
and Thomas S. Buchsbaum continued after the Meeting.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | II. |  | To
amend the Companys 1995 Incentive Stock Option, Non-Qualified Stock Option and
Stock Appreciation Unit Plan to increase by 300,000 shares the number of shares subject
to stock options which may be granted under the Plan.
| |  | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For       | Withheld | Abstain | 
| | --------- | -------- | ------- | 
| | 4,969,595 |          | 903,969 | 
| |           |          |         | 
| |           |          |         | 

| | The
proposal was duly adopted.
| | ------------------------------

Item 5. Other Information

| | NONE
| | ----

Item 6. Exhibits and Reports on Form
8-K

| | Form
8-K filed September 25, 2001 for the repurchase of up to $10 million of Group 1 Software,
Inc. common stock.
| | -----------------------------------------------------------------------------------------------------------------

| | Form 8-K filed November 6, 2001 for the Letter of Agreement for purchase of Vision-Re Technologies, a Toronto, Canada corporation.
| | ----------------------------------------------------------------------------------------------------------------------------------

|18
|--

|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 Funston Mark Funston Chief Financial OfficerNovember 14, 2001
| |  | --------------------------------------------------------------------------------------------

|19
|--