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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 June 30, 2001
OR
|          
|          
|          
|          
|[   ]      | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934                                               

For the transition period from  to .
 
Commission file number 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 CircleLos 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 July 31, 2001 there were 8,071,102 shares of Common Stock, $.01 par
value, outstanding.



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Page 1 of 12


Elite Information Group, Inc.
Table of Contents



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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  Financial Information:
|                                | Item 1. Financial Statements                                                                 
|                                |                                                                                               | Consolidated Statement of Operations      
|                                |                                                                                               | Consolidated Balance Sheet                
|                                |                                                                                               | Consolidated Statement 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                           
|PART II  Other Information    
|                                | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                      
|Exhibit 11                     

|                               |                                                                                                   |                                                                                       |       |       
|------------------------------ | ------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ----- | ------
|                               | Page                                                                                             
|                               | Number                                                                                           
|                               |                                                                                                  
|Part I  Financial Information:
|                              
|Item 1.                        |                                                                                                   | Financial Statements                                                                 
|                              
|                               | Consolidated Statement of Operations -
Three and six months ended June 30, 2001
and June 30, 2000 |                                                                                       | 3    
|                              
|                               | Consolidated Balance Sheet -
June 30, 2001 and December 31, 2000                                  |                                                                                       | 4    
|                              
|                               | Consolidated Statement of Cash Flows -
Six months ended June 30, 2001 and
June 30, 2000           |                                                                                       | 5    
|                              
|                               | Notes to Consolidated Financial Statements                                                        |                                                                                       | 6  7
|                              
|Item 2.                        |                                                                                                   | Managements Discussion and Analysis of
Financial Condition and Results of Operations |       | 7  10
|                              
|Item 3.                        |                                                                                                   | Quantitative and Qualitative Disclosures about Market Risk                            |       | 10    
|                              
|Part II  Other Information:   
|                              
|Item 4.                        |                                                                                                   | Submission of Matters to a Vote of Security Holders                                   |       | 11    
|                              
|Item 6.                        |                                                                                                   | Exhibits and Reports on Form 8-K                                                      |       | 11    
|                              
|Signature                      |                                                                                                   | 12                                                                                   



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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.



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2



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##### Table of Contents






PART I  Financial Information:




Item 1. Financial Statements




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

|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |        |       |        | 
|----------------------------------- | ------------------------------------------------------- | --------- | ------------------------ | ----- | ------------------ | ----- | ---------------- | ----- | -------- | ----- | -------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | 
|                                    |                                                         |           |                          |       | Three months ended |       | Six months ended
|                                    |                                                         |           |                          |       |                    |       |                 
|                                    |                                                         |           |                          |       | June 30,           |       | June 30,         |       | June 30, |       | June 30,
|                                    |                                                         |           |                          |       | 2001               |       | 2000             |       | 2001     |       | 2000    
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |         
|Net revenue                         |                                                         | $         | 17,392                   |       |                    | $     | 13,741           |       |          | $     | 31,687   |        |       | $      | 27,075 |       
|                                   
|                                   
|                                   
|                                   
|                                    | Cost of revenue                                         |           |                          | 8,403 |                    |       |                  | 7,650 |          |       |          | 16,773 |       |        |        | 15,094 |      
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Gross profit                        |                                                         |           | 8,989                    |       |                    |       | 6,091            |       |          |       | 14,914   |        |       |        | 11,981 |       
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Operating
expenses                 
|                                   
|                                   
|                                   
|                                   
|                                    | Research and development                                |           |                          | 1,831 |                    |       |                  | 1,450 |          |       |          | 3,297  |       |        |        | 2,771  |      
|                                   
|                                   
|                                   
|                                   
|                                    | Sales and marketing                                     |           |                          | 2,930 |                    |       |                  | 2,908 |          |       |          | 5,834  |       |        |        | 5,141  |      
|                                   
|                                   
|                                   
|                                   
|                                    | General and administrative                              |           |                          | 1,872 |                    |       |                  | 1,646 |          |       |          | 3,617  |       |        |        | 3,346  |      
|                                   
|                                   
|                                   
|                                   
|                                    | Amortization of goodwill and other acquired intangibles |           |                          | 514   |                    |       |                  | 218   |          |       |          | 1,028  |       |        |        | 497    |      
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|                                    |                                                         |           | Total operating expenses |       |                    | 7,147 |                  |       |          | 6,222 |          |        |       | 13,776 |        |        |       | 11,755 | 
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Operating income (loss)             |                                                         |           | 1,842                    |       |                    |       | (131             | )     |          |       | 1,138    |        |       |        | 226    |       
|                                   
|                                   
|                                   
|                                   
|Interest income, net                |                                                         |           | 224                      |       |                    |       | 418              |       |          |       | 522      |        |       |        | 863    |       
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Income before income taxes          |                                                         |           | 2,066                    |       |                    |       | 287              |       |          |       | 1,660    |        |       |        | 1,089  |       
|                                   
|                                   
|                                   
|                                   
|Income tax provision                |                                                         |           | (777                     | )     |                    |       | (181             | )     |          |       | (674     | )      |       |        | (546   | )     
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Net income                          |                                                         | $         | 1,289                    |       |                    | $     | 106              |       |          | $     | 986      |        |       | $      | 543    |       
|                                    |                                                         |           |                          |       |                    |       |                  |       |          |       |          |        |       |        |        |       
|Net income per share               
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Basic   |                          | $     | 0.16               |       |                  | $     | 0.01     |       |          | $      | 0.12  |        |        | $      | 0.06  |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Diluted |                          | $     | 0.16               |       |                  | $     | 0.01     |       |          | $      | 0.12  |        |        | $      | 0.06  |       
|                                   
|                                   
|                                   
|                                   
|Weighted average shares outstanding
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Basic   |                          |       | 8,059              |       |                  |       | 8,536    |       |          |        | 8,059 |        |        |        | 8,502 |       
|                                   
|                                   
|                                   
|                                   
|                                    |                                                         | - Diluted |                          |       | 8,176              |       |                  |       | 8,712    |       |          |        | 8,174 |        |        |        | 8,769 |       

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



3



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##### Table of Contents






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

|                                     |                                                                                                                      |                           |                            |        |             |        |              |        |        |        | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------- | ------ | ----------- | ------ | ------------ | ------ | ------ | ------ | 
|                                     |                                                                                                                      |                           |                            |        | June 30,    |        | December 31,
|                                     |                                                                                                                      |                           |                            |        | 2001        |        | 2000        
|                                     |                                                                                                                      |                           |                            |        |             |        |             
|                                     |                                                                                                                      |                           |                            |        | (Unaudited) |        |              |        |       
|Assets                               |                                                                                                                      |                           |                            |        |             |        |              |       
|                                    
|                                    
|                                    
|                                    
|Current
assets                      
|                                    
|                                    
|                                    
|                                    
|                                     | Cash and cash equivalents                                                                                            |                           | $                          | 22,726 |             |        | $            | 24,787 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Receivables                                                                                                          |                           |                            | 18,271 |             |        |              | 15,684 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred income taxes                                                                                                |                           |                            | 4,466  |             |        |              | 3,715  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other current assets                                                                                                 |                           |                            | 1,774  |             |        |              | 822    |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|                                     |                                                                                                                      | Total current assets      |                            |        | 47,237      |        |              |        | 45,008 |       
|                                    
|                                    
|                                    
|                                    
|Property and equipment, net          |                                                                                                                      |                           | 2,362                      |        |             |        | 2,336        |       
|                                    
|                                    
|                                    
|                                    
|Software costs, net                  |                                                                                                                      |                           | 1,529                      |        |             |        | 1,167        |       
|                                    
|                                    
|                                    
|                                    
|Intangible assets, net               |                                                                                                                      |                           | 11,349                     |        |             |        | 12,385       |       
|                                    
|                                    
|                                    
|                                    
|Other assets, net                    |                                                                                                                      |                           | 64                         |        |             |        | 148          |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|                                     |                                                                                                                      | $                         | 62,541                     |        |             | $      | 61,044       |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|Liabilities and Stockholders Equity |                                                                                                                      |                           |                            |        |             |        |              |       
|                                    
|                                    
|                                    
|                                    
|Current liabilities                 
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable-trade                                                                                               |                           | $                          | 3,782  |             |        | $            | 3,552  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued compensation                                                                                                 |                           |                            | 2,932  |             |        |              | 3,024  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                            |                           |                            | 4,202  |             |        |              | 6,391  |       
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                     |                           |                            | 15,659 |             |        |              | 14,570 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Income taxes payable                                                                                                 |                           |                            | 1,852  |             |        |              | (44    | )     
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|                                     |                                                                                                                      | Total current liabilities |                            |        | 28,427      |        |              |        | 27,493 |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|Deferred income taxes                |                                                                                                                      |                           | 613                        |        |             |        | 911          |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|Other liabilities                    |                                                                                                                      |                           | 8                          |        |             |        | 8            |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|Stockholders equity                
|                                    
|                                    
|                                    
|                                    
|                                     | Common stock, $.01 par value; Authorized 20,000,000 shares; Issued
shares were 9,415,623 and 9,415,123, respectively |                           |                            | 94     |             |        |              | 94     |       
|                                    
|                                    
|                                    
|                                    
|                                     | Paid-in capital                                                                                                      |                           |                            | 39,273 |             |        |              | 39,326 |       
|                                    
|                                    
|                                    
|                                    
|                                     | Less treasury stock, at cost, 1,375,378
and 1,362,276 shares, respectively                                           |                           |                            | (6,717 | )           |        |              | (6,645 | )     
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated earnings (deficit)                                                                                       |                           |                            | 843    |             |        |              | (143   | )     
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|                                     |                                                                                                                      |                           | Total stockholders equity |        |             | 33,493 |              |        |        | 32,632 | 
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       
|                                     |                                                                                                                      | $                         | 62,541                     |        |             | $      | 61,044       |       
|                                     |                                                                                                                      |                           |                            |        |             |        |              |       

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



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##### Table of Contents






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

|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |      |       |        |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------- | ------ | ---------------- | ------ | -------- | ---- | ----- | ------ | -
|                                               |                                                                                   |                                                  |                                        |        | Six months ended
|                                               |                                                                                   |                                                  |                                        |        |                 
|                                               |                                                                                   |                                                  |                                        |        | June 30,         |        | June 30,
|                                               |                                                                                   |                                                  |                                        |        | 2001             |        | 2000    
|                                               |                                                                                   |                                                  |                                        |        |                  |        |         
|Cash flows from operating activities:          |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                              
|                                              
|                                              
|                                              
|                                               | Net income                                                                        |                                                  | $                                      | 986    |                  |        | $        | 543  |      
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                  |                                        |        |                  |        |          |      |      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Depreciation and amortization                    |                                        |        | 1,772            |        |          |      | 1,076 |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Deferred income taxes                            |                                        |        | (1,049           | )      |          |      | (518  | )     
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   | Changes in current assets and liabilities:       |                                        |        |                  |        |          |      |       |       
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                                  | Receivables                            |        |                  | (2,587 | )        |      |       | 4,601  |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                                  | Accounts payable                       |        |                  | 230    |          |      |       | (1,044 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                                  | Deferred revenue and customer deposits |        |                  | 1,089  |          |      |       | (3,860 | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                                  | Income taxes payable                   |        |                  | 1,896  |          |      |       | 851    |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                   |                                                  | Other, net                             |        |                  | (1,001 | )        |      |       | (1,169 | )
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                               |                                                                                   | Net cash provided by operating activities        |                                        |        | 1,336            |        |          |      | 480   |       
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|Cash flows from investing activities:          |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of Law Manager, Inc.                                                     |                                                  |                                        | (2,148 | )                |        |          |     |      
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of property and equipment                                                |                                                  |                                        | (515   | )                |        |          | (789 | )    
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in software costs                                                      |                                                  |                                        | (609   | )                |        |          |     |      
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                               |                                                                                   | Net cash used by investing activities            |                                        |        | (3,272           | )      |          |      | (789  | )     
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|Cash flows from financing activities:          |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                              
|                                              
|                                              
|                                              
|                                               | Purchase of treasury stock                                                        |                                                  |                                        | (319   | )                |        |          |     |      
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from issuance of common stock                                            |                                                  |                                        | 194    |                  |        |          | 113  |      
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|                                               |                                                                                   | Net cash (used) provided by financing activities |                                        |        | (125             | )      |          |      | 113   |       
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|Net decrease in cash and cash equivalents      |                                                                                   |                                                  | (2,061                                 | )      |                  |        | (196     | )   
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                                                   |                                                  | 24,787                                 |        |                  |        | 31,152   |     
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     
|Cash and cash equivalents, end of period       |                                                                                   | $                                                | 22,726                                 |        |                  | $      | 30,956   |     
|                                               |                                                                                   |                                                  |                                        |        |                  |        |          |     

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



5



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##### Table of Contents






Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1  Basis of Presentation

For the periods presented, the consolidated financial statements of Elite
Information Group, Inc. (Elite or the Company) reflect the results of
operations and financial position of the Companys wholly owned subsidiaries,
Elite Information Systems, Inc., Law Manager Inc. (LMI) and Elite.com. The
Company acquired all of the outstanding capital stock of LMI on July 11, 2000
and results for this new operation are reflected in the Companys financial
statements since the date of acquisition (see Note 4).

The 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 June 30, 2001 and results
of operations and cash flows for the interim periods presented. The results of
operations for the three and six months ended June 30, 2001 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. Accordingly, certain information and footnotes required
by generally accepted accounting principles are not included herein. These
interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 2000 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  Earnings per Share

The Company computes earnings per share in accordance with Statement of
Financial Accounting Standards No. 128 Earnings per Share (SFAS 128).
SFAS 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. 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)  were not included in the computation
of diluted earnings per share. There were approximately 1.2 million
weighted average anti-dilutive options for
the three and six month periods ended June 30, 2001 and approximately
300,000 weighted average anti-dilutive options
for the three and six month periods ended June 30, 2000. A reconciliation of the denominator for the
basic and diluted earnings per share (EPS) computation can be found in
Exhibit 11 of this Form 10Q.

NOTE 3  New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires
companies to record derivatives on their balance sheets as assets or
liabilities, measured at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of derivatives are to be reported in the
statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The Company adopted
SFAS No. 133 in the first quarter of 2001. To date, the Company has not engaged
in any hedging activity. Application of SFAS No. 133 did not have an impact on
the Companys financial reporting.



6



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##### Table of Contents



In June 2001, the FASB issued SFAS No. 141, Business Combinations, which
establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Use of
the pooling-of-interest method will be prohibited. This new standard is effective
for business combinations completed 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 will continue to be amortized over
their useful lives and are subject to impairment testing in accordance with
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The Company is required to adopt SFAS No. 142 in the
first quarter of 2002, however, goodwill and intangible assets acquired after June 30, 2001,
will be subject to the amortization provisions of SFAS No. 142.

NOTE 4  Significant Transactions

On July 11, 2000, the Company acquired all of the outstanding
capital stock of LMI. LMI provides software products, including advanced case
management, docketing, records management and e-commerce systems, as well as
a full range of implementation services, to law firms, large corporate
legal departments and government agencies. In July 2001, the Company paid an additional
$1.3 million to the sellers of LMI pursuant to terms of the LMI purchase agreement, brining total
consideration paid for this business to approximately $14.9 million. An
aggregate of $2.7 million of additional purchase price may be payable over the next two years, in equal
annual installments on the anniversary date of the acquisition, subject to certain
conditions. The consideration paid to date by the Company was funded by its existing
cash reserves.




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

Results of Operations

The consolidated financial statements of Elite Information Group, Inc. (Elite
or the Company) reflect the results of operations and financial position of
the Companys wholly owned subsidiaries, Elite Information Systems, Inc.
(EIS), Law Manager, Inc. (LMI) and Elite.com. The Company acquired all of
the outstanding capital stock of LMI on July 11, 2000 and results for this new
operation are reflected in the Companys financial statements since the date of
acquisition.

Based in Los Angeles, California, EIS is an international provider of a
comprehensive suite of financial and practice management software products, including
integrated time and billing, general ledger, accounts payable and matter management products. Customers include legal
and other professional services organizations of all sizes. 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 rented through an ASP hosting
solution (e-Connect from Elite), where EIS maintains the hardware and
software that is accessed remotely by the customer.

LMI provides software products, including advanced case management, docketing,
records management and e-commerce systems, as well as a full range of
implementation services, to law firms, large corporate legal departments and
government agencies.

Elite.com provides Internet-based time tracking and billing services to smaller
professional services companies, including legal, management consulting,
computer systems consulting and integration, accounting and engineering.
Elite.com utilizes hosted, Internet-based applications and services delivered
through its various partners and alliances.

The Companys revenue for the second quarter ended June 30, 2001 totaled a
record $17.4 million, which was up 27% from the $13.7 million reported for the
second quarter of 2000. Revenue for the first six months of 2001 of $31.7
million compares to revenue for the first half of 2000 of $27.1 million.
Elites revenue growth for 2001 compared to 2000 is due mainly to higher
software license and implementation services revenues from new EIS contracts,
increased sales to existing customers, higher maintenance revenues, and the
added revenues for LMI, which was acquired by the Company in
July 2000.

The increase in software license and implementation services revenues compared
to prior year was due primarily to the Companys higher backlog of signed
customer orders entering the year. Backlog for EIS at the beginning of 2001
totaled $15.9 million compared to $11.6 million at the start of 2000. Backlog
at June 30, 2001 for EIS totaled $15.0 million compared to $9.0 million at June
30, 2000.

Gross profit, which represents net revenue less cost of revenue, for the three
months ended June 30, 2001 was $9.0 million, up from $6.1 million in the same
quarter of 2000. The Companys gross margin percent was 51.7% for this years
second



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quarter compared to 44.3% for the same period last year. For the six
months ended June 30, 2001, gross profit was $14.9 million (or 47.1% of
revenue) versus $12.0 million (or 44.3% of revenue) for the same period of
2000. 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 improved gross
margin percentage compared to the prior year reflects the larger proportion of
higher margin license revenues and a lower level of software vendor royalty
costs. Higher margins for LMI also favorably impacted the second quarter while
reducing margins for the year-to-date.

Research and development expenses for this years second quarter of $1.8
million (or 10.5% of revenue) increased from $1.5 million (or 10.6% of revenue)
in 2000. Such expenses for the first half of 2001 totaled $3.3 million (or
10.4% of revenue) compared to $2.8 million (or 10.2% of revenue) for the first
six months of the prior year. Research and development expenses consist
primarily of salaries and expenses of the Companys research and development
personnel and outside consultants. The higher expenses in 2001 over the same
period last year reflect costs for work to design and develop certain products
to support the Companys expansion into new Professional Services Automation
markets, partially offset by reduced expenses for Elite.com. Research and
development expenses were reduced by the capitalization of internally developed
software costs totaling approximately $330,000 for the second quarter and
$580,000 for the first half of 2001. No software development costs
were capitalized in 2000.

The increased R&D effort for EIS is expected to continue through 2001 as the
Company completes development of its new product lines. The Company is
committed to maintaining strong research and development efforts so it can
continue to provide innovative software solutions as the needs of its customer
base and target markets change.

Sales and marketing expenses for the quarter remained unchanged compared to the
second quarter of 2000 totaling $2.9 million. As a percentage of revenues,
sales and marketing expenses decreased to 16.8% of revenue in the second
quarter of 2001 from 21.2% of revenue for the second quarter of 2000.
Year-to-date expenses of $5.8 million (or 18.4% of revenue) were up from $5.1
million (or 19.0% of revenue) in the same period last year. Sales and
marketing expenses consist primarily of salaries, commissions, travel and
promotional expense. The increase for the year is due primarily to higher
sales compensation costs related to the Companys higher sales volume.

General and administrative expenses of $1.9 million (or 10.8% of revenue) for
the second quarter of 2001 were up from $1.6 million (or 12.0% of revenue) in
the second quarter of 2000. These expenses totaled $3.6 million (or 11.4% of
revenue) for the first half of this year compared to $3.3 million (or 12.4% of
revenue) in the first six months of last year. General and administrative
expenses consist mainly of salaries of corporate executive, legal, financial
and human resources personnel, as well as professional fees and insurance
costs. The increase in general and administrative expenses is due largely to
the incremental costs for LMI. Higher intangibles amortization expense in 2001
also relates to costs associated with the LMI acquisition.

The Company reported net interest income of $224,000 and $522,000 for the
second quarter and first half of 2001, respectively. Interest income for the
same periods last year totaled $418,000 and $863,000, respectively. The
reduced interest income in the current year primarily reflects the Companys
lower cash balances available for investment due largely to the funds used for
the acquisition of LMI and to repurchase the Companys common stock, offset
partially by its positive cash flow from operations.

The income tax provision for the second quarter of 2001 was $777,000 (or
37.6% of pre-tax income) and for the first half of the year was $674,000 (or
40.6% of pre-tax income). The Companys income tax provision for the year
exceeds the income tax expense at the statutory rates for this period primarily
due to the permanent difference of non-deductible goodwill amortization and
state income taxes. The Company believes that the effective tax rate in 2001
will remain higher than the statutory rate due to the ongoing non-deductible
goodwill amortization.



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Risks and Uncertainties

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.
Additionally, 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, including the size and
timing of customer engagements; the length of the sales cycle; market
acceptance of its software systems and services; technological changes in
computer systems and environments; changes in the Companys or its competitors
pricing policies; the Companys success in expanding to new markets; the cost
of new product development; the mix of software systems and services and
changes in general economic conditions.

The Company may be subject to Year 2000 claims or litigation by: its customers;
customers of divested businesses in which the Company retained potential
product liabilities, including its former Customer Relationship Management
business; customers of its recently acquired LMI business; or other parties.
Although the ultimate outcome of any litigation is uncertain, the Company does
not believe that the amount of liability, if any, from such actions would have
a material adverse effect on the Company. To date, the Company has not been
subject to any such claims or litigation.

Liquidity and Capital Resources

The Companys cash and cash equivalents totaled $22.7 million at June 30, 2001
compared to $24.8 million at December 31, 2000. Working capital at June 30,
2001 was $18.8 million compared to $17.5 million at December 31, 2000. The
reduction in cash and cash equivalents during the year was due mainly to
amounts paid under the LMI purchase agreement and cash used to purchase 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.

On May 16, 2000, the Company entered into a two-year, $10 million revolving
credit agreement with Mellon Bank, N.A. No borrowings were outstanding under
the credit facility at June 30, 2001. 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 secured by
substantially all of the Companys tangible and intangible
assets and requires the Company to maintain an aggregate of $5
million in a certificate of deposit as collateral with the bank.
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
April 2002.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires
companies to record derivatives on their balance sheets as assets or
liabilities, measured at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of derivatives are to be reported in the
statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The Company adopted
SFAS No. 133 in the first quarter of 2001. To date, the Company has not engaged
in any hedging activity. Application of SFAS No. 133 did not have an impact on
the Companys financial reporting.

In June 2001, the FASB issued SFAS No. 141, Business Combinations, which
establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. Use of
the pooling-of-interest method will be prohibited. This new standard is effective
for business combinations completed 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 will continue to be amortized over their useful lives and are
subject to impairment testing in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Company is required to
adopt SFAS No. 142 in the first quarter of 2002, however,
goodwill and intangible assets acquired after June 30, 2001, will be
subject to the amortization provisions of SFAS No. 142.



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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.

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 timing and amount of revenue that may be
recognized by the Company, continuation of current expense trends, absence of
unforeseen changes in the Companys markets, continued 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, the ability to
timely complete the development of new products and services at reasonable
cost, customer acceptance of new products and services and general changes in
the economy. These factors of risk are also detailed 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, 2000
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

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, market risk and reinvestment
risk by depositing its cash and cash equivalents in major financial
institutions.



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PART II  Other Information




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

The Annual Meeting of Stockholders of Elite Information Group, Inc., was held
on May 8, 2001. The matters voted on and the number of votes cast for, against
or withheld, as well as the number of abstentions as to each such matter, were
as follows:



| | 1. |  | David A. Finley and William G. Seymour were elected at the
annual meeting as Class II directors. Listed below are the names of
the two nominees elected to serve as directors and the four other
continuing directors:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                    |  |                    
|-------------------- |  | ------------------ |  | -------------------
|Class I              |  | Class II           |  | Class III          
|                     |  |                    |  |                    
|Christopher K. Poole |  | David A. Finley    |  | Alan Rich          
|                    
|                    
|                    
|                    
|Roger Noall          |  | William G. Seymour |  | Arthur G. Epker III



| |                                                                             
| | ----------------------------------------------------------------------------
| | The following is a separate tabulation with respect to each nominee elected:

|                   |            |           |  |         
|------------------ | ---------- | --------- |  | --------
|                   | Against or
|                   |            | For       |  | Withheld
|                   |            |           |  |         
|David A. Finley    |            | 5,817,929 |  | 972,864 
|                  
|                  
|                  
|                  
|William G. Seymour |            | 5,818,165 |  | 972,628 



| | 2. |  | With respect to the proposal to ratify the selection of
PricewaterhouseCoopers LLP as the independent public accountants,
6,568,293 shares were voted for, 172,500 were voted against and there
were 50,000 abstentions.
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits:

| |             |  |                                   |  | 
| | ----------- |  | --------------------------------- |  | 
| | Exhibit No. |  | Description                      
| |             |  |                                  
| | 11          |  | Computation of earnings per share

(b)  Reports on Form 8-K:

None.



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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: August 13, 2001 | By:                                                                  | /s/   Barry D. Emerson
|                      |                                                                     
|                      | Barry D. Emerson, Vice President,
Treasurer, Chief Financial Officer



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