UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

¨	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 0-21958

QRS Corporation

(Exact name of registrant as specified in its charter)

Delaware

68-0102251

(State of incorporation)

(I.R.S. Employer

Identification No.)

1400 Marina Way South, Richmond, CA 94804

(Address of principal executive offices, including zip code)

(510) 215-5000

(Registrant’s phone 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 Act). Yes x No ¨

As of August 2, 2004, 15,948,007 shares of the issuer’s common stock, par value $.001 per share, were outstanding.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a number of risks and uncertainties. All statements that are not historical facts are forward-looking statements, including statements regarding our business strategy, future operations, future financial position, estimated revenues or earnings (losses), projected costs, prospects, plans and objectives. These statements appear in a number of places and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.

Actual results may vary materially from those in the forward-looking statements as a result of various factors that are identified in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document. These factors include: general economic and business conditions; specific conditions in the retail industry; competition; changes in senior management; rapid technological change in our industry; dependence upon key customers and their trading partners; ability to introduce and market acceptance of new products and services; the ability to successfully integrate and manage acquired businesses and technologies; customers’ willingness to purchase products or services offered through or in conjunction with third parties; customers’ reluctance to purchase products or services due to the announcement of the signing of the merger agreement with JDA Software Group, Inc. (“JDA”); diversion of management’s attention to effectuating the merger with JDA and planning the integration of QRS’ business with JDA; loss of or harm to the Company’s relationships with employees due to the Company’s pending merger with JDA; costs related to the merger and the integration of acquired products, technologies and employees into JDA’s business and product offerings; dependence upon IBM for electronic commerce service; dependence on third parties for licenses to technology that is integrated into certain products and services offered by us; and the ability to protect our proprietary technology and information.

No assurance can be given that the factors described above and contained elsewhere in this Quarterly Report on Form 10-Q are all of the factors that could cause actual results to vary materially from the forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We assume no obligation to update any forward-looking statements.

CAUTION REQUIRED BY CERTAIN SEC RULES

In connection with the proposed merger of JDA and QRS, JDA has filed a registration statement on Form S-4, which includes a prospectus of JDA and a joint proxy statement for each of JDA’s and QRS’ special stockholder meetings, with the Securities and Exchange Commission (“SEC”). Investors and security holders are advised to read the registration statement, prospectus and joint proxy statement because they contain important information about the proposed merger. Investors and security holders may obtain a free copy of the registration statement, prospectus and joint proxy statement and other documents filed by JDA and QRS with the SEC at the SEC’s website at http:/www.sec.gov. Free copies of the registration statement, prospectus and joint proxy statement and other documents filed by QRS with the SEC may also be obtained from QRS directing a request to QRS, attention: Stacey Giamalis, Corporate Secretary, 510.215.5000.

QRS and its directors and its executive officers may be deemed, under SEC rules, to be soliciting proxies from QRS’ and JDA’s stockholders in favor of the proposed merger. Information regarding the identity of these persons, and their interests in the solicitation, is set forth in a Schedule 14A filed with the SEC, as well as the Form S-4, and available free of charge at the SEC website and public reference rooms, and from the QRS corporate secretary.

QRS CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	1

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2004 and 2003	2

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26

Item 4.	Controls and Procedures	26

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	27

Item 2.	Changes in Securities and Use of Proceeds	27

Item 3.	Defaults upon Senior Securities	27

Item 4.	Submission of Matters to a Vote of Security Holders	27

Item 5.	Other Information	27

Item 6.	Exhibits and Reports on Form 8-K	27

	SIGNATURE	29

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

QRS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2004 AND DECEMBER 31, 2003

(In thousands, except share and per share amounts)

(Unaudited)


	June 30, 2004			December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	30,913		$	31,419
Marketable securities available-for-sale		2,006			5,203
Accounts receivable—net of allowance for doubtful accounts of $728 at June 30, 2004 and $698 at December 31, 2003		15,331			15,426
Prepaid expenses and other		1,709			2,730

Total current assets		49,959			54,778

Property and equipment:
Furniture and fixtures		2,129			2,109
Equipment		17,837			16,489
Leasehold improvements		2,285			2,128

		22,251			20,726
Less accumulated depreciation and amortization		(15,463	)		(13,045	)

Total property and equipment		6,788			7,681

Restricted cash		3,560			—
Marketable securities available-for-sale		252			1,500
Capitalized service and product development costs—net of accumulated amortization of $9,663 at June 30, 2004 and $8,407 at December 31, 2003		7,930			6,206
Goodwill		830			830
Intangible assets		318			504
Other assets		1,682			1,280

Total assets	$	71,319		$	72,779

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,600		$	6,586
Accrued compensation		3,534			4,424
Accrued vacation		2,240			2,155
Deferred acquisition payment		—			2,500
Deferred revenue		2,024			2,733
Current portion of sublease loss accruals related to business restructuring		2,928			3,142
Other accrued liabilities		2,703			2,562
Current portion of note payable		—			284

Total current liabilities		21,029			24,386
Sublease loss accruals related to business restructuring		6,949			7,884
Deferred rent and other		1,419			2,036

Total liabilities		29,397			34,306

Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock: $.001 par value; 10,000,000 shares authorized; none issued and outstanding		—			—
Common stock: $.001 par value; 60,000,000 shares authorized; 16,174,968 shares issued and 15,941,237 shares outstanding at June 30, 2004 and 16,154,468 shares issued and 15,920,737 shares outstanding at December 31, 2003		255,547			254,973
Deferred compensation		(2,202	)		(2,225	)
Treasury stock: 233,731 shares at June 30, 2004 and December 31, 2003		(5,557	)		(5,557	)
Accumulated other comprehensive earnings (loss):
Unrealized gain on marketable securities available-for-sale		47			10
Cumulative translation adjustment		(259	)		(193	)
Accumulated deficit		(205,654	)		(208,535	)

Total stockholders’ equity		41,922			38,473

Total liabilities and stockholders’ equity	$	71,319		$	72,779

See Notes to Condensed Consolidated Financial Statements

QRS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Revenue:
Software applications	$	8,318		$	8,329		$	16,520		$	16,470
Trading community management		14,832			16,336			30,964			33,002
Global services		6,054			5,905			12,226			11,901

Total revenue		29,204			30,570			59,710			61,373

Cost of revenue:
Software applications		2,193			2,157			4,282			4,444
Trading community management		7,472			8,050			15,442			16,107
Global services		5,178			5,178			10,573			10,489

Total cost of revenue		14,843			15,385			30,297			31,040

Gross profit		14,361			15,185			29,413			30,333

Operating expenses:
Sales and marketing		5,060			5,013			11,332			10,800
Service and product development		2,701			3,161			5,876			6,158
General and administrative		5,033			4,370			9,851			9,142
Settlement of deferred acquisition payment		—			—			(600	)		—
Amortization of other intangible assets		93			839			186			1,688

Total operating expenses		12,887			13,383			26,645			27,788

Operating income		1,474			1,802			2,768			2,545
Interest income		99			109			177			226
Interest expense		(4	)		(36	)		(17	)		(76	)

Income from operations before income taxes		1,569			1,875			2,928			2,695
Income tax expense		27			48			47			48

Net income	$	1,542		$	1,827		$	2,881		$	2,647

Other comprehensive income:
Unrealized gain (loss) on marketable securities available-for-sale, net of tax		(15	)		(9	)		37			(5	)
Change in cumulative translation adjustment		(45	)		19			(66	)		(15	)

Total comprehensive income	$	1,482		$	1,837		$	2,852		$	2,627

Basic net income per share	$	0.10		$	0.12		$	0.18		$	0.17

Shares used to compute basic net income per share		15,936			15,829			15,932			15,815

Diluted net income per share	$	0.09		$	0.12		$	0.17		$	0.17

Shares used to compute diluted net income per share		16,358			15,885			16,473			15,858

See Notes to Condensed Consolidated Financial Statements.

QRS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	2,881		$	2,647
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment		2,418			2,304
Amortization of capitalized service and product development costs		1,256			587
Amortization of software licenses and other		43			714
Amortization of other intangible assets		186			1,688
Stock-based compensation		532			83
Provision for allowance for doubtful accounts		247			151
Settlement of deferred acquisition payment		(600	)		—
Changes in assets and liabilities:
Accounts receivable		(152	)		(785	)
Prepaid expenses and other		1,021			(252	)
Other assets		73			—
Accounts payable		812			(2,209	)
Accrued compensation		(890	)		(1,839	)
Accrued vacation		85			234
Deferred acquisition payment		(1,900	)		—
Deferred revenue		(709	)		733
Sublease loss accruals related to business restructuring		(1,149	)		(1,415	)
Other accrued liabilities		397			(1,399	)
Deferred rent and other		(555	)		103

Net cash provided by operating activities		3,996			1,345

Cash flows from investing activities:
Restricted cash		(3,560	)		—
Sales and maturities of marketable securities available-for-sale		4,482			3,162
Purchases of marketable securities available-for-sale		—			(8,146	)
Purchases of property and equipment		(1,525	)		(1,781	)
Capitalization of service and product development costs		(2,980	)		(2,819	)
Purchase of licensed technology		(518	)		—
Other assets		—			532

Net cash used in investing activities		(4,101	)		(9,052	)

Cash flows from financing activities:
Proceeds from employee stock purchase plan		49			176
Exercise of stock options		16			2
Repurchase of common stock		—			(8	)
Payments on note payable		(288	)		(528	)
Payments on capital lease obligations		(112	)		(99	)

Net cash used in financing activities		(335	)		(457	)

Effect of exchange rate on cash and cash equivalents		(66	)		(16	)

Net decrease in cash and cash equivalents		(506	)		(8,180	)
Cash and cash equivalents at beginning of period		31,419			35,358

Cash and cash equivalents at end of period	$	30,913		$	27,178

Cash paid for:
Taxes	$	97		$	76
Interest	$	14		$	64
Noncash investing and financing activities:
Property and equipment acquired through capital lease	$	—		$	419
Fair value of restricted stock awarded	$	468		$	210

See Notes to Condensed Consolidated Financial Statements

QRS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. GENERAL

QRS Corporation (“QRS,” the “Company,” “we” or “us”) is a technology company that serves the global retail trading community with collaborative commerce solutions. We manage the flow of critical commerce information and leverage our retail technology expertise to address fundamental industry challenges such as global data synchronization, compliance mandates, transaction management and global trade management. Our solutions help customers expand into new markets and channels, improve operational efficiency and differentiate their brand. Currently we have approximately 9,800 customers, as measured by the number of total, unique corporate customers that purchased or licensed our products and services between July 1, 2003 and June 30, 2004.

We have prepared the Condensed Consolidated Balance Sheet as of June 30, 2004, the Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2004 and 2003, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2004 and 2003, without audit. In the opinion and to the knowledge of management, all adjustments necessary to present fairly the financial position, results of operations and cash flows at June 30, 2004 and for all periods presented have been made in accordance with generally accepted accounting principles. The Condensed Consolidated Balance Sheet as of December 31, 2003 is derived from our audited consolidated financial statements as of that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by regulations of the Securities and Exchange Commission. These interim Condensed Consolidated Financial Statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission on March 15, 2004.

The preparation of our Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenue and expenses for the periods presented. Actual amounts may differ from such estimates.

Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the operating results anticipated for any other interim period or for the full year.

Recent Accounting Pronouncements

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities that possess certain characteristics. FIN 46 requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the Consolidated Financial Statements with those of the business enterprise. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. We do not have any interest in any variable interest entities as of June 30, 2004. We will apply the consolidation requirement of FIN 46 in future periods if we should have any interest in any variable interest entity.

In May 2003, the FASB issued FAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” FAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation (or right) of the issuer. It is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance date of FAS 150 and still existing at the beginning of the interim period of adoption. We do not have any financial instruments with characteristics of both liabilities and equity as of June 30, 2004. The FASB has deferred the effective date of paragraphs 9, 10 and 22 of FAS 150. During 2003, we adopted all other provisions of FAS 150 and the adoption had no material effect on our financial position or results of operations. We continue to evaluate the impact that adoption of paragraphs 9, 10 and 22 will have on our financial position or results of operations.

In March 2004, the Emerging Issues Task Force (EITF) reached a final consensus on Issue 03-06. Issue 03-06 addressed a number of questions regarding the computation of earnings per share (EPS) by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the Company when, and if, it declares dividends on its common stock. The issue also provides further guidance in applying the two-class method of calculating EPS. It clarifies what constitutes a participating security and how to apply the two-class method of computing EPS once it is determined that a security is participating, including how to allocate undistributed earnings to such a security. Issue 03-06 is effective for the first fiscal period beginning after its issuance. During the quarter ended June 30, 2004, we adopted Issue 03-06 and the adoption did not have any material effect on our financial position or results of operations.

On March 31, 2004, the FASB issued an exposure draft entitled “Share-Based Payment” to amend FAS 123, “Accounting for Stock-Based Compensation” and FAS 95, “Statement of Cash Flows.” This proposed standard would eliminate the ability to account for share-based compensation using the intrinsic value-based method under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This exposure draft would require us to calculate equity-based compensation expense for stock options and employee stock purchase plan rights granted to employees based on the fair value of the equity instrument at the time of grant. The equity-based compensation expense is recognized ratably over the vesting period beginning with the grant date. Currently, we disclose the pro forma net income and related pro forma earnings per share information in accordance with FAS 123 and FAS 148, “Accounting for Stock-Based Compensation Costs-Transition and Disclosure.” We continue to evaluate the impact that the exposure draft will have on our financial position or results of operations.

The following table illustrates the effect on our net income and net income per share if we would have applied the fair value recognition provisions of FAS 123 to stock-based compensation (in thousands, except per share amounts):


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net income, as reported	$	1,542		$	1,827		$	2,881		$	2,647
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		252			55			491			83
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(866	)		(702	)		(2,184	)		(2,065	)

Net income, pro forma	$	928		$	1,180		$	1,188		$	665

Basic net income per share, as reported	$	0.10		$	0.12		$	0.18		$	0.17

Basic net income per share, pro forma	$	0.06		$	0.07		$	0.07		$	0.04

Diluted net income per share, as reported	$	0.09		$	0.12		$	0.17		$	0.17

Diluted net income per share, pro forma	$	0.06		$	0.07		$	0.07		$	0.04

The weighted-average fair value of options granted were estimated on the date of grant using the multiple options method of the Black-Scholes pricing model with the following weighted-average assumptions used for grants made for the three and six months ended June 30, 2004 and 2003:


	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Weighted-average fair value of options granted	$	3.66		$	3.10		$	3.99		$	3.25
Risk-free interest rate		2.84	%		2.66	%		2.81	%		2.96	%
Expected volatility		108	%		110	%		109	%		105	%

The expected life of options granted in 2004 and 2003 is 12 to 18 months beyond each incremental vesting period (total life of 2 to 5.5 years, depending on each grant’s individual vesting schedule). No dividends are assumed for any plan in any year.

The fair value of the stock purchased under the employee stock purchase program was determined using the Black-Scholes pricing model with the following weighted-average assumptions: risk-free interest rate is 2.61%; expected volatility is 109%; expected life is 6 months. No dividends are assumed.

2. OTHER INTANGIBLE ASSETS

Other intangible assets include acquired technology with an estimated useful life of 6 years; customer lists with useful lives of 3.5 to 5 years and a weighted-average estimated useful life of 4.8 years; customer contracts with useful lives of 5 to 7 years and a weighted-average estimated useful life of 6.4 years; and non-compete agreements entered into in connection with the acquisitions of businesses with estimated useful lives of 3 years. These intangible assets continue to be amortized on a straight-line basis over their useful lives.

As of June 30, 2004, other intangible assets consisted of the following (in thousands):


	Gross		Accumulated Amortization			Net
Acquired technology	$	2,743	$	(2,721	)	$	22
Customer lists		1,552		(1,414	)		138
Customer contracts		1,480		(1,322	)		158
Non-compete agreements		1,212		(1,212	)		—

Total	$	6,987	$	(6,669	)	$	318

The estimated future amortization expense of other intangible assets as of June 30, 2004 is as follows (in thousands):


2004 (remaining six months)	$	175
2005		142
2006		1

Total	$	318

3. RESTRUCTURING EXPENSES

As part of our 2001 restructuring activities, we made certain estimates of sublease income on the vacated facility adjacent to our corporate headquarters in Richmond, California; however, due to a prolonged difficult real estate market in the Bay Area, those original estimates proved optimistic. As a result, during 2003 we began reevaluating our assumptions surrounding our sublease loss accrual, including discussions with our landlord to renegotiate the terms of our lease. We recorded a $3.7 million restructuring expense for the year ended December 31, 2003 based on the terms of a non-binding Letter of Intent with the landlord to reduce the term of the lease and our total cash commitments over the remaining life of the lease.

During January 2004, we finalized agreements with our landlord to sublet the facility to an affiliate of our landlord and reduce our total cash commitments over the remaining life of the lease by $6.4 million. The sublease agreement for full contract rent and operating expenses from October 1, 2008 through the lease termination on June 30, 2011 is collateralized by a $4.0 million Deed of Trust. The agreements with our landlord required us in the first quarter 2004 to deposit $3.6 million of base rent for the period October 1, 2006 through September 30, 2008 in an escrow account for disbursement over the related rental period. The funds held in escrow are classified as restricted cash in the Condensed Consolidated Balance Sheets as of June 30, 2004. Under the terms of the agreements with our landlord, we also settled a $0.8 million common area maintenance obligation related to our headquarters facility for $0.2 million that we paid during the first quarter of 2004. The remaining $0.6 million liability was allocated between our headquarters facility and the vacated adjacent facility based on square footage. As a result, $0.3 million will be recognized ratably as a reduction in operating expenses over the remaining headquarters lease term and $0.3 million was reclassified from deferred rent and other liabilities to the sublease loss accrual for our vacant Richmond, California facility. We believe that the sublease loss accrual related to this facility as of June 30, 2004, assuming certain amounts of sublease income, will cover all of our revised obligations under the final agreements.

During 2003, we also completed a review of our overall cost structure with the goals of creating better alignment with our growth strategy and finding additional efficiencies. As a result, we centralized substantially all of our development team to our Richmond, California headquarters and streamlined other parts of our operations, primarily general and administrative services. These actions resulted in a restructuring charge of $1.9 million in the year ended December 31, 2003, consisting of $1.2 million related to the closure of our Wakefield, Massachusetts facility, $0.1 million related to the write-off of certain equipment and leasehold improvements and $0.7 million related to the severance of 43 employees located in Wakefield, Massachusetts; Richmond, California and New York, New York.

During the second quarter 2004, we entered into a non-binding Letter of Intent with a third party to sublease our Wakefield, Massachusetts facility from October 1, 2004 through the term of the lease in June 2007. We recorded an additional restructuring charge of $0.1 million for the quarter ended June 30, 2004 to increase the sublease loss accrual to cover our estimated revised obligations related to this facility. Subsequently, during the third quarter 2004, we finalized a sublease agreement for the property that included the terms specified in the Letter of Intent.

The following is a summary of the restructuring liabilities from December 31, 2003 to June 30, 2004 (in thousands):


	2001 Restructuring Activities			2003 Restructuring Activities						Total
	Facilities Closure (primarily Richmond, CA)			Severance (included in Accrued Compensation)			Facilities Closure (Wakefield, MA)			Total
Balance at December 31, 2003	$	9,995		$	246		$	1,031		$	11,272
Restructuring expense(1)		—			27			105			132
Cash payments		(1,388	)		(270	)		(223	)		(1,881	)
Adjustments(2)		336			—			21			357

Balance at June 30, 2004	$	8,943		$	3		$	934		$	9,880

(1)

Restructuring expense of $27,000 related to severance (associated with terminated employees who provided services from their notification of termination in the third quarter 2003 through their last day of employment on March 31, 2004) was included in Service and product development expense in the Condensed Consolidated Statements of Operations and Comprehensive Income for the first quarter 2004. Severance expense was incurred ratably over the severance period. Restructuring expense of $0.1 million related to the sublease loss accrual for our Wakefield, Massachusetts facility was included in General and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income for the second quarter 2004.

(2)	The adjustment to the restructuring liability in the first quarter 2004 was due to $0.3 million reclassified from deferred rent and other liabilities to the sublease loss accrual upon settlement of a common area maintenance obligation per the terms of the agreements with our landlord.

We expect to pay remaining employment severance obligations related to restructuring activities by the third quarter of 2004. Based on the terms of the agreements with our landlord described above and actual subleases in effect on other properties, $2.9 million of the total facilities closure liability of $9.9 million has been classified as a current liability and the remaining $6.9 million has been classified as non-current with payments through 2008.

During the second quarter of 2004, management reevaluated our strategy in Europe, primarily the cost of operating a facility in the U.K. While we believe that maintaining an international sales presence is appropriate, revenue generated from Europe has been less than expected and insufficient to offset current operating expenses. As a result, we plan to vacate the facility in August 2004. At June 30, 2004, we were obligated to make future lease payments of $0.3 million through the lease termination in February 2006, and the net book value of equipment and leasehold improvements was approximately $0.2 million. We are currently in negotiations with our landlord for an early-termination of the lease, which could mitigate future lease payments.

4. EARNINGS PER SHARE

We calculate basic earnings per share (EPS) and diluted EPS in accordance with FAS 128, “Earnings Per Share.” Basic EPS is calculated by dividing net earnings for the period by the weighted-average common shares outstanding for that period, excluding unvested restricted share rights. Diluted EPS takes into account the effect of dilutive instruments, such as stock options and restricted share rights, and uses the average share price for the period in determining the number of incremental shares that are to be added to the weighted-average number of shares outstanding pursuant to the treasury stock method.

The following is a summary of the calculation of the number of shares used in calculating basic and diluted earnings per share:


	Three Months Ended June 30,		Six Months Ended June 30,
	2004	2003	2004	2003
Shares used to compute basic EPS	15,935,719	15,829,123	15,931,530	15,815,265
Common stock options	89,923	9,985	225,326	12,065
Restricted share rights	332,540	46,101	316,262	30,611

Shares used to compute diluted EPS	16,358,182	15,885,209	16,473,118	15,857,941

Potentially dilutive shares for the three-month periods ended June 30, 2004 and 2003 were 3,400,159 and 3,293,921 shares, respectively, with weighted-average exercise prices of $11.18 and $12.82, respectively. Potentially dilutive shares for the six-month periods ended June 30, 2004 and 2003 were 3,264,756 and 3,291,842 shares, respectively, with weighted-average exercise prices of $11.41 and $12.82, respectively. These potentially dilutive shares have been excluded from the shares used in calculating diluted net income per share since the options’ and warrants’ exercise prices exceed the average fair market value of the Company’s common stock during the period.

5. INCOME TAXES

We recorded $47,000 of income tax expense for the six months ended June 30, 2004 and $48,000 for the six months ended June 30, 2003. Income tax expense for the second quarter 2004 represents various state and foreign tax obligations. We did not incur any current federal tax expense during the first six months of 2004 or 2003 primarily because of the effect of temporary differences arising from the deduction of capitalized service and product development costs for tax purposes, which resulted in a deferred tax liability. The deferred tax liability is offset by our unrecognized deferred tax asset. A valuation allowance has been placed against the remainder of our deferred tax asset.

6. COMMON STOCK, RESTRICTED SHARE RIGHTS, TREASURY STOCK AND STOCK OPTIONS

At June 30, 2004, there were 16,174,968 shares of our common stock issued of which 15,941,237 were outstanding. Employee and director stock-based compensation expense and non-employee stock-based compensation expense for the three and six months ended June 30, 2004 and 2003 were as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Employees and directors	$	252	$	55	$	491	$	83
Non-employees		21		—		41		—

Total stock-based compensation expense	$	273	$	55	$	532	$	83

Restricted Share Rights

The following table shows the common stock restricted share rights granted under the provisions of the 1993 Stock Option/Stock Issuance Plan:


Grant Date	Number of Share Rights	Vesting Completion Date	Fair Value		Market Price per Share on Date of Grant
March 18, 2003	25,000	January 1, 2006	$	131,250	$	5.25
March 18, 2003	15,000	March 18, 2006		78,750		5.25
October 1, 2003	155,000	October 1, 2006		1,317,500		8.50
October 22, 2003	20,000	May 15, 2005		202,200		10.11
November 19, 2003	55,000	December 2, 2006		562,650		10.23
December 3, 2003	15,000	December 2, 2006		132,600		8.84
January 27, 2004	34,813	January 27, 2007		319,583		9.18
March 17, 2004	5,000	March 17, 2007		31,900		6.38
April 29, 2004	25,500	April 29, 2007		137,700		5.40

Total	350,313		$	2,914,133

These common stock restricted share rights will vest and become issuable as long as the grantee remains employed by or a director of the Company through the vesting date, or upon a change in control of the Company. The fair value of all common stock restricted share rights is included in the financial statements as deferred compensation and is being amortized ratably over the vesting period. During the six months ended June 30, 2004, we issued 10,416 shares of common stock, of which 3,723 shares were surrendered to the Company as payment of minimum payroll tax withholding.

The following table shows the activity under the common stock restricted share rights program:


	Number of Unvested Share Rights
Balance at December 31, 2003	285,000
Vested and issued	(10,416	)
Restricted share rights surrendered as payment of minimum payroll taxes withheld	3,723
Granted	65,313

Balance at June 30, 2004	343,620

Treasury Stock

During the six months ended June 30, 2004, we did not repurchase any shares of our common stock.

Stock Option Plans

The following table shows the activity under our stock option plans:


	Number of Options Available for Grant		Number of Options Outstanding		Weighted Average Exercise Price
Balance at December 31, 2002 (1,273,850 exercisable at $18.51 weighted-average price per share)	1,667,199		2,932,887		$	14.67
Granted	(1,345,490	)	1,345,490			6.77
Exercised	—		(35,670	)		4.89
Canceled	923,087		(923,087	)		14.84
Restricted share rights	(285,000	)	—			—
Restricted stock canceled	111,945		—			—
Expired	(21,767	)	—			26.25

Balance at December 31, 2003 (1,282,769 exercisable at $16.60 weighted-average price per share)	1,049,974		3,319,620			11.46
Granted	(269,500	)	269,500			5.89
Exercised	—		(2,915	)		5.35
Canceled	236,123		(236,123	)		11.42
Restricted share rights	(65,313	)	—			—
Expired	(1,752	)	—			13.86

Balance at June 30, 2004 (1,610,325 exercisable at $14.46 weighted-average price per share)	949,532		3,350,082		$	11.02

7. COMMITMENTS AND CONTINGENCIES

We use IBM Information Exchange as the Value Added Network (VAN) over which we provide customers with some of our QRS Exchange^{^™} products and services, such as Data Exchange, QRS Catalogue^{^™}, QRS Web Forms^{^™} and QRS Managed EC^{^™}. We depend on IBM Information Exchange for a substantial part of our revenue. In July 2002, we entered into a three-year agreement with IBM effective July 1, 2002 and ending June 30, 2005. Pursuant to the agreement, we pay fees to IBM based on our usage of its network and other specified services, subject to minimum payments set forth in the agreement. During April 2004, we modified our agreement with IBM to eliminate our obligation to purchase specified minimum annual amounts of IBM’s Business Exchange Services – Internet Transfer (BES-IT), formerly Internet Data and Document Exchange (IDDX).

We have established three irrevocable letters of credit with Wells Fargo Bank, N.A. as security for real property leases; one in the amount of $0.4 million and two in the amount of $0.2 million each. These letters of credit remained outstanding as of June 30, 2004 and are collateralized by three certificates of deposit, which are classified as other assets in the Condensed Consolidated Balance Sheets. In the first quarter 2004, $3.6 million of cash was placed in escrow to fund various future lease payments for the period October 1, 2006 through September 30, 2008 as discussed in Note 3 above. The funds held in escrow are classified as restricted cash in the Condensed Consolidated Balance Sheets as of June 30, 2004.

We have made guarantees and indemnities, under which we may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions. In connection with some of our facility leases, we have indemnified the lessors for certain claims that could arise from our use of the facility. In connection with some of our vendor and partner agreements, we have indemnified the vendors and partners for certain claims that could arise from these agreements. Typically, these guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. We believe the estimated fair value of these indemnification agreements is minimal. No liability associated with this indemnification has been recorded.

Pursuant to our bylaws and indemnification agreements with each of our directors and executive officers, we are obligated to indemnify each of them against expenses and losses incurred for claims brought against them by reason of being a director or executive officer of the Company. The term of the indemnification period is for the director’s or officer’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a directors and officers liability insurance policy that may be called upon to contribute to the satisfaction of any liability. We believe the estimated fair value of these indemnification agreements is minimal. No liability associated with this indemnification has been recorded.

Under the terms of our enterprise software applications license agreements and certain other sales agreements with our customers, in the event the software, products or services sold infringe upon any patent, copyright, trademark or any other proprietary right of a third party, we must indemnify our customer and licensees against any loss, expense or liability from any damages that may be awarded against its customer. In the event our customer cannot use the software or service due to infringement and we can not obtain the right to use, replace or modify the license, product or service in a commercially feasible manner so that it no longer infringes, we may terminate the license and agreement and provide our customer a pro-rata refund of the fees paid by our customer for the infringing license, product or service. The agreements typically do not stipulate a maximum liability that can be incurred under the indemnification. We believe the estimated fair value of these indemnification agreements is minimal. No liability associated with this indemnification has been recorded.

In connection with the merger agreement relating to our 2000 acquisition of Image Info, we would have been required to pay the former shareholders of Image Info an additional $2.5 million in 2002 if revenue attributable to the acquired business for 2001 met the minimum amount described in the merger agreement. The deferred acquisition payment was accounted for in the acquisition cost for the original transaction and included as a liability in our Condensed Consolidated Balance Sheets. We determined that the revenue attributable to the acquired business did not reach the minimum amount required for 2001. On October 8, 2002, Craig Schlossberg, purporting to act on behalf of the former shareholders of Image Info, Inc. filed a lawsuit against the Company and WS Acquisition Corp., one of our wholly-owned subsidiaries (which was renamed Image Info, Inc.), in the Superior Court of California for the City and County of San Francisco, alleging claims for breach of contract and seeking to recover $2.5 million, plus interest, under a provision of the merger agreement. We vigorously defended the lawsuit, which we believed was without merit.

To avoid further litigation, in April 2004, we reached a mutually satisfactory settlement agreement with the former shareholders of Image Info that resolves the lawsuit and terminates all claims against the Company. The action has been dismissed. Under the terms of the settlement agreement, we paid $1.9 million during the second quarter 2004, which was less than the $2.5 million liability classified as deferred acquisition payment in our Condensed Consolidated Balance Sheets as of December 31, 2003. The effect of this settlement on our liability was recorded in the first quarter 2004 operating results as a benefit of $0.6 million.

In the second quarter of 2004, we were notified by a customer of a contract dispute that could result in potential litigation. We have not yet been able to estimate our potential exposure, nor do we know the probability of an unfavorable outcome; therefore, no liability has been recorded. However, settlement of the contract dispute could have a material impact on our results of operations and financial position.

8. MERGERS & ACQUISITIONS

On June 17, 2004, we entered into a definitive agreement for QRS to merge with a wholly-owned subsidiary of JDA Software Group, Inc. (JDA), with QRS continuing as the surviving corporation and a wholly-owned subsidiary of JDA. Under the terms of the transaction, QRS shareholders will receive 0.50 of a share of JDA common stock for each share of QRS common stock. QRS stockholders will own approximately 22 percent of the outstanding capital stock of the combined company. Completion of the merger, which is expected to close in the third or fourth quarter of 2004, is subject to the approval of JDA and QRS stockholders and other regulatory and customary conditions. There can be no assurance that the merger will be consummated. In the event that the merger agreement is terminated, under certain circumstances, we will be required to pay JDA a termination fee of $3.75 million. Included in general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income are $0.7 million and $1.0 million of merger-related costs for the three and six months ended June 30, 2004, respectively.

Subsequent to entering into the merger agreement with JDA, the Board of Directors received four unsolicited non-binding proposals to acquire all of the outstanding shares of QRS common stock in exchange for cash, each subject to satisfactory completion of due diligence and execution of definitive documentation. After receipt of the proposals, the Board of Directors determined that engaging in discussions with each of the potential acquirers was in compliance with the terms of the merger agreement with JDA, and QRS began discussions with each of the potential acquirers. See Part II, Item 5 of this report for additional information regarding the status of our merger agreement with JDA and our discussions with the other potential acquirers.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties. Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors, including but not limited to those set forth under this Item, as well as those discussed elsewhere in this report and those that may be identified from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Item 1 of this quarterly report and the Consolidated Financial Statements and related Notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our annual report on Form 10-K as filed with the Securities and Exchange Commission on March 15, 2004.

Overview

We are a technology company that serves the global retail trading community with collaborative commerce solutions. We manage the flow of critical commerce information and leverage our retail technology expertise to address fundamental industry challenges such as global data synchronization, compliance mandates, transaction management and global trade management. Our solutions help customers expand into new markets and channels, improve operational efficiency and differentiate their brand.

Our products and services help thousands of retailers, vendors, suppliers and brand manufacturers from a variety of retail segments, including general merchandise and apparel, consumer packaged goods, health and beauty, consumer electronics, hardlines, do-it-yourself, sporting goods and grocery. Our products and services are typically used with our customers’ enterprise information technology systems in order to deliver greater benefits and efficiencies to these customers.

We market our products and services in three Solutions Groups: Software Applications, Trading Community Management and Global Services. The following chart shows our current product set within each Solutions Group:


Software Applications	Trading Community Management	Global Services
QRS Catalogue^™	QRS Exchange^™	QRS Retail Intelligence Services^SM
QRS IMPACT^™	Data Exchange	QRS Professional Services^SM
QRS QuickSync^™	Internet Transaction Exchange	QRS Product Support and Maintenance
QRS Sourcing^™	Enterprise Business Exchange
	QRS Web Forms^™
	QRS Managed EC^™
	QRS Compliance Link^™
	QRS EDIINT Gateway^™
	Access Services
	QRS Reveal^™

Our Software Applications Solutions Group, which represented 28% of revenue in the second quarter 2004, supports product information management and data synchronization; as well as collaborative product planning, design, production and shipment. Software Applications include both enterprise software applications installed on customers’ computer systems and hosted applications installed on our computer systems.

Our Trading Community Management Solutions Group, which represented 51% of revenue in the second quarter 2004, allows retailers, vendors and their trading partners to exchange electronic business documents, such as purchase orders, invoices and advance ship notices. We recently initiated a beta program for the newest solution in this group, QRS Reveal^{^™}, which offers transaction lifecycle visibility to proactively monitor business transactions across the trading community. These electronic transactions are conducted over a proprietary value-added network (VAN) or over the Internet.

Our Global Services Solutions Group, which represented 21% of revenue in the second quarter 2004, includes the collection, analysis and delivery of pricing, promotion and distribution information; software implementation and integration services; and technical support and training services for our various solutions.

Revenue from our traditional business, which includes our Trading Community Management Solutions Group and our QRS Catalogue^{^™} product, totaled approximately 79% of our overall revenue in the second quarter 2004. This revenue is billed to customers on a month-to-month basis or under contractual arrangements generally ranging from one to three years.

Second quarter 2004 net income improved to $1.5 million from the $1.3 million reported in the first quarter 2004, as a result of our continued efforts to contain costs. Total revenue of $29.2 million decreased from the $30.5 million reported in the first quarter 2004, primarily due to the decline in QRS Exchange^{^™} revenue resulting from ongoing competitive trends and seasonality. Gross margin remained steady at 49% for the second quarter 2004.

During the second quarter 2004, unit pricing and volume for Data Exchange^{^™} declined slightly compared to the first quarter of 2004. The reduction in unit price was driven by competition from traditional providers of VAN-based services and increasing competition from new technologies such as AS2.

During the first six months of 2004, we launched two new product information management and data synchronization solutions, QRS IMPACT^{^™} and QRS QuickSync^{^™}. In addition, as discussed above, QRS Reveal^{^™} is currently in the beta testing stage and we anticipate the product will become generally available in the second half of 2004. We continue to focus on introducing new products and services that can generate new revenue to offset the decline in revenue from our traditional business. We expect to maintain profitability for the remainder of 2004 by continuing to reduce the cost structure of our traditional business while investing the cash it generates in the development and launch of new products and services. We believe these new products and services will create long-term growth and position QRS for leadership in collaborative commerce solutions for the retail industry.

On June 17, 2004, we entered into a definitive agreement for QRS to merge with a wholly-owned subsidiary of JDA, with QRS continuing as the surviving corporation and a wholly-owned subsidiary of JDA. Completion of the merger, which is expected to close in the third or fourth quarter of 2004, is subject to the approval of JDA and QRS stockholders and other regulatory and customary conditions. Included in general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income are $0.7 million and $1.0 million of merger-related costs for the three and six months ended June 30, 2004, respectively. Subsequent to entering into the merger agreement with JDA, the Board of Directors received four unsolicited non-binding proposals to acquire all of the outstanding shares of QRS common stock in exchange for cash, each subject to satisfactory completion of due diligence and execution of definitive documentation. After receipt of the proposals, the Board of Directors determined that engaging in discussions with each of the potential acquirers was in compliance with the terms of the merger agreement with JDA, and QRS began discussions with each of the potential acquirers. See Part II, Item 5 of this report for additional information regarding the status of our merger agreement with JDA and our discussions with the other potential acquirers.

Revenue and Cost of Revenue

The following table sets forth the revenue, cost of revenue, gross profit and gross margin for our three Solution Groups for the three and six months ended June 30, 2004 and 2003 (in thousands) and associated headcount information at June 30, 2004 and 2003:


	Three Months Ended June 30,						Change					Six Months Ended June 30,						Change
	2004			2003			$			%		2004			2003			$			%
Software Applications:
Revenues	$	8,318		$	8,329		$	(11	)	(0	)%	$	16,520		$	16,470		$	50		0	%
Cost of revenues		2,193			2,157			36		2	%		4,282			4,444			(162	)	(4	)%

Gross profit		6,125			6,172			(47	)	(1	)%		12,238			12,026			212		2	%

Gross margin		74	%		74	%							74	%		73	%
Percentage of total revenues		28	%		27	%							28	%		27	%

Trading Community Management:
Revenues		14,832			16,336			(1,504	)	(9	)%		30,964			33,002			(2,038	)	(6	)%
Cost of revenues		7,472			8,050			(578	)	(7	)%		15,442			16,107			(665	)	(4	)%

Gross profit		7,360			8,286			(926	)	(11	)%		15,522			16,895			(1,373	)	(8	)%

Gross margin		50	%		51	%							50	%		51	%
Percentage of total revenues		51	%		53	%							52	%		54	%

Global Services:
Revenues		6,054			5,905			149		3	%		12,226			11,901			325		3	%
Cost of revenues		5,178			5,178			—		0	%		10,573			10,489			84		1	%

Gross profit		876			727			149		20	%		1,653			1,412			241		17	%

Gross margin		14	%		12	%							14	%		12	%
Percentage of total revenues		21	%		19	%							20	%		19	%

Total:
Revenues		29,204			30,570			(1,366	)	(4	)%		59,710			61,373			(1,663	)	(3	)%
Cost of revenues		14,843			15,385			(542	)	(4	)%		30,297			31,040			(743	)	(2	)%

Gross profit	$	14,361		$	15,185		$	(824	)	(5	)%	$	29,413		$	30,333		$	(920	)	(3	)%

Gross margin		49	%		50	%							49	%		49	%

Full-time headcount for customer support, operations and services		204			242			(38	)	(16	)%

Software Applications

The Software Applications Solutions Group includes QRS Catalogue^{^™}, a hosted application; and enterprise software applications, such as QRS Sourcing^{^™}. License revenue from our recently introduced QRS IMPACT^{^™} and QRS QuickSync^{^™} products will be included in enterprise software applications. We plan to recognize QRS IMPACT^{^™} and QRS QuickSync^{^™} license and professional services revenue after each customer implementation is completed.

Software Applications revenue for the second quarter 2004 increased $0.1 million, or 1%, from the first quarter 2004. Revenue for the three and six months ended June 30, 2004 were flat in comparison to the same periods one year ago. The improvement over the first quarter 2004 was due to growth in the number of QRS Catalogue^{^™} trading partnerships, which offset certain retailer customer consolidations. During the first half of 2004, we recognized license revenue from an existing enterprise software applications customer as the related professional services were delivered, using the percentage-of-completion methodology.

For the second quarter 2004 and all periods presented, QRS Catalogue^{^™} comprised the majority of revenue for the Software Applications Solutions Group. We expect that retailers will continue to reorganize their operations to reduce cost and improve efficiency. To the extent that such reorganizations reduce the number of their retail operations, the number of their trading partnerships could also be reduced, which, under our present pricing structure, would reduce QRS Catalogue^{^™} revenue in future periods.

Gross margin for the Software Applications Solutions Group was 74% during the second quarter 2004 compared to 75% reported for the first quarter 2004. The decline in gross margin was primarily due to the increase in amortization of capitalized service and product development costs for QRS Catalogue^{^™} and the amortization of licensed technology associated with QRS IMPACT^{^™}. Gross margin for the second quarter 2004 was consistent with the 74% reported in the second quarter 2003.

Trading Community Management

The Trading Community Management Solutions Group includes QRS Exchange^{^™} products and services (Data Exchange, Internet Transaction Exchange, Enterprise Business Exchange, QRS Web Forms^{^™}, QRS Managed EC^{^™}, QRS Compliance Link^{^™}, QRS EDIINT Gateway^{^™} and Access Services) and QRS Reveal^{^™}. Revenue consists primarily of fees charged for the transmission of standard business documents measured in kilocharacters (KCs) over the IBM VAN, monthly fees for leased line connections, and fees for EDI translation services. Revenue is recognized in the month that the services are performed.

Trading Community Management revenue for the second quarter 2004 declined $1.3 million, or 8%, from the first quarter 2004, and $1.5 million, or 9%, from the second quarter 2003. Revenue for the six months ended June 30, 2004 declined $2.0 million, or 6% from the same period in 2003.

Data Exchange revenue for the second quarter 2004 was down compared to the first quarter due to expected seasonal declines in volume during the second quarter. In spite of the relative stability in unit pricing, Data Exchange revenue for the three and six months ended June 30, 2004 also decreased on a year-over-year basis due to decreases in volume and customer losses. Data Exchange revenue continued to be impacted by competition from traditional providers of VAN-based services, which reduced the overall number of Data Exchange trading partnerships, as well as by increasing competition from new technologies such as AS2. We do not believe that the long-term pricing pressure has abated in our Data Exchange business. If in future periods we are required to reduce prices further, these reductions in our net revenue per kilocharacter may reduce our Trading Community Management revenue to the extent that pricing changes are not offset by increased unit volume or other factors.

The migration of customers to Internet protocols continues to reduce revenue from leased lines and dial-up connectivity services. Access Services revenue for the second quarter 2004 remained consistent with the prior quarter but declined on a year-over-year basis by 26%. We expect further declines in Access Services revenue in future years as internet technologies continue to replace and lower the market price of these services. Additionally, second quarter 2004 revenue from QRS Managed EC^{^™} services targeted towards small- and medium-sized businesses declined 10% from the prior quarter and 23% on a year-over-year basis due to a decrease in the number of customers and revenue per customer.

Trading Community Management gross margin for the second quarter 2004 declined to 50% from 51% in the first quarter 2004 and 51% in the second quarter 2003. The trends in gross margin are primarily due to the revenue decline in Access Services and QRS Managed EC^{^™} while costs for those products have remained relatively flat. On a year-over-year basis, the decline in payments under our agreement with IBM was offset by higher costs allocated from our self-hosted data center. Additionally, during the second quarter 2004, our use of purchased network services from IBM fell below specified minimum amounts per the terms of our contract, causing our Trading Community Management gross margin to decrease. Other Trading Community Management cost of revenue components include: customer support services, including QRS Managed EC^{^™} personnel; technical support personnel; and amortization of capitalized service and product development costs for technology used in our QRS Managed EC^™ operations center.

Global Services

The Global Services Solutions Group consists primarily of QRS Retail Intelligence Services^SM; QRS Professional Services^SM, mainly services provided to help our customers with the implementation of our licensed software products; and maintenance for our QRS Sourcing^{^™} product, including post-contract support services for licensed software applications.

Global Services revenue for the second quarter 2004 decreased $0.1 million, or 2%, from the first quarter 2004. Revenue for the three and six months ended June 30, 2004 increased $0.1 million, or 3%, and $0.3 million, or 3%, respectively, over the same periods in the prior year, primarily resulting from growth in our QRS Retail Intelligence Services^SM business. QRS Retail Intelligence Services^SM revenue of $5.3 million in the second quarter 2004 increased 3% from the $5.2 million reported in the first quarter 2004 and 10% from the $4.8 million reported in the second quarter 2003. These improvements were offset by a decline in QRS Professional Services^SM revenue and software maintenance revenue associated with our QRS Sourcing^{^™} product, which we expect will continue to decline.

Cost of revenue for Global Services consists primarily of outsourcing costs for QRS Retail Intelligence Services^SM field personnel and payroll for software application consultants and technical support personnel for our licensed software applications. Global Services gross margin improved to 14% in the second quarter 2004, compared to 13% for the first quarter 2004 and 12% in the second quarter 2003. Headcount reductions in our QRS Professional Services^SM team and declining technical support costs contributed to the improvement in gross margin over the prior quarter and the second quarter of the prior year.

Operating Expenses

The following table sets forth operating expenses (in thousands) and the related percentages of total revenue for the three and six months ended June 30, 2004 and 2003 and associated headcount information at June 30, 2004 and 2003:


	Three Months Ended June 30,								Six Months Ended June 30,
	2004		% of Revenues		2003		% of Revenues		2004			% of Revenues		2003		% of Revenues
Operating expenses:
Sales and marketing	$	5,060	17	%	$	5,013	16	%	$	11,332		19	%	$	10,800	18	%
Service and product development		2,701	9			3,161	10			5,876		10			6,158	10
General and administrative		5,033	17			4,370	14			9,851		16			9,142	15
Settlement of deferred acquisition payment		—	—			—	—			(600	)	(1	)		—	—
Amortization of other intangible assets		93	—			839	3			186		—			1,688	3

Total operating expenses	$	12,887	44	%	$	13,383	44	%	$	26,645		45	%	$	27,788	45	%

Full-time headcount:
Sales and marketing		90				92
Service and product development		104				116
General and administrative		59				76

Operating expenses for the second quarter 2004 were down $0.9 million, or 6%, from the first quarter 2004, due to a decline in sales and marketing expenses following the completion of our first quarter launch of QRS IMPACT^™. Operating expenses for the three and six months ended June 30, 2004 declined by 4% on a year-over-year basis. Factors contributing to the six month period decline included the $1.5 million reduction in amortization expense resulting from the fourth quarter 2003 impairment of intangible assets, the benefit of $0.6 million due to a favorable legal settlement related to a deferred acquisition payment, and reductions in payroll-related costs as headcount declined, offset by $1.0 million of merger-associated costs.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel and related costs in our sales and marketing organizations as well as the costs of various marketing programs. At June 30, 2004, we had 67 full-time employees in our sales organization, comprised of 60 employees located in North America and 7 employees located in Europe, primarily in the United Kingdom.

For the second quarter 2004, sales and marketing expenses overall were down $1.2 million, or 19%, from the $6.3 million reported for the first quarter 2004, and flat compared to the second quarter 2003. First quarter 2004 included $0.8 million in higher marketing, travel and meeting expenses attributed to launching QRS IMPACT^™, participation in trade shows and our annual customer conference. Second quarter 2004 severance costs and employer contributions to the 401(k) plan costs declined $0.2 million. In addition, the provision for bad debt decreased by $0.1 million from the prior quarter due to improvement in the aging of our accounts receivable.

Sales and marketing expenses for the six months ended June 30, 2004 increased $0.5 million, or 5%, from the same period in 2003, primarily resulting from $0.1 million of additional payroll costs and $0.4 million in consulting expenses from projects focused on our solution selling capability and product strategy.

Service and Product Development Expenses

Service and product development expenditures consist primarily of personnel, consulting and equipment costs related to research, development and enhancements of our products, a portion of which is capitalized under American Institute of Certified Public Accountants’ (AICPA) Statement of Position (SOP) 98-1, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use.” For our hosted and internal use products, we capitalize, as prescribed by SOP 98-1, all the costs incurred during the application development stage, which include designing the software configuration and interfaces, coding, installation and testing. For our enterprise software applications, we capitalize products and enhancements once they reach technological feasibility until they are released for sale, under the provisions of FAS 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.”

We review service and product development expenses, capitalized costs and licensed technology on a combined basis in order to measure our investment in new and existing products. The following table sets forth (in thousands) total service and product development expenditures for the three months ended June 30, 2004, March 31, 2004 and June 30, 2003:


	Three Months Ended
	June 30, 2004		March 31, 2004		June 30, 2003
Service and product development	$	2,701	$	3,175	$	3,161
Capitalized service and product development		1,389		1,591		1,353

Total internal costs		4,090		4,766		4,514
Licensed technology – capitalized(1)		—		518		—

Total service and product development expenditures	$	4,090	$	5,284	$	4,514

(1)	In accordance with FAS 86, during the first quarter 2004, we capitalized $0.5 million of licensed technology used in our QRS IMPACT^™ product after the product reached technological feasibility.

Total spending on internal costs in the second quarter 2004 decreased from the prior quarter by $0.7 million, primarily due to higher first quarter 2004 payroll and related costs of $0.5 million that included severance and employer contributions to the 401(k) plan, and $0.1 million spent in the first quarter 2004 to improve the efficiency and design of employee work stations and IT equipment. Total spending on internal costs for the three and six months ended June 30, 2004 decreased on a year-over-year basis by $0.4 million and $0.1 million, respectively, due primarily to headcount reductions following the closure of our Wakefield, Massachusetts facility in the third quarter 2003.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and the related costs of our administrative organizations, such as finance, legal, human resources and management information systems, as well as professional fees and other costs.

General and administrative expenses for the second quarter 2004 were up $0.2 million, or 4%, from the $4.8 million reported for the first quarter 2004, and $0.7 million, or 15%, from the second quarter 2003. General and administrative expenses for the six months ended June 30, 2004 increased $0.7 million, or 8%, over the same period a year ago. The first half of 2003 included $0.3 million from the favorable resolution of various tax-related matters, while the first half of 2004 included $1.0 million of legal, accounting and other professional fees associated with merger activities and $0.1 million of restructuring expense associated with our Wakefield, Massachusetts facility, offset by a reduction of $0.7 million in payroll-related and consulting expenses.

In addition, general and administrative expenses for the six months ended June 30, 2004 included $0.4 million of accounting fees associated with the review and testing of our material internal controls systems, processes and procedures in compliance with the requirements of Sarbanes-Oxley Regulation 404.

Settlement of Deferred Acquisition Payment

Operating expenses for the six months ended June 30, 2004 include a benefit of $0.6 million resulting from the April 2004 settlement of litigation surrounding our acquisition of Image Info in 2000. In order to avoid further litigation, we entered into a settlement agreement under which we paid $1.9 million during the second quarter 2004 to settle all claims made by the former shareholders of Image Info. The $1.9 million settlement was less than the $2.5 million liability classified as deferred acquisition payment in the Condensed Consolidated Balance Sheets as of December 31, 2003. The effect of this settlement on our liability was recorded in the first quarter 2004 operating results as a benefit of $0.6 million. See Note 7 to the Condensed Consolidated Financial Statements.

Amortization of Other Intangible Assets

Amortization of other intangible assets for the second quarter 2004 was $0.1 million, compared to $0.1 million in the first quarter 2004 and $0.8 million in the second quarter of 2003. The decrease in amortization expense from the second quarter of the prior year resulted primarily from the impairment of intangible assets that occurred in the fourth quarter 2003.

Restructuring Expenses

The following is a summary of the restructuring liabilities from December 31, 2003 to June 30, 2004 (in thousands):


	2001 Restructuring Activities			2003 Restructuring Activities
	Facilities Closure (primarily Richmond, CA)			Severance (included in Accrued Compensation)			Facilities Closure (Wakefield, MA)			Total
Balance at December 31, 2003	$	9,995		$	246		$	1,031		$	11,272
Restructuring expense(1)		—			27			105			132
Cash payments		(1,388	)		(270	)		(223	)		(1,881	)
Adjustments(2)		336			—			21			357

Balance at June 30, 2004	$	8,943		$	3		$	934		$	9,880

(1)

(2)	The adjustment to the restructuring liability in the first quarter 2004 was due to $0.3 million reclassified from deferred rent and other liabilities to the sublease loss accrual upon settlement of a common area maintenance obligation per the terms of the agreements with our landlord.

Operating Income

Operating income for the second quarter 2004 improved $0.2 million, or 14%, compared to the first quarter 2004, but was down $0.3 million, or 18% from the second quarter 2003. Operating income for the six months ended June 30, 2004 increased on a year-over-year basis by $0.2 million, or 9%, despite declining revenue, due primarily to reductions in cost of revenues and operating expenses in addition to the $0.6 million benefit resulting from the favorable legal settlement of a deferred acquisition payment.

Interest Income

Interest income consists primarily of interest earned on cash, cash equivalents and marketable securities available-for-sale. Interest income of $0.1 million in the second quarter 2004 was comparable with the prior quarter and the second quarter of the prior year.

Net Income and Earnings Per Share

Net income for the second quarter 2004, which totaled $1.5 million, or 9 cents per diluted share, improved from the $1.3 million, or 8 cents per diluted share, reported for the first quarter 2004, but was down from the $1.8 million, or 12 cents per diluted share, reported in the second quarter 2003.

For information regarding the number of shares used to compute earnings per share, see Note 4 to the Condensed Consolidated Financial Statements.

Liquidity and Capital Resources

Cash, cash equivalents and marketable securities available-for-sale decreased to $33.2 million at June 30, 2004 from $38.1 million at December 31, 2003. The decline was due primarily to the $3.6 million deposit of restricted cash, the $3.0 million capitalization of service and product development costs, and the $2.0 million purchase of property, equipment and licensed technology, offset by $4.0 million of positive cash flows from operations. Working capital decreased to $28.9 million at June 30, 2004 from $30.4 million at December 31, 2003. Our days sales outstanding (DSOs) were 47 days at June 30, 2004, compared to 45 days at December 31, 2003 and 46 days at June 30, 2003.

Total assets of $71.3 million at June 30, 2004 decreased from $72.8 million at December 31, 2003. Total liabilities of $29.4 million at June 30, 2004 decreased from $34.3 million at December 31, 2003 due primarily to the settlement of a deferred acquisition payment and payments of annual corporate bonuses and other long-term obligations associated with facilities leases.

For the quarter ended June 30, 2004, we experienced a decline in revenue of 4% from the prior fiscal year. We offset this revenue decline by reducing our operating expenses in the second quarter 2004. The challenge facing our business is to launch new products and services that can generate new revenue to offset the decline in revenue from our traditional business. We may not be able to continue reducing our operating expenses in future periods and our revenue may continue to decline. As a result, we may experience losses in future periods. During the second quarter 2004, a significant portion of our cash inflows was generated by our operations. Because our operating results may fluctuate significantly as a result of decreases in customer demand or lack of acceptance of our future products, our ability to generate positive cash flow from operations may be jeopardized. To the extent that our operating results fall below our expectations, we may need to obtain debt financing or sell additional shares of our equity securities. There can be no assurance that we will be able to obtain debt or equity financing on terms acceptable to us or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our ability to achieve our intended business objectives.

We believe that cash, cash equivalents and marketable securities available-for-sale at June 30, 2004 and cash forecasted to be generated from future operations will be sufficient to continue funding capital expenditures and our planned technology investments for the next twelve months.

We expect our investment in the development of new applications and improvements to QRS Catalogue ^™ to occur throughout the year. While our current plan is to perform these development efforts using internal resources, we are simultaneously evaluating opportunities to accelerate development, including through alliances and licensing. During the fourth quarter of 2003, we licensed technology utilized in our QRS IMPACT ^™ product. We made cash payments for the licensed technology of $1.3 million in the fourth quarter 2003 and $0.5 million in the first quarter 2004. We expect to pay the remaining $0.5 million in the second half of 2004. To the extent we license or acquire complementary technologies or businesses, which require additional cash utilization, we may seek to sell additional debt or equity securities, which may result in additional dilution to our stockholders. However, we cannot be certain that additional funding will be available on acceptable terms or at all.

As discussed in Restructuring Expenses above, during January 2004, we finalized agreements with our landlord to sublet the facility to an affiliate of our landlord and reduce our total cash commitments over the remaining life of the lease by $6.4 million. The sublease agreement for full contract rent and operating expenses from October 1, 2008 through the lease termination on June 30, 2011 is collateralized by a $4.0 million Deed of Trust. The agreements with our landlord required us in the first quarter 2004 to deposit $3.6 million of base rent for the period October 1, 2006 through September 30, 2008 in an escrow account for disbursement over the related rental period. The funds held in escrow are classified as restricted cash in the Condensed Consolidated Balance Sheets as of June 30, 2004. We believe that the sublease loss accrual related to this facility as of June 30, 2004, assuming certain amounts of sublease income, will cover all of our revised obligations under the final agreements.

As discussed in Note 7 to the Condensed Consolidated Financial Statements, in April 2004, in order to avoid further litigation we reached a mutually satisfactory settlement agreement with the former shareholders of Image Info that resolves the lawsuit without any admission of liability and terminates all claims against the Company. The action has been dismissed. Under the terms of the settlement agreement, we paid $1.9 million during the second quarter 2004, which was less than the $2.5 million liability classified as deferred acquisition payment in the Condensed Consolidated Balance Sheets as of December 31, 2003.

As discussed in Note 8 to the Condensed Consolidated Financial Statements, on June 17, 2004, we entered into a definitive agreement for QRS to merge with a wholly-owned subsidiary of JDA, with QRS continuing as the surviving corporation and a wholly-owned subsidiary of JDA. Under the terms of the transaction, QRS shareholders will receive 0.50 of a share of JDA common stock for each share of QRS common stock. QRS stockholders will own approximately 22 percent of the outstanding capital stock of the combined company. Completion of the merger, which is expected to close in the third or fourth quarter of 2004, is subject to the approval of JDA and QRS stockholders and other regulatory and customary conditions. There can be no assurance that the merger will be consummated. In the event that the merger agreement is terminated, under certain circumstances, we will be required to pay JDA a termination fee of $3.75 million. Included in general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income are $0.7 million and $1.0 million of merger-related costs for the three and six months ended June 30, 2004, respectively. Subsequent to entering into the merger agreement with JDA, the Board of Directors received four unsolicited non-binding proposals to acquire all of the outstanding shares of QRS common stock in exchange for cash, each subject to satisfactory completion of due diligence and execution of definitive documentation. After receipt of the proposals, the Board of Directors determined that engaging in discussions with each of the potential acquirers was in compliance with the terms of the merger agreement with JDA, and QRS began discussions with each of the potential acquirers. See Part II, Item 5 of this report for additional information regarding the status of our merger agreement with JDA and our discussions with the other potential acquirers.

We have no plans to pay dividends with respect to our common stock in the foreseeable future.

At June 30, 2004, future payments under contractual obligations are as follows (in thousands):


	Payments due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Capital Lease Obligations	$	129	$	129	$	—	$	—	$	—
Operating Lease Commitments(1)		28,446		6,650		11,136		7,805		2,855
Vendor Commitments		12,427		8,013		4,414		—		—

Total	$	41,002	$	14,792	$	15,550	$	7,805	$	2,855

(1)	Minimum lease commitments for vacant facilities that are available for sublease are included in these amounts. Income to be received from subleased real property is excluded from these amounts.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2003.

Recent Accounting Pronouncements

On March 31, 2004, the FASB issued an exposure draft entitled “Share-Based Payment” to amend FAS 123, “Accounting for Stock-Based Compensation” and FAS 95, “Statement of Cash Flows.” This proposed standard would eliminate the ability to account for share-based compensation using the intrinsic value-based method under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This exposure draft would require us to calculate equity-based compensation expense for stock options and employee stock purchase plan rights granted to employees based on the fair value of the equity instrument at the time of grant. The equity-based compensation expense is recognized ratably over the vesting period beginning with the grant date. Currently, we disclose the pro forma net income and related pro forma earnings per share information in accordance with FAS 123 and FAS 148, “Accounting for Stock-Based Compensation Costs-Transition and Disclosure” (see Note 1 to the Condensed Consolidated Financial Statements). We continue to evaluate the impact that the exposure draft will have on our financial position or results of operations.

RISKS AND UNCERTAINTIES RELATING TO OUR BUSINESS

Set forth below, elsewhere in this report and in Exhibit 99.1 hereto (which is incorporated herein by reference) are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report.

Our business and results of operations may be affected by our announced merger agreement with JDA

On July 17, 2004, we entered into a definitive agreement to merge with a wholly-owned subsidiary of JDA. Subsequent to the announcement of our merger agreement with JDA, we received four unsolicited proposals regarding the acquisition of all of our outstanding stock. The announcement of the merger agreement and the unsolicited bids could cause our customers to delay, defer, or cancel purchases of our services and software pending consummation of the planned merger with JDA. While we are attempting to mitigate this risk through communications with our customers, current and prospective customers could be reluctant to purchase our services and software due to potential uncertainty about the future of our business or the direction of the combined company’s product offerings and its support and service of existing products. If our customers delay or cancel purchases of our services and software as a result of the announcement of the merger agreement with JDA, our results of operations would be negatively affected.

In addition, planning for the merger with JDA and addressing the unsolicited proposals received by the Company have and may continue to divert some of our management’s attention away from the day-to-day operation of the business. The diversion of management’s attention may adversely affect our financial results.

The announcement of the merger and the unsolicited bids may also distract our employees and cause them to seek other employment opportunities. Since the announcement of the merger agreement, our employee attrition rate has exceeded our historical rates. To the extent our employees are less focused and we are not able to retain our key employees, employee productivity may decline and our business and results of operations may be adversely affected.

Additional risks associated with this pending merger, whether it is consummated or not, appear in Exhibit 99.1 of this report.

Changes in the retail industry make our future operating results uncertain.

Historically, we have generated all of our revenue from the sale of products and services to the retail industry. We believe that current economic conditions and increased competition in the retail industry negatively affect our customers’ ability and willingness to pay for our products and services and our ability to sell certain of our products and services to existing and potential customers in the retail industry. The department store sector of the general merchandise and apparel segment, which is an important part of our customer base for our Trading Community Management and QRS Catalogue^™ products and services, has been and continues to be particularly affected by these adverse conditions, and our products and services are less well established in other sectors of the general merchandise and apparel segment. If the department store sector continues to experience greater challenges or adversity than other sectors, our business, financial condition and results of operations would be adversely affected.

We believe that the retail industry is consolidating. Moreover, retailers are reorganizing and consolidating their operations in attempts to improve operating efficiencies. During the third quarter of 2002, one of our major retail customers consolidated certain of its retail operations, which caused us to lose expected revenue. If such consolidations and reorganizations reduce the number of retailers, reduce retail operations, or reduce the number of our trading partnerships, this may reduce our revenue in future periods and could have a material adverse impact on our business, financial condition and results of operations. Also, we are dependent on key retailers and vendors and their trading partners. The loss of any large retail or vendor customer may also result in our loss of all of the trading partners of that retailer or vendor that are also our customers, which would have a material adverse effect on our business, financial condition and results of operations.

We have experienced losses and revenue declines in recent fiscal periods and may experience losses and revenue declines in future periods.

We have recently incurred losses, including net losses of $6.7 million, $4.1 million and $173.3 million for the fiscal years ended December 31, 2003, 2002 and 2001, respectively. A substantial amount of these losses in 2003 and 2001 were in connection with non-cash charges relating to the impairment of remaining intangible assets, including technology and goodwill, acquired through our acquisitions in recent years of RockPort, Image Info, and RDS, as well as our acquisition of the outstanding minority interest of Tradeweave. We have incurred, and may continue to incur, non-cash charges related to the impairment of intangible assets, as well as non-cash charges related to stock compensation. Further impairment of intangible assets could occur since the revenue and income potential of some of our services and products are unproven, and some of the markets we are addressing are in the early stages of development. There can be no assurance that new services and products introduced by us will gain market acceptance, or that new technologies or business methods will not be developed that replace or reduce the importance of our current offerings, and thus there can be no assurance that we will not need to take additional impairment charges.

In addition, we have experienced sequential quarterly declines in revenue since the third quarter of 2003. Our revenue may continue to decline and we may not be able to continue reducing our operating expenses sufficiently or quickly enough in future periods to offset such revenue reductions. We may also incur additional restructuring charges in future periods. As a result, we may experience losses in future periods.

During the second quarter 2004, a significant portion of our cash inflows was generated by our operations. Because our operating results may fluctuate significantly as a result of decreases in customer demand, pricing pressures, lack of acceptance of our future products, or additional restructuring expenses, our ability to generate positive cash flow from operations may be jeopardized. As a result, we may need to obtain debt financing or sell additional shares of our equity securities. There can be no assurance that we will be able to obtain debt or equity financing on terms acceptable to us or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our ability to achieve our intended business objectives.

We have recently experienced significant changes in our senior management team.

In recent years, we have experienced significant turnover in our management team. Our current Chief Financial Officer joined us in November 2003. Other members of management have also joined us in the last few years, and the management team as a whole has had a limited time to work together. A number of executives have also left the Company. Our success depends on the performance of our executive officers and other key employees and the ability of our management team to work together effectively. There can be no assurance that the management team will be able to work together effectively, that we can continue to retain or recruit necessary additional personnel, or that such new personnel will be efficiently integrated or be adequate for our current or future operations.

Our industry is characterized by rapid technological change, and our business is marked by substantial price competition, which may cause our revenue to decline.

The supply chain management industry is characterized by rapid technological innovation and a long-term trend towards Internet-based communications instead of proprietary VAN-based communications. While we offer solutions that take advantage of the Internet’s potential, we expect the majority of our Trading Community Management revenue for the foreseeable future to be derived from our traditional VAN-based services. Also, the increased commercial use of the Internet could require substantial modification and customization of our services and products and the introduction of new services and products, which services and products may not produce as much revenue or be as profitable as our traditional VAN-based services. If customers adopt Internet-based communication more quickly than expected, that may also have a significant negative impact on our revenue. Our competitors and potential competitors may develop competing technologies that are more effective or more effectively marketed than the services and products marketed by us or that render our services or products obsolete or noncompetitive.

In addition, the markets for our Software Applications are subject to rapid technological change, changing client needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend, in part, on our ability to enhance existing applications and develop and introduce new applications or capabilities, such as product information management.

We are subject to continuing price competition, particularly for our Data Exchange product. This competition has caused us to reduce prices on these services. We expect that as the retail industry continues to adopt existing and new information technologies, competition and pricing pressures will increase further, and our competitors may adopt new pricing and sales models to which we are unable to adapt or adequately respond. If we have to make further price reductions in connection with such increased competition, such reductions would reduce revenue in future periods to the extent not offset by increased unit sales or other factors and could have a material adverse effect on our business, financial condition and results of operations.

We may not be successful in introducing new products in order to maintain or grow our revenue, and there are risks associated with new product development.

To maintain and grow our revenue, part of our strategy is to introduce new products and services. Our product development and testing efforts have required, and are expected to continue to require, substantial investments. We may not generate from operations or raise from third parties sufficient funds to continue to make the necessary investments in technology. For instance, at the end of 2003, we stopped selling QRS Insight due to a lack of sales. QRS Insight was launched in January 2003 and allowed companies to monitor, escalate and resolve supply chain problems in real-time. While we launched QRS IMPACT^™ and QRS QuickSync^™ earlier this year and to date two customers have licensed these products, there is no assurance that these new products will be commercially successful or that the potential customer leads will result in actual sales. In addition, we may not successfully identify new software applications, or bring new software to market in a timely and efficient manner. If we are unable to develop or introduce new and enhanced software in a timely manner, we may lose existing customers to our competitors and fail to attract new customers, which may adversely affect our performance and results of operations.

The licensing of our enterprise software applications may involve substantial capital expenditures by our retail customers. We believe that our current and potential retailer customers are currently less likely to make such capital expenditures and as a result, our revenue could decline or fail to grow.

We may not successfully complete improvements to QRS Catalogue^™ and QRS IMPACT^™ and development and enhancement of additional collaborative applications for transaction outsourcing and transaction lifecycle visibility as part of an Intelligent Transaction Management technology framework. In addition, the conversion of customers, products and services to these new applications may experience problems or be unsuccessful.

We are investing significant resources and capital in the improvement to our QRS Catalogue^™ and QRS IMPACT^™ and development and enhancement of additional collaborative applications within an Intelligent Transaction Management technology framework for transaction outsourcing and transaction lifecycle visibility, in order to address the needs of our current and future customers. In addition, we regularly evaluate opportunities to accelerate our technology development, including through alliances and licensing. We believe that the successful improvements to QRS Catalogue^™ and QRS IMPACT^™ and additional collaborative applications within a new technology framework are important to our future success in continuing to sell products and services to our existing customers and expanding our presence in new retail sectors and geographies.

We do not have experience in developing a technology framework of the magnitude and complexity we are planning. If the complexity is greater than anticipated or we are unable to recruit and retain individuals with the necessary skills, we may be unable to build the technology framework in the time expected or at an appropriate cost. Delays or a failure in the development of our value-added applications may have an adverse effect on our performance and operating results.

We may not be able to convert our customers from existing technologies to these new applications quickly or without problems.

The market for business-to-business electronic commerce services in the retail industry is intensely competitive.

Many other companies participate in the general supply chain management industry. Some of our competitors and potential competitors have longer operating histories, greater brand recognition, larger customer bases and greater financial and other resources with which to improve and aggressively market their products. In addition, new competitors, such as standards-based organizations or consortia, may enter the market. Our competitors and potential competitors may market, develop or adapt to competing technologies more effectively than we do. A number of our competitors are now under new ownership. We cannot predict the impact of such changed ownership on how these entities may compete with us in the future. In addition, some larger potential customers have chosen to develop their own supply chain management systems internally rather than to utilize the service and product offerings of external providers. All of these competitive factors may adversely affect our business.

If we are unable to successfully integrate or manage other acquired companies and their products, or licensed technologies, our business, results of operations and financial condition may be harmed.

We have experienced difficulty in effectively integrating and managing acquired companies and their products. In 2000, we acquired Image Info and RockPort, companies whose products included software applications. In early 2001, we acquired the minority interest of our subsidiary, Tradeweave, and integrated its operations into ours. In September 2001, we discontinued our Tradeweave Digital Photography service, which had been acquired through our acquisition of Image Info in January 2000. We have limited experience in integrating and managing acquired companies and selling products such as enterprise software applications and related services, such as those acquired from RockPort. Moreover, certain of these acquired services and products do not fit in our traditional network-based recurring revenue business model. Revenue to date from products obtained through these acquisitions has been below our expectations at the times of the acquisitions resulting in the recognition of a significant impairment loss at the end of 2001 and 2003. We continue to evaluate the recoverability of the remaining intangible asset. We may experience additional impairment losses in the future. If we are unable to successfully integrate or manage other acquired companies and their products, or licensed technologies that we use in new products and services, our business, results of operations and financial condition may be harmed.

We may choose to continue to acquire new solutions or to expand our market presence through mergers, acquisitions, joint ventures or other strategic alliances with, or investments in, third parties.

We may choose to continue to acquire new solutions or to expand our market presence through mergers, acquisitions, joint ventures or other strategic alliances with, or investments in, third parties. There are a number of risks associated with such transactions, such as the difficulty of assimilating the operations, technology and personnel of the combined companies; the potential disruption of our ongoing business; the potential disruption or discontinuance of the third party’s business; the diversion of attention of management; the inability to retain key technical and managerial personnel; additional expenses associated with the amortization or impairment of acquired intangible assets; the potential use of cash or assumption of additional debt, and/or a potential issuance of equity that could be dilutive to existing stockholders; the maintenance of uniform standards, controls and policies; and the impairment of relationships with existing employees and customers. We may not succeed in overcoming these risks or any other potential problems encountered in connection with such mergers or other transactions, and such transactions may have a material adverse effect on our business, financial condition and results of operations.

Our operating results may fluctuate from quarter to quarter.

We anticipate that our results of operations may fluctuate for the foreseeable future due to several factors, including changes in the demand for our services and the use of our existing services; changes in customer buying patterns; changes in our pricing policies or those of our competitors; market acceptance of new and enhanced versions of our services and products; customer willingness to purchase products or services offered through or in conjunction with third parties; changes in operating expenses; changes in our strategy; introduction of alternative technologies by our competitors; effect of potential acquisitions and the integration and management of acquired products; and global and economic factors generally and in the industry. In addition, these factors and our limited operating history with enterprise software application licensing make accurate prediction of future operating results difficult or impossible. We have experienced, and may experience in one or more future quarters, operating results that are below our expectations or the expectations of public market analysts and investors. In such an event, the price of our common stock has been, and would likely be, materially and adversely affected.

In addition, the period between initial contact and the implementation of our Enterprise Software Application products is often lengthy and subject to a number of factors that may cause significant delays. These factors include the size and complexity of the overall project and delays in our customers’ implementation of the required software and hardware environments. As a result, the timing of any enterprise software license revenue is difficult to predict, and we are subject to significant variations in license revenue. Delays or cancellations of sales or implementations of any software licenses have had, and may have, a material adverse effect on our business, operating results and financial condition, and have caused, and may continue to cause, our operating results to vary significantly from quarter to quarter.

Because our products and services are complex and perform mission-critical functions, we are vulnerable to product defect and product-related claims.

Our software products are complex and perform critical functions for our customers, and consequently carry inherent risks. For example, our software products may contain undetected errors or failures when first introduced or as new versions are released. The possibility for program errors and failures may increase due to factors including the use of new technologies, the integration of third-party software, or the need for more rapid product development that is characteristic of the software market. We undergo pre-release product testing by our current and potential customers to minimize risks, and our customer license agreements typically contain provisions designed to limit our exposure to potential product-related claims. Nevertheless, such provisions may not always be enforced or enforceable in the various legal jurisdictions in which we operate. There can be no assurance that any errors or failures by our products and services will not subject us to substantial product-related claims. Also, the implementation involves a significant commitment of resources by prospective customers and commonly occurs in tandem with changes in customer business processes. If a customer is unable or unwilling to implement our software products or to adequately change their business process, or if we are unable to adequately support our customers’ implementations or develop our products as quickly as customers expect, our existing and future revenue may be adversely affected and we may be subject to product-related claims by customers.

We are dependent on the IBM value-added network and the BES-IT (formerly IDDX) service.

Pursuant to a contract with IBM that expires on June 30, 2005, we use IBM Information Exchange as the VAN over which we provide customers with most of our QRS Exchange^™ products and services. We depend on IBM Information Exchange for a substantial part of our revenue. Under this contract we also offer a real-time IP-based transaction network product, ITX, through the use of IBM’s Business Exchange Services – Internet Transfer (BES-IT). When our contract with IBM expires, should IBM decide to increase the prices that it charges us or reduce the amount of discounts or allowances we currently receive, and we are not able to pass along such increased costs to our customers, our business, financial condition and results of operations could be materially adversely affected. In addition, pursuant to the IBM contract, we will pay fees to IBM based on the amount of our use of its network services subject to specified minimum payment amounts. If our use of the network services declines, our gross margin will decrease, thereby also adversely affecting our business and operating results.

Because we have no right to control the maintenance and operation of either IBM Information Exchange or BES-IT, we are subject to factors outside of our control that may adversely affect the operation of IBM Information Exchange and BES-IT services, such as network outages and an inability to obtain usage information for billing purposes, and thus may adversely affect our business, results of operations and financial condition. In addition, if IBM becomes unable or unwilling to provide or continue to support IBM Information Exchange or BES-IT services, we would either have to provide these services directly or arrange for another third party to provide such services. We cannot provide assurance that we would be able to do so on a timely basis, if at all, or that the costs of any such arrangements would not materially adversely affect our business and results of operations. Disruption or unavailability of IBM Information Exchange or BES-IT services may have a material adverse effect on our business, results of operations and financial condition.

While we purchase network connectivity and electronic commerce-related services from IBM, a portion of the connectivity services purchased under our agreement with IBM are actually provided by AT&T. IBM and AT&T are free to compete against us, and either of them may compete with us now or in the future. If IBM, AT&T or any other entity markets IBM Information Exchange or BES-IT services to the retail industry or directly to our customers, or permits one or more of our competitors to use and remarket IBM’s Information Exchange or BES-IT services to the retail industry, it could adversely affect our business, financial condition and results of operations.

We license technologies from third parties for certain of our products and services. If we are unable to continue to license such technologies, or if such third parties do not adequately support these technologies, our business may be harmed.

We license and integrate technologies from third parties in certain of our products and services. If we are unable to continue to license any of this third party software, or if the third party licensors do not adequately maintain or update their products for any reason, do not support us as expected or revoke our licenses, we may face delays in the releases of the affected products and services until equivalent technologies can be identified, licensed or developed, and integrated into our products and services. Any such delays

or lack of expected revenue could harm our business, operating results and financial condition. Also, if the third party licensors do not support us as expected, revoke our licenses or violate agreed terms and conditions with the effect that they are better able to compete with us, we may experience a loss of revenue or an inability to gain new revenue.

We are currently reviewing and testing our material internal control systems, processes and procedures in compliance with the requirements of Sarbanes-Oxley Regulation 404.

Sarbanes-Oxley Regulation 404 requires us to review and test our material internal control systems, processes and procedures to ensure compliance. There can be no assurances that such a review will not result in the identification of significant control deficiencies or that our auditors will be able to attest to the adequacy of our internal controls.

We may not be successful in achieving or maintaining acceptance of our products and services in segments adjacent to the general merchandise and apparel segment, which could have a material adverse effect on our business and results of operations.

We have less expertise and experience with the non-general merchandise and apparel (GMA) retail segments, which could lead to difficulty obtaining market acceptance of our products and services. Customers in these non-GMA target segments may have different requirements than our traditional customers in the general merchandise and apparel segment for which many of our products and services were initially developed. In addition, we may need to adopt or adapt to new technologies in order to address the requirements of customers in these non-GMA target segments, and we may be unable to do so. Many of our competitors and potential competitors in these non-GMA target segments have longer operating histories, greater brand recognition and larger customer bases in these segments. We do not know if customers in these segments will prefer our products and services to other products and services available to them. If we are unable to establish a sufficient base of customers in these non-GMA target segments, our efforts may not result in expected or any revenue from these segments, and our ability to sell our products and services to additional customers in those segments may be significantly reduced.

Damage to our data center facility could have a material adverse effect on our business and results of operations.

Our main data center is located in a single facility in Richmond, California. Notwithstanding the precautions that we have taken to protect ourselves and our customers from delivery interruption events, a fire, earthquake or other natural disaster, a virus attack or an accident affecting the data center could disable our computer system. Any significant damage to our data center, or disruption of its connectivity to IBM Information Exchange, BES-IT services or the AT&T network, could have a material adverse effect on our business, financial condition and results of operations.

If our European operations do not perform as expected, our revenue may decline or fail to increase, and operating losses may occur or increase.

We have committed and may continue to commit resources to our European operations and the maintenance of European sales and support capabilities in order to increase revenue from European customers. We expect to incur expenses for adapting our products and services to existing and new technology and business standards in Europe and for localizing our products and services for the European market. We may be unable to adapt our products and services to existing and new technology and business standards in Europe. We do not know if European customers will adopt technology-based solutions for electronic commerce such as ours, nor do we know if European customers will prefer our products and services to other products and services available to them. Geopolitical factors may slow or prevent European customers’ acceptance of products and services by companies in the United States. Even if European customers do accept our products, material revenue may not be generated until we enable these customers’ trading partners to use our products and services, which may take a significant amount of time and expense. Our European operations may not generate expected or any revenue, and if our European operations do not generate sufficient revenue to offset our expenditures, we may experience operating losses.

We may not be able to adequately protect our proprietary technology and information, and we may be subject to claims of infringement.

Intellectual property laws, including copyright and trade secret laws, and contractual provisions afford only limited protection. We may not be able to police unauthorized use of our technologies, software applications, product information database, experience, processes, company and product identifiers, documents or information or enforce intellectual property laws or contractual provisions. In addition, the laws of certain countries in which our products and services may be distributed may not protect our proprietary rights in the same way as the laws of the United States. If unauthorized third parties obtain or use our proprietary technologies, software applications, product information database, experience, processes, company and product identifiers, documents or information, our business, results of operations and financial condition may be materially adversely affected.

Claims by third parties regarding the infringement of alleged intellectual property rights are common in our industry. Although we do not believe that we are infringing or misappropriating any proprietary rights or information of others, we cannot be certain that our products or services do not infringe. Any claims alleging infringement or misappropriation of proprietary rights or information of others, with or without merit, may adversely affect our business, operating results and financial condition.

Certain anti-takeover provisions could discourage attempts to acquire control of us.

We are a Delaware corporation. The Delaware General Corporation Law contains certain provisions that may make a change in control of our company more difficult or prevent the removal of incumbent directors. In addition, our Certificate of Incorporation and Bylaws and our stockholders rights plan contain provisions that may have the same effect. These provisions may have a negative impact on the price of our common stock, may discourage third-party bidders from making a bid for our company or may reduce any premiums paid to stockholders for their common stock.

Our stock price may fluctuate substantially.

The market price of our common stock has fluctuated significantly since the initial public offering of our common stock in August 1993 and could be subject to significant fluctuations in the future based on any number of factors, such as announcements of new services by us or by our competitors; fluctuations in our quarterly financial results or our competitors’; failure to meet guidance we provide to the market; changes in categorization of our stock (e.g., value vs. growth) by third parties; conditions in the Internet commerce, retail information service and high technology industries generally; and conditions in the financial markets generally. The low trading volume of our common stock may adversely affect its liquidity and reduce the number of market makers and/or large investors willing to trade in our common stock, making wider fluctuations in the quoted price of our common stock more likely to occur. The market price of our common stock may continue to experience significant fluctuations in the future.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to market risk associated with changes in interest rates relates primarily to our investment portfolio of marketable securities. We do not use derivative financial instruments in our investment portfolio. The stated objectives of our investment guidelines are to preserve principal, meet liquidity needs and deliver maximum yield subject to the previous conditions. The guidelines limit maturity, concentration, and eligible investments to high credit quality U.S. issuers, such as the U.S. Treasury and other federal, state and local government agencies and highly rated banks and corporations. Our marketable securities profile includes only those securities with active secondary or resale markets to ensure portfolio liquidity.

The table below presents principal amounts and related weighted-average interest rates due by date of maturity for the marketable securities. Our guidelines do not permit investments with maturities in excess of 24 months. At June 30, 2004, the weighted-average maturity of the marketable securities portfolio was 218 days.


(in thousands)	Maturity 2004			Maturity 2005			Total			Fair Value at June 30, 2004
Governmental Agencies	$	230		$	1,480		$	1,710		$	1,703
Corporations		501			—			501			555

Total	$	731		$	1,480		$	2,211		$	2,258

Weighted-average interest rate		2.04	%		1.69	%		1.81	%		1.81	%

Foreign Currency Risk

We have no significant investments outside the United States of America and do not have material transactional foreign currency risk because less than 5% of our billings are in a currency other than the U.S. dollar. We have no significant hedging activity.

Item 4.

Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that

the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in internal controls. No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

On October 8, 2002, Craig Schlossberg, purporting to act on behalf of the former shareholders of Image Info, Inc. filed a lawsuit against the Company and WS Acquisition Corp., one of our wholly-owned subsidiaries (which was renamed Image Info, Inc.), in the Superior Court of California for the City and Country of San Francisco, alleging claims for breach of contract and seeking to recover $2.5 million, plus interest, under a provision of the merger agreement relating to our acquisition of Image Info in 2000. We vigorously defended the lawsuit, which we believed was without merit. To avoid further litigation, in April 2004, we reached a mutually satisfactory settlement agreement with the former shareholders of Image Info that resolves the lawsuit and terminates all claims against the Company. The action has been dismissed. Under the terms of the settlement agreement, we paid $1.9 million during the second quarter 2004 which was less than the $2.5 million liability classified as deferred acquisition payment in our Condensed Consolidated Balances Sheets as of December 31, 2003. See Note 7 to the Condensed Consolidated Financial Statements.

Item 2.

Changes in Securities and Use of Proceeds

(a) On June 17, 2004 the Company and Mellon Investor Services LLC entered into the Second Amendment to the Rights Agreement dated as of October 17, 2002, as amended (the “Rights Agreement”), which exempts the transactions contemplated by the Agreement and Plan of Merger, dated as of June 17, 2004, by and among the Company, JDA Software Group, Inc. and CVP2 Corp., from the application of the Rights Agreement.

Item 3.

Defaults upon Senior Securities

None

Item 4.

Submission of Matters to a Vote of Security Holders

The Company’s annual meeting of stockholders was held on June 8, 2004 to consider and vote upon three matters. The first matter related to the election of two director nominees, Charles K. Crovitz and John P. Dougall, to serve a three-year term ending in 2007. The votes cast and withheld for such nominees were as follows:


Name	For	Withheld
Charles K. Crovitz	13,692,170	622,096
John P. Dougall	13,285,670	1,028,596

The second matter related to the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm of the Company for the fiscal year ending December 31, 2004. 13,889,500 votes were cast for ratification, 423,258 votes were cast against, and there were 1,508 abstentions and no broker non-votes.

The third matter related to the adoption of the 2004 Employee Stock Purchase Plan, under which 250,000 of the Company’s common stock would be reserved for issuance. 8,707,526 votes were cast for approval, 1,777,517 votes were cast against, and there were 72,866 abstentions and 3,756,357 broker non-votes.

Based on these voting results, each of the directors nominated was elected and the second and third matters were passed.

Item 5.

Other Information

As previously disclosed, JDA has filed a registration statement on Form S-4 with the SEC in connection with the proposed merger between the Company and JDA. The registration statement covers the shares to be issued as part of the merger between the two companies. Following any SEC review of the registration statement, the joint proxy statement/prospectus, which is a part of the registration statement, will be sent to JDA’s and the Company’s stockholders in connection with separate stockholder meetings to be held for the purpose of approving the merger. In connection with the proposed merger, JDA has also cleared antitrust regulatory review with written notice from the Federal Trade Commission Pre-merger Notification Office of early termination of the waiting period imposed by the Hart-Scott-Rodino Antitrust Improvements Act.

In addition, as previously disclosed, the Company received an unsolicited proposal to acquire all of the outstanding shares of the Company from a group led by Avling Partners, LLC, an affiliate of Mr. Peter R. Johnson, who is a greater than 5% stockholder of the Company, and GTCR Golder Rauner, LLC (the “Avling/GTCR Group”). The proposal from the Avling/GTCR Group contemplated an acquisition of the Company for $6.75 per share in cash, subject to satisfactory completion of due diligence and execution of definitive documentation. On August 3, 2004, the Schedule 13D of Mr. Johnson was amended to indicate that the Avling/GTCR Group had withdrawn its proposal to acquire the outstanding shares of the Company.

In addition, as previously disclosed, the Company has received two other unsolicited proposals to acquire all of the outstanding shares of the Company’s common stock for cash. Each proposal was non-binding and subject to satisfactory completion of due diligence and execution of definitive documentation. The Company continues to engage in discussions with these two potential acquirers. In connection with these discussions, the Company has received a revised non-binding proposal from one of these potential acquirers, a privately-held company and its majority investor. The revised proposal increased the price per share from $6.25 to $7.25 per share in cash, and remains subject to satisfactory completion of due diligence and execution of definitive documentation.

In addition to these acquisition proposals, the Company has received an additional unsolicited proposal from a public company and a private equity firm to acquire the outstanding shares of the Company’s common stock for cash consideration between $6.00 - $7.00 per share, subject to satisfactory completion of due diligence and execution of definitive documentation. The Board of Directors of the Company reviewed this proposal and determined that engaging in discussions with these potential acquirers was in compliance with the terms of the JDA merger agreement, and the Company has begun discussions with these potential acquirers regarding their proposal.

The Company’s Board of Directors has not withdrawn, modified or changed its recommendation of the proposed merger with JDA, and the Company intends to fully comply with the terms of the JDA merger agreement and proceed to close the proposed merger with JDA, subject to the Company’s rights to terminate the JDA merger agreement contained therein. The Board of Directors of the Company, with the assistance of its legal and financial advisors, will continue to discuss and evaluate the acquisition proposals it has received in accordance with the Board’s fiduciary duties and the terms of the JDA merger agreement. At this time, the Company’s Board of Directors cannot predict whether any potential acquirers will amend or withdraw their proposals, whether any of the unsolicited acquisition proposals it has received will develop into a firm offer for the acquisition of the Company, whether any firm offer will be considered to be superior to the proposed merger with JDA, or whether, if the Company accepted any firm offer, a resulting transaction would be completed.

Item 6.

Exhibits and Reports on Form 8-K

A. Exhibits


Exhibit Number		Description
2.1		Agreement and Plan of Merger, dated as of June 17, 2004, by and among the Company, JDA Software Group, Inc. and CVP2 Corp., including the forms of Voting Agreements attached as Exhibits A and B thereto (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K dated June 18, 2004).
4.4		Second Amendment to the Rights Agreement, dated as of June 17, 2004, between the Company and Mellon Investor Services LLC (incorporated by reference to Exhibit 4.3 to the Company’s Amendment No. 2 to Registration Statement on Form 8-A/A filed with the Securities Exchange Commission on June 17, 2004).
10.58		Amendment to IBM Business Partner Agreement dated April 27, 2004 between the Company and IBM Corporation.
10.59		Employment Agreement between the Company and James Rowley, dated May 1, 2004.
10.60		2004 Employee Stock Purchase Plan (incorporated by reference to Appendix A filed with Company’s Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders on June 8, 2004).
10.61		Employment Offer Letter among JDA Software, James Rowley and the Company, dated June 16, 2004.
10.62		Employment Offer Letter among JDA Software, Ray Rike and the Company, dated June 16, 2004.
31.1		Form of Rule 13a-14(a) Certification
31.2		Form of Rule 13a-14(a) Certification
32.1		Section 1350 Certification
99.1		Specific Risk Factors Relating to the Pending Merger of QRS Corporation and JDA Software Group, Inc. These risk factors appear on pages 15 through 20 of the Preliminary Joint Proxy Statement/Prospectus included in the Registration Statement on Form S-4 (file No. 333-117674) filed by JDA Software Group, Inc. with the Securities and Exchange Commission on July 26, 2004.

B. Reports on Form 8-K


Date		Item Reported
May 5, 2004		We filed a Current Report on Form 8-K dated May 5, 2004 to furnish our press release announcing our financial results for the first quarter ended March 31, 2004 under Item 12 thereof.

June 18, 2004		We filed a Current Report on Form 8-K dated June 18, 2004 announcing the Agreement and Plan of Merger, dated as of June 17, 2004, by and among the Company, JDA Software Group, Inc. and CVP2 Corp. under Item 5 thereof.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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.


		QRS CORPORATION

Date: August 6, 2004		/s/ ELIZABETH A. FETTER
		Elizabeth A. Fetter President, Chief Executive Officer and Director (Principal Executive Officer)

Date: August 6, 2004		/s/ DAVID B. COOPER, JR.
		David B. Cooper, Jr. Senior Vice President, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

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QRS CORP 10-Q