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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

(Mark One)

xQuarterly
report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
quarterly period ended December 31, 2003.

oTransition
report pursuant to Section 13 or 15(d) of the Exchange act for the transition
period from ____________ to ____________

Commission File Number: 0-6355

Group
1 Software, Inc.(Exact name of small business issuer as specified in its charter)

|Delaware                                                         |  | 52-0852578                            
|---------------------------------------------------------------- |  | --------------------------------------
|(State or other jurisdiction of
  incorporation or organization) |  | (I.R.S. Employer Identification
  No.)
|                                                                 |  |                                       
|4200 Parliament Place, Suite 600, Lanham, MD                     |  | 20706-1860                            
|(Address of principal executive
  offices)                       |  | (Zip Code)                            

(301) 918-0400(Issuers telephone number)

(Former name, former address and former fiscal year, if changed since
last report)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. xYes
oNo

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date:

Shares Outstanding EffectiveFebruary 6, 200315,176,765

Class Common Stock, $.50 par value

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GROUP
1 SOFTWARE, INC. CONSOLIDATED BALANCE SHEETSIn
thousands, except par value)

|                                                                                      |  | 
|------------------------------------------------------------------------------------- |  | 
|
|
|ASSETS                                                                                |  | 
|Current assets:                                                                       |  | 
|Cash and cash equivalents                                                             |  | 
|Short-term investments, available-for-sale                                            |  | 
|Trade and installment accounts receivable, less                                       |  | 
|allowance of $2,561 and $ 1,755                                                       |  | 
|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 obligations                         |  | 
|                                                                                      |  | 
|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; none issued                                           |  | 
|Common stock $0.50 par value; 200,000 and 50,000 shares authorized; 15,156 and 14,902 |  | 
|shares issued                                                                         |  | 
|Additional paid in capital                                                            |  | 
|Retained earnings                                                                     |  | 
|Accumulated other comprehensive income                                                |  | 
|Treasury stock, 1,271 and 1,246 shares, at cost                                       |  | 
|                                                                                      |  | 
|Total stockholders equity                                                            |  | 
|                                                                                      |  | 
|Total liabilities and stockholders equity                                            |  | 
|                                                                                      |  | 
|See notes to consolidated financial statements                                        |  | 

2

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

|                                                | For the Three Month Period Ended December 31, |  | For the Nine Month Period Ended December 31, |        |   |   |        |  
|----------------------------------------------- | --------------------------------------------- |  | -------------------------------------------- | ------ | - | - | ------ | -
|
|Revenue:                                        |                                               |  |                                              |        |   |   |        |  
|Software license and related revenue            |                                               |  | $                                            | 14,198 |   | $ | 12,525 |  
|Maintenance and services                        |                                               |  |                                              | 17,124 |   |   | 14,165 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Total revenue                                   |                                               |  |                                              | 31,322 |   |   | 26,690 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Cost of revenue:                                |                                               |  |                                              |        |   |   |        |  
|Software license expense                        |                                               |  |                                              | 4,038  |   |   | 3,379  |  
|Maintenance and service expense                 |                                               |  |                                              | 4,821  |   |   | 4,302  |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Total cost of revenue                           |                                               |  |                                              | 8,859  |   |   | 7,681  |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Gross profit                                    |                                               |  |                                              | 22,463 |   |   | 19,009 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Operating expenses:                             |                                               | 
|Research and development, net (see note 5)      |                                               |  |                                              | 5,228  |   |   | 3,032  |  
|Sales and marketing                             |                                               |  |                                              | 11,107 |   |   | 8,464  |  
|General and administrative                      |                                               |  |                                              | 4,579  |   |   | 3,999  |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Total operating expenses                        |                                               |  |                                              | 20,914 |   |   | 15,495 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|                                                |                                               |  |                                              | 1,549  |   |   | 3,514  |  
|Income from operations                          |                                               | 
|                                                |                                               | 
|Other income:                                   |                                               | 
|Interest income                                 |                                               |  |                                              | 187    |   |   | 276    |  
|Interest expense                                |                                               |  |                                              | (6     | ) |   | (97    | )
|Other income (expense)                          |                                               |  |                                              | (141   | ) |   | (31    | )
|                                                |                                               |  |                                              |        |   |   |        |  
|Total other income                              |                                               |  |                                              | 40     |   |   | 148    |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Income before provision for income taxes        |                                               |  |                                              | 1,589  |   |   | 3,662  |  
|Provision for income taxes                      |                                               |  |                                              | 613    |   |   | 1,321  |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Net income;                                     |                                               |  |                                              | 976    |   |   | 2,341  |  
|                                                |                                               |  |                                              |       
|Preferred stock dividend requirements           |                                               |  |                                              |     |   |   | (14    | )
|                                                |                                               |  |                                              |        |   |   |        |  
|Net income available to common stockholders     |                                               |  | $                                            | 976    |   | $ | 2,327  |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Basic earnings per share                        |                                               |  | $                                            | 0.07   |   | $ | 0.18   |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Diluted earnings per share                      |                                               |  | $                                            | 0.06   |   | $ | 0.16   |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Basic weighted average shares outstanding       |                                               |  |                                              | 13,865 |   |   | 13,182 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|Diluted weighted average shares outstanding     |                                               |  |                                              | 15,766 |   |   | 14,959 |  
|                                                |                                               |  |                                              |        |   |   |        |  
|See notes to consolidated financial statements. |                                               |  |                                              |        |   |   |        |  

3

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GROUP
1 SOFTWARE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSIn
thousands)(Unaudited)

|                                                                           | For the Nine Month PeriodEnded December 31, |  |   |        
|-------------------------------------------------------------------------- | ------------------------------------------- |  | - | -------
|
|Cash flows from operating activities:                                      |                                             |  |   |        
|Net income                                                                 |                                             |  | $ | 5,581  
|Adjustments to reconcile net income from                                   |                                             |  |   |        
|operations to net cash provided by operating activities:                   |                                             | 
|Amortization expense                                                       |                                             |  |   | 7,364  
|Depreciation expense                                                       |                                             |  |   | 1,394  
|Provision for doubtful accounts                                            |                                             |  |   | (359   
|Deferred income taxes                                                      |                                             |  |   | (342   
|Net gain on sale of intellectual property and other property and equipment |                                             |  |   | (346   
|                                                                           |                                             |  |   |        
|Tax benefit from exercises of stock options                                |                                             |  |   | 908    
|Foreign currency transaction loss                                          |                                             |  |   | 151    
|Compensation expense for warrants issued                                   |                                             |  |   | 10     
|Changes in assets and liabilities:                                         |                                             | 
|Accounts receivable                                                        |                                             |  |   | 1,924  
|Prepaid expenses and other current assets                                  |                                             |  |   | 458    
|Other assets                                                               |                                             |  |   | (495   
|Deferred revenues                                                          |                                             |  |   | (2,760 
|Accounts payable                                                           |                                             |  |   | 662    
|Accrued expenses and accrued compensation                                  |                                             |  |   | (3,452 
|                                                                           |                                             |  |   |        
|Net cash provided by operating activities                                  |                                             |  |   | 10,698 
|                                                                           |                                             |  |   |        
|Cash flows from investing activities:                                      |                                             | 
|Purchases and development of computer software                             |                                             |  |   | (5,515 
|Purchases of property and equipment                                        |                                             |  |   | (2,186 
|Payment for acquisition, net of cash acquired                              |                                             |  |   | (11,472
|Purchases of marketable securities                                         |                                             |  |   | (31,963
|Sales of marketable securities                                             |                                             |  |   | 31,873 
|Proceeds from sale of intellectual property                                |                                             |  |   | 375    
|                                                                           |                                             |  |   |        
|Net cash (used in) provided by investing activities                        |                                             |  |   | (18,888
|                                                                           |                                             |  |   |        
|Cash flows from financing activities:                                      |                                             | 
|Proceeds from exercise of stock options                                    |                                             |  |   | 1,118  
|Repayment of principal on long-term debt                                   |                                             |  |   | (56    
|Dividends paid                                                             |                                             |  |   |     
|                                                                           |                                             |  |   |        
|Net cash provided by (used in) financing activities                        |                                             |  |   | 1,062  
|                                                                           |                                             |  |   |        
|Net (decrease) increase in cash and cash equivalents                       |                                             |  |   | (7,128 
|Effect of exchange rate on cash and cash equivalents                       |                                             |  |   | 1,338  
|Cash and cash equivalents at beginning of period                           |                                             |  |   | 56,475 
|                                                                           |                                             |  |   |        
|Cash and cash equivalents at end of period                                 |                                             |  | $ | 50,685 
|                                                                           |                                             |  |   |        
|Supplemental disclosure of non-cash investing and financing activities:    |                                             |  |   |        
|Mature shares tendered in payment for stock option exercises               |                                             |  | $ | 51     
|See notes to consolidated financial statements.                            |                                             | 

4

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

|                             | For the Three Month PeriodEnded December 31, |  | For the Nine Month Period Ended December 31, |       |  |   |       | 
|---------------------------- | -------------------------------------------- |  | -------------------------------------------- | ----- |  | - | ----- | 
|
|Net income                   |                                              |  | $                                            | 976   |  | $ | 2,341 | 
|Foreign currency translation |                                              | 
|adjustments                  |                                              |  |                                              | 1,455 |  |   | 143   | 
|                             |                                              |  |                                              |       |  |   |       | 
|Comprehensive income         |                                              |  | $                                            | 2,431 |  | $ | 2,484 | 
|                             |                                              |  |                                              |       |  |   |       | 

See
notes to consolidated financial statements.

5

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

1. The
consolidated financial statements for the three and nine months ended December
31, 2003 and 2002 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 nine months ended December 31, 2003 are not
necessarily indicative of the results for the year ending March 31, 2004. The
information contained in the annual report on the Form 10-K for the year ended
March 31, 2003, should be referred to in connection with the unaudited interim
financial information.

2. On
December 10, 2002, under authorization of the Board of Directors the Company
moved to redeem all of the outstanding 6% cumulative convertible preferred
stock. On January 15, 2003, the holders of all 47,500 shares outstanding elected
to exchange their preferred shares for 142,500 common shares in accordance with
the conversion provision of the preferred stock.

3. On
November 5, 2002, the Board of Directors declared a two-for-one common stock
split for stockholders of record as of November 15, 2002. There was no change in
the par value of the stock as a result of the split. The additional shares were
issued on December 2, 2002. The effect of the stock split has been retroactively
reflected in the consolidated financial statements for all periods presented.

4.
Certain prior period amounts have been reclassified to conform to current period
presentation.

5.
Research and development costs, before the capitalization of computer software
development costs, were $6,476,000 and $5,003,000 for the three months ended
December 31, 2003 and 2002, respectively. Capitalization of computer software
development costs for the three months ended December 31, 2003 and 2002 were
$1,248,000 and $1,971,000, respectively. Research and development costs, before
the capitalization of computer software development costs, were $15,885,000 and
$14,263,000 for the nine months ended December 31, 2003 and 2002, respectively.
Capitalization of computer software development costs for the nine months ended
December 31, 2003 and 2002 were $4,933,000 and $5,677,000, respectively.
Amortization expense related to developed and acquired software costs was
$2,110,000 and $2,117,000 in the three months ended December 31, 2003 and 2002,
respectively and $6,587,000 and $6,313,000 in the nine months ended December 31,
2003 and 2002, respectively.

6.
Earnings per share

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

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

6

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|                                                 | For the Three Month Period Ended December 31, |  | For the Nine Month Period Ended December 31, |        |  |  |        | 
|------------------------------------------------ | --------------------------------------------- |  | -------------------------------------------- | ------ |  |  | ------ | 
|
|Weighted average common shares outstanding-basic |                                               |  |                                              |        |  |  |        | 
|                                                 |                                               |  |                                              | 13,865 |  |  | 13,182 | 
|Effect of dilutive securities:                   |                                               |  |                                              |        |  |  |        | 
|Stock options and warrants                       |                                               |  |                                              | 1,901  |  |  | 1,635  | 
|Convertible Securities                           |                                               |  |                                              |     |  |  | 142    | 
|                                                 |                                               |  |                                              |        |  |  |        | 
|Weighted average shares                          |                                               | 
|outstanding-diluted                              |                                               |  |                                              | 15,766 |  |  | 14,959 | 
|                                                 |                                               |  |                                              |        |  |  |        | 

There
were 203,000 additional potentially dilutive common stock options or warrants in
the three months ended December 31, 2003. There were 57,000 additional
potentially dilutive common stock options or warrants in the nine months ended
December 31, 2003. There were 11,000 and 814,000 additional potentially dilutive
common stock options and warrants in the three and nine months ended December
31, 2002.

The
Company accounts for its stock based compensation in accordance with the
provisions of Accounting Principles Board Opinion No. 25 (APB 25),
Accounting for Stock Issued to Employees as interpreted by FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, and Interpretation of APB Opinion No. 25, (FIN 44) and
present the pro forma disclosures required by Statement of Financial Accounting
Standard No. 123, Accounting for Stock Based Compensation (SFAS 123)
as amended by Statement of Financial Accounting Standard No. 148,
Accounting for Stock Based Compensation  Transition and
Disclosure (SFAS 148).

The
Company accounts for the activity under the Plans in accordance with APB 25.
Accordingly, no compensation expense has been recognized for the Plans. If
compensation expense had been determined based on the fair value of the options
at the grant dates consistent with the method of accounting under SFAS No. 123,
the Companys net income and earnings per share would have decreased or
increased to the pro forma amounts indicated below (in thousands, except per
share amounts):

|                                                                     | Three Months endedDecember 31, |  | Nine Months Ended December 31, 2002 |        |   |   |       |  
|-------------------------------------------------------------------- | ------------------------------ |  | ----------------------------------- | ------ | - | - | ----- | -
|
|Net income available to common stockholders                          |                                |  |                                     |        |   |   |       |  
|as reported                                                          |                                |  | $                                   | 976    |   | $ | 2,327 |  
|Add:  stock-based employee compensation expense included in reported |                                |  |                                     |        |   |   |       |  
|net income                                                           |                                |  |                                     |     |   |   |    |  
|Deduct:  total stock-based employee compensation expense determined  |                                |  |                                     |        |   |   |       |  
|under fair value based method for all awards                         |                                |  |                                     | (1,293 | ) |   | (487  | )
|                                                                     |                                |  |                                     |        |   |   |       |  
|Pro forma net income (loss) available to                             |                                |  |                                     |        |   |   |       |  
|common stockholders                                                  |                                |  | $                                   | (317   | ) | $ | 1,840 |  
|                                                                     |                                |  |                                     |        |   |   |       |  
|Earnings (loss) per share                                            |                                |  |                                     |        |   |   |       |  
|Basic, as reported                                                   |                                |  | $                                   | 0.07   |   | $ | 0.18  |  
|                                                                     |                                |  |                                     |        |   |   |       |  
|Basic, pro forma                                                     |                                |  | $                                   | (0.02  | ) | $ | 0.14  |  
|                                                                     |                                |  |                                     |        |   |   |       |  
|Diluted, as reported                                                 |                                |  | $                                   | 0.06   |   | $ | 0.16  |  
|                                                                     |                                |  |                                     |        |   |   |       |  
|Diluted, pro forma                                                   |                                |  | $                                   | (0.02  | ) | $ | 0.12  |  
|                                                                     |                                |  |                                     |        |   |   |       |  

The
fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the three months ended December 31, 2003 and
2002, respectively: dividend yield of 0%, expected volatility of 83% and 104%, a
risk-free interest rate of 2.66% and 2.98% and

7

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an expected
term of 4.02 years  for both periods. For the nine months ended December 31, 2003 and
2002, the  following weighted-average assumptions were used: dividend yield of 0%,
expected  volatility of 83% and 104%, a risk-free interest rate of 3.25% and 4.04% and an
expected term of 4.02 years.

7.
Recent Accounting Pronouncements

In November
2002, the Emerging Issues Task Force (EITF) reached a consensus on
Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to
account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of EITF Issue
No. 00-21 will apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this standard did not have a
material impact on the Companys financial statements.

In
November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantors balance sheet upon issuance
of a guarantee. In addition, FIN 45 requires disclosures about the guarantees
that an entity has issued, including a reconciliation of changes in the
entitys product warranty liabilities. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2003. The adoption of this
Statement did not have a material impact on the Companys financial
statements.

In
January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after December 15, 2003. The adoption of FIN 46 did
not have a material effect on the Companys financial position or results
of operations.

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. The statement requires that contracts with comparable characteristics
be accounted for similarly and clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified after December 31,
2003, except in certain circumstances, and for hedging relationships designated
after December 31, 2003. The Company does not expect that the adoption of this
standard will have a material effect on its financial position or results of
operations.

In May
2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after September 15, 2003, except
for mandatorily redeemable financial instruments of nonpublic entities. The
adoption of this standard did not have a material effect on the Companys
financial position or results of operations.

8.
Legal Contingencies

8

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

9.
Segment Information

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

|                     | Three MonthsEnded December 31, |  | Nine MonthsEnded December 31, |        |  |   |        | 
|-------------------- | ------------------------------ |  | ----------------------------- | ------ |  | - | ------ | 
|
|Revenue:             |                                |  |                               |        |  |   |        | 
|Enterprise Solutions |                                |  | $                             | 24,168 |  | $ | 18,176 | 
|DOC1                 |                                |  |                               | 7,154  |  |   | 8,514  | 
|                     |                                |  |                               |        |  |   |        | 
|                     |                                |  | $                             | 31,322 |  | $ | 26,960 | 
|                     |                                |  |                               |        |  |   |        | 
|Gross Profit:        |                                |  |                               |        |  |   |        | 
|Enterprise Solutions |                                |  | $                             | 18,718 |  | $ | 13,731 | 
|DOC1                 |                                |  |                               | 3,745  |  |   | 5,278  | 
|                     |                                |  |                               |        |  |   |        | 
|Total Gross Profit   |                                |  | $                             | 22,463 |  | $ | 19,009 | 
|                     |                                |  |                               |        |  |   |        | 

Amortization
of capitalized developed and acquired software associated with the Enterprise
Solutions segment was $1,100,000 and $1,356,000 in the three months and
$3,681,000 and $4,079,000 in the nine months ended December 31, 2003 and 2002,
respectively. Amortization of capitalized developed and acquired software
associated with the DOC1 segment was $1,010,000 and $761,000 in the three months
and $2,906,000 and $2,234,000 in the nine months ended December 31, 2003 and
2002.

As of
December 31, 2003 and March 31, 2003, the Company determined that the
identifiable assets for its reportable segments were as follows (in thousands):

|                     |  | 
|-------------------- |  | 
|
|Enterprise Solutions |  | 
|DOC1                 |  | 
|Corporate            |  | 
|                     |  | 
|Total assets         |  | 
|                     |  | 

The changes in
the carrying amount of goodwill for the three months ended December 31, 2003 for each
reportable segment were as follows (in thousands):

|                                           |  | 
|------------------------------------------ |  | 
|
|Balance as of March 31, 2003               |  | 
|Goodwill acquired                          |  | 
|Effect of sale of intellectual property    |  | 
|Effect of currency translation on goodwill |  | 
|                                           |  | 
|Balance as of December 31, 2003            |  | 
|                                           |  | 

9

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10.
Business Combinations

On
October 1, 2003, Group 1 Software, Inc., a Delaware corporation (Group
1), and Sagent Technology, Inc., a Delaware corporation
(Sagent), consummated the transaction contemplated in the Agreement
for the Purchase and Sales of Assets dated April 15, 2003 (the APA).
Pursuant to the APA, Group 1 has purchased specifically identified assets and
assumed specifically identified liabilities of Sagent (the Purchase)
as of October 1, 2003. In consideration for the Purchase, Group 1 has delivered
$6,000,000 in cash, forgiven $7,000,000 in debt and will deliver approximately
$1,850,000, plus interest, in cash at a future date in accordance with the APA.
The cash consideration for the acquisition was paid from Group 1s working
capital and it is anticipated that future payments will also be made from
working capital.

Under
the purchase method of accounting the purchase price is allocated to assets
acquired, including identifiable intangible assets, and liabilities assumed
based on their respective fair values on the acquisition date. Purchase price in
excess of net tangible and identifiable intangible assets has been recorded as
goodwill.

The
Sagent assets include: the Data Flow product for data extraction, transformation
and loading (ETL), the Centrus products for business geographics applications as
well added distribution capabilities.

The
total purchase price of Sagent assets of approximately $16,326,000, consisting
of $6,000,000 paid in cash, $7,000,000 debt forgiveness, an additional
$1,850,000 to be paid in cash at a future date, acquisition costs of $1,476,000
and net liabilities assumed of $2,540,000 was preliminarily allocated as follows
(in thousands):

|                                   | 
|---------------------------------- | 
|
|Tangible assets                    | 
|Liabilities assumed                | 
|                                   | 
|Net liabilities assumed            | 
|                                   | 
|Intangible assets:                 | 
|Computer software                  | 
|Goodwill                           | 
|Trademarks                         | 
|Distribution network               | 
|Contractual customer relationships | 
|                                   | 
|Total intangible assets            | 
|                                   | 
|Total purchase price               | 
|                                   | 

Computer
software will be amortized over 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. Goodwill and trademarks will not be
amortized. Other intangibles will be amortized over their estimated useful lives
of six to ten years.

The
following unaudited pro forma consolidated results of operations give effect to
the Purchase as if it had been consummated at the beginning of the fiscal years
presented. The unaudited pro forma data gives effect to actual operating results
prior to the October 1, 2003 acquisition, adjusted to include the pro forma
effect of amortization of intangibles, interest income and tax effects to the
pro forma adjustments. The accounting policies of Group 1 and Sagent are
substantially comparable. Sagents fiscal year end is December 31.

10

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|(thousands, except per share data)                  | Three Months Ended December 31, |  | Nine Months Ended December 31, |        |  |   |        | 
|--------------------------------------------------- | ------------------------------- |  | ------------------------------ | ------ |  | - | ------ | 
|
|Revenue                                             |                                 |  | $                              | 31,322 |  | $ | 35,006 | 
|Net income (loss) available to common shareholders  |                                 |  | $                              | 976    |  | $ | 279    | 
|Diluted earnings (basic and diluted loss) per share |                                 |  | $                              | 0.06   |  | $ | 0.02   | 
|Weighted average shares outstanding                 |                                 |  |                                | 15,766 |  |   | 14,959 | 

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

11.
Acquired Intangible Assets (in thousands)

|                                        |  | 
|--------------------------------------- |  | 
|
|Amortized acquired intangible assets:   |  | 
|Computer software                       |  | 
|Distribution network                    |  | 
|Contractual customer relationships      |  | 
|                                        |  | 
|Unamortized acquired intangible assets: |  | 
|Goodwill                                |  | 
|Trademarks                              |  | 

The
aggregate amortization expense for the three and nine months ended December 31,
2003 and 2002 was $557,000 and $1,994,000 respectively. The following table
summarizes aggregate amortization expense for each of the five succeeding fiscal
years (in thousands):

|                               | 
|------------------------------ | 
|
|For year ending March 31, 2005 | 
|For year ending March 31, 2006 | 
|For year ending March 31, 2007 | 
|For year ending March 31, 2008 | 
|For year ending March 31, 2009 | 

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

Results of
Operations

Any  statements
in this Quarterly Report on Form 10-Q concerning the Companys  business outlook or
future economic performance, anticipated profitability,  revenues, expenses or other
financial items, together with other statements that  are not historical facts, are forward-looking
statements as that  term is defined under the Federal Securities Laws. Forward
looking statements  may include words such as may vary, believes,
anticipates and expects. Actual results may differ  materially
from the expectations expressed or implied in the forward-looking  statements.
Forward-looking statements are subject to risks, uncertainties and  other factors which
could cause actual results to differ materially from those  stated in such statements.
Such risks, uncertainties and factors include, but  are not limited to, changes in
currency exchange rates, changes and delays in  new product introduction, customer
acceptance of new products, changes in  government regulations, changes in pricing or
other actions by competitors

11

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and  general
economic conditions, as well as other risks detailed in the  Companys other filings
with the Securities and Exchange Commission. The  Company undertakes no obligation to
update any forward-looking statement.

For
the three months ended December 31, 2003 and 2002, the Company had revenues of
$31.3 million and $26.7 million, respectively. Net income available to common
stockholders for the three months ended December 31, 2003 was $1.0 million or
$0.06 diluted earnings per share compared with $2.3 million or $0.16 diluted
earnings per share in the same period in the prior year. The decrease in
earnings for the three month period is primarily due to lower margins in the DOC
1 segment due to lower revenue along with one time costs associated with the
Sagent acquisition. Revenues were $80.8 million and $75.1 million for the nine
months ended December 31, 2003 and 2002, respectively. Net income available to
common stockholders was $5.6 million or $0.35 diluted earnings per share and
$5.2 million or $0.37 diluted earnings per share in the nine months ended
December 31, 2003 and 2002, respectively.

All of
Group 1s operations are based in the two business segments defined as
Enterprise Solutions and DOC1. Enterprise Solutions revenue accounted for 77%
and 68% of Group 1s total revenue for the third fiscal quarters ended
December 31, 2003 and 2002, respectively. DOC1 revenue was 23% and 32% of total
revenue for the third quarters of fiscal 2004 and fiscal 2003, respectively. For
the nine months ended December 31, 2003 and 2002, Enterprise Solutions revenue
was 74% and 68% of total revenue and DOC1 revenue was 26% and 32% of total
revenue, respectively. All revenues associated with the recently acquired Sagent
products are included in the Enterprise Solutions segment (see Note 10).

International
revenues were 15% and 17% of Group 1s total revenue in the third
quarters of fiscal 2004 and 2003, respectively. International revenues were 14%
and 16% of total revenue in the first nine months of fiscal 2004 and 2003,
respectively. The decrease in international revenue as a percent of total
revenue is primarily due to a decrease in Latin American revenue.

Software
license and related revenue of $14.2 million for the third fiscal quarter of
2004 increased 13% from $12.5 million the same period the prior year. As a
percent of total revenue, third quarter software license and related revenues
were 45% in fiscal 2004 compared with 47% in fiscal 2003. Software license and
related revenue was $35.5 million for the nine months ended December 31, 2003,
or 44% of revenue and $33.7 million or 45% of revenue in the prior year nine
month period.

Enterprise
Solutions license revenue increased 36% to $11.9 million in the three month
period ended December 31, 2003. Enterprise Solutions license revenue was $28.6
million and $23.7 million in the nine month periods ended December 31, 2003 and
2002, respectively. The increase in the quarter is due to revenue from the
recently acquired Sagent products along with higher sales of the Companys
GeoTAX tax jurisdiction software offset by lower sales of Code 1 Plus and
Canadian Code 1 Plus.

License
fees from DOC1 for the three months ended December 31, 2003 were $2.3 million
compared with $3.8 million the prior year. DOC1 license revenue was $6.9 million
and $10.0 million for the nine months ended December 31, 2003 and 2002,
respectively. The decrease in DOC1 license revenue was due to lower domestic and
Latin American sales.

Maintenance
and service revenue was $17.1 million for the third quarter of fiscal year 2004
and $14.2 million in the prior years third fiscal quarter. Maintenance and
service revenue was 55% of total revenue for the quarter ended December 31, 2003
and 53% of total revenue in the same period in the prior year. Maintenance and
service revenue was $45.3 million, 56% of total revenue, for the first nine
months of fiscal year 2004 and $41.4 million, 55% of total revenue, in the prior
years nine month period. Recognized maintenance fees included in
maintenance and service revenue were $14.3 million for the quarter ended
December 31, 2003 and $11.6 million for the same period the prior year, an
increase of 23%. Recognized maintenance fees included in maintenance and service
revenue were $37.9 million for the nine months ended December 31, 2003 and $33.9
million for the same period the prior year, an increase of 12%.

12

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For
the quarter ended December 31, 2003, Enterprise Solutions recognized maintenance
was $10.9 million, a 26% increase from the same period in the prior year. DOC1
recognized maintenance increased 13% to $3.4 million in the quarter ended
December 31, 2003 compared with the comparable period the prior year. For the
nine months ended December 31, 2003 and 2002, Enterprise Solutions recognized
maintenance was $27.6 million and $25.3 million, respectively. DOC1 recognized
maintenance was $10.3 million and $8.6 million in the nine months ended December
31, 2003 and 2002, respectively. The increase in maintenance revenue in DOC1 was
due to the increase in the installed customer base. The increase in maintenance
revenue in Enterprise Solutions for the three and nine month periods ended
December 31, 2003 is due to the Sagent acquisition.

Professional
and educational service revenue from the Enterprise Solutions segment was $1.4
million and $0.9 million in the three months ended December 31, 2003 and 2002,
respectively. Enterprise Solutions service revenue was $3.2 million and $2.2
million in the nine months ended December 31, 2003 and 2002, respectively. DOC1
service revenue decreased to $1.4 million in the quarter ended December 31, 2003
from $1.7 million in the same period of the prior fiscal year. DOC1 service
revenue was $4.2 million and $5.3 million in the nine months ended December 31,
2003 and 2002, respectively. The decrease in professional and educational
service revenue in DOC1 in the three and nine month period is due to lower sales
of new installations which require integration services.

Total
cost of revenue for the third quarter of fiscal 2004 and 2003 was $8.9 million
and $7.7 million, respectively. For the first nine months of fiscal 2004 and
2003, total cost of revenue was $24.4 million and $23.9 million. The separate
components of cost of revenue are discussed below.

Software
license expense increased for the three month period ended December 31, 2003 to
$4.0 million from $3.4 million for the same period in the prior year
representing 28% and 27% of software license and related revenues, respectively.
Software license expense was $11.0 million and $11.2 million in the nine months
ended December 31, 2003 and 2002, representing 31% and 33% of software license
and related revenue in both respective periods. The increase in software license
expense in the current quarter is primarily due to increases in royalty costs
associated with increased sales of the Companys GeoTAX product and the
expense of certain third party inventory made redundant by the acquisition of
the Sagent products.

Maintenance
and service expense was $4.8 million in the current quarter and $4.3 million in
the prior year third quarter, representing 28% and 30% of maintenance and
service revenue, respectively. Maintenance and service expense was $13.3 million
and $12.7 million in the nine months ended December 31, 2003 and 2002, or 29%
and 31% of maintenance and service revenue, respectively.

Included
in maintenance and service expense discussed above are professional and
educational service costs which were $2.6 million and $2.5 million in the three
month periods ended December 31, 2003 and 2002, respectively. Professional and
educational service costs were $7.2 million and $7.1 million in the nine month
periods ended December 31, 2003 and 2002 respectively.

Costs
of maintenance were $2.2 million and $1.8 million for the third fiscal quarters
of 2004 and 2003, representing 15% and 16% of maintenance revenue, respectively.
Costs of maintenance were $6.1 million and $5.6 million for the first nine
months of fiscal 2004 and 2003, 16% and 17% of maintenance revenue,
respectively.

Total
operating costs of $20.9 million amounted to 67% of revenue for the quarter
ended December 31, 2003 compared with $15.5 million or 58% of revenue for the
prior year period. Total operating costs of $49.1 million were 61% of revenue
for the nine months ended December 31, 2003 compared with $43.2 million or 57%
of revenue for the prior year period. The various components of operating costs
are discussed below.

Software
development costs incurred subsequent to establishment of the softwares
technological feasibility are capitalized. Capitalization ceases when the  software is
available for general release to customers. All costs not

13

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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.

Costs
of research and development, before capitalization, were $6.5 million and $5.0
million or 21% and 19% of revenue in the quarters ended December 31, 2003 and
2002, respectively. Costs of research and development, before capitalization,
were $15.9 million and $14.3 million, 20% and 19% of revenue in the nine months
ended December 31, 2003 and 2002, respectively. Total research and development
expense after capitalization of certain development costs was $5.2 million or
17% of revenue for the three month period ended December 31, 2003 compared with
$3.0 million or 11% in the prior year (see footnote 5 of notes to consolidated
financial statements). The increase in research and development costs are
attributed to higher costs associated with the Sagent asset acquisition.
Amortization expense related to developed and acquired software costs was $2.1
million in both three month periods ended December 31, 2003 and 2002, and $6.6
million and $6.3 million in the nine months ended December 31, 2003 and 2002,
respectively.

Sales
and marketing expenses totaled $11.1 million or 35% of revenue in the third
quarter of fiscal 2004 and $8.5 million or 32% in the prior year third quarter.
Sales and marketing expenses totaled $27.0 million or 33% of revenue in the
first nine months of fiscal 2004 and $23.7 million or 32% in the prior year same
period. Sales and marketing expenses for Enterprise Solutions were 33% of
Enterprise Solutions revenue in the third fiscal quarter of 2003 and 27% for the
same period the prior year. In the first nine months of fiscal 2004 and 2003,
Enterprise Solutions sales and marketing expenses were 29% and 27% of the
segments revenue. DOC1 sales and marketing expenses were 45% of DOC1
revenue for the third fiscal quarter of 2003 and 41% for the same period the
prior year. DOC1 sales and marketing expenses were 46% and 41% of DOC1 revenue
in the first nine months of fiscal 2004 and 2003, respectively. The increase in
the Enterprise Solutions segment is due to additional sales costs associated
with the Sagent acquisition along with higher costs related to additional sales
personnel. The increase in cost as a percent of revenue in the DOC1 segment is
due primarily to lower revenues.

General
and administrative expenses were $4.6 million or 15% of total revenue compared
with $4.0 million or 15% of revenue for the three months ended December 31, 2003
and 2002, respectively. General and administrative expenses were $11.1 million
or 14% of total revenue compared with $10.9 million or 14% of revenue for the
nine months ended December 31, 2003 and 2002, respectively. The increase in
general and administrative expenses in the quarter and nine months is primarily
related to higher one time personnel costs associated with the Sagent
acquisition.

Net
other income was $40,000 for the quarter ended December 31, 2003 as compared
with $148,000 for the same period in the prior year. For the nine months ended
December 31, 2003 and 2002, net other income was $1.3 million and $0.4 million,
respectively. The decrease in other income in the current year quarter is due to
net currency translation loss in the current quarter. The increase in other
income in the current year nine-month period is the result of net currency
translation gains and a gain on the sale of intellectual property, in addition
to interest income from the bridge loan to Sagent.

The
Companys effective tax rates were 38.6% and 36.0% for the three month
periods ended December 31, 2003 and 2002, respectively. The current
periods rate is the net effect of a 33% effective tax rate on domestic
taxable income offset by a 15% benefit on foreign losses. The higher effective
tax rate in the current quarter is primarily due to the lower effective rate on
higher foreign losses.

14

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Critical
Accounting Policies

The
Securities and Exchange Commission issued Financial Reporting Release No. 60,
Cautionary Advice Regarding Disclosure About Critical Accounting
Policies (FR 60), in December 2001. FR 60 requires companies
to disclose those accounting policies considered most critical. Note 1 to the
audited financial statements in the Companys annual report on Form 10-K
for the year ended March 31, 2003 includes a summary of the Companys
significant accounting policies. Of those policies, the Company has identified
the following as the most critical because they require significant judgment and
estimates on the part of management in their application:

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

Contracts
for professional services are negotiated individually. The Company generally
recognizes revenues from professional service contracts on a time and materials
basis as the work is performed. Revenues from fixed price professional service
contracts are recognized using the percentage-of-completion method as work is
performed, measured primarily by the ratio of labor hours incurred to total
estimated labor hours for each specific contract. When the total estimated cost
of a contract is expected to exceed the contract price, the total estimated loss
is charged to expense in the period when the information is known. During the
three months ended December 31, 2003, the Company has not incurred any losses on
contracts in progress.

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

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

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

15

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Goodwill:
In accordance with SFAS 142, Goodwill and Other Intangible Assets,
the Company ceased amortization of goodwill as of April 1, 2001 and tested for
impairment at least annually at the reporting unit level. Goodwill will be
tested for impairment on an interim basis if an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting unit
below its carrying value. In accordance with FAS 142 provisions, the Company
completed the transitional and the annual goodwill impairment test as of April
1, 2001 and concluded that goodwill of its reporting units was not impaired. The
Company also completed its annual goodwill impairment test for fiscal year 2004
and concluded that goodwill of its reporting units was not impaired.

Goodwill
represents the excess of the aggregate purchase price over the fair market value
of the tangible and intangible assets acquired in various acquisitions and,
prior to fiscal year 2002, was amortized on a straight-line basis over the
estimated economic useful life ranging from nine to fifteen years. There was no
goodwill amortization expense during fiscal year 2004 and 2003 in accordance
with SFAS Nos. 141 and 142, as discussed above.

Liquidity
and Capital Resources

The
Companys working capital was $30.5 million at December 31, 2003, as
compared with $39.8 million at March 31, 2003. The current ratio was 1.5 to 1 at
December 31, 2003 and 1.8 to 1 at March 31, 2003. Note that the current portion
of deferred revenue related to maintenance contracts is included in current
liabilities. Accordingly, working capital and current ratios may not be directly
comparable to such data for companies in other industries where similar revenue
deferrals are not typical.

The
Company provides for its funding requirements through cash funds generated from
operations. Additionally, the Company maintains a $10 million line of credit
arrangement with a commercial bank, expiring October 31, 2004. The line of
credit bears interest at the banks prime rate or Libor plus 140 basis
points, at Group 1s option. The line of credit is not collateralized but
requires Group 1 to maintain certain operating ratios. At December 31, 2003 and
at March 31, 2003, there were no borrowings outstanding under the line of
credit.

During
fiscal 2004 to date, net income of $5.6 million plus net non-cash expenses of
$8.8 million less a $3.7 million net decrease in assets and liabilities provided
a total of $10.7 million cash from operating activities. The net changes in
assets and liabilities include a decrease in accounts receivable that increased
cash by $1.9 million during the nine months resulting from an increase in cash
collections, a decrease in deferred revenues by $2.8 million and a $3.5 million
decrease in accrued expenses and compensation, decreasing cash by a total of
$4.4 million. The decreased accrued compensation was due primarily to payments
of prior year incentive compensation accruals. Other working capital items
increased cash by $0.6 million.

Cash
flows of $18.9 million used in investing activities consisted of expenditures
for investments in software development and capital equipment of $7.7 million,
net purchases of marketable securities of $0.1 million, proceeds of $0.4 million
from the sale of intellectual property and net cash payments of $11.5 million
related to the Sagent acquisition.

Proceeds
from the exercise of stock options of $1.1 million net of repayments of
long-term debt provided a total of $1.1 million cash from financing activities.

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

As of  December
31, 2003, 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

16

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investment
balances and cash flows from operations. The Company  believes that its long-term
liquidity needs are minimal and no large capital  expenditures are currently planned,
except for the continuing investment in  software development costs, which the Company
believes can be funded from  operations during the next twelve months.

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

|                                   |  |  |   |        | 
|---------------------------------- |  |  | - | ------ | 
|
|Operating leases                   |  |  | $ | 29,866 | 
|                                   |  |  |   |        | 
|Notes payable                      |  |  |   | 650    | 
|                                   |  |  |   |        | 
|Capital leases                     |  |  |   | 99     | 
|                                   |  |  |   |        | 
|Total contractual cash obligations |  |  | $ | 30,615 | 
|                                   |  |  |   |        | 

Recent
Accounting Pronouncements

In
November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance on how to
account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of EITF Issue
No. 00-21 will apply to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of this standard did not have a
material impact on the Companys financial statements.

In
November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires
that a liability be recorded in the guarantors balance sheet upon issuance
of a guarantee. In addition, FIN 45 requires disclosures about the guarantees
that an entity has issued, including a reconciliation of changes in the
entitys product warranty liabilities. The initial recognition and initial
measurement provisions of FIN 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2003. The adoption of this
Statement did not have a material impact on the Companys financial
statements.

In
January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity if the equity investors in the entity
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after December 15, 2003. The adoption of FIN 46 did
not have a material effect on the Companys financial position or results
of operations.

In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. The statement requires that contracts with comparable characteristics
be accounted for similarly and clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified after December 31,
2003, except in certain circumstances, and for hedging relationships designated
after December 31, 2003. The Company does not expect that the adoption of this
standard will have a material effect on its financial position or results of
operations.

17

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In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after September 15, 2003, except
for mandatorily redeemable financial instruments of nonpublic entities. The
adoption of this standard did not have a material effect on the Companys
financial position or results of operations.

Legal
Contingencies

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

ITEM
3. Quantitative and Qualitative Disclosures about Market Risk

The
Company has subsidiaries in Europe and Southeast Asia. Additionally, the Company
uses third party distributors to market and distribute its products in other
international regions. Transactions conducted by the subsidiaries and
distributors are typically denominated in the local country currencies. As a
result, the Company is primarily exposed to foreign exchange rate fluctuations
as the financial results of its subsidiaries and third party distributors are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and impact overall expected
profitability. Through and as of December 31, 2003, however, the Companys
exposure was not material to the financial statements taken as a whole. The
Company has not entered into any foreign currency hedging transactions with
respect to its foreign currency market risk. The Company does not have any
financial instruments subject to material market risk.

ITEM 4.
  Controls and Procedures

(a)  Evaluation
of disclosure controls and procedures.    Our management,
with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
December 31, 2003. Based on this evaluation, our chief executive officer and
chief financial officer concluded that, as of December 31, 2003, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to our Company, including our consolidated subsidiaries, is made known
to our chief executive officer and chief financial officer by others within
those entities, particularly during the period in which this report was being
prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and forms.

(b)
Changes in internal controls. No change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
occurred during the fiscal quarter ended December 31, 2003 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

18

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Part
II Other Information

Item
1. Legal Proceedings

| | NONE
| | ----

Item 2.
Changes in Securities

| | NONE
| | ----

Item
3. Defaults Upon Senior Securities

| | NONE
| | ----

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

| | NONE
| | ----

Item
5. Other Information

| | NONE
| | ----

Item 6.
Exhibits and Reports on Form 8-K

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

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

| | Exhibit
31.1  Certification of Robert S. Bowen, Chief Executive Officer, pursuant to  Section 302
of  the Sarbanes-Oxley Act of 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | Exhibit
31.2  Certification Mark Funston, Chief Financial Officer, pursuant to Section  302 of
the  Sarbanes-Oxley Act of 2002.
| | -------------------------------------------------------------------------------------------------------------------------------

| | Exhibit
32.1  Certifications of Robert S. Bowen, Chief Executive Officer, and Mark  Funston,
Chief  Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Form
8-K filed January 29, 2004 for the press release regarding financial results for  the
period ended December 31, 2003.
| | --------------------------------------------------------------------------------------------------------------------------

| | Form
8-K filed January 16, 2004 for the press release regarding preliminary financial  results
for the period ended December 31, 2003.
| | --------------------------------------------------------------------------------------------------------------------------------------

19

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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/
Robert S. Bowen  Chief Executive Officer  February 17, 2004
| | ---------------------------------------------------------------

| | /s/
Mark FunstonChief Financial OfficerFebruary 17, 2004
| | --------------------------------------------------------

20

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