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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


Form 10-Q

|           |  |                                                                                          |  | 
|---------- |  | ---------------------------------------------------------------------------------------- |  | 
|(Mark one) |  |                                                                                          |  | 
|          
|          
|          
|          
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934  |  | 
|           |  | For the quarterly period ended September 30, 2002                                        |  | 
|          
|          
|          
|          
|           |  | OR                                                                                       |  | 
|          
|          
|          
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |  | 

For the transition period from ___________ to _________.

Commission file number 0-20034

ELITE INFORMATION GROUP, INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 41-1522214                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
|                                                              
|                                                              
|5100 West Goldleaf Circle
Los Angeles, California              |  | 90056                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip code)                          

(323) 642-5200
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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  [   ].

As of October 31, 2002 there were 7,829,492 shares of Common Stock,
$.01 par value, outstanding.



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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|Part I  Financial Information:
|                                | Item 1. Financial Statements                                                                 
|                                |                                                                                               | Consolidated Statements of Operations     
|                                |                                                                                               | Consolidated Balance Sheets               
|                                |                                                                                               | Consolidated Statements of Cash Flows     
|                                |                                                                                               | Notes to Consolidated Financial Statements
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                | Item 4. Disclosure Controls and Procedures                                                   
|Part II  Other Information    
|                                | Item 1. Legal Proceedings                                                                    
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                      
|CERTIFICATIONS                 



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Table of Contents

|                                                                                              |                                            |                                                                       |        |        |   | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------- | ------ | ------ | - | 
|                                                                                              |                                            |                                                                       |        | Page  
|                                                                                              |                                            |                                                                       |        | Number
|                                                                                              |                                            |                                                                       |        |       
|Part I Financial Information:                                                                 |                                            |                                                                       |        |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Consolidated Financial Statements                                                     |                                            |                                                                       |        |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Statements of Operations -    |                                                                       |        |        |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                            | Three and nine months ended September 30, 2002
and September 30, 2001 |        |        | 3 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Balance Sheets -              |                                                                       |        |        |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                            | September 30, 2002 and December 31, 2001                              |        |        | 4 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Consolidated Statements of Cash Flows -    |                                                                       |        |        |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              |                                            | Nine months ended September 30, 2002 and
September 30, 2001           |        |        | 5 | 
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                              | Notes to Consolidated Financial Statements |                                                                       |        | 6 - 9  |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                            |                                                                       | 9 - 13 |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                            |                                                                       | 13     |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 4. Disclosure Controls and Procedures                                                    |                                            |                                                                       | 14     |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Part II Other Information:                                                                    |                                            |                                                                       |        |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                     |                                            |                                                                       | 14     |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |                                            |                                                                       | 14     |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Signature                                                                                     |                                            |                                                                       | 15     |       
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Certifications                                                                                |                                            |                                                                       | 16-17  |       

____________________________

PRODUCTS MENTIONED IN THIS REPORT ARE USED FOR IDENTIFICATION PURPOSES ONLY AND
MAY BE TRADE NAMES OR TRADEMARKS OF ELITE INFORMATION GROUP, INC., ITS
SUBSIDIARIES OR THIRD PARTIES.

____________________________

2



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Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Part I  Financial Information:

Item 1. Financial Statements

Elite Information Group, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |       |        |        | 
|----------------------------------- | ------------------------------------------------------- | -------------------------------------------- | ------------------------ | ----- | ------------------ | ------ | ----------------- | ----- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ----- | ------ | ------ | 
|                                    |                                                         |                                              |                          |       | Three months ended |        | Nine months ended
|                                    |                                                         |                                              |                          |       | September 30,      |        | September 30,    
|                                    |                                                         |                                              |                          |       |                    |        |                  
|                                    |                                                         |                                              |                          |       | 2002               |        | 2001              |       | 2002   |        | 2001  
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |       
|Revenue:                            |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | Revenue before expense reimbursements        |                          | $     | 19,287             |        |                   | $     | 18,516 |        |        | $      | 56,771 |        |        | $     | 50,203 |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | Expense reimbursements                       |                          |       | 1,247              |        |                   |       | 1,115  |        |        |        | 3,026  |        |        |       | 2,792  |       
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                    |                                                         |                                              | Total revenue            |       |                    | 20,534 |                   |       |        | 19,631 |        |        |        | 59,797 |        |       |        | 52,995 | 
|                                   
|                                   
|                                   
|                                   
|Cost of revenue:                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | Cost of revenue before reimbursable expenses |                          |       | 9,268              |        |                   |       | 9,138  |        |        |        | 27,428 |        |        |       | 25,911 |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | Reimbursable expenses                        |                          |       | 1,247              |        |                   |       | 1,115  |        |        |        | 3,026  |        |        |       | 2,792  |       
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                    |                                                         |                                              | Total cost of revenue    |       |                    | 10,515 |                   |       |        | 10,253 |        |        |        | 30,454 |        |       |        | 28,703 | 
|                                   
|                                   
|                                   
|                                   
|Gross profit                        |                                                         |                                              | 10,019                   |       |                    |        | 9,378             |       |        |        | 29,343 |        |        |        | 24,292 |      
|                                   
|                                   
|                                   
|                                   
|Operating expenses:                 |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    | Research and development                                |                                              |                          | 2,583 |                    |        |                   | 1,737 |        |        |        | 7,937  |        |        |        | 5,034 |       
|                                   
|                                   
|                                   
|                                   
|                                    | Sales and marketing                                     |                                              |                          | 3,471 |                    |        |                   | 2,710 |        |        |        | 10,607 |        |        |        | 8,544 |       
|                                   
|                                   
|                                   
|                                   
|                                    | General and administrative                              |                                              |                          | 2,177 |                    |        |                   | 1,975 |        |        |        | 6,742  |        |        |        | 5,592 |       
|                                   
|                                   
|                                   
|                                   
|                                    | Amortization of goodwill and other acquired intangibles |                                              |                          | 190   |                    |        |                   | 552   |        |        |        | 570    |        |        |        | 1,580 |       
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         |                                              | Total operating expenses |       |                    | 8,421  |                   |       |        | 6,974  |        |        |        | 25,856 |        |       |        | 20,750 | 
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|Operating income                    |                                                         |                                              | 1,598                    |       |                    |        | 2,404             |       |        |        | 3,487  |        |        |        | 3,542  |      
|                                   
|                                   
|                                   
|                                   
|Interest income, net                |                                                         |                                              | 96                       |       |                    |        | 180               |       |        |        | 299    |        |        |        | 702    |      
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|Income before income taxes          |                                                         |                                              | 1,694                    |       |                    |        | 2,584             |       |        |        | 3,786  |        |        |        | 4,244  |      
|                                   
|                                   
|                                   
|                                   
|Income tax provision                |                                                         |                                              | (341                     | )     |                    |        | (651              | )     |        |        | (1,136 | )      |        |        | (1,325 | )    
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|Net income                          |                                                         | $                                            | 1,353                    |       |                    | $      | 1,933             |       |        | $      | 2,650  |        |        | $      | 2,919  |      
|                                    |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|Net income per share                |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Basic                                      |                          | $     | 0.17               |        |                   | $     | 0.24   |        |        | $      | 0.32   |        |        | $     | 0.36   |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Diluted                                    |                          | $     | 0.16               |        |                   | $     | 0.23   |        |        | $      | 0.31   |        |        | $     | 0.36   |       
|                                   
|                                   
|                                   
|                                   
|Weighted average shares outstanding |                                                         |                                              |                          |       |                    |        |                   |       |        |        |        |        |        |        |        |      
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Basic                                      |                          |       | 8,141              |        |                   |       | 8,067  |        |        |        | 8,170  |        |        |       | 8,062  |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Diluted                                    |                          |       | 8,360              |        |                   |       | 8,247  |        |        |        | 8,585  |        |        |       | 8,187  |       

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

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Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share data)

|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |        |        | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ------------- | ------ | ------------ | ------ | ------ | ------ | 
|                                     |                                                                                                                                                                  |                           |        | September 30, |        | December 31,
|                                     |                                                                                                                                                                  |                           |        | 2002          |        | 2001        
|                                     |                                                                                                                                                                  |                           |        |               |        |             
|                                     |                                                                                                                                                                  |                           |        | (Unaudited)   |        |              |        |       
|Assets                               |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|Current assets                       |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                                                                        |                           | $      | 24,605        |        |              | $      | 24,699 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables                                                                                                                                                      |                           |        | 23,877        |        |              |        | 22,601 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                                                            |                           |        | 2,439         |        |              |        | 3,612  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                                                             |                           |        | 1,951         |        |              |        | 1,235  |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                     |                                                                                                                                                                  | Total current assets      |        |               | 52,872 |              |        |        | 52,147 | 
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                                                                  |                           | 2,185  |               |        |              | 2,219  |       
|                                    
|                                    
|                                    
|                                    
|Software costs, net                  |                                                                                                                                                                  |                           | 1,344  |               |        |              | 1,827  |       
|                                    
|                                    
|                                    
|                                    
|Goodwill, net                        |                                                                                                                                                                  |                           | 9,349  |               |        |              | 7,965  |       
|                                    
|                                    
|                                    
|                                    
|Intangible assets, net               |                                                                                                                                                                  |                           | 3,077  |               |        |              | 3,654  |       
|                                    
|                                    
|                                    
|                                    
|Other assets                         |                                                                                                                                                                  |                           | 88     |               |        |              | 87     |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                                  | $                         | 68,915 |               |        | $            | 67,899 |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|Liabilities and Stockholders Equity |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|Current liabilities                  |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                                                 |                           | $      | 2,853         |        |              | $      | 3,874  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued compensation                                                                                                                                             |                           |        | 3,781         |        |              |        | 4,170  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                                                                        |                           |        | 3,632         |        |              |        | 3,556  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                                                                 |                           |        | 18,800        |        |              |        | 17,031 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                                                             |                           |        | 1,860         |        |              |        | 1,401  |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                     |                                                                                                                                                                  | Total current liabilities |        |               | 30,926 |              |        |        | 30,032 | 
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|Deferred income taxes                |                                                                                                                                                                  |                           |       |               |        |              | 246    |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                     |                                                                                                                                                                  | Total liabilities         |        |               | 30,926 |              |        |        | 30,278 | 
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|Commitments and contingencies        |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|Stockholders equity                 |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $.01 par value; Authorized 20,000,000 shares; Issued
shares at September 30, 2002 and December 31, 2001 were
9,486,790 and 9,458,052, respectively |                           |        | 95            |        |              |        | 95     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Paid-in capital                                                                                                                                                  |                           |        | 39,731        |        |              |        | 39,387 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less treasury stock, at cost at September 30, 2002 and December
31, 2001, 1,675,016 and 1,329,819 shares, respectively                                           |                           |        | (9,121        | )      |              |        | (6,496 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated earnings                                                                                                                                             |                           |        | 7,284         |        |              |        | 4,635  |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|Total stockholders equity           |                                                                                                                                                                  |                           | 37,989 |               |        |              | 37,621 |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       
|                                    
|                                    
|                                    
|                                    
|                                     |                                                                                                                                                                  | $                         | 68,915 |               |        | $            | 67,899 |       
|                                     |                                                                                                                                                                  |                           |        |               |        |              |        |       

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

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##### Table of Contents






Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Elite Information Group, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

|                                               |                                                                                   |                                            |                                        |        |                   |        |        |        |        |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------- | ------ | ----------------- | ------ | ------ | ------ | ------ | ------ | -
|                                               |                                                                                   |                                            |                                        |        | Nine months ended
|                                               |                                                                                   |                                            |                                        |        | September 30,    
|                                               |                                                                                   |                                            |                                        |        |                  
|                                               |                                                                                   |                                            |                                        |        | 2002              |        | 2001  
|                                               |                                                                                   |                                            |                                        |        |                   |        |       
|Cash flows from operating activities:          |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Net income                                                                        |                                            | $                                      | 2,650  |                   |        | $      | 2,919  |       
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net income to net cash
provided by operating activities: |                                            |                                        |        |                   |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Depreciation and amortization              |                                        |        | 1,909             |        |        |        | 2,702  |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Deferred income tax benefits               |                                        |        | 927               |        |        |        | (1,047 | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Changes in current assets and liabilities: |                                        |        |                   |        |        |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                            | Receivables                            |        |                   | (1,276 | )      |        |        | (4,893 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                            | Accounts payable                       |        |                   | (1,021 | )      |        |        | 1,065  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                            | Deferred revenue and customer deposits |        |                   | 1,769  |        |        |        | 561    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                            | Income taxes payable                   |        |                   | 459    |        |        |        | 2,253  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                            | Other, net                             |        |                   | (1,031 | )      |        |        | (619   | )
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Net cash provided by operating activities  |                                        |        | 4,386             |        |        |        | 2,941  |       
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|Cash flows from investing activities:          |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of Law Manager, Inc.                                                     |                                            |                                        | (1,384 | )                 |        |        | (3,532 | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of property and equipment                                                |                                            |                                        | (726   | )                 |        |        | (608   | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in software costs                                                      |                                            |                                        | (89    | )                 |        |        | (950   | )     
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Net cash used in investing activities      |                                        |        | (2,199            | )      |        |        | (5,090 | )     
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|Cash flows from financing activities:          |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of treasury stock                                                        |                                            |                                        | (2,997 | )                 |        |        | (352   | )     
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from issuance of common stock                                            |                                            |                                        | 716    |                   |        |        | 332    |       
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Net cash used in financing activities      |                                        |        | (2,281            | )      |        |        | (20    | )     
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|Net decrease in cash and cash equivalents      |                                                                                   |                                            | (94                                    | )      |                   |        | (2,169 | )     
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                                                   |                                            | 24,699                                 |        |                   |        | 24,787 |       
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       
|Cash and cash equivalents, end of period       |                                                                                   | $                                          | 24,605                                 |        |                   | $      | 22,618 |       
|                                               |                                                                                   |                                            |                                        |        |                   |        |        |       

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

5



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##### Table of Contents






Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1  Basis of Presentation

The consolidated financial statements of Elite Information Group, Inc. (Elite
or the Company) for the periods presented reflect the results of operations
and financial position of the Companys wholly owned subsidiaries, Elite
Information Systems, Inc. (EIS) and Law Manager Inc. (LMI). All
significant inter-company balances and transactions have been eliminated in
consolidation.

The unaudited consolidated financial statements of the Company include all
adjustments of a normal recurring nature which, in the opinion of management,
are necessary for a fair presentation of financial position as of September 30,
2002 and results of operations and cash flows for the interim periods
presented. The results of operations for the three and nine months ended
September 30, 2002 are not necessarily indicative of the results to be expected
for the entire year.

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnotes required by generally
accepted accounting principles (GAAP) in annual financial statements have
been omitted or condensed in accordance with quarterly requirements of the
Securities and Exchange Commission. Management believes that the disclosures
included in the accompanying interim consolidated financial statements and
footnotes are adequate to make the information not misleading but should be
read in conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2001 as reported by the Company in its
Annual Report on Form 10-K.

Certain prior year amounts have been reclassified to conform to current year
presentation.

NOTE 2  Segment Information and Customer Concentration

The Companys two reportable segments are the businesses of its operating
subsidiaries, EIS and LMI. EIS customers are primarily comprised of law firms
and other professional services firms. LMI customers primarily include large
corporate legal departments and government agencies. The table below presents
revenue, gross profit and total assets for these reportable segments for the
interim periods presented:

|                                       |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |        |        | 
|-------------------------------------- | --- | ------------------ | ------ | ----------------- | ------ | ----- | ------ | ------ | ------ | - | ------ | ------ | ------ |  | - | ------ | ------ | 
|(In thousands)                         |     | Three months ended |        | Nine months ended
|                                       |     | September 30,      |        | September 30,    
|                                       |     | 2002               |        | 2001              |        | 2002  |        | 2001  
|                                       |     |                    |        |                   |        |       |        |       
|Revenue before expense reimbursements: |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|                                      
|                                      
|                                      
|                                      
|                                       | EIS |                    | $      | 16,856            |        |       | $      | 16,583 |        |   | $      | 49,882 |        |  | $ | 45,298 |       
|                                      
|                                      
|                                      
|                                      
|                                       | LMI |                    |        | 2,431             |        |       |        | 1,933  |        |   |        | 6,889  |        |  |   | 4,905  |       
|                                       |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|                                       |     | Total              |        | $                 | 19,287 |       |        | $      | 18,516 |   |        | $      | 56,771 |  |   | $      | 50,203 | 
|                                       |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|Gross profit:                          |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|                                      
|                                      
|                                      
|                                      
|                                       | EIS |                    | $      | 9,062             |        |       | $      | 8,396  |        |   | $      | 26,674 |        |  | $ | 22,239 |       
|                                      
|                                      
|                                      
|                                      
|                                       | LMI |                    |        | 957               |        |       |        | 982    |        |   |        | 2,669  |        |  |   | 2,053  |       
|                                       |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|                                       |     | Total              |        | $                 | 10,019 |       |        | $      | 9,378  |   |        | $      | 29,343 |  |   | $      | 24,292 | 
|                                       |     |                    |        |                   |        |       |        |        |        |   |        |        |        |  |   |       
|                                       |     | EIS                |        | LMI               |        | Total |        |        |        |  
|                                      
|                                      
|                                      
|                                      
|Total Assets at September 30, 2002     |     | $                  | 52,719 |                   |        | $     | 16,196 |        |        | $ | 68,915 |        |        |  |   |       
|                                      
|                                      
|                                      
|                                      
|Total Assets at September 30, 2001     |     | $                  | 51,101 |                   |        | $     | 13,662 |        |        | $ | 64,763 |        |        |  |   |       

6



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

The Company evaluates performance of its segments based on revenue and earnings
before interest, taxes, depreciation, and amortization (EBITDA). EBITDA is a
non-GAAP disclosure but is presented for informational purposes and is
reconciled to income before income taxes below.

|                              |     |                    |       |                   |       |      |       |       |       |   |        |       |       |   |        |       |       | 
|----------------------------- | --- | ------------------ | ----- | ----------------- | ----- | ---- | ----- | ----- | ----- | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|(In thousands)                |     | Three months ended |       | Nine months ended
|                              |     | September 30,      |       | September 30,    
|                              |     | 2002               |       | 2001              |       | 2002 |       | 2001 
|                              |     |                    |       |                   |       |      |       |      
|EBITDA:                       |     |                    |       |                   |       |      |       |       |       |   |        |       |       |   |        |      
|                             
|                             
|                             
|                             
|                              | EIS |                    | $     | 1,886             |       |      | $     | 3,241 |       |   | $      | 4,831 |       |   | $      | 6,619 |      
|                             
|                             
|                             
|                             
|                              | LMI |                    |       | 341               |       |      |       | 93    |       |   |        | 565   |       |   |        | (375  | )    
|                              |     |                    |       |                   |       |      |       |       |       |   |        |       |       |   |        |      
|                              |     | Total              |       |                   | 2,227 |      |       |       | 3,334 |   |        |       | 5,396 |   |        |       | 6,244 | 
|                             
|                             
|                             
|                             
|Interest income, net          |     |                    | 96    |                   |       |      | 180   |       |       |   | 299    |       |       |   | 702    |      
|                             
|                             
|                             
|                             
|Depreciation and amortization |     |                    | (629  | )                 |       |      | (930  | )     |       |   | (1,909 | )     |       |   | (2,702 | )    
|                              |     |                    |       |                   |       |      |       |       |       |   |        |       |       |   |        |      
|Income before income taxes    |     | $                  | 1,694 |                   |       | $    | 2,584 |       |       | $ | 3,786  |       |       | $ | 4,244  |      
|                              |     |                    |       |                   |       |      |       |       |       |   |        |       |       |   |        |      

No customers accounted for more than 10% of consolidated revenues for the three
and nine months ended September 30, 2002 and 2001.

NOTE 3  Earnings per Share

The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 Earnings per Share. SFAS No.
128 requires the presentation of basic and diluted earnings per share for all
periods presented. Basic earnings per share is computed on the basis of the
weighted average number of common shares outstanding, reflecting the reduction
of weighted average treasury shares outstanding. Diluted earnings per share is
computed on the basis of the weighted average number of common shares
outstanding combined with any outstanding common stock equivalents (principally
stock options) required to be included under the treasury stock method.
Options with exercise prices greater than the average market price of common
shares (or anti-dilutive options), which were not included in the computation
of diluted earnings per share, totaled 306,000 and 1.0 million for the
nine-month periods ended September 30, 2002 and 2001, respectively.
Anti-dilutive options totaled 454,000 and 1.0 million for the three-month
periods ending September 30, 2002 and 2001, respectively.

The following is a reconciliation of the denominator for the basic and diluted
earnings per share (EPS) computations:

|                                     |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |       | 
|------------------------------------ | ---------------------------------------- | ---- | ------------------ | ----- | ----------------- | ---- |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                     |                                          |      | Three months ended |       | Nine months ended
|                                     |                                          |      | September 30,      |       | September 30,    
|                                     |                                          |      |                    |       |                  
|(In thousands)                       |                                          | 2002 |                    | 2001  |                   | 2002 |  | 2001 
|                                     |                                          |      |                    |       |                   |      |  |      
|Weighted average shares outstanding: |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Basic                                    |      |                    | 8,141 |                   |      |  | 8,067 |  |  |  | 8,170 |  |  |  | 8,062 | 
|                                     |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |      
|Effect of dilutive securities:       |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |      
|                                    
|                                    
|                                    
|                                    
|                                     | Options and employee stock purchase plan |      |                    | 219   |                   |      |  | 180   |  |  |  | 415   |  |  |  | 125   | 
|                                     |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |      
|                                     | Diluted                                  |      |                    | 8,360 |                   |      |  | 8,247 |  |  |  | 8,585 |  |  |  | 8,187 | 
|                                     |                                          |      |                    |       |                   |      |  |       |  |  |  |       |  |  |  |      

NOTE 4  New Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, Business
Combinations, which establishes new standards for accounting and reporting
requirements for business combinations and requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001.

7



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

In November 2001, the Emerging Issues Task Force (EITF) released Issue No.
01-14 regarding Income Statement Characterization of Reimbursements Received
for Out-Of-Pocket Expenses Incurred. This pronouncement requires that
reimbursements received from customers for out-of-pocket expenses incurred be
characterized as revenue in the Companys statement of operations. The Company
incurs incidental expenses in the delivery of services to its clients that are
commonly referred to as out-of-pocket expenses. These expenses include but
are not limited to travel and related charges. Accordingly, the Company has
classified reimbursable expenses billed to clients as revenue, which are offset
by a corresponding charge to cost of revenue, for all periods presented. This
change in classification had no effect on current or previously reported net
income or income per share.

On January 1, 2002, the Company adopted SFAS No. 142 and No. 144. SFAS No.
142, Goodwill and Other Intangible Assets, addresses how intangible assets
should be accounted for in the financial statements. This new standard
eliminates amortization for goodwill and intangible assets that have indefinite
useful lives and requires such assets to be tested annually for impairment, or
more frequently if events or changes in circumstances indicate that the related
assets might be impaired. Intangible assets that have finite useful lives
continue to be amortized over their useful lives and are subject to impairment
testing in accordance with current accounting standards. In accordance with
adoption of SFAS No.142, on January 1, 2002, the Company ceased to amortize
goodwill. In addition, the Company completed an impairment assessment of
goodwill upon implementation of SFAS No. 142 and no impairment was indicated.
Following is a reconciliation of the reported net income and net income per
diluted share for 2001 on a pro forma basis to exclude charges for goodwill
amortization:

|                                      |                                 |                    |   |                    |  |  |   |       | 
|------------------------------------- | ------------------------------- | ------------------ | - | ------------------ |  |  | - | ----- | 
|(In thousands, except per share data) |                                 | Three months ended |   | Nine months ended 
|                                      |                                 | September 30, 2001 |   | September 30, 2001
|                                      |                                 |                    |   |                   
|Net income:                           |                                 |                    |   |                    |  |  |   |      
|                                     
|                                     
|                                     
|                                     
|                                      | Reported net income             |                    | $ | 1,933              |  |  | $ | 2,919 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Add back: Goodwill amortization |                    |   | 271                |  |  |   | 695   | 
|                                      |                                 |                    |   |                    |  |  |   |      
|                                      | Adjusted net income             |                    | $ | 2,204              |  |  | $ | 3,614 | 
|                                     
|                                     
|                                     
|                                     
|Basic earnings per share:             |                                 |                    |   |                    |  |  |   |      
|                                     
|                                     
|                                     
|                                     
|                                      | Reported net income             |                    | $ | 0.24               |  |  | $ | 0.36  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Add back: Goodwill amortization |                    |   | 0.03               |  |  |   | 0.09  | 
|                                      |                                 |                    |   |                    |  |  |   |      
|                                      | Adjusted net income             |                    | $ | 0.27               |  |  | $ | 0.45  | 
|                                     
|                                     
|                                     
|                                     
|Diluted earnings per share:           |                                 |                    |   |                    |  |  |   |      
|                                     
|                                     
|                                     
|                                     
|                                      | Reported net income             |                    | $ | 0.23               |  |  | $ | 0.36  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Add back: Goodwill amortization |                    |   | 0.03               |  |  |   | 0.09  | 
|                                      |                                 |                    |   |                    |  |  |   |      
|                                      | Adjusted net income             |                    | $ | 0.26               |  |  | $ | 0.45  | 

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of. However, this statement retains
the fundamental provisions of SFAS No. 121 for recognizing and measuring the
impairment of long-lived assets to be held and used, as well as measuring
long-lived assets to be disposed of by sale. Adoption of this statement on
January 1, 2002 did not have a material impact on the Companys consolidated
results of operations and financial condition.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 supercedes the existing
guidance related to the accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring). Under SFAS
No. 146, a liability for exit or disposal costs will be recognized and measured
initially at its fair value in the period in which the liability is incurred.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002 with earlier application encouraged. The
Company will adopt this standard on future exit or disposal activities.

8



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

NOTE 5  Intangible Assets and Goodwill

At September 30, 2002 and December 31, 2001, goodwill and intangible asset
balances consisted of the following:

|                             |                                            |                |        |              |  |                |        |              |   |   |        |       |  |   |        |        |  
|---------------------------- | ------------------------------------------ | -------------- | ------ | ------------ |  | -------------- | ------ | ------------ | - | - | ------ | ----- |  | - | ------ | ------ | -
|(In thousands)               |                                            | 2002           |        | 2001        
|                             |                                            |                |        |             
|                             |                                            | Gross          |        | Accumulated  |  | Gross          |        | Accumulated 
|                             |                                            | Carrying Value |        | Amortization |  | Carrying Value |        | Amortization
|                             |                                            |                |        |              |  |                |        |             
|Amortized intangible assets: |                                            |                |        |              |  |                |        |              |   |   |        |       |  |   |        |       
|                            
|                            
|                            
|                            
|                             | Customer lists and maintenance contracts   |                | $      | 5,400        |  |                | $      | (2,937       | ) |   | $      | 5,400 |  |   | $      | (2,532 | )
|                            
|                            
|                            
|                            
|                             | Developed software acquired in
acquisition |                |        | 1,100        |  |                |        | (486         | ) |   |        | 1,100 |  |   |        | (321   | )
|                            
|                            
|                            
|                            
|                             | Other                                      |                |        | 34           |  |                |        | (34          | ) |   |        | 34    |  |   |        | (27    | )
|                             |                                            |                |        |              |  |                |        |              |   |   |        |       |  |   |        |       
|                             |                                            | $              | 6,534  |              |  | $              | (3,457 | )            |   | $ | 6,534  |       |  | $ | (2,880 | )     
|                             |                                            |                |        |              |  |                |        |              |   |   |        |       |  |   |        |       
|Goodwill                     |                                            | $              | 16,674 |              |  | $              | (7,325 | )            |   | $ | 15,290 |       |  | $ | (7,325 | )     
|                             |                                            |                |        |              |  |                |        |              |   |   |        |       |  |   |        |       

Intangible asset amortization expense for the three and nine months ended
September 30, 2002 was approximately $190,000 and $570,000, respectively.
Estimated amortization expense for the next five years is as follows:

|                                  |  |   |     | 
|--------------------------------- |  | - | --- | 
|(In thousands)                    |  |   |     | 
|For the years ending December 31, |  |   |     | 
|2002                              |  | $ | 767 | 
|                                 
|                                 
|                                 
|                                 
|2003                              |  | $ | 760 | 
|                                 
|                                 
|                                 
|                                 
|2004                              |  | $ | 760 | 
|                                 
|                                 
|                                 
|                                 
|2005                              |  | $ | 659 | 
|                                 
|                                 
|                                 
|                                 
|2006                              |  | $ | 540 | 

At September 30, 2002, goodwill associated with the Companys reporting units,
EIS and LMI, totaled $1,252,000 and $8,097,000, respectively.




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

Overview

Elite is an international provider of a comprehensive suite of financial and
practice management software to professional services firms, based in Los
Angeles, California. The Companys customers include legal and other
professional services organizations of all sizes such as accounting,
consulting, public relations, financial services, actuarial, software,
security, insurance, market research and systems integration firms, as well as
corporations and government. EIS software products are often sold with related
services to aid the customer in implementation, data conversion and user
training efforts. The Companys products can be licensed outright and
installed onsite at the customers location or are available through an
Application Service Provider (ASP) or hosted solution (e-Connect from
Elite) where EIS maintains hardware and software that is accessed remotely by
the customer. Additionally, Internet-based applications and services are
available to smaller professional services companies. LMI provides software
products including advanced case management, calendar and docketing, records
management and resource management, as well as a full range of related
customization and implementation services to large corporate legal departments,
law firms and government agencies.

Critical Accounting Policies and Estimates

Managements Discussion and Analysis of Financial Condition and Results of
Operations discusses Elites consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The presentation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Management believes the critical

9



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

accounting policies that affect its more significant judgments and estimates
used in the preparation of its consolidated financial statements relate to
revenue recognition, reserves for uncollectible receivables and realization of
long-lived assets.

Revenue from the licensing of software along with related services is generally
recognized as work is performed under the percentage of completion method of
accounting, with progress measured using labor hours incurred to date compared
to total estimated labor hours to be incurred. The Companys revenue
recognition may be affected when estimated labor hours to complete a project
change. Losses may be incurred on contracts, which are recognized in the period
that they are determined to be probable and estimable.

The Company maintains an allowance for doubtful accounts and reserves for the
issuance of credit memos based on an estimate of losses expected to result from
its customers not making required payments. If the financial condition of
Elites customers were to deteriorate, resulting in a greater than expected
aggregate impairment of their ability to make payments, additional allowances
may be required. The Companys software products and their related
implementation services are complex and receivable reserves are necessary in
the event of disputed customer billings.

The Company monitors conditions that may affect the carrying value of its
property and equipment, software costs and intangible assets. When conditions
indicate potential impairment of such assets, the Company undertakes necessary
market and technology studies and evaluates projected future earnings
associated with these assets. Future adverse changes in market or
technological conditions or poor operating results could result in losses or an
inability to recover the carrying value of the assets, thereby possibly
requiring an impairment charge in the future.

Segment Information

The Companys two reportable segments are the businesses of its operating
subsidiaries, EIS and LMI. EIS customers are primarily comprised of law firms
and other professional services firms. LMI customers primarily include large
corporate legal departments and government agencies. See operating results by
segment in Note 2 of Notes to the Consolidated Financial Statements.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2002 and 2001

The Companys revenue before expense reimbursements for the third quarter ended
September 30, 2002 totaled $19.3 million, which was up 4.2% from the $18.5
million reported for the third quarter of 2001. Revenue for the first nine
months of 2002 of $56.8 million increased 13.1% compared to revenue of $50.2
million for the same period last year. Elites revenue growth for 2002
compared to last year is due mainly to higher EIS consulting services billings
and increased maintenance support revenue reflecting its growing customer base.
EIS revenues before expense reimbursements for the first nine months of 2002
totaled $50.0 million, a 10.1% increase compared to the first nine months of
2001. During the first half of this year, EIS experienced a shift in sales mix
towards a higher proportion of services content, resulting in lower software
license revenue compared to 2001. LMI revenues for the first nine months of
2002 totaled $6.9 million, up 40.4% from the same period in 2001, supported by
the growth in its consulting and implementation services backlog.

The Companys consolidated backlog of unearned revenue from signed customer
orders totaled $30.6 million at September 30, 2002, compared to $25.5 million
at December 31, 2001.

Gross profit for the three months ended September 30, 2002 was $10.0 million,
up from $9.4 million in the same quarter of 2001. The Companys gross margin
percent, excluding the effect of expense reimbursements, was 51.9% for this
years third quarter compared to 50.6% for the same period last year. For the
nine months ended September 30, 2002, gross profit was $29.3 million (or 51.7%
of revenue before expense reimbursements) versus $24.3 million (or 48.4% of
revenue before expense reimbursements) for the same period of 2001. The
Companys cost of revenue consists primarily of expenses for deployable
resources such as implementation personnel and contract labor, salaries and
related expenses for the Companys customer support department, and amounts
paid to third party software vendors. The Companys higher gross margin
percentage compared to the prior year mainly reflects a lower level of software
vendor royalty costs for the reporting periods, along with reduced expenses
incurred for outside contractor implementation services for the first nine
months. The gross margin percentage for 2002 is also higher compared to 2001
due to the reclassification of certain personnel related costs to research and
development or general and administrative categories.

10



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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

Research and development (R&D) expenses for this years third quarter of $2.6
million (or 12.6% of total revenue) increased from $1.7 million (or 8.9% of
total revenue) in 2001. Such expenses for the first nine months of 2002
totaled $7.9 million (or 13.3% of total revenue) compared to $5.0 million (or
9.5% of total revenue) for the first nine months of the prior year. The
Company capitalizes certain software development costs incurred subsequent to
achieving technological feasibility and prior to when the product is available
for general release to customers as prescribed by FASB No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. The
Companys capitalized software development costs for the three and nine months
ended September 30, 2001 amounted to $320,000 and $900,000, respectively.
Including capitalized costs, R&D expenses for the third quarter and first nine
months of 2001 represented 10.5% and 11.2% of total revenues, respectively.
The Company did not capitalize any significant software development costs
during the first nine months of 2002 and expects that the costs that qualify
for capitalization will be substantially lower in 2002 compared to 2001.

The increase in R&D spending for 2002 is due primarily to costs for the
further enhancement of Elites existing product lines, combined with the
development of new products designed to broaden the Companys product suite to
meet the needs of the Professional Services Automation (or PSA) markets. R&D
expenses for 2002 are also higher compared to 2001 due to the reclassification
of certain personnel related costs previously reflected in cost of revenue.
Research and development expenses consist primarily of salaries and expenses of
the Companys research and development personnel and outside consultants.

Sales and marketing expenses for the
third quarter of 2002 increased to $3.5 million
(or 16.9% of total revenue) compared to $2.7 million (or 13.8% of total revenue) in the same period of 2001. Sales and
marketing expenses for the first nine months of 2002 of $10.6 million (or 17.8%
of total revenue) were up from $8.5 million (or 16.1% of total revenue) in the
same period last year. Sales and marketing expenses consist primarily of
salaries, commissions, travel, advertising and promotional expense. The
increase in expense for the year is primarily a reflection of added sales
personnel costs, along with higher marketing and advertising costs, due in part
to promotion of the Companys new products.

General and administrative expenses of $2.2 million (or 10.6% of revenue) for
the third quarter of 2002 were up from $2.0 million (or 10.1% of total revenue)
in the third quarter of 2001. These expenses totaled $6.7 million (or 11.3% of
total revenue) for the first nine months of this year compared to $5.6 million
(or 10.6% of revenue) in the first nine months of last year. General and
administrative expenses consist mainly of salaries of corporate executive,
legal, financial, information systems and human resources personnel, as well as
professional fees and insurance costs.

Amortization expense for goodwill and other acquired intangibles in the third
quarter of 2002 decreased to $190,000 (or about 1.0% of total revenue) from
$552,000 (or 2.8% of total revenue) in the third quarter of 2001. These
expenses declined to $570,000 (or 1.0% of total revenue) for the first nine
months of 2002 from $1.6 million (or 3.0% of total revenue) for the same period
of 2001. The lower amortization expense for 2002 is a reflection of the
adoption of SFAS No. 142, Goodwill and Other Intangible Assets on January 1,
2002, at which time the Company ceased to amortize goodwill.

The Company reported net interest income of $96,000 and $299,000 for the third
quarter and first nine months of 2002, respectively. Interest income for the
same periods last year totaled $180,000 and $702,000, respectively. The
reduced interest income in the current year primarily reflects lower interest
rates on the balances available for investment.

The Companys income tax provision for the third quarter of 2002 was $341,000
(or 20% of pre-tax income) and for the first nine months of the year was $1.1
million (or 30% of pre-tax income), compared to $651,000 (or 25% of pre-tax
income) for the third quarter of 2001 and $1.3 million (or 31% of pre-tax
income) for the first nine months of 2001. The Companys tax provision for
2002 reflects a benefit from research and engineering tax credits that reduced
its effective tax rate from 38% in the second quarter to 20% for the third
quarter.

Risks and Uncertainties

The Companys business is subject to certain risks and uncertainties that can
have a significant impact on its financial performance. The Companys personnel
and other operating expenses are based in part on its expectations for work
efforts needed to generate future revenue and are relatively fixed in the
short-term. If the Company is unable to generate significant new engagements,
or if there is any delay or cancellation of engagements in a particular period,
there could be a material adverse affect on the Companys consolidated results
of operations and financial condition. During the second quarter of 2002 an
unanticipated contract dispute occurred with a significant customer for which
the Company reversed revenue for the year and reserved against the collection
of related accounts receivable. The Company has reached a tentative agreement
to

11



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Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

resolve this dispute with no further financial impact to the Company, but until
a final agreement is signed, the ultimate outcome of this matter cannot be
determined and further reserves could be necessary.

The Companys implementation personnel require significant advanced training
prior to servicing customers. Therefore, the Company could face the short-term
risk of having a shortage of experienced implementation personnel capable of
generating revenues in the event of a rapid ramp up in new customer orders.

Management believes that the Company could experience significant fluctuations
in future operating results caused by several factors, which include variations
in the timing and amount of revenue that may be recognized by the Company,
including customer project delays or cancellations, changes in current expense
trends, unforeseen changes in the Companys markets including competitive
conditions, the degree of acceptance of the Companys existing services and
products in the Companys existing markets and the acceptance of these services
and products in new markets, particularly the challenging PSA markets during
2002, changes in the profitability of the Companys sales mix including the
proportion of software licenses to services, the ability of the Company to
timely complete the development of new products and services at reasonable
cost, the degree of customer acceptance of new products and services,
technological changes in computer systems and environments, the loss of key
personnel, general changes in the economy and in particular markets served by
the Company.

Liquidity and Capital Resources

The Companys cash and cash equivalents totaled $24.6 million at September 30,
2002 compared to $24.7 million at December 31, 2001. Working capital at
September 30, 2002 was $21.9 million compared to $22.1 million at December 31,
2001. The change in cash and cash equivalents during the year primarily
reflects positive cash flow from operations, offset by amounts paid to
re-purchase the Companys stock, amounts paid under the LMI purchase agreement
and cash used to acquire capital equipment and software. Management believes
that the Companys cash and cash equivalent balances, anticipated cash flow
from operations and other external sources of available credit will be
sufficient to meet the Companys cash requirements for the foreseeable future.

Net cash provided by operating activities for the first nine months of 2002 was
$4.4 million compared to $2.9 million for the first nine months of 2001. This
increase is primarily attributable to higher cash collections from customers.
Net cash flows used by investing activities were down significantly to $2.2
million for the first nine months of 2002 compared to $5.1 million for the same
period of 2002 due to lower required purchase agreement payments for LMI in
2002. Net cash used in financing activities of $2.3 million for the first nine
months of 2002 compares to net cash used in financing activities of $20,000 for
the same period of 2001, reflecting $3 million of cash used to re-purchase the
Companys stock under its stock buy-back program.

On June 26, 2002, the Company entered into a two-year, $10 million revolving
credit agreement with Mellon 1st Business Bank (successor in interest to Mellon
Bank, N.A.). No borrowings were outstanding under the credit facility at
September 30, 2002. Borrowings under the credit facility will bear interest at
the Companys choice of an adjusted LIBOR or prime rate, as defined in the
credit agreement. The credit facility is collateralized by substantially all
of the Companys tangible and intangible assets. Additionally, the credit
agreement contains customary covenants that require compliance with certain
financial ratios and targets, and restricts the incurrence of additional
indebtedness, payment of dividends and acquisitions or dispositions of assets,
among other things. The credit facility expires in May 2004.

New Accounting Standards

In November 2001, the Emerging Issues Task Force (EITF) released Issue No.
01-14 regarding Income Statement Characterization of Reimbursements Received
for Out-Of-Pocket Expenses Incurred. This pronouncement requires that
reimbursements received from customers for out-of-pocket expenses incurred be
characterized as revenue in the Companys statement of operations. The Company
incurs incidental expenses in the delivery of services to its clients that are
commonly referred to as out-of-pocket expenses. These expenses include, but
are not limited to, travel and related charges. Accordingly, the Company has
classified reimbursable expenses billed to clients as revenue, which are offset
by a corresponding charge to cost of revenue, for all periods presented. This
change in classification had no effect on current or previously reported net
income or income per share.

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, which establishes new standards for accounting and reporting
requirements for

12



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Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002

business combinations and requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, which addresses how intangible assets should be accounted for in the
financial statements. This new standard eliminates amortization for goodwill
and intangible assets that have indefinite useful lives and requires such
assets to be tested annually for impairment, or more frequently if events or
changes in circumstances indicate that the related assets might be impaired.
Intangible assets that have finite useful lives continue to be amortized over
their useful lives and are subject to impairment testing in accordance with
current accounting standards.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, that supercedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. However, this statement retains the fundamental provisions of
SFAS No. 121 for recognizing and measuring the impairment of long-lived assets
to be held and used, as well as measuring long-lived assets to be disposed of
by sale.

The Company adopted SFAS No. 142 and SFAS No. 144 on January 1, 2002. The
adoption of these statements did not have a material adverse impact on the
Companys consolidated results of operations, financial condition and cash
flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 supercedes the existing
guidance related to the accounting and reporting for costs associated with exit
or disposal activities and nullifies EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (Including Certain Costs Incurred in a Restructuring). Under SFAS
No. 146, a liability for exit or disposal costs will be recognized and measured
initially at its fair value in the period in which the liability is incurred.
The provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002 with earlier application encouraged. The
Company will adopt this standard on future exit or disposal activities.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain statements that are, or may
be, forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended, that represent the Companys expectations or beliefs
concerning future events, including the Companys future product initiatives,
sales and financial performance. For this purpose, any statements that are not
statements of historical fact may be deemed to be forward-looking statements.
Such forward-looking statements are about matters that are inherently subject
to risks and uncertainties.

Certain factors that could influence the matters discussed in, and cause actual
results to vary materially from any results expressed or implied by, such
forward-looking statements include the matters discussed under Risks and
Uncertainties in this Form 10-Q and from time to time in the Companys SEC
reports, including the Report on Form 10-K for the year ended December 31, 2001
and the annual report to shareholders. There can be no assurance that such
future events or projected results will be achieved and actual results could
differ materially. The Company does not undertake any obligation to update any
forward-looking statements.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

A portion of the Companys business is transacted in foreign currencies and the
Company may be exposed to financial market risk resulting from fluctuations in
foreign currency exchange rates. The Company monitors the volatility of
foreign currencies and may utilize hedging programs or other derivative
financial instruments commonly used to reduce financial market risks if deemed
appropriate. To date the Company has not utilized any derivative financial
instruments.

The Company has limited exposure to market risk for changes in interest rates
related to the Companys cash and cash equivalents. The Company maintains an
investment policy designed to ensure the safety and preservation of its cash
and cash equivalents by limiting default risk and market risk by depositing its
cash and cash equivalents with major financial institutions in high-quality
instruments with maturities of twelve months or less.

13



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Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002




Item 4. Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Companys reports filed
pursuant to the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified
in the SECs rules and forms, and that such information is accumulated and
communicated to the Companys management, including its Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure.

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including its CEO and CFO, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 15d-14.

The Companys management, including the CEO and CFO, does not expect that our
disclosure controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

In the Companys evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures, the Company sought to determine whether
there were any significant deficiencies or material weaknesses in such controls
and procedures, or whether the Company had identified any acts of fraud
involving personnel who have a significant role in the Companys disclosure
controls and procedures. Based upon the foregoing evaluation, the Companys CEO
and CFO have concluded that, subject to the limitations noted above, the
Companys disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys Exchange
Act reports. In addition, there have been no significant changes in the
Companys internal controls or in other factors that could significantly affect
these internal controls subsequent to the date of evaluation, including any
corrective actions with regard to significant deficiencies or material
weaknesses.







Part II  Other Information

Item 1. Legal Proceedings

From time to time the Company is involved in certain claims and litigation
arising out of its operations in the ordinary course of business. Further, the
Company periodically is subject to government audits and inspections. In the
opinion of the Companys management, any such matters presently pending will
not, individually or in the aggregate, have a material adverse effect on the
Companys results of operations or financial condition.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits:                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | None.                                                                                                                                                                                                                                                                                                                                                
|   
|(b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Company filed a Form 8-K dated August 13, 2002 to furnish the forms of
certifications of its Chief Executive Officer and Chief Financial Officer
with respect to the Companys report on Form 10-Q for the quarter ended June
30, 2002, which certifications were submitted to the SEC pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

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##### Table of Contents



Elite Information Group, Inc.
Form 10-Q for the Quarter Ended September 30, 2002




SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                        |  |                               |  |                                                                     
|----------------------- |  | ----------------------------- |  | --------------------------------------------------------------------
|                        |  | ELITE INFORMATION GROUP, INC.
|                       
|                       
|                       
|                       
|Date: November 13, 2002 |  | By:                           |  | /s/ Barry D. Emerson                                                
|                        |  |                               |  |                                                                     
|                        |  |                               |  | Barry D. Emerson, Vice President,
Treasurer, Chief Financial Officer

15



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##### Table of Contents






CERTIFICATIONS

I, Barry D. Emerson, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Elite Information
Group, Inc. (the registrant);                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize, and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                                                      |  | 
|----------------------- |  | --- |  | -------------------------------------------------------------------- |  | 
|Date: November 13, 2002 |  | By: |  | /s/ Barry D. Emerson                                                 |  | 
|                        |  |     |  |                                                                      |  | 
|                        |  |     |  | Barry D. Emerson, Vice President,
Treasurer, Chief Financial Officer |  | 

16



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##### Table of Contents



I, Christopher K. Poole, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Elite Information
Group, Inc. (the registrant);                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                  
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                         



| | a) |  | Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize, and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                         



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |     |  |                                                                         |  | 
|----------------------- |  | --- |  | ----------------------------------------------------------------------- |  | 
|Date: November 13, 2002 |  | By: |  | /s/ Christopher K. Poole

Christopher K. Poole, Chief Executive Officer |  | 

17