SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

Securities Exchange Act of 1934

Group 1 Software, Inc.

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

Telephone Number: (301) 918-0400

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES    |X|     NO |_|

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

See notes to consolidated financial statements.

2

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

See notes to consolidated financial statements.

3

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

See notes to consolidated financial statements.

4

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

See notes to consolidated financial statements.

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

1.     The consolidated financial statements for the three and six months ended September 30, 2002 and 2001 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a recurring nature in the normal course of business. Limited footnote information is presented in accordance with quarterly reporting requirements. The results of operations for the three months ended September 30, 2002 are not necessarily indicative of the results for the year ending March 31, 2003. The information contained in the annual report on the Form 10-K for the year ended March 31, 2002, should be referred to in connection with the unaudited interim financial information.

2.     On November 5, 2002, the Board of Directors declared a two-for-one common stock split for stockholders of record as of November 15, 2002. There was no change in the par value of the stock as a result of the split. The additional shares will be issued on or about December 2, 2002. Common stock shares outstanding, giving retroactive effect to the stock split, at September 30, 2002 and March 31, 2002 are 14,300,000 and 13,836,000, respectively (unaudited). Pro forma earnings per common share, giving retroactive effect to the stock split, are as follows (shares in thousands):

3.     Certain prior period amounts have been reclassified to conform to current period presentation. In accordance with Emerging Issues Task Force Issue No. 01-14, service revenue and service cost of revenue were each increased $126,000 and $249,000 in the three and six months ended September 30, 2001, respectively.

4.     Research and development expense, before the capitalization of computer software development costs, was $4,675,000 and $4,505,000 for the three months ended September 30, 2002 and 2001, respectively. Capitalization of computer software development costs for the three months ended September 30, 2002 and 2001 were $1,863,000 and $1,814,000, respectively. Research and development expense, before the capitalization of computer software development costs, was $9,260,000 and $8,752,000 for the six months ended September 30, 2002 and 2001, respectively. Capitalization of computer software development costs for the six months ended September 30, 2002 and 2001 were $3,706,000 and $3,660,000, respectively.

5.     Earnings per share

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

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

There were 757,000 and 886,000 additional potentially dilutive common stock options and warrants in the three months ended September 30, 2002 and 2001, respectively and 763,000 and 976,000 additional potentially dilutive common stock options and warrants in the six months ended September 30, 2002 and 2001, respectively. There were additional potentially dilutive convertible securities of 71,000 in the three and six months ended September 30, 2001. These potentially dilutive common stock options and warrants and convertible securities were not included in the earnings per share calculation due to their anti-dilutive effect.

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

In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds FAS 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of that Statement, FAS 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”, and FAS 44, “Accounting for Intangible Assets of Motor Carriers”. SFAS 145 also amends FAS 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement additionally amends other existing authoritative pronouncements to make various technical corrections, clarify earnings, or describe their applicability under changed conditions. SFAS 145 is effective for fiscal years beginning after May 15, 2002 for FASB Statements No. 4, 44 and 64 and effective for transactions that occurred after May 15, 2002 for FASB Statement No. 13. Early application is encouraged. The adoption of this Statement is not expected to have a significant impact on the Company’s financial position and results of operations.

In August 2002, the FASB issued SFAS 146 “Accounting for Costs Associated with Exit or Disposal Activities”. It addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (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)”. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and establishes that fair value is the objective for initial measurement of the liability. Under Issue 94-3, a liability for an exit cost, as defined in Issue 94-3, was recognized at the date of an entity’s commitment to an exit plan. The new standard is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company does not believe that SFAS 146 will have a material effect on the Company’s financial position or results of operations.

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7. Legal Contingencies

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

8. Segment Information

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