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SECURITIES AND EXCHANGE COMMISSION

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 December 31, 2002

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: 000-24193

ATLANTIC DATA SERVICES, INC.

One Batterymarch Park
Quincy, Massachusetts 02169
(Address of Principal Executive Offices) (Zip Code)

(617) 770 – 3333
(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 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 [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [ X ]

As of February 1, 2003, there were 13,088,245 shares of the Registrant’s Common Stock, $.01 par value per share, outstanding.

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ATLANTIC DATA SERVICES, INC.

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PART I

ITEM 1: FINANCIAL STATEMENTS

ATLANTIC DATA SERVICES, INC.

See accompanying Notes to Condensed Consolidated Financial Statements.

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ATLANTIC DATA SERVICES, INC.

See accompanying Notes to Condensed Consolidated Financial Statements.

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ATLANTIC DATA SERVICES, INC.

See accompanying Notes to Condensed Consolidated Financial Statements.

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ATLANTIC DATA SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Atlantic Data Services, Inc. (the “Company”) 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, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 2002 are not necessarily indicative of the results that may be expected for future periods of the full fiscal year. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2002.

The balance sheet at March 31, 2002 has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

2.     Summary of Significant Accounting Policies

Revenue Recognition

The Company primarily derives its revenue from consulting services under time and material billing arrangements. Under these arrangements, revenue is recognized as the services are provided. Deferred revenue pertains to time and material billing arrangements and represents cash collected in advance of the performance of services.

An asset, “Costs and estimated earnings in excess of billings on contracts,” would represent revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings,” represents billings in excess of revenues recognized.

Included in revenues are reimbursable contract-related travel and entertainment expenses of $552,000 and $707,000 for the quarters ended December 31, 2002 and 2001, respectively, and $2,165,000 and $2,236,000 for the nine months ended December 31, 2002 and 2001, respectively, which are separately billed to clients.

Earnings Per Share

The Company follows Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). SFAS 128 requires the presentation of two amounts, basic earnings per share and diluted earnings per share.

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Short-Term Investments

Short-term investments consist primarily of high-grade commercial paper, municipal bonds and corporate debt with original maturities at the date of purchase greater than three months and less than twelve months. All short-term investments have been classified as held to maturity and are carried at amortized cost, which approximates fair value, due to the short period of time to maturity.

3.     Earnings Per Share

The following table sets forth the computation of basic earnings per share and diluted earnings per share for the three months ended December 31, 2002 and 2001:

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The following table sets forth the computation of basic earnings per share and diluted earnings per share for the nine months ended December 31, 2002 and 2001:

In addition, as of December 31, 2002 there were options outstanding to purchase 949,250 shares that are potentially anti-dilutive.

4.     Major Customers

The nature of the Company’s services results in the Company deriving significant amounts of revenue from certain customers in a particular period. For the quarter ended December 31, 2002, three customers accounted for 39.7%, 24.8% and 12.8% of the Company’s revenues. For the quarter ended December 31, 2001, three customers accounted for 29.9%, 24.8% and 13.9% of the Company’s revenues.

5.     Income Taxes

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has established a valuation allowance for certain of such assets, which are comprised principally of net operating loss carryforwards and various accruals.

For the quarter ended December 31, 2002, the Company established a provision for taxes due to its profitability. However, the Company did not adjust its deferred tax assets due to the uncertainty of profitability in future quarters. Also, for the year ended March 31, 2002, the Company reclassified $1,020,000 of tax receivable to deferred tax assets as a result of a reconciliation to its tax returns for fiscal year 2002 that was prepared during the quarter ended September 30, 2002.

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6.     Recently Issued Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which became effective January 1, 2002. SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions relating to the disposal of a segment of a business described in Accounting Principals Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB No. 30”). The Company adopted SFAS 144 as of April 1, 2002. The adoption had no material impact on the Company’s financial statements.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. This statement is effective for financial statements issued for fiscal years beginning after December 31, 2002. We do not expect the adoption of this statement to have a material impact to the financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123” (“SFAS 148”). SFAS 148 was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to FAS 123 in paragraphs 2(a)-2(e) of this statement shall be effective for financial statements for fiscal years ending after December 15, 2002.

7.     Business Combinations/Disposition

On June 29, 2001, the Company acquired substantially all of the assets (including the intangibles and goodwill) of Cool Springs Associates, Inc. d/b/a EarningsInsights (“EarningsInsights”) for $2,000,000 in cash and warrants to purchase 300,000 shares of the Company’s common stock, valued at approximately $637,000. In addition, the Company had agreed to make additional cash payments to the shareholders of EarningsInsights based on the net income realized by the Company attributable to the operation of the business of EarningsInsights. EarningsInsights, headquartered in Nashville, Tennessee, was a private company that implemented customer profitability methodologies exclusively licensed to it by First Manhattan Consulting Group, Inc. and incorporated these methodologies into an application service provider-delivered Customer Relationship Management (“CRM”) profitability model offered primarily to mid-tier financial institutions and small banks.

On March 29, 2002, the Company announced its decision to discontinue the operations of EarningsInsights. Accordingly, the Company will not be required to make any additional cash payments to the shareholders of EarningsInsights.

The acquisition was accounted for under the purchase method and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value at June 29, 2001, as follows (in thousands):

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The purchase price was comprised of the following (in thousands):

The unaudited pro forma consolidated information for the nine months ended December 31, 2001, determined as if the EarningsInsights acquisition had occurred on April 1 for that period would have resulted in the following (in thousands, except per share data):

The unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company and the acquired company been combined during the specified period.

On March 29, 2002, the Company announced its decision to discontinue the operations of EarningsInsights. Consequently, the Company incurred a charge of $1.9 million, net of income tax benefit, relating to the write-off of EarningsInsights long-lived assets and an accrual for estimated losses during the phase-out period. The disposition of the EarningsInsights operation represents the disposal of a business segment under APB No. 30.

The discontinuation of the operations of EarningsInsights resulted in the termination of four employees. Revenue relating to the discontinued business was $90,000 during fiscal 2002. All long-lived assets were written off except for various computer equipment, which was appraised and written down to its estimated net realizable value.

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ATLANTIC DATA SERVICES, INC.

FORWARD LOOKING STATEMENTS

This Report includes forward-looking statements, which are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements when you see us using words such as “expect,” “anticipate,” “believe,” “intend,” “may,” “predict,” “will be,” and other similar expressions. These forward-looking statements cover, among other items: events, conditions and financial trends that may affect our future plans of operation, business strategy, growth of operations and financial position, including statements regarding revenue, profitability, earnings or loss per share projections, fiscal 2003 capital expenditures and sufficiency of cash to fund working capital and capital expenditure requirements. Any forward-looking statements are not guarantees of future performance and actual results could differ materially from those anticipated as a result of certain risks and uncertainties, some of which are beyond our control. These risks and uncertainties include, among others: variability of our quarterly operating results due to, among other things, the number, size and scope of customer projects commenced and completed during a quarter, changes in employee utilization rates and changes in average billing rates; our dependence on the financial services industry; general economic uncertainty; concentration of revenues and our dependence on major customers; risks associated with fixed price contracts; our dependence on key personnel; intense competition in the IT consulting industry; and risks associated with potential acquisitions. Because of these risks and uncertainties, the forward-looking events discussed in this Report might not transpire.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We provide information technology (“IT”) strategy consulting and systems integration services to the financial services industry. We offer rapid, cost-effective IT solutions to the business challenges faced by financial services companies through our in-depth financial services experience, technological expertise and project management skills.

Our revenues are derived primarily from professional fees billed to customers on a time and materials basis, or, in certain instances, on a fixed price basis. Included in revenues are reimbursable contract-related travel and entertainment expenses, which are separately billed to customers. Substantially all of our contracts, other than fixed price contracts, are terminable by the customer following limited notice and without significant penalty to the customer. Revenues from fixed price contracts represented approximately 0.0% and 0.8% of our revenues for the quarters ended December 31, 2002 and 2001, respectively.

We have derived, and expect to continue to derive, a significant portion of our revenues from a relatively limited number of customers. Revenues from our five largest customers for the quarters ended December 31, 2002 and 2001 were 91.0% and 82.3%, respectively, as a percentage of revenues. For the quarter ended December 31, 2002, Zions Bancorporation, Citizens Financial Corporation, FleetBoston Financial Corporation, IntraNet, Inc., a TSA Company, and Capital One Services, Inc. accounted for approximately 39.7%, 24.8%, 12.8%, 9.0% and 4.7%, respectively, of revenues. For the quarter ended December 31, 2001, Citizens Financial Corporation, Zions Bancorporation, FleetBoston Financial Corporation, IntraNet, Inc., a TSA Company and National City Corporation accounted for approximately 29.9%, 24.8%, 13.9%, 8.1% and 5.6%, respectively, of revenues.

Cost of revenues consists primarily of salaries and employee benefits for personnel dedicated to customer assignments, fees paid to subcontractors for work performed in connection with customer assignments, and

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reimbursable contract-related travel and entertainment expenses incurred by us in connection with the delivery of our services.

Sales and marketing expenses consist primarily of salaries, employee benefits, travel expenses and promotional costs. General and administrative expenses consist primarily of expenses associated with our management, finance and administrative groups, including recruiting, training, depreciation and amortization and occupancy costs.

Outlook

With respect to our earnings projections for the future, because of the continuing unstable economic and geopolitical climate we continue to be cautious about our outlook for the next quarter and are currently estimating our fourth quarter revenues will be in the $4.7 million to $5.0 million range, with net income in the range of $.01 to $.03 per share.

Variability of Quarterly Operating Results

Variations in our revenues and operating results have occurred from quarter to quarter and may continue to occur as a result of a number of factors. Quarterly revenues and operating results can depend on:

	•		the number, size and scope of customer projects commenced and completed during a quarter,
	•		changes in employee utilization rates,
	•		changes in average billing rates,
	•		the number of working days in a quarter,
	•		the timing of introduction of new service offerings, both by us and our competitors,
	•		changes in pricing, both by us and our competitors,
	•		loss of a significant customer,
	•		increased competition from our competitors,
	•		loss of key personnel,
	•		other factors that adversely impact the financial services industry,
	•		general economic conditions,
	•		potential acquisitions and our ability to successfully integrate the acquired business or technologies into our existing business and operations, and
	•		our ability to develop and introduce new service offerings, improve existing service offerings and develop and maintain the skills necessary to keep pace with changing technologies.

The timing of revenues is difficult to forecast because our sales cycle is relatively long, ranging from one to six months for new projects with existing customers and three to six months for new customers, and may depend on factors such as the size and scope of projects or other factors that adversely impact the financial services industry and general economic conditions. In addition, the relatively long length of our sales cycle may negatively impact the operating results for any particular quarter as a result of increased sales and marketing expenses without associated increases in revenues in the particular quarter. Furthermore, many of our projects are, and may be in the future, terminable without customer penalty. An unanticipated termination of a major project or loss of a major customer could require us to maintain or terminate underutilized employees, resulting in a higher than expected number of unassigned persons or higher than expected severance expenses.

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Quarter Ended December 31, 2002 Compared to the Quarter Ended December 31, 2001

Revenues

Revenues decreased 15.5% for the quarter ended December 31, 2002 over the quarter ended December 31, 2001, from $4.9 million to $4.2 million. This decrease was predominately due to a 7.0% decrease in the volume of services delivered to customers due to the continued IT spending freeze in the U.S., a 4.0% decrease in the average billing rate, as well as a decrease in the amount of revenue from contract-related travel and entertainment expenses as a percentage of total revenue to 13.2% from 14.3% for the quarter ended December 31, 2001.

Cost of Revenues

Cost of revenues decreased 18.6% to $2.5 million from $3.1 million for the quarter ended December 31, 2002 compared to the quarter ended December 31, 2001, representing 60.3% and 62.6%, respectively, of revenues in each quarter. The dollar decrease in cost of revenues was primarily due to a decrease in the average number of billable personnel from 90 for the quarter ended December 31, 2001 to 70 for the quarter ended December 31, 2002. The percentage decrease was due to an increase in the utilization rate from 63.0% for the quarter ended December 31, 2001 to 71.0% for the quarter ended December 31, 2002, offset in part by the aforementioned rate decrease.

Sales and Marketing

Sales and marketing expenses were $.4 million for the quarter ended December 31, 2002 and $.8 million for the quarter ended December 31, 2001, representing 9.4% and 15.2% of revenues, respectively. The dollar decrease resulted primarily from a decrease in the average number of employees in our sales and marketing group from 14 for the quarter ended December 31, 2001 to 9 for the quarter ended December 31, 2002.

General and Administrative

General and administrative expenses increased 13.5% to $1.2 million from $1.1 million for the quarter ended December 31, 2002 compared to the quarter ended December 31, 2001, representing 29.0% and 21.6% of revenues, respectively. The dollar increase is due to an increase in payroll, taxes and benefits expense resulting from increased headcount. The increase in expenses as a percentage of revenue is due to the increase in expenses, as well as the 15.5% decrease in revenues on which the percentage is calculated.

Interest Income, Net

Interest income, net decreased $31,000 from $198,000 for the quarter ended December 31, 2001 to $167,000 for the quarter ended December 31, 2002. This decrease was principally due to interest rate decreases. Interest expense is immaterial.

Provision for Income Taxes

The provision for income taxes for the quarter ended December 31, 2002 was $85,000 compared to $0 for the quarter ended December 31, 2001. A provision was established due to profitability. However, deferred tax assets were not adjusted due to the uncertainty of profitability in future quarters. There was no tax provision in the prior year’s quarter due to the significant year-to-date operating loss. Due to varying state and local statutory income tax rates and depending on our levels of profitability, our effective tax rate may vary from period to period depending on the states in which we do business.

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Discontinued Operations

On March 29, 2002, the Company announced its decision to discontinue the operations of EarningsInsights (“EI”). The disposition of EI’s operations represents the disposal of a business segment under Accounting Principals Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (“APB No. 30”). The quarterly financial information for the three months ended December 31, 2001 have been restated to give retroactive effect to that disposition.

Nine Months Ended December 31, 2002 Compared to the Nine Months Ended December 31, 2001

Revenues

Revenues increased 16.1% for the nine months ended December 31, 2002 over the nine months ended December 31, 2001, from $14.6 million to $17.0 million. This increase was predominately due to expanded project activity at existing customers resulting in a 23.7% increase in the volume of services delivered to customers, offset in part by a decrease in the amount of revenue from reimbursable contract-related travel and entertainment expenses as a percentage of total revenue to 12.7% for the nine months ended December 31, 2002 from 15.3% for the nine months ended December 31, 2001 and a 2.0% decrease in the average billing rate from $138 for the nine months ended December 31, 2001 to $135 for the nine months ended December 31, 2002.

Cost of Revenues

Cost of revenues decreased 8.3% to $9.4 million from $10.3 million for the nine months ended December 31, 2002 compared to the nine months ended December 31, 2001, representing 55.5% and 70.2%, respectively, of revenues in each period. The dollar decrease is principally due to a decrease in the average number of billable people from 86 for the nine months ended December 31, 2001 to 75 for the nine months ended December 31, 2002, offset by increases in other expenses. The decrease in cost of revenues as a percentage of revenues is due to the aforementioned increase in the volume of services delivered to customers, which resulted in an increase in the utilization rate from 65.0% to 87.0%, and because a greater percentage of revenue was professional services which has a higher margin than revenue from reimbursable contract-related travel and entertainment expenses.

Sales and Marketing

Sales and marketing expenses were $1.3 million for the nine months ended December 31, 2002 and $2.5 million for the nine months ended December 31, 2001, representing 7.4% and 17.4% of revenues, respectively. The dollar decrease resulted primarily from a decrease in the average number of employees in our sales and marketing group from 17 for the nine months ended December 31, 2001 to 8 for the nine months ended December 31, 2002. The decrease in sales and marketing expense as a percentage of revenues to 7.4% from 17.4% for the corresponding period of the prior fiscal year is due to the increase in revenue, as well as the decrease in expenses.

General and Administrative

General and administrative expenses decreased 6.0% to $3.8 million from $4.0 million for the nine months ended December 31, 2002 compared to the nine months ended December 31, 2001, representing 22.3% and 27.5% of revenues, respectively. The dollar decrease is primarily due to decreases in depreciation and amortization expense, as well as bad debt expense. The decrease in general and administrative expense as a percentage of revenues is due to the decrease in expense as well as the increase in revenue compared to the corresponding period of the prior fiscal year.

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Interest Income, Net

Interest income, net decreased $345,000 from $869,000 for the nine months ended December 31, 2001 to $524,000 for the nine months ended December 31, 2002. This decrease was principally due to interest rate decreases. Interest expense is immaterial.

Provision for Income Taxes

The provision for income taxes increased $745,000 to $1.1 million from $386,000 for the nine months ended December 31, 2002 compared to the nine months ended December 31, 2001 because of the increased levels of profitability. Deferred tax assets were not adjusted due to the uncertainty of profitability in future quarters. We had a provision for income taxes for the nine months ended December 31, 2001, even though we had a loss before taxes because we established a partial valuation allowance for our deferred tax assets that may not be realized in the foreseeable future. Our effective tax rate may vary from period to period depending on the states in which we do business, due to varying state and local statutory income tax rates and depending on our levels of profitability.

Discontinued Operations

On March 29, 2002, the Company announced its decision to discontinue the operations of EarningsInsights (“EI”). The disposition of EI’s operations represents the disposal of a business segment under APB No. 30. The quarterly financial information for the nine months ended December 31, 2001 have been restated to give retroactive effect to that disposition.

Liquidity and Capital Resources

We have no long-term debt and continue to operate primarily debt-free. Working capital was $37.3 million at December 31, 2002. Our days sales in accounts receivable at December 31, 2002 was 34 days compared to 27 days at December 31, 2001. While we believe that the risk with respect to collection of accounts receivable is minimized by the creditworthiness of our customers, which are primarily banks and other financial institutions, and of our credit and collection policies, there can be no assurance that we will not encounter collection problems in the future. We attempt to further minimize this risk by performing ongoing credit valuations of our customers and maintaining an allowance for potential credit losses. We believe that our allowance for doubtful accounts and collection policies are adequate.

Capital expenditures for the remainder of fiscal 2003 are not expected to exceed $50,000 and will be used principally for computers and other equipment.

We expect that existing cash and cash equivalent balances, together with cash which may be provided from operations, will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months.

To date, inflation has not had a material impact on our financial results.

Recently Issued Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which became effective January 1, 2002. SFAS 144 supersedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions relating to the disposal of a segment of a business described in APB No. 30. The Company adopted SFAS 144 as of April 1, 2002. The adoption had no material impact on our financial statements.

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In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred. This statement is effective for financial statements issued for fiscal years beginning after December 31, 2002. We do not expect the adoption of this statement to have a material impact to the financial statements.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123” (“SFAS 148”). SFAS 148 was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of FAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to FAS 123 in paragraphs 2(a)-2(e) of this statement shall be effective for financial statements for fiscal years ending after December 15, 2002.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates due to investments in instruments made for non-trading purposes. The interest rate risk relates primarily to our portfolio of short-term investment grade securities. As of December 31, 2002 we did not, nor do we intend to, use derivative financial instruments for speculative trading purposes.

The majority of our sales are denominated in U.S. dollars and take place in North America.

We believe that interest rate risk and foreign currency exchange rate risks are both immaterial to us.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of members of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15 d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this quarterly report. Based on that evaluation, members of our management, including our Chief Executive Officer and our Chief Financial Officer, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in enabling us to record, process, summarize and report the information required to be included in this quarterly report within the required time period.

Changes in Internal Controls

There have been no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

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PART II

OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

(b)

Reports on Form 8-K

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ATLANTIC DATA SERVICES, INC.

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CERTIFICATIONS

I, Robert W. Howe, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Atlantic Data Services, Inc.;

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 officers 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 we 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 officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of 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 officers 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: February 12, 2003

By: /s/ Robert W. Howe Robert W. Howe Chairman and Chief Executive Officer

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CERTIFICATIONS
(continued)

I, Paul K. McGrath, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Atlantic Data Services, Inc.;

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 officers 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 we 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 officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of 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 officers 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: February 12, 2003

By: /s/ Paul K. McGrath Paul K. McGrath Senior Vice President and Chief Financial  Officer (Principal Financial and Accounting  Officer)

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Table of Contents

EXHIBIT INDEX

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