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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended December 31, 2001

Commission file number 0-21958

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QRS Corporation(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or
organization)

68-0102251(I.R.S. Employer identification No.)


1400 Marina Way South, Richmond, California 94804(Address of principal executive offices, including zip code)

(510) 215-5000(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share
(Title of Class)

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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 ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

As
of March 4, 2002, there were 15,630,898 shares of common stock outstanding. The aggregate market value of common stock held by non-affiliates of the Registrant as
of March 4, 2002 was approximately $91,814,246 based upon the closing price for shares of the Registrant's common stock on that date as reported by The Nasdaq National Market. Shares of common
stock held by each officer, director and holder of five percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of Stockholders are incorporated by reference into Part III of this
Form 10-K.

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QRS CORPORATION  2001 FORM 10-K ANNUAL REPORT  TABLE OF CONTENTS

|         |  |                                                                                       |  |   
|-------- |  | ------------------------------------------------------------------------------------- |  | --
|PART I   |  |                                                                                       |  |   
|Item 1   |  | Business                                                                              |  | 3 
|Item 2   |  | Properties                                                                            |  | 17
|Item 3   |  | Legal Proceedings                                                                     |  | 17
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  | 17
|PART II  |  |                                                                                       |  |   
|Item 5   |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 18
|Item 6   |  | Selected Financial Data                                                               |  | 19
|Item 7   |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 21
|Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 41
|Item 8   |  | Financial Statements and Supplementary Data                                           |  | 42
|Item 9   |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 73
|PART III |  |                                                                                       |  |   
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  | 73
|Item 11  |  | Executive Compensation                                                                |  | 73
|Item 12  |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 73
|Item 13  |  | Certain Relationships and Related Transactions                                        |  | 73
|PART IV  |  |                                                                                       |  |   
|Item 14  |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 74
|         |  | SIGNATURES                                                                            |  | 77

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PART I

Item 1. BUSINESS

Except for the historical financial information contained herein, the matters discussed in this report may be considered "forward-looking"
statements under federal securities laws. Such statements include declarations regarding our intentions, beliefs, expectations or strategies. We assume no obligation to update any forward-looking
statements. 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 and "Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of OperationsRisks Relating to Our Business" as well as those that may be identified from time to time in our reports and registration statements filed with the Securities and
Exchange Commission.

General

QRS Corporation ("QRS," the "Company", or "we" or "us") was established in 1988 and today is a leading provider of supply chain technology for the retail
industry. Our products and services help thousands of retailers, manufacturers, suppliers, vendors, wholesalers and distributors to better plan, source, buy and sell, finance, price, merchandise,
deliver and replenish products to increase revenues, decrease costs and reduce product cycle times. We provide value-added software and services to retailers, manufacturers, suppliers, vendors,
wholesalers and distributors enabling them to transact business, share information, and collaborate on decisions regarding consumer demand, forecasting, inventory management, production, and
logistics. Our products and services are integrated with our customers' enterprise systems in order to deliver greater benefits and efficiencies. Our solutions enable secure and profitable
relationships among retailers, manufacturers, suppliers, vendors, wholesalers and distributors.

We
market our products and services in three Solutions Groups: Software Applications, Trading Community Management, and Global Services. Our Software Applications allow for automated
data synchronization, collaborative sourcing and supply, financial order management, international logistics
and customs management, collaborative planning and online merchandising. Our Software Applications include both enterprise applications installed on customers' computer systems as well as hosted
applications installed on our computer systems. Our Trading Community Management solutions allow retailers and their trading partners to exchange electronic business documents (such as purchase
orders, invoices, advanced shipping notices), as well as collaborative business processes, thus eliminating paper, mail delays, and keypunch data errors as these electronic business documents are
integrated with trading partner's accounting and inventory systems. Our Global Services include the collection, analysis and delivery of information, such as pricing and operational merchandising
metrics, for use in strategic and tactical decision making; software implementation and integration services; retail solutions consulting; and technical support and training services for our various
solutions.

In
February 2001, we announced a reorganization plan for our operations that included the integration of QRS and our subsidiary Tradeweave, Inc. ("Tradeweave"), eliminating
77 full-time positions and closing our San Francisco office, as well as the alignment of our organization with a single go-to-market strategy described below under
"QRS Strategy" in Item 1. In September 2001, we shut-down our Tradeweave Digital Photography Group, eliminating 17 full-time positions and closing our New York digital photography
studio. Since October 2001, we hired four of our nine current executive officers, including the appointment of Elizabeth A. Fetter as President and Chief Executive Officer in
October 2001. During the fourth quarter of 2001, under the leadership of our new management, we further restructured our operations by realigning our products and services, eliminating 69
full-time positions and further consolidating our use of real estate. Information concerning our restructuring expenses and impairment losses and related financial information are
summarized in Notes 6 and 7 to Consolidated Financial Statements and elsewhere under "Item 8Financial Statements and Supplementary Data."

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Industry

The retail industry is highly fragmented and includes thousands of retailers, manufacturers, suppliers, vendors, wholesalers and distributors. It is characterized
by multiple product sourcing options, a wide array of products and product options, and multi-channel shopping venues that include retail stores, outlet malls, mail-order catalogs, and
various Internet sites. Competition for retail customers and wholesale orders is intense, and it is important that industry participants be able to meet consumer demand quickly, accurately and at the
lowest possible cost.

In
the mid-1980s, a cooperative industry effort to better enable the electronic processing of data led to the creation of certain data format standards, including electronic
data interchange ("EDI"), uniform product code ("UPC") and, in Europe and other international markets, the European article number ("EAN") standards. EDI is a standard data format for electronic data
communication between businesses such as retailers and suppliers, which can be sent over a private value-added network (VAN) or over the Internet. The UPC and EAN data formats allow for the consistent
identification of merchandise throughout the supply chain process, from product design to the point of sale. These
technologies provided retailers, manufacturers, suppliers, vendors, wholesalers and distributors the opportunity to significantly reduce the cost and improve the efficiency of their supply chains. For
example, the use of UPC and EAN data greatly increases the efficiency with which retailers and manufacturers can mark, track and exchange detailed product information. A portion of QRS' business
remains focused on enabling the retail industry's supply chain management capabilities through the use of these communications standards.

In
recent years, more and more software applications are being used by businesses to improve collaboration with various partners and automate processes in their supply chains. Such
software applications are generally focused on enabling real-time data sharing and collaboration across various supply chain activities, including product design, sourcing, demand
forecasting, collaborative assortment planning, purchasing, logistics, distribution, pricing, sales, analysis, replenishment, sales analysis, and surplus disposition. In many such situations, however,
significant investment in the re-engineering of internal software applications and processes is required to implement these solutions successfully. Moreover, significant variations in the
form and sophistication of technology exist across the retail industry, and existing technology critical to current operations must be integrated with new initiatives.

We
believe that QRS is well positioned to help enable retail industry participants improve the quality of their supply chain management processes. We continue to provide the EDI services
upon which many of the industry's current electronic commerce initiatives rely to build product awareness and expand sales efforts in additional markets; these EDI services serve as the platform from
which we offer our other products and services. Additionally, while we will continue to expand our solutions that take advantage of the Internet, we believe the retail industry will continue for some
time to utilize private or value-added networks, due to participants' investment in existing infrastructure, their need to maximize their return on that investment, the existence of
well-defined communications standards, the reliability and security of such solutions, and costs of converting to a new computing/communications regime.

QRS Strategy

Our mission is to provide our customers with supply chain solutions that increase revenues, decrease costs and reduce cycle times throughout the entire product
life cycle. Key elements of our strategy include:

Expanding software applications sales and marketing efforts.We believe that we can increase our presence in the rapidly
growing supplier relationship management, international trade logistics, and supply chain event management markets. Retailers and vendors are increasingly focused on the large and rapid return on
investment that these applications can deliver to their bottom lines. We believe the

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solutions that we will offer in each of these areas can help provide the benefits that vendors and retailers are seeking.

Enhancing distribution efforts through additional implementation relationships.Historically, the majority of our sales have
been generated by our own direct sales force, although we have also established relationships with system integrators, consulting firms and similar sales channels. While our direct sales presence
allows us to focus attention on our customer communities, system integrators and other secondary sales channels play an important role in the technology selection process of many of our larger
customers. We thus believe that expanding our relationships with these other channel partners, both in depth and in number, will benefit our competitive position.

Expanding our cross-selling efforts.While we have traditionally introduced existing customers to the full suite of QRS
solutions, we are focusing on increasing our efforts in this area. Our customers include retailers, manufacturers, suppliers, vendors, wholesalers and distributors of all sizes and across all segments
of retail. We plan on increasing our penetration of this existing customer base by comprehensively reviewing with them the full range of QRS software applications, trading community management
solutions and global services.

Expanding our presence in the grocery and consumer packaged goods (CPG) markets.We continue to believe that significant
opportunities exist to deliver value to retailers, suppliers, and service providers in the highly competitive grocery / CPG market. In this area of retail, where gross margins are relatively thin, we
believe that our solution suite can significantly improve our customers' businesses. Given the current focus on QRS Retail Intelligence Service in our grocery relationships, we also believe that a
significant cross-sell opportunity exists. The QRS product suite, which has historically been GMA focused, can be relatively easily adapted to the distinct needs of our grocery / CPG
customersallowing us to take advantage of the cross-sell opportunity.

Expanding our presence in the European market.We will continue to invest in our European sales and operations to grow our
share of the supply chain technology market there. We believe that the European market has a smaller installed base of supply chain management solutions in the retail sector, so that it thus
represents a significant growth opportunity for us. We see continued demand for supply chain solutions in Europe, and we believe that our products and services will effectively meet that demand.

Adapting the delivery of our services to changing market conditions.We have and will continue to roll out Internet-based
delivery and communications options. These will complement our existing value-added network and off-line delivery and communications options. We intend to continue to ensure that when our
customers choose our solutions, they and their trading community are able to access that solution using whatever communications option is best for them.

Further broadening our direct sourcing product offering.As we continue to expand the installed base of software applications
customers, we are broadening the functionality of this product to respond to various customer needs. The overseas sourcing process, in particular, is costly and complex for market participants and, we
believe, represents a significant opportunity for us to differentiate ourselves from our competitors.

Continuing to leverage our market presence and industry expertise.Our 14 years of focus on the supply chain
management needs of the retail industry greatly help us in shaping solutions for it. Based on our experience in serving retail industry customers, we believe that we understand the retail industry and
that such understanding is a key competitive factor in addressing the needs of our customers.

Staying focused on customer satisfaction.It is important that our customers and their trading communities get the most out
of our solutions. As a company, we focus significant resources on the implementation of our solutions within our customers and to their entire trading community. We

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additionally proactively solicit feedback from our customers about their experience with our products and services. We continually use this formal and informal feedback to improve our offering and
respond accordingly.

QRS Solutions

The products and services sold or licensed by QRS are designed to enable retailers, manufacturers, suppliers, vendors, wholesalers and distributors to better
plan, source, buy and sell, finance, track, price, merchandise, and replenish products so that they might increase revenues, decrease costs and reduce product cycle times. Our early products and
services focused on providing network connectivity between trading partners that featured value-added functionality that enabled those partners to transact business, share information, and collaborate
on decisions regarding consumer demand, forecasting, inventory management, production, and logistics. Our QRS Sourcing application, introduced in 2000, goes a step further by helping our customers
manage long-term purchasing activity and relationships by assisting them in planning analysis, process management, supplier management, negotiation, and content management. Our service
solutions assist customers in integrating our other solutions with the customers' back-end and supply chain management systems in order to deliver even greater benefits and efficiencies.
We also offer solutions that provide benefits to the front-end/merchandising side of our customers' businesses. We market our solutions as a comprehensive family that provides customers
with an integrated source for implementing the various collaborative commerce solutions and on a stand-alone basis to allow customers to utilize portions of our products and services for more targeted
needs.

The
present QRS solution suite has grown out of our Tradeweave Collaboration & Commerce, Tradeweave Business Intelligence, Tradeweave Message Exchange and Tradeweave Service
offerings from 2001. As of March 2002, we market our solutions in three primary Solutions Groups: Software Applications, Trading Community Management, and Global Services. The following chart
shows our current product and service names compared to the product and service names used in last year's Annual Report on Form-10K.

|Current Product and Service Names |                                  | Former Product and Service Names
|--------------------------------- | -------------------------------- | --------------------------------
|Software Applications             |                                  |                                 
|                                  | QRS Sourcing                     |                                 
|                                  | QRS Merchandising                |                                 
|                                  | QRS Showroom                     |                                 
|                                  | QRS Catalogue                    |                                 
|Trading Community Management      |                                  |                                 
|                                  | QRS Exchange                     |                                 
|Global Services                   |                                  |                                 
|                                  | QRS Professional Services        |                                 
|                                  | QRS Retail Intelligence Services |                                 

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Current Products and Services Descriptions

|Software Applications |  | Description                                                                                                                                                                             
|--------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|QRS Sourcing          |  | Enterprise software applications that allow for collaborative sourcing and supply, financial order management, international logistics and customs management.                          
|QRS Merchandising     |  | Enterprise software applications that enable collaborative planning and the execution of merchandising strategies.                                                                      
|QRS Catalogue         |  | Hosted software application that provides extensive data synchronization and automated update capability including price, style, color, size and more than 450 other product attributes.
|QRS Showroom          |  | Hosted software application that allows branded and private-label vendors to create customized, targeted on-line merchandise presentations for their retail buyers.                     

|Trading Community Management |  | Description                                                                                                                                                                                                                                             
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|QRS Exchange                 |  | The Exchange solution is comprised of various technologies to enable trading partners of all sizes into the trading community.                                                                                                                          
|                             |  | Data Exchangeis an electronic mailbox service that accommodates information from standard-format to EDI and free format over a value-added network.                                                                                                     
|                             |  | Internet Transaction Exchange (ITX)is a hosted IP-based solution with real-time data and document delivery for the retail industry. This solution utilizes open standards and enhanced
options while bridging legacy systems with Internet environments.
|                             |  | Enterprise Business Exchange (EBX)is enterprise software that provides real-time data and document delivery that helps companies connect, integrate and optimize business
operations.                                                                   
|                             |  | Web Formsis an Internet-based means of sending and receiving EDI documents, aimed at streamlining the purchasing and procurement process.                                                                                                               
|                             |  | Managed ECoutsourcing centers that enable small and medium-sized companies to participate (without significant investment) in EDI networks via simple fax and e-mail
communications.                                                                    
|                             |  | Access Servicesprovide high-speed managed connections over dedicated lines or networking connections via remote access to the AT&T Global Network.                                                                                                      

|Global Services                  |  | Description                                                                                          
|-------------------------------- |  | -----------------------------------------------------------------------------------------------------
|QRS Retail Intelligence Services |  | Competitive price audit, price scan verification, retail price analyzer and data collection services.
|QRS Professional Services        |  | Consulting, technical support, training and enabling services.                                       

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Software Applications

QRS Sourcing.Our sourcing software application is designed to enable customers to improve their
collaborative sourcing and supply capabilities, financial order management, international logistics and customs management, and collaborative merchandising efforts. Version 6.0 of the software,
released in November 2001, features a Web-based interface and features improved product development process and ordering functions. It also introduced a
point-and-click ordering screen and image line list that simplifies the generation and placement of orders.



QRS Merchandising.The merchandising application allows planners to create buy plans with multiple
"what-if" scenarios and to work at the cluster level to update style information as a product line is developed. The visibility provided into both factory commitments and market-week sales
data allows vendors to order against seasonal plans in real time. As a result, vendors are able to respond more quickly to changing market conditions and to better manage supply and demand.

QRS Catalogue.The QRS Catalogue data synchronization application features the largest centralized
product information database for the retail industry consisting of information on over 90 million products. It features multiple access options, including a Web-based user
interface, EDI and extensible markup language ("XML"), or real-time application integration, and extensive data synchronization that allows vendors to provide a single
catalog for all their trading partners. The QRS Catalogue enables retailers and their vendors to complete orders more quickly, better check product prices, simplify returns processing, and feed
product replenishment systems with more accurate and relevant models.

QRS Showroom.The QRS Showroom software application enables vendors and private-label groups to
create customized, targeted on-line merchandise presentations for their retail buyers. Users can perform a visual review of merchandise simply via access to a standard Web browser. A
simple point-and-click interface creates targeted, customized merchandise presentations and pricing, and multiple data formats (including EDI, XML, fax and e-mail)
enable integration with legacy communications systems.

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Trading Community Management

QRS Exchange.The value-added communications solution suite allows trading partners to send, receive,
route, and store for retrieval various data, commercial transactions and documents in multiple technologies. This solution includes Data Exchange, Internet Transaction Exchange, Enterprise Business
Exchange, Web Forms, Managed EC and related access and support services.



Global Services

QRS Retail Intelligence Services.Retail Intelligence Services include a family of competitive price
audit, retail price analyzer, price scan verification, and data collection services. Such competitive intelligence enables our customers to leverage important product and consumer information in their
strategic and tactical decision-making processes.

QRS Professional Services.Professional Services provides customers with expertise in a wide variety
of retail technology situations. We believe that an important factor in the success of any collaborative process lies in the ability for customers and trading communities to have access to the
enablement, integration and training required to take full advantage of the applications being used. Our

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Professional Services group provides customers with comprehensive integration, training, and support services. We also operate a 24-hour hotline for customers and have a program to
regularly contact customers to ensure customer satisfaction, currency of catalog data, and maximization of trading partner opportunities. Other forms of customer support services include
e-mail and Web-based support, documentation and updates.

Customers

Our original focus was on providing products and services to the general merchandise and apparel segment of the retail industry. This remains QRS' largest and
most important segment within the retail industry. However, we have considerably broadened our customer base across other segments of the industry. Our QRS Retail Intelligence Service operation has
allowed us to penetrate the grocery and mass merchant segments, and our QRS Sourcing software has assisted us in expanding into a number of specialty retailing segments.

The
Company's North American customers are among the most recognizable names in retail, such as Dillard's Inc., Federated Department Stores Inc., H.E. Butt Grocery Co.,
Home Depot Inc., Jones Apparel Group Inc., Leslie Fay Co. Inc., Liz Claiborne Inc., Pillowtex Corp. and Sara Lee Corp., Sears, Roebuck and Co. and VF Corp. Today, QRS' U.S.
customers include:



We
also have a number of international customers including Karstadt Quelle AG, Argos Retail Group, Selfridges plc and The Lane Group.

Sales and Marketing

We have a comprehensive marketing program that includes print advertising, public relations campaigns, direct mailings, industry events including industry
conventions, trade shows, user groups, analyst programs, and speaking engagements. We have initiated a renewed marketing effort for the full suite of QRS products and services and engaged
full-service advertising, public relations and investor relations agencies to help us promote our message. We also use our Website to enhance our market presence and generate additional
leads.

We
primarily sell our products and services to the global marketplace directly through our field sales force and our telesales group. Sales prospects are drawn from a wide range of
industry contacts, including retail industry conventions, trade shows, technology user groups and referrals. Our sales force utilizes a consultative approach, focused on establishing the benefits of
our products and services to chief executive officers, senior merchandising executives, information technology executives, and other management of existing and prospective customers.

Our
sales cycle often involves an initial focus on a large retailer and a subsequent effort to reach out to its network of vendors and trading partners. When large retailers or vendors
use our services they may recommend or require their trading partners to use our products and services to transact with them. Large retailers or vendors may have thousands of trading partners. Once a
large retailer or vendor becomes a customer, our telesales group then contacts their trading partners to explain our services and to explain how to become enabled to transact with the retailer or
vendor.

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We offer our QRS Sourcing software application products to customers through licenses. The licensing of these products is often an enterprise-wide decision and generally
requires us to provide a significant level of education to prospective customers regarding the use and benefits of our products. In addition, the implementation of our software application products
often involves a significant commitment of resources by prospective customers and commonly occurs in tandem with changes in customer business processes. The cost to the customer of a license is
typically only a portion of the related hardware, software, development, training and integration costs of implementing a large-scale electronic commerce software system. In recent periods in
particular, our sales of QRS Sourcing application software have been adversely affected by the retail industry's economic difficulties as well as the pronounced slowdown in the software industry
generally. Many potential customers of our software application products have delayed or extended their purchasing decisions.

For
these and other reasons, the period between initial contact and the implementation of our software application products is often lengthy and subject to a number of factors (over
which we have little or no control) that may cause significant delays. These factors include the size and complexity of the overall project and delays in our customers' implementation of
Web-based computing environments. Moreover, a significant portion of any revenues for Sourcing software applications realized in a quarter are typically derived from a small number of
relatively large license sales. As a result, the timing of our license revenue is difficult to predict, and we are subject to significant variations in license revenues. Delays or cancellations of
anticipated sales or implementations of even a limited number of license transactions have had, and may continue to 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.

While
our direct sales presence allows us to focus attention on our customer communities, system integrators and other secondary sales channels play an important role in the selection
process of many of our larger customers. Although we have some established relationships with system integrators, consulting firms and similar sales channels, we intend to seek new such relationships
with other channel partners, both in depth and in number, with the goal of broadening our market coverage and thus improving our competitive position.

One
such new relationship is with MAGIC International, a subsidiary of Advanstar Communications and a leading organizer of tradeshows for the fashion and apparel industry, to establish
an online trading community, "MAGIConline Powered by QRS." This Web site will allow customers to create electronic merchandise showrooms that buyers can visit to conduct
pre-season planning, purchasing and in-season replenishment. The site will take advantage of our QRS Showroom product, as well as the QRS Catalogue, giving vendors and
retailers a new way to engage in electronic trading.

Another
new relationship is with Cyclone Commerce, a provider of trading management solutions. Under this contract, entered into in January 2002, QRS will be a Cyclone preferred
trading community enablement partner in the retail industry. In addition, both parties have agreed to enter into joint product development initiatives in an effort to enhance Cyclone's
Interchange® product for use by customers of the QRS Catalogue. We believe that this partnership will help address challenges certain of our customers face of extending electronic business
relationships to their entire trading community.

Although
we seek to maintain close relationships with these alliance partners and other third parties such as system integrators, consulting firms and similar service providers, many of
these third parties have similar and often more established relationships with our competitors. We also cannot assure you that these third parties, many of which have significantly greater resources
than us, will not market services and products in competition with us in the future or will not otherwise reduce or discontinue their relationships with or support of us and our products. There can
also be no assurance that we will not be presented with "channel conflicts," or instances in which discount policies and

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reseller licensing programs present overlap or similar issues with respect to these third party channel partners. We have generally avoided exclusive relationships with resellers of our products, and
our discount policies and reseller licensing programs are intended to support each distribution channel with a minimum level of channel conflicts. Nevertheless, our failure to minimize channel
conflicts could materially and adversely affect our business, operating results and financial condition.

Competition

Competition in the market for the provision of our products and services has become more intense in recent years and is expected to increase. In our traditional
EDI services market, we compete primarily with General Electric's Information Solutions division; Sterling Commerce, a division of SBC Communications; Peregrine Systems; and viaLink. We also compete
with smaller private companies such as bTrade and Internet Commerce Corp., and with new application vendors such as IPNet Solutions. In our market for sourcing software applications, we compete
primarily with Retek, Manugistics, JDA Software, i2 Technologies, MarketMax and Tomax. Numerous other companies participate in the supply chain management industry generally. Many 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, 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.

We
believe the primary competitive factors in the retail market for supply chain management solutions include the breadth and quality of offered services; price; the size and nature of
any existing customer base; customer service and support; the focus on, presence in and knowledge of the retail industry; the ability to offer product, merchandise and other related content; and the
capacity to enable relationships among trading partners. We believe the retail industry will continue for some time to utilize private or value-added networks in connection with its supply chain
management initiatives, largely because
significant variation remains in the form and sophistication of other retail electronic commerce solutions and because purchasers of such alternative solutions must often expend significant resources
to integrate their existing electronic commerce technologies with any new technology. We also believe that the management of trading partner communities will continue to be crucial to the retail
industry, even as new technologies continue to be developed, and that industry participants prefer to rely on a trusted third party who is able to provide supply chain management solutions that can be
easily integrated with existing equipment and infrastructure.

Nevertheless,
the increasing use of the Internet as a communications medium has rapidly changed the competitive environment of our industry. The supply chain management industry is now
characterized by rapid technical innovation. While we continue to develop solutions that take advantage of the Internet's promise, the majority of our revenues for the foreseeable future are expected
to derive from our traditional EDI services, which are not Internet-based. We cannot predict with any assurance whether the demand for Internet-related products and services will increase or decrease
in the future; however, the future success of our services may depend, in part, on our ability to continue developing products and services that are compatible with the Internet. 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. There can be no assurance that
our competitors and potential competitors will not succeed in developing competing technologies that are more effective or more effectively marketed than the services and products marketed by QRS or
that would render our services or products obsolete or noncompetitive.

In
addition, the changed technological landscape and the desire of companies to obtain market share has resulted in increased price competition, particularly in our traditional EDI
services market. This competition has caused us from time to time to reduce prices on these services. As the industry continues to develop, we expect competition and pricing pressures will increase.
If we are forced to

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effect further price reductions in connection with such increased competition, such reductions would reduce net sales in future periods to the extent not offset by increased unit sales or other
factors. Price reductions in response to competitive pressures could have a material adverse effect on our business, financial condition and results of operations.

IBM Relationship

Since 1988, we have used the IBM value-added network ("VAN") as the network platform over which we provide customers with most of our QRS Exchange products and
services. We do not operate our own VAN. Our agreement with IBM includes the purchase of a certain amount of network services for a fixed fee over a 2-year period ending
December 31, 2002. If our usage of the network services exceeds the specified usage volume, we will pay an incremental fee for such excess usage based on a schedule of charges. This agreement
also allows for the purchasing of additional/other services at a discounted rate, with no volume commitments or penalties. In April 1999, AT&T purchased IBM's Global Network and corporate
networking business. The services we purchase from IBM under our agreement include both network connectivity and electronic commerce related value added services. We have continued to
acquire our network service requirements pursuant to the terms of our agreement with IBM with the delivery of a portion of these services provided by AT&T.

Data Center

Our QRS Catalogue and QRS Showroom software applications run on a computer system contained in our data center facility in Richmond, California. The data center
operates 24 hours a day, seven days a week, and is connected to our network provider through three leased data circuits in two routings (with a back-up routing also available) to
ensure availability. The data center consists primarily of leased mainframe, client/server, disk storage, tape drive, and other peripheral technology to provide online, batch, and back-up
operations. Customer and content data is backed up and shipped off-site daily. Our facility and data center are both secured with controlled access doors, and the data center is equipped
with a Halon fire protection system, an uninterrupted power supply, and a diesel generator permitting 24 hours of continuous electrical power. The data center has an isolated power source
separate from the remainder of the facility. We have also contracted for an alternative operations facility in the event of physical disaster.

Service and Product Development

In order to compete actively in the business-to-business electronic commerce services market, we will invest in the development of new and
existing services and supporting technology. We have designed our service infrastructure to yield significant benefits to our customers in performance, scalability, availability and reliability. We
are focused on the development and upgrading of our services technology and architecture. We are not involved with the development, maintenance and operation of the IBM VAN. Service and product
development expenses were $8.6 million in 1999, $9.2 million in 2000, and $13.0 million in 2001. In 1999, 2000 and 2001, we capitalized $5.8 million, $5.5 million
and $2.5 million of service and product development costs, respectively. As described in Note 7 to Consolidated Financial Statements, we recognized an impairment loss of
$4.3 million in 2001 related to the write-off of capitalized service and product development costs.

Proprietary Rights

We rely primarily on a combination of patent, copyright, trade secret and trademark laws, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also believe that the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product
maintenance are essential to establishing and maintaining a technology leadership position. We seek to protect our software, documentation and

13

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other written materials under patent, trade secret and copyright laws. We seek to protect our product information database through copyright laws. We have filed one patent application in connection
with our software.

We
have entered into agreements with many of our software application customers that require us to place our software application source code into escrow. Such agreements generally
provide that such parties will have a limited, non-exclusive right to use such code if (i) there is a bankruptcy proceeding by or against us, (ii) we cease to do business or
(iii) we fail to meet our support obligations.

Intellectual
property laws afford only limited protection. Any patents issued to us may be invalidated, circumvented or challenged, and pending or future patent applications may not be
issued with the scope of the claims we seek, if at all. Existing copyright laws afford only limited protection, and we may not be able to police unauthorized use of our services, proprietary
technology, or information. In addition, the laws of certain countries in which our products and services may be distributed may not protect our proprietary rights as fully as do the laws of the
United States. If unauthorized third parties obtain and use our proprietary technology and information, our business, results of operations and financial condition may be materially adversely
affected. In addition, claims by third parties regarding the infringement of alleged intellectual property rights often occur in our industry. Although we do not believe that we are infringing any
proprietary rights of others, any such third-party claims may similarly materially adversely affect our business, operating results and financial condition.

Employees

At December 31, 2001, we had 558 full-time employees including:



In
addition, at December 31, 2001, we employed 1,056 part-time employees, primarily in connection with QRS Retail Intelligence Services. We also use contractors from
time to time as our business requires.

Our
employees are not covered by a collective bargaining agreement. We have never experienced an employment-related work stoppage and we consider our employee relations to be good.

14

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Executive Officers

The executive officers of the Company and their positions as of March 10, 2002 are as follows:

|Name                 |  | Age |  | Position                                                             
|-------------------- |  | --- |  | ---------------------------------------------------------------------
|Elizabeth A. Fetter  |  | 43  |  | President and Chief Executive Officer and Director                   
|John C. Parsons, Jr. |  | 50  |  | Senior Vice President and Chief Financial Officer                    
|John S. Simon        |  | 45  |  | Executive Vice President of Customer and Market Development          
|Candy S. Smith       |  | 43  |  | Senior Vice President, Global Services                               
|Leonard R. Stein     |  | 46  |  | Senior Vice President, General Counsel and Secretary                 
|Fred L. Ruffin       |  | 45  |  | Senior Vice President, Human Resources                               
|Brian P. Marsden     |  | 44  |  | Senior Vice President, International Operations                      
|Sean S. Salehi       |  | 44  |  | Senior Vice President of Global Products and Chief Technology Officer
|Mark Self            |  | 44  |  | Senior Vice President, Sales                                         

Elizabeth A. Fetterhas served as President, Chief Executive Officer and a Director of QRS since October 2001. Prior to joining
QRS, Ms. Fetter served as President, Chief Executive Officer and a Director of NorthPoint Communications, Inc., a DSL services provider, from March 2000 to April 2001,
after serving as a Director since January 2000 and as the company's President and Chief Operating Officer from March 1999 to March 2000. NorthPoint Communications filed for
Chapter XI bankruptcy protection in January 2001 and subsequently sold the majority of its assets to AT&T in early 2001. From January 1998 until joining NorthPoint, Ms. Fetter was
Vice President and General Manager of the Consumer Services Group at U S WEST, an integrated wireline, wireless and data services provider. From June 1997 to December 1997,
Ms. Fetter served as Vice President and General Manager of Operator and Directory Services for SBC Communications Inc. From March 1991 to May 1997, Ms. Fetter held
various executive positions in strategy, finance, sales, marketing and general management at Pacific Bell, most recently as President of the Industry Markets Group, where she was responsible for the
Company's wholesale, interconnection and resale businesses. Ms. Fetter also serves on the Board of Directors of Berbee, a provider of electronic commerce, infrastructure, and networking
solutions; Datum, Inc., a manufacturer of high-speed time and frequency products; and General Magic, Inc., a provider of voice infrastructure software and services.
Ms. Fetter holds a B.A., magna cum laude, in communications from Pennsylvania Sate University, and an M.S in industrial administration and public policy from Carnegie University.

John C. Parsons, Jr.has served as Senior Vice President and Chief Financial Officer of QRS since January 2002. Prior to joining
QRS, Mr. Parsons was the Chief Operating Officer and Chief Financial Officer of Aim Technologies Inc., a direct marketing database company for the sports industry, from
January 2000 until March 2001. Prior to that, Mr. Parsons was a private investor during the period from January 1998 until December 1999. From February 1997
until November 1997 he was Chief Financial Officer and Vice President of Operations for Macromedia, Inc. and from December 1994 until February 1996 he was Chief Financial
Officer and Vice President Operations for The Learning Company. Prior to joining The Learning Company, Mr. Parsons was a partner at Coopers & Lybrand, an international public accounting
firm. Mr. Parsons also served as a Professional Accounting Fellow at the U.S. Securities & Exchange Commission from June 1987 until June 1989. Mr. Parsons holds an
M.B.A. from Babson College and a B.S. in economics from Boston College.

John S. Simonhas served as the Executive Vice President of Customer and Market Development since January 2002 and Executive Vice
President of Strategy and Development from October 2001 until

15

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January 2002, after serving as Chief Executive Officer from July 1998 to October 2001. Mr. Simon has been a director of the Company since December 1997.
Mr. Simon has held various other positions with the Company since 1988, including President from January 1998 until July 1998 and Executive Vice President from January 1994
to December 1997. Prior to joining QRS, Mr. Simon served for a number of years in a variety of merchandising, store management and information services positions with Carter Hawley Hale
Stores Inc. Mr. Simon received his bachelor's degree in economics from Harvard College and his M.B.A. with distinction from Harvard University School of Business Administration.

Candy S. Smithhas served as Senior Vice President of Global Services of QRS since March 2001. From August 2000 to
February 2001, Ms. Smith served as Senior Vice President of electronic commerce Services for the Company. Prior to joining QRS, Ms. Smith served as Senior Vice President of
Services for Allenbrook, a software division of AMS Holding Group, from March 1999 to February 2000. From February 1998 to March 1999, Ms. Smith served as Senior
Global Manager of SAP AG America, a computer software and services company. From January 1995 to March 1997, Ms. Smith served as the Chief Information Officer of General Electric
Company's GE Capital Information Technology Solutions Group. Ms. Smith has an Applied Sciences degree in computer science from Orange County Community College in New York.

Leonard R. Steinhas served as Senior Vice President, General Counsel and Secretary of QRS since November 2001. Prior to joining
QRS, Mr. Stein served from July 2000 to August 2001 as the Senior Vice President for Corporate Development and General Counsel at Buzzsaw.com, a collaborative software and
electronic commerce company. Prior to that, Mr. Stein served from March 1999 to June 2000 as Senior Vice President and General Counsel of Preview Travel, an online travel company.
Prior to that, from September 1983 to March 1999, Mr. Stein was a member of the San Francisco law firm of Steefel, Levitt and Weiss. Mr. Stein earned a B.A. and M.A.
degrees in economics from Yale University and holds a law degree from Harvard Law School.

Fred L. Ruffinhas served as the Senior Vice President of Human Resources since November 2001. Prior to joining QRS,
Mr. Ruffin served as Vice President, Human Resources of AutoWeb.com from December 1999 to November 2001. From June 1994 to December 1999, Mr. Ruffin was Vice
President of Strategic Resources and Administration of Eastfield Ming Quong, Inc., a non-profit company. Mr. Ruffin also has worked with a number of other Silicon Valley
start-ups. Mr. Ruffin holds a B.A. in psychology and industrial relations from San Francisco State University.

Brian P. Marsdenhas served as Senior Vice President of International Operations of the Company since November 2000, after serving
as Vice President and General Manager of the Company's European/Middle East/Asia division from March 2000 through October 2000. Prior to that, Mr. Marsden headed the worldwide
sales and marketing organization for RockPort Trade Systems, Inc., a sourcing software company, from November 1998 to March 2000, when it was acquired by QRS. From 1991 to
October 1998, Mr. Marsden held senior management and executive positions to develop strategy and to build the international organizations at Manugistics UK Ltd., a software supply
and consultancy company, where he served as Director of the Strategic Business Unit, and at Infinium Software Ltd. (formally Software 2000 (UK) Ltd.), a software supply and consultancy
company, where he served as the Managing Director of European Operations. Mr. Marsden gained an HND in computer science from Trent Polytechnic in the United Kingdom.

16

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Sean S. Salehihas served as Senior Vice President of Global Products and Chief Technology Officer of the Company since
September 2000. From July 1997 to August 2000, Mr. Salehi served as Senior Vice President and Chief Information Officer of Fair Isaac and Company, Inc., a software
company, from August 1995 to July 1997, Mr. Salehi served as Vice President and Chief Information Officer of Cypress Semiconductor Corporation, a semiconductor design and
manufacturing company, and from November 1991 to July 1995, Mr. Salehi served as Chief Information Officer of MagneTek, Inc., a manufacturer of digital power supplies,
power systems and industrial controls where he obtained technology experience in manufacturing, distribution, supply chain management and execution, electronic commerce and enterprise requirement
planning. From 1983 to 1991, Mr. Salehi also held various consulting positions for Hewlett-Packard Company where he advised Fortune 500 companies on information technology strategies.
Mr. Salehi earned an M.B.A. at the University of Southern California and received a B.S. in computer science from California State University at Northridge.

Mark L. Selfhas served as Senior Vice President of Sales since January 2000. From October 1998 to November 1999,
Mr. Self was Vice President of Sales and Marketing for KVLABS, Inc., a software company, where he was responsible for sales execution and marketing strategy. From October 1997 to
October 1998, Mr. Self served as Senior Segment Manager for IBM's worldwide distribution unit, where he was responsible for worldwide marketing and sales in the small- and medium-sized
business sector. From 1995 to 1997, Mr. Self worked at IBM in London where he undertook sales and marketing responsibilities for a European business unit. Mr. Self earned a master's
degree in management at Northwestern University's J.L. Kellogg School of Management.

Item 2. PROPERTIES

We lease approximately 158,000 square feet of office space in Richmond, California for our corporate headquarters. Of this total, leases with respect to 111,000
square feet expire on June 30, 2010 and a lease for the remaining 47,000 square feet expires on June 30, 2011. We lease approximately 20,000 square feet of office space in San Francisco,
California. This lease expires in October 2004. We also lease approximately 28,500 square feet of office space in New York, New York of which a lease with respect to 10,000 square feet expires
on April 1, 2007 and a lease for the remaining 18,500 square feet expires on March 1, 2010. Of this 206,500 total square feet of office space, 143,500 is not used in our current
operations. On February 13, 2002, we executed a sublease agreement for our San Francisco office space under a non-cancelable operating sublease. The sublease requires monthly rental
receipts of $35,749, commencing on April 1, 2002 and expiring on September 30, 2004. The remaining 123,500 square feet is available for sublease. As described in Note 6 to
Consolidated Financial Statements, these facilities have been included in our restructuring provisions. We continue to engage in subleasing and early lease termination initiatives for these
facilities. Finally, we lease additional office space in
Torrance, California; New York, New York; Gloucester, Massachusetts and Richmond, Virginia. We believe that our current facilities are adequate for our level of business and growth requirements.

Item 3. LEGAL PROCEEDINGS

On September 22, 2000, Gladson and Associates, Inc. (Gladson) filed a complaint for damages, injunctive relief and declaratory relief against us in
Contra Costa County Superior Court. On March 8, 2001, Gladson filed its First Amended Complaint ("FAC") for injunctive relief and damages in the sum of $3.5 million and for punitive
damages in the sum of $5.0 million. The FAC asserts claims for breach of written contract, unfair competition, misappropriation of trade secrets, conversion, fraud, false designation of origin,
intentional and negligent interference with prospective business advantage, and conspiracy. On March 12, 2002, the parties reached a confidential tentative settlement of the action through
voluntary mediation. The final settlement documentation is being prepared. We presently anticipate the settlement and documentation process will be complete and the action dismissed by the end of
April 2002.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

17

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock is traded on the Nasdaq National Market under the symbol "QRSI." According to records of our transfer agent, we had approximately 222
stockholders of record as of March 11, 2001. The following table sets forth the low and high closing sales prices of our common stock for the 2-year period ended December 31,
2001, as furnished by The Nasdaq Market.

Period Ended

Low

HighFor the Year ended December 31, 2000:First Quarter

$
64.38

$
114.94Second Quarter


22.88


60.00Third Quarter


13.81


35.44Fourth Quarter


5.59


15.13For the Year ended December 31, 2001:First Quarter


8.41


14.13Second Quarter


7.38


16.60Third Quarter


7.98


16.60Fourth Quarter


8.45


15.84


Dividend Policy

Our policy has been to reinvest earnings, if any, to fund future growth. Accordingly, we have paid no cash dividends on our common stock and do not anticipate
declaring dividends on our common stock in the foreseeable future.

18

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Item 6. SELECTED FINANCIAL DATA

|                                                                                     |                               | Years Ended December 31,
(In thousands, except per share data)
|------------------------------------------------------------------------------------ | ----------------------------- | --------------------------------------------------------------
|
|
|Revenues(1)                                                                          |                               | $                                                             
|Cost of revenues(1)(2)                                                               |                               |                                                               
|Gross profit(2)                                                                      |                               |                                                               
|Operating expenses(3)                                                                |                               |                                                               
|Operating (loss) earnings                                                            |                               |                                                               
|(Loss) earnings from continuing operations before income taxes and minority interest |                               |                                                               
|Income tax (benefit) expense                                                         |                               |                                                               
|Minority interest                                                                    |                               |                                                               
|Discontinued operationsGain from sale of software and services business(4)          |                               |                                                               
|                                                                                     |                               |                                                               
|Net (loss) earnings                                                                  |                               | $                                                             
|                                                                                     |                               |                                                               
|Basic (loss) earnings per share(5):                                                  |                               |                                                               
|                                                                                     | Continuing operations         |                                                               
|                                                                                     | Discontinued operations       |                                                               
|                                                                                     |                               |                                                               
|                                                                                     | Net (loss) earnings per share |                                                               
|                                                                                     |                               |                                                               
|Diluted (loss) earnings per share(5):                                                |                               |                                                               
|                                                                                     | Continuing operations         |                                                               
|                                                                                     | Discontinued operations       |                                                               
|                                                                                     |                               |                                                               
|                                                                                     | Net (loss) earnings per share |                                                               
|                                                                                     |                               |                                                               

|                     |  | December 31,
(in thousands)
|-------------------- |  | ---------------------------
|
|
|Working capital(6)   |  | $                          
|Total assets         |  |                            
|Stockholders' equity |  |                            

---

19

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20

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We market our products and services in three Solutions Groups: Software Applications, Trading Community Management, and Global Services. Our Software Applications
allow for automated data synchronization, collaborative sourcing and supply, financial order management, international logistics and customs management, collaborative planning and online
merchandising. Our Software Applications include both enterprise applications installed on customers' computer systems as well as hosted applications installed on our computer systems. Our Trading
Community Management solutions allow retailers and their trading partners to exchange electronic business documents (such as purchase orders, invoices, advanced shipping notices), as well as
collaborative business processes, thus eliminating paper, mail delays, and keypunch data errors as these electronic business documents are integrated to the trading partner's accounting and inventory
systems. Our Global Services include the collection, analysis and delivery of information, such as pricing and operational merchandising metrics, for use in strategic and tactical decision making;
software implementation and integration services; retail solutions consulting; and technical support and training services for our various solutions.

During
the first three quarters of 2001, we identified two reportable segments as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information:"
(1) Tradeweave Message Exchange, Content and Related Services and (2) Tradeweave Collaboration and Related Services. We evaluated performance and allocated resources based on revenues
and operating earnings (loss), which includes allocated corporate general and administrative expenses, sales and marketing expenses and customer support and information delivery expenses. During the
fourth quarter of 2001, under the leadership of our new management, we realigned our products and services into three Solutions Groups: (1) Trading Community Management, (2) Software
Applications, and (3) Global Services. We track revenues and cost of revenues from each of these Solutions Groups and such amounts have been disclosed on the face of the Consolidated Statements
of Operations. We do not operate these products and services as separate businesses nor do we evaluate their profitability below the gross profit line. We now operate in one business segment: we
provide supply chain management solutions to the retail industry. For reconciliation purposes, we have included the following table that shows our former reportable segments and the service and
product names included therein as set forth

21

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in last year's Annual Report on Form 10-K along with the current service and product names and their respective Solutions Groups.

|Former Reportable Segment and Service or Product Name      |                                                   | Current Service or
Product Name |                                  | Solutions Group
|---------------------------------------------------------- | ------------------------------------------------- | ------------------------------- | -------------------------------- | ---------------
|Tradeweave Collaboration and Related Services:             |                                                   |                                 |                                  |                
|                                                           | Tradeweave Sourcing                               |                                 | QRS Sourcing                     |                
|                                                           | Tradeweave Merchandise and Collaborative Planning |                                 | QRS Merchandising                |                
|                                                           | Tradeweave Showroom                               |                                 | QRS Showroom                     |                
|                                                           | Tradeweave Logistics Services(1)                  |                                 |                                  |                
|                                                           | Tradeweave Sales/Inventory Analysis(1)            |                                 |                                  |                
|                                                           | Tradeweave Professional Services                  |                                 | QRS Professional Services        |                
|Tradeweave Message Exchange, Catalog and Related Services: |                                                   |                                 |                                  |                
|                                                           | Tradeweave Data Exchange Messaging                |                                 | QRS Exchange                     |                
|                                                           | Tradeweave Remote Access                          |                                 | QRS Access Services              |                
|                                                           | Tradeweave Vendor Messaging                       |                                 | Web Forms                        |                
|                                                           | Tradeweave Service Bureau                         |                                 | Managed EC                       |                
|                                                           | Tradeweave Product Catalog                        |                                 | QRS Catalogue                    |                
|                                                           | Tradeweave Retail Intelligence                    |                                 | QRS Retail Intelligence Services |                
|                                                           | Tradeweave Digital Photography(2)                 |                                 |                                  |                

---

22

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Revenues and Cost of Revenue

The following table sets forth the revenues, cost of revenues, gross profit (loss) and gross margins (loss) for our three Solution Groups for the years ended
December 31, 2001, 2000 and 1999 (in thousands) and associated headcount information at December 31, 2001, 2000 and 1999:

|                                                                                 |  | Years Ended December 31, |        
|-------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|Trading Community Management:                                                    |  |                          |        
|Revenues(1)                                                                      |  | $                        | 80,657 
|Cost of revenues(1)                                                              |  |                          | 43,208 
|                                                                                 |  |                          |        
|Gross profit                                                                     |  |                          | 37,449 
|Gross margin                                                                     |  |                          | 46     
|Software Applications:                                                           |  |                          |        
|Revenues                                                                         |  |                          | 38,995 
|Cost of revenues(2)                                                              |  |                          | 19,616 
|                                                                                 |  |                          |        
|Gross profit                                                                     |  |                          | 19,379 
|Gross margin                                                                     |  |                          | 50     
|Global Services:                                                                 |  |                          |        
|Revenues                                                                         |  |                          | 22,933 
|Cost of revenues(3)                                                              |  |                          | 25,493 
|                                                                                 |  |                          |        
|Gross (loss) profit                                                              |  |                          | (2,560 
|Gross margin (loss)                                                              |  |                          | (11    
|                                                                                 |  |                          |        
|Total:                                                                           |  |                          |        
|Revenues(1)                                                                      |  | $                        | 142,585
|Cost of revenues(1)                                                              |  |                          | 88,317 
|                                                                                 |  |                          |        
|Gross profit                                                                     |  | $                        | 54,268 
|                                                                                 |  |                          |        
|Gross margin                                                                     |  |                          | 38     
|                                                                                 |  |                          |        
|Full-time headcount for customer support, operations and services at year end    |  |                          | 286    
|Part-time headcount, primarily for QRS Retail Intelligence Services, at year end |  |                          | 1,056  

---

23

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The Trading Community Management Solutions Group (formerly Tradeweave Message Exchange) incorporates technology and service components of several QRS Exchange
products: Internet Transaction Exchange, Enterprise Business Exchange, Data Exchange, Web Forms, Managed EC and Access Services. Revenues consist 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 service fees to convert documents from paper into electronic format.
Revenues are recognized in the month that the services are performed. Revenues have been declining for these services due primarily to price competition which has caused us from time to time to reduce
prices on these services. If we are forced to effect further price reductions in connection with such increased competition, such reductions would reduce net sales in future periods to the extent not
offset by increased unit sales or other factors. As the industry continues to adopt existing and new information technologies, we expect competition and pricing pressures to increase. Price reductions
in response to competitive pressures and customer defection for lower prices could have a material adverse effect on our business, financial condition and results of operations. An additional factor
is that in 2000, we also changed the way we charge fees for sending and receiving catalog documents over the network that had the effect of reducing QRS Exchange revenues and increasing QRS Catalogue
revenues. As a result of
these factors, Trading Community Management revenues declined $2.9 million, or 3%, from 1999 to 2000 and $7.5 million, or 8%, from 2000 to 2001.

As
revenues decline for the reasons discussed above, our costs remain relatively fixed under our network services agreement with IBM where we have a minimum purchase commitment,
regardless of our resale levels, in exchange for lower pricing per unit of usage. This contract began in 2001 and expires at the end of 2002. Prior to 2001, our agreement was based on usage with the
cost per unit declining as volumes increased and included substantial penalties if certain purchase commitments were not met. We saw our costs of revenue decline in 2001 from 2000 by
$4.4 million, or 9%, primarily because of cost savings we realized under this contract as a result of the change in terms.Additional Trading
Community Management cost of revenue components are: customer support services, including Managed EC personnel, allocated costs for our data center and other technical support personnel, as well as
amortization of capitalized service and product development costs for technology used in our Managed EC outsourcing centers. The increase in cost of revenues from 1999 to 2000 of $3.5 million,
or 8%, reflects increased data center and technical customer support services and additional Managed EC outsourcing center personnel costs, offset by a decrease in purchased network services. The
declining revenues have produced declining gross margins from 52% in 1999 to 46% in 2000 and 2001. Because of the fixed cost nature of our IBM agreement and increasing price competition, we expect to
experience further gross margin pressure in the future.

Included
in Trading Community Management revenues are services we provided to Kmart and its trading partners. If Kmart emerges from its Chapter XI bankruptcy proceeding as a smaller
company or is not able to successfully reorganize and ceases to exist, revenues from Kmart and its trading partners, which represent less than 5% of 2001 Trading Community Management revenues, would
be substantially decreased or lost.



Software Applications Solutions Group includes the QRS Catalogue (formerly Tradeweave Product Catalog), a hosted application which was introduced in 1988;
Enterprise Software Applications, including QRS Sourcing that was acquired in March 2000 and QRS Merchandising that was acquired in January 2000; and Other Hosted Software Applications,
including QRS Showroom that was launched in April 2000, as well as Tradeweave Logistics and Tradeweave Sales and Inventory Analysis which were both introduced in 1995. We will discontinue
selling Tradeweave Logistics and Tradeweave Sales and

24

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Inventory Analysis as stand-alone products in mid-2002 and will include relevant portions of their functionality in our QRS Sourcing product.

The
following table sets forth the revenues, cost of revenues, gross profit (loss) and gross margins (loss) for our Software Application categories for the years ended
December 31, 2001, 2000 and 1999 (in thousands):

|                                    |  | Years Ended December 31, |       
|----------------------------------- |  | ------------------------ | ------
|
|QRS Catalogue:                      |  |                          |       
|Revenues                            |  | $                        | 29,980
|Cost of revenues                    |  |                          | 7,135 
|                                    |  |                          |       
|Gross profit                        |  |                          | 22,845
|Gross margin                        |  |                          | 76    
|Enterprise Software Applications    |  |                          |       
|Revenues                            |  |                          | 6,256 
|Cost of revenues                    |  |                          | 60    
|                                    |  |                          |       
|Gross profit                        |  |                          | 6,196 
|Gross margin                        |  |                          | 99    
|Other Hosted Software Applications: |  |                          |       
|Revenues                            |  |                          | 2,759 
|Cost of revenues(1)                 |  |                          | 12,421
|                                    |  |                          |       
|Gross profit (loss)                 |  |                          | (9,662
|Gross (loss) margin                 |  |                          | (350  
|                                    |  |                          |       
|Total Software Applications:        |  |                          |       
|Revenues                            |  | $                        | 38,995
|Cost of revenues                    |  |                          | 19,616
|                                    |  |                          |       
|Gross profit                        |  | $                        | 19,379
|                                    |  |                          |       
|Gross margin                        |  |                          | 50    
|                                    |  |                          |       

---

QRS
Catalogue revenues have grown throughout the reporting period, increasing $1.9 million, or 8%, from 1999 to 2000, and $4.5 million, or 18%, from 2000 to 2001. The 2000
increase is primarily attributable to increased usage by our core customer base as well as a change we made in the way we charge fees for sending and receiving catalog documents over the network that
had the effect of reducing QRS Exchange revenues and increasing QRS Catalogue revenues. The 2001 increase was also due to expanded usage by our core customer base combined with the effect of a revised
pricing structure.

Cost
of revenues for QRS Catalogue consist primarily of customer and technical support personnel, allocated costs of our data center and, starting in 2000, purchased network services to
transmit catalog data to and from our data center. In 2000, our cost of Catalogue revenues grew $2.7 million, or 44%, which was faster than our revenues growth, primarily due to additional
purchased network services costs associated with the increased revenues we recognized when we changed the way we charge fees for sending and receiving catalog documents over the network. There were
also

25

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additional allocated costs of our data center and additional customer support infrastructure to support expanding QRS Catalogue rollouts. In 2001, we experienced a decrease in our QRS Catalogue cost
of revenues of $1.8 million, or 20%, despite an 18% increase in revenues, producing a significant increase in gross margin. This cost decline is attributable to the decrease in the cost of
purchased network services as a result of our revised IBM contract effective January 1, 2001, use of alternative technologies to transmit data to and from the network, as well as cost savings
from customer and technical support headcount reductions during the first quarter of 2001. We do not expect these gross margins to improve further in 2002 due to an increase in data center costs
allocated to the QRS Catalogue as we phase out certain other hosted applications in mid-2002, as well as increased costs as we open customer support centers in Europe.

Enterprise
Software Applications was a new product category for us in 2000 after we acquired Image Info Inc. (Image Info) in January 2000 and RockPort Trade Systems, Inc.
(RockPort) in March 2000, through which we obtained our QRS Merchandising and QRS Sourcing products, respectively. In 2001, revenues increased by $263,000, or 4%, to $6.3 million during
difficult economic conditions. We believe Enterprise Software Applications is an area that offers significant growth opportunities for the Company.

Historically,
we have not capitalized software development costs under SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" because
technological feasibility has been reached at substantially the same time as products have been released for sale. Therefore, there is no amortization of capitalized product and service development
costs included in the cost of revenues for Enterprise Software Applications. As a result, cost of revenues for Enterprise Software Applications are comprised of personnel and related costs for custom
software development contracts, as well as media and shipping, and product documentation, which is provided online. As the volume of Enterprise Software Applications transactions increases, we expect
gross margins to decline somewhat from the levels reported for 2000 and 2001.

Other
Hosted Applications include QRS Showroom that was initially launched in April 2000, and Tradeweave Sales and Inventory Analysis and Tradeweave Logistics that were introduced
in 1995. Revenues from these products steadily decreased during 2000 and 2001, declining $337,000, or 10%, from 1999 to 2000 and $197,000 or 7% in 2001. The decrease in revenues is attributable to the
fact that our Tradeweave Sales and Inventory Analysis and Tradeweave Logistics products are being phased out and their relevant functionalities will be developed into our enterprise software
applications in mid-2002. Revenues for our QRS Showroom product were de minimus in 2000 and 2001.

Cost
of revenues for Other Hosted Software Applications consists primarily of allocated costs of our data center, amortization of capitalized product and service development costs,
including additional charges in 2001 related to the write-off of capitalized costs for QRS Showroom, and customer and technical support personnel. The increase in cost of revenues for
Other Hosted Software Applications of $6.9 million, or 96%, from 1999 to 2000 is primarily the result of significant costs incurred to introduce the QRS Showroom product. These costs were
principally personnel related, along with amortization of capitalized product and service development costs. Cost of revenues for Other Hosted
Software Applications decreased by $1.6 million, or 11%, from 2000 to 2001 due to the February 2001 restructuring efforts that substantially reduced the personnel and facility expenses
for the QRS Showroom product; restructuring efforts that reduced customer and technical support personnel for Tradeweave Sales and Inventory Analysis and Tradeweave Logistics; and reduced data center
costs. These savings were offset by a $4.3 million write-off of capitalized product and service development costs related to the QRS Showroom product during the fourth quarter of
2001 as the result of an impairment analysis (see Note 7 to Consolidated Financial Statements).

26

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Global Services Solutions Group consists primarily of QRS Retail Intelligence Services, which we acquired in 1999 from Retail Data Services, Inc. (RDS);
QRS Professional Services and maintenance, including implementation and post-contract support services for licensed software applications which we obtained when we acquired RockPort in the
first quarter of 2000; and Tradeweave Digital Photography, which we obtained when we acquired Image Info in January 2000. We discontinued Tradeweave Digital Photography services in
September 2001 due to underperformance. Global Services revenues also include the best-practice consulting engagements and education conferences we performed in 1999.

As
a result of acquisitions, Global Services revenues increased by $13.5 million, or 240%, from 1999 to 2000. The increase in revenue of $3.9 million, or 20%, from 2000 to
2001 is primarily attributable to growing demand for QRS Retail Intelligence Services and increased QRS Professional Services associated with higher Enterprise Software Applications revenues. This was
offset by the significant decline in Tradeweave Digital Photography revenues that were largely dependent on Internet-related companies. Our 2001 QRS Retail Intelligence Services revenues exclude
$1.6 million of billings to Kmart for services provided in the fourth quarter 2001, which was not recognized due to Kmart's announced bankruptcy in January 2002. We will recognize
revenue in the future if any cash is received from Kmart with the approval of the bankruptcy court. We have continued to provide services to Kmart since its Chapter XI filing for which we are paid on
a current basis subject to Bankruptcy Court supervision. If Kmart emerges from its Chapter XI proceedings as a smaller company or is not able to successfully reorganize and ceases to exist, revenues
for Global Services might be depressed.

Cost
of revenues for Global Services consist primarily of salary and related costs for field personnel to collect pricing data, software application consultants and technical support
personnel for our licensed software applications, and digital photographers and editors, as well the costs of a state-of-the-art photography studio in New York City
opened in September 2000. In 2001, cost of revenues increased by $8.9 million, or 53%, against a revenue increase of 20%, resulting in negative gross margins. 2001 cost of revenues for
Global Services include a $2.4 million impairment loss associated with the write-down of property and equipment related to the Tradeweave Digital Photography studio which was closed
in September 2001. Cost of revenues for Global Services in 2001 also include our personnel costs incurred to perform the services for Kmart during the fourth quarter of 2001 prior to its
Chapter XI filing for which we did not recognize the related billings of $1.6 million, as well as $0.5 million of one-time benefits
charges related to this solutions group. We have experienced higher benefit costs for our part-time employees who collect retail pricing data.

In
2000, cost of revenues for Global Services increased by $12.4 million, an amount almost equal to the increase in revenues of $13.5 million, reducing margins from 24% in
1999 to 13% in 2000. This significant cost increase was in large part due to the additional labor costs required to generate the additional revenues as well as facility costs for the photography
studio that was opened in September 2000. Global Services gross margins declined further in fiscal year 2001 to (11%). We expect gross margins on our Global Services products to increase in
future periods.

Operating Expenses

The following table sets forth the operating expenses and the related percentages of total revenues of the Company and a breakdown of full-time
headcount by sales and marketing, service and product

27

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development and general and administrative for the years ended December 31, 2001, 2000 and 1999 (in thousands):

|                                |                                                        | 2001                                                                                                    |     | 2000    |         | 1999 |    
|------------------------------- | ------------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | --- | ------- | ------- | ---- | ---
|
|Operating expenses:             |                                                        |                                                                                                         |     |         |         |      |    
|                                | Sales and marketing                                    |                                                                                                         | $   | 31,122  |         | 22   | %  
|                                | Service and product development                        |                                                                                                         |     | 13,017  |         | 9    |    
|                                | General and administrative                             |                                                                                                         |     | 24,031  |         | 17   |    
|                                |                                                        |                                                                                                         |     |         |         |      |    
|                                |                                                        | Operating expenses, before amortization of intangible assets and other non-recurring operating expenses |     |         | 68,170  |      | 48 
|                                | Amortization of intangible assets (including goodwill) |                                                                                                         |     | 29,160  |         | 20   |    
|                                | In-process research and development                    |                                                                                                         |     |        |         |      |    
|                                | Restructuring expenses                                 |                                                                                                         |     | 19,354  |         | 14   |    
|                                | Impairment loss                                        |                                                                                                         |     | 118,896 |         | 83   |    
|                                |                                                        |                                                                                                         |     |         |         |      |    
|                                |                                                        | Total operating expenses                                                                                |     | $       | 235,580 |      | 165
|                                |                                                        |                                                                                                         |     |         |         |      |    
|Headcount at year end:          |                                                        |                                                                                                         |     |         |         |      |    
|Sales and marketing             |                                                        |                                                                                                         | 110 |         |         |      |    
|Service and product development |                                                        |                                                                                                         | 95  |         |         |      |    
|General and administrative      |                                                        |                                                                                                         | 67  |         |         |      |    



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 December 31, 2001, we had 110 full-time employees in our sales and marketing groups, compared to 112 at the end of 2000, and 82 at the end of 1999. Our expenses in this
area remained essentially flat in total and as a percentage of revenues in 2001 when compared to 2000. During 2001, we had stock-based compensation expense related to the 2001 restricted stock program
and we increased the level of sales operations in Europe and increased our domestic sales force to focus specifically on software applications. This support for growth in the international market was
offset entirely by cost savings realized from the integration of our subsidiary, Tradeweave, Inc., in February 2001.

Sales
and marketing expenses increased by $13.3 million, or 74%, from 1999 to 2000 reflecting expansion of our sales and marketing organizations to support new product lines,
particularly QRS Sourcing that was acquired in March 2000 and QRS Showroom that was introduced in April 2000. Additionally, we increased sales and marketing resources for our other
products and services.

We
would expect sales and marketing expenses to increase as a percentage of revenues over time.



Service and product development expenses consist primarily of personnel and equipment costs related to research, development and enhancements of our licensed
software and hosted software applications, QRS Exchange's Web Forms solution, and other software for internal use at our QRS Exchange Managed EC outsourcing centers. At December 31, 2001, we
had 95 full-time employees in our service and product development groups, compared to 108 at the end of 2000 and 48 at the end of 1999. The expense amounts are net of capitalized service
and product development costs that totaled $5.8 million, $5.5 million and $2.5 million in 1999, 2000 and 2001, respectively. For our licensed software applications that were
introduced in the first quarter of 2000, capitalized amounts are immaterial because products and enhancements have generally reached technological feasibility and have been released for sale at
substantially the same time. For our hosted software applications which include QRS Catalogue and QRS Showroom, we capitalize all the costs incurred during the application

28

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development stage, which include costs to design the software configuration and interfaces, coding, installation and testing. Of the $13.8 million in total capitalized service and product
development costs in 1999, 2000 and 2001, $8.0 million related to our QRS Showroom product. We then wrote-off $4.3 million of this amount to cost of revenues for Hosted
Software Applications as a part of our impairment loss recorded in 2001. After adding back the capitalized amounts, actual spending was relatively flat over the three years at $14.4 million in
1999, $14.7 million in 2000, and $15.5 million in 2001.

It
is our expectation that service and product development expenses will increase as a percentage of total revenues over time.



General and administrative expenses consist primarily of the personnel and related costs of our finance and administrative organizations, as well as professional
fees and other costs. At December 31, 2001, we had 67 full-time employees in our general and administrative groups, compared to 81 at the end of 2000, and 56 at the end of 1999.

These
expenses declined by $544,000 in total, or 2%, from 2000 to 2001 and remained flat as a percentage of revenues at 17%. This reduction was due primarily to the net reduction in
headcount, offset by additional recruitment expense for senior management, stock-based compensation expense related to the 2001 restricted stock program, and accruals for contingent losses, as further
described in Note 8, the majority of which was charged to general and administrative expense.

General
and administrative expenses increased by $13.3 million in total, or 118%, and as a percentage of revenues from 9% to 17% from 1999 to 2000. The significant ramp up in this
area was due primarily to increased investments in infrastructure and increased headcount to support a larger organization principally due to the acquired businesses. We also increased spending on
professional fees associated with the development of corporate strategy.

It
is our expectation that general and administrative expenses will decline as a percentage of total revenues over time.



Amortization of intangible assets consists primarily of amortization of goodwill and amortization of other intangible assets, including current technology, trade
names, customer lists, workforce and non-compete agreements. Amortization of intangible assets was $2.0 million in 1999, $25.0 million in 2000 and $29.2 million in
2001 (of which $557,000 in 1999, $13.7 million in 2000, and $16.6 million in 2001 represented the amortization of goodwill and $5.0 million in 2000 and $6.1 million in 2001
represented the amortization of purchased current technology). The increases in amortization of intangible assets
were primarily due to the timing of the acquisitions as outlined in the following schedule (in thousands):

|Acquisition                                      |  | Acquisition date |  | Goodwill |        | Other
Intangible
Assets |   | Total
Intangible
Assets
|------------------------------------------------ |  | ---------------- |  | -------- | ------ | ----------------------- | - | -----------------------
|Retail Data Services, Inc. and RDS, Inc. (RDS)   |  | July 23, 1999    |  | $        | 7,588  |                         | $ | 11,169                 
|Image Info Inc. (Image Info)                     |  | January 21, 2000 |  |          | 31,596 |                         |   | 22,407                 
|RockPort Trade Systems, Inc. (RockPort)          |  | March 20, 2000   |  |          | 76,315 |                         |   | 24,069                 
|Tradeweave, Inc. (Tradeweave), minority interest |  | February 9, 2001 |  |          | 5,121  |                         |   | 3,615                  

29

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As required by Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," we recorded impairment losses of $115.4 during the year ended December 31, related to the write-down of intangible assets (including goodwill) associated with
these acquisitions (see Note 7 to Consolidated Financial Statements).

In
July 2001, the Financial Accounting Standards ("FASB") issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 requires businesses combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadened the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangible assets will be evaluated against these new criteria and may result in certain intangible assets being subsumed into goodwill,
or alternatively, amounts initially recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account
for purchased goodwill. Under the nonamortization approach, goodwill will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to
results of operations only in the periods in which the recorded value of goodwill is more than its fair value. The provisions of each statement apply to goodwill and intangible assets acquired after
June 30, 2001, as well as goodwill and intangible assets existing at that date. SFAS No. 142 will require us to review goodwill and intangible assets to determine which assets will no
longer be amortized, and which assets may require a change in their estimated useful lives; and to assess potential asset impairment, measured on a "fair value" basis. Under SFAS No. 142, we
are required to complete the initial step of the transitional impairment test within six months of adoption and to complete the final step of the transitional impairment test by the end of the fiscal
year. Any impairment loss resulting from the transitional impairment test will be recorded as a cumulative effect of a change in accounting principles for the second quarter of 2002. We will adopt the
new standards, effective January 1, 2002. At December 31, 2001, the carrying amount of goodwill was approximately $1.1 million and we believe our adoption of SFAS No. 142
will not have a material effect on our financial position or results of operations.



In connection with the acquisitions of RockPort and Image Info, we expensed $17.9 million ($9.4 million for Image Info and $8.4 million for
RockPort, representing 18% and 8% of the purchase prices, respectively) of in-process research and development (IPR&D) related to eight software applications research projects under
development for which technological feasibility had not been established as of the acquisition dates. The value of each project was determined through the income approach, which involved discounting
cash flows to be derived from the future products to present value using discount
rates ranging from 22.5% to 28.5%. The discount rates were developed by computing the weighted average cost of capital of established companies similar in operations and then increased to reflect the
additional risk for technology under development since these projects have not reached technological feasibility. The revenue and expense projections were based on historical trends and future
expectations for the acquired companies and QRS. These projects have been completed and the actual costs were in line with estimates.



On February 6, 2001, we announced a reorganization plan that included the full integration of the operations of QRS and Tradeweave (see Note 6 to
Consolidated Financial Statements) and an alignment of our organization with a single go-to-market strategy focused on enhanced synergies within QRS with resulting cost
reductions. In connection with the implementation of the February 2001 reorganization, we recorded restructuring expenses of $4.3 million during the year ended
December 31, 2001, comprised of severance of $1.6 million and accelerated stock-based compensation

30

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expense of $507,000 for 77 involuntary terminations throughout QRS, and a facilities closure expense of $2.2 million.

During
September 2001, we discontinued our Tradeweave Digital Photography service due to underperformance. As a result, we recorded restructuring expenses of $3.0 million
during the year ended December 31, 2001, comprised of severance of $127,000 for 17 involuntary terminations within the Tradeweave Digital Photography Group, and facilities closure expense of
$2.9 million.

Additionally,
during the fourth quarter of 2001, we restructured our operations, which included the realignment and certain eliminations of our products and services, the elimination of
full-time positions and the consolidation of real estate. As a result, we recorded restructuring expenses of $12.0 million during the year ended December 31, 2001, comprised
of severance of $2.0 million for 69 involuntary terminations throughout QRS, and facilities closure expense of $10.0 million. As of December 31, 2001, the accrued liability
related to our business restructuring was $16.4 million, comprised of severance of $2.0 million and sublease loss accruals of $14.4 million. We expect to pay the remaining
severance liability in full by the first quarter of 2003, and the remaining obligation related to our termination of non-cancelable leases will be paid over the respective lease terms
through fiscal 2011. Our restructuring initiatives in 2001 are expected to result in operating expense reductions of approximately $6.0 million to $8.0 million in real estate and salary
expense in 2002.

Restructuring
expenses include stock-based compensation expense related to accelerated vesting under the 2001 restricted stock program.



During 1999 and 2000, we formed an Internet start-up company, Tradeweave, Inc. (Tradeweave) and we completed three acquisitions to expand our
product and service offerings for our existing customers, as well as to penetrate new markets within the retail industry beyond the general merchandise and apparel sector which represents the majority
of our historical business. In 1999, we established Tradeweave as a separate legal entity in order to attract top employees and to minimize the launch time for its products which included an
on-line marketplace for the disposition of surplus and mark-down apparel. Mr. Peter Johnson, our Chairman of the Board of Directors, and Mr. Garth Saloner, a
director and Chairman of the Compensation Committee, purchased a 10% minority interest in this company and were directors of this company. By late 2000, Tradeweave's solution had evolved to address
the full retail cycle. In order to implement a single go-to-market strategy and to fully integrate the products and services of Tradeweave and QRS, we decided to merge their
business into ours. In February 2001, we acquired the minority interest in our subsidiary Tradeweave, Inc. and completed a reorganization which resulted in cost savings as the result of
headcount reductions and office facility consolidations (see Note 6 to Consolidated Financial Statements). As a result of this related-party transaction we recorded goodwill and other
intangible assets of $8.7 million (see Note 5 to Consolidated Financial Statements).

In
July 1999, we purchased RDS, a national market research and data management firm dedicated to the collection, verification and analysis of competitive retail pricing, promotion
and distribution information primarily to grocery retailers. This acquisition added 1.9 million Universal Product Codes to the QRS Catalogue and was intended to add additional data elements to
the QRS Catalogue such as nutrifacts and other price information. This acquisition added most of the top U.S. grocery chains as customers.

In
January 2000, we purchased Image Info to offer imaging software and services to our customers. Our retailer and vendor customers needed advanced imaging solutions to display
images on their Internet sites, as well as to use internally for a wide variety of inventory management and marketing purposes. Image Info was intended to expand the functionality of QRS' catalog
through the addition of

31

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digital images as well as provide value-added content and imaging to Tradeweave Showroom (now QRS Showroom). The transaction was expected to enhance QRS' current recurring revenue streams.

In
March 2000, we acquired RockPort Trade Systems, Inc. (RockPort) to offer an expanded portfolio of product selection, direct procurement, purchasing, costing, financial and
logistics software applications targeted to meet the global trading needs of retailers, vendors, manufacturers and service providers. The RockPort products and services were intended to leverage
existing products and services and allow us to offer complete electronic commerce services to our customers and prospects around the world and throughout the retail supply chain.

During
the third quarter of 2001, we recognized an impairment loss of $10.4 million associated with our Tradeweave Digital Photography service which was acquired in connection
with the acquisition of Image Info in January 2000. The impairment loss, determined based on analysis performed by American Appraisal Associates, Inc., independent appraiser, and was comprised
of the write-down of goodwill and other intangible assets of $8.4 million; and the write-off of the carrying amount of property and equipment of $2.0 million,
which was included in cost of revenues, primarily comprised of tenant improvements for the closure of our New York photography studio as well as photographic equipment. Tradeweave Digital Photography
revenues were largely dependent on Internet-related companies and we had seen a significant decline in revenues during 2001. In addition, the impairment loss during the third quarter ended
September 30, 2001 also included a charge of $536,000 related to the write-off of the value of a Web-portal, which was under construction.

During
the fourth quarter of 2001, under the leadership of our new management, we initiated a comprehensive strategic review of our products and services and market opportunities. In
consideration of the current tightening in information technology spending and uncertainties in the marketplace along with analysis performed by American Appraisal Associates, Inc., we concluded that
future cash flows from the assets acquired in connection with our acquisitions of RockPort, Image Info, RDS and Tradeweave would not be sufficient to recover the carrying amount of the acquired
goodwill and other intangible and tangible assets. Therefore, we recorded an impairment loss of $110.4 million for the year ended December 31, 2001, comprised of the
write-down of goodwill and other intangible assets of $60.0 million associated with the QRS Sourcing product acquired in connection with our acquisition of RockPort;
$29.3 million associated with the QRS Merchandising product acquired in connection with our acquisition of Image Info; $10.5 million associated with QRS Retail Intelligence Services
acquired in connection with our acquisition of RDS; $7.2 million associated with the QRS Showroom product which was recorded in connection with our acquisition of the Tradeweave minority
interest; and write-off of the carrying amount of tenant improvements and other assets of $3.4 million, of which $0.4 million is included in cost of revenues. We recognized
an additional impairment loss of $4.3 million (which has been included in cost of revenues) related to the write-off of capitalized service and product development costs related to
the QRS Showroom product as the result of an impairment analysis.

As
a result of this impairment loss, the remaining carrying value of intangible assets (including goodwill) at December 31, 2001 was $14.5 million, of which
$12.6 million is related to the RockPort, Image Info, RDS and Tradeweave acquisitions. We believe that our adoption of SFAS No. 142 will not have a material effect on our financial
position and results of operations.



Interest income consists primarily of interest earned on cash, cash equivalents and marketable securities. Interest income decreased from $2.0 million in
1999 to $1.5 million in 2000 and to $1.3 million in 2001. Changes in interest income reflect the level of average balances in each year and a decrease in marketable securities yields.

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Our income tax expense was $8.1 million for 1999. We recorded an income tax benefit of $8.2 million and $6.7 million for fiscal 2000 and
2001, respectively. The income tax benefit for 2000 as a percentage of pre-tax loss reflects the non-deductibility of purchase accounting amounts related to the acquisitions of
RockPort and Image Info. Our effective income tax rate was 35% for 1999, (16)% for 2000 and (4)% for 2001. In 2001, we established a valuation allowance for our deferred tax assets due to
uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating losses carryforward, before they expire.

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are as follows:



We derive revenues from three principal sources:

(1)  Trading
Community Management: Associated revenues relate to the transmission of standard business documents over a network. Such revenues are recognized in the month
that such transmission services are performed.

(2)  Software
Applications: Revenues from licensing of enterprise software applications is recognized upon shipment if a signed contract exists, the fee is fixed and
determinable, collection is probable and if there are no significant company obligations with regard to implementation of the software. Revenue from hosted software applications is recognized as
services are performed. With respect to the QRS Catalogue, monthly fees are billed based on level of usage.

(3)  Global
Services: Fees for QRS Retail Intelligence Services and QRS Professional Services are billed as the related services are performed. Software maintenance revenue
is deferred and recognized on a straight-line basis over the life of the related contract which is typically one year.

We
accumulate relevant information from contracts to use in determining the availability of vendor-specific objective evidence and believe that such information complies with the
criteria established in Statement of Position 97-2 as follows: (1) Customers are required to pay separately for annual maintenance. Future renewal rates are included as a term of
the contracts. We use the renewal rate as vendor-specific objective evidence of fair value for maintenance. (2) We charge standard hourly rates for consulting services based upon the nature of
the services and experience of the professionals performing the services and such services are separately priced in contracts. (3) Training is separately priced in the contract.

Customer
billing occurs in accordance with contract terms. Customer advances and amounts billed to customers in excess of revenues recognized are recorded as deferred revenue. Amounts
recognized as revenue in advance of billing are recorded as unbilled receivables.



We assess the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following:



33

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When
we determine that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of one or more of the above
indicators of impairment, we measure any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our
current business model. Net intangible assets, capitalized product and service development costs, long-lived assets, and goodwill amounted to $28.8 million as of December 31,
2001.

In
2002, SFAS No. 142, "Goodwill and Other Intangible Assets" became effective and as a result, we will cease to amortize approximately $1.1 million of goodwill. In lieu of
amortization, we are required to perform an initial impairment review of our goodwill in 2002 and an annual impairment review thereafter. We expect to complete our initial review during the first
quarter of 2002 and we currently do not expect to record an impairment charge upon completion of the initial impairment review.



The calculation of the estimated sublease loss reserve for vacated facilities requires that management must make estimates of potential future sublease income.
Management analyzes current market conditions for real estate with the assistance of reputable commercial real estate brokers. However, future actual sublease income may materially differ from
estimated amounts.

Management's
current estimated range of liability related to pending litigation and asserted claims is based on claims for which our management can estimate the amount and range of loss.
We have recorded the minimum estimated liability related to those claims, where there is a range of loss.



The increase of $11.0 million in cash, cash equivalents and marketable securities available- for-sale from December 31, 2000 to
December 31, 2001 resulted primarily from cash flows from operations of $21.1 million offset by payments for acquisition related costs and capital expenditures. On July 23, 1999,
we used $15.0 million in cash to acquire RDS. On January 21, 2000, we used $5.0 million in cash to acquire Image Info and in January 2000 we used $2.0 million for a
deferred acquisition payment related to RDS. During May 2000, we used $5.0 million in cash to repurchase 198,000 shares of our common stock. In April 2001 we used
$2.5 million for a deferred acquisition payment related to Image Info and in January 2001 we used $1.0 million for a deferred acquisition payment related to RDS.

While
cash, cash equivalents and marketable securities available-for-sale increased by $11.0 million during 2001, working capital decreased by
$10.2 million as the result of an increase in current assets of $0.6 million offset by a large increase in current liabilities of $10.8 million from December 31, 2000 to
December 31, 2001. The principal reasons for the increase in current liabilities were an increase in accrued compensation of $3.2 million due primarily to the severance component of our
restructuring expenses; increase in sublease loss accrual of $3.8 million, also a result of the restructuring expenses; and a $3.2 million increase in accounts payable due primarily to
the timing of payments under our network services contract with IBM.

Total
assets decreased from $248.1 million at December 31, 2000 to $93.9 million at December 31, 2001 primarily due to the impairment loss of
$125.6 million and the amortization of intangible assets (including goodwill) of $29.2 million. Total liabilities increased from $37.0 million at December 31, 2000

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to $47.2 million at December 31, 2001, which includes $14.4 million in sublease loss accruals related to restructuring.

On
April 22, 1997, we announced that our Board of Directors had authorized the repurchase from time to time of up to $5 million of our common stock in both open market and
block transactions. Our Board of Directors authorized a $5 million increase in this repurchase amount on October 16, 1998, and an additional increase of $5 million on
May 4, 2000, for a total of $15 million. Shares purchased under this program will be held in the corporate treasury for future use including employee stock option grants and the employee
stock purchase plan. We may discontinue purchases of our common stock at any time that management determines additional purchases are not warranted. We repurchased 198,000 shares of our common stock
during the year ended December 31, 2000.

Although
cash, cash equivalents and marketable securities will decline in the first half of 2002, management believes that the cash, cash equivalents, and marketable securities
available-for-sale at December 31, 2001 and cash anticipated to be generated from future operations, will be sufficient to meet our working capital needs and capital
expenditures for the foreseeable future. If we require additional capital resources to grow our business, execute our operating plans or acquire
complementary technologies or businesses at any time in the future, we may seek to sell additional equity or debt 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. We have no plans to pay dividends with respect to our common stock in the foreseeable future.

During
2001, 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 decreases in acceptance of our future products, our ability to generate positive cash flow from operations may be jeopardized.

At
December 31, 2001, future payments under contractual arrangements and operating lease obligations are as follows (in thousands):

|                         |                   | Minimum Lease
Commitments(1) |        | Deferred
Acquisition
Payment(2) |   | Accrued
Compensation
(including
severance)
|------------------------ | ----------------- | ---------------------------- | ------ | ------------------------------- | - | ------------------------------------------
|Year Ending December 31: |                   |                              |        |                                 |   |                                           
|                         | 2002              |                              | $      | 6,294                           |   | $                                         
|                         | 2003              |                              |        | 5,628                           |   |                                           
|                         | 2004              |                              |        | 4,808                           |   |                                           
|                         | 2005              |                              |        | 3,257                           |   |                                           
|                         | 2006              |                              |        | 3,261                           |   |                                           
|                         | 2007 & thereafter |                              |        | 29,071                          |   |                                           
|                         |                   |                              |        |                                 |   |                                           
|Total                    |                   | $                            | 52,319 |                                 | $ | 2,500                                     
|                         |                   |                              |        |                                 |   |                                           

---

35

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Risks Relating to Our Business

An investment in our common stock involves risks and uncertainties. Investors evaluating us and our business should carefully consider the factors described below
and all other information contained in this Annual Report on Form 10-K before purchasing our common stock. Any of the following factors could materially harm our business, operating
results and financial condition, as well as additional factors and uncertainties not currently known to us or that we currently consider immaterial. Investors could lose all or part of their
investment as a result of these factors.

The economic slowdown in the retail industry makes uncertain our future operating results.

Historically, we have generated all of our revenues from the sale of products and services to the retail industry. The retail industry is experiencing a marked
slowdown as part of the general economic downturn of the last couple of years and the impact of the terrorist attacks on September 11, 2001. In addition, we believe that the retail industry may
be consolidating and that the industry is currently experiencing increased competition and weakening economic conditions that could negatively impact the industry and our customers' ability to pay for
our products and services. Furthermore, some of our largest customers, including Kmart Corp, have filed for bankruptcy. Such weakening economic conditions in the retail industry, consolidation and
bankruptcy filings have in the past, and may in the future, negatively impact our ability to sell our products and services to existing and potential customers in the retail industry. 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 impact on our
business, operating results and financial condition.

In
addition, the license of our software products may involve a substantial capital expenditure by our retail customers. As a result of the economic slowdown in the retail industry, we
believe that our current and potential retailer customers have been, and will be less likely to, make such capital
expenditures. Unless the retail industry recovers from its current economic slowdown, our business, operating results and financial condition may continue to suffer materially.

We have experienced significant losses in recent fiscal periods, and may continue to experience losses in the foreseeable future.

We have recently incurred significant losses, including net losses of $42.4 million and $173.3 million for the fiscal years ended
December 31, 2000 and 2001, respectively. A substantial amount of these losses 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 Trade Systems Inc., Image Info Inc., and Retail Data Services Inc., as well as our
acquisition of the outstanding minority interest of Tradeweave Inc. We may continue to incur non-cash charges related to the impairment of other 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.

Even
after excluding impairment losses, restructuring expenses, as well as the write-off of capitalized service and product development costs and the write-down of property
and equipment included in cost of revenues, our pro forma net loss for the year ended December 31, 2001, would have been $28.2 million. We may continue to incur significant operating
losses in the future.

36

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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 President and Chief Executive Officer joined us in
October 2001, and our current Chief Financial Officer joined us in January 2002. Other members of management have also joined us only recently, and the team as a whole has had a very
limited time to work together. Our success depends upon 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 there are risks associated with new product development.

The increasing use of the Internet as a communications medium has rapidly changed the competitive environment of our industry. The supply chain management
industry is now characterized by rapid technological innovation. While we continue to develop solutions that take advantage of the Internet's potential, the majority of our revenues for the
foreseeable future are expected to derive from our traditional EDI services, which are not Internet-based. We cannot predict with any assurance whether the demand for Internet-related products and
services will increase or decrease in the future; however, the future success of our services and products may depend, in part, on our ability to continue developing products and services that are
compatible with the Internet. 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. There can be no assurance that our competitors and potential competitors will not succeed in developing competing technologies that are more effective or more effectively marketed than
the services and products marketed by us or that would 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, upon our ability to enhance existing applications and develop and
introduce new applications or capabilities.

Our
product development and testing efforts have required, and are expected to continue to require, substantial investments. We may not possess sufficient resources to continue to make
the necessary investments in technology. 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 and 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 effect our performance and
results of operations.

Our business is marked by increased price competition.

The changed technological landscape and the desire of companies to obtain market share has resulted in increased price competition, particularly in our
traditional EDI services market. This competition has caused us from time to time to reduce prices on these services. We expect that as the retail industry continues to adopt existing and new
information technologies, that competition and pricing pressures will increase. If we are forced to effect further price reductions in connection with such increased competition, such reductions would
reduce net sales in future periods to the extent not offset by increased unit sales or other factors. Price reductions in response to competitive pressures could have a material adverse effect on our
business, financial condition and results of operations.

37

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

Numerous other companies participate in the supply chain management industry generally. Many 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, 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.

We have experienced difficulty in effectively integrating and managing acquired companies and their products.

In 2000, we acquired two companies whose products included software applications. In early 2001, we acquired the minority interest of our subsidiary, Tradeweave,
Inc. and integrated its operations into ours. In September 2001, we shut down the Digital Photography line of business, which had been acquired through our acquisition of Image Info Inc.
in January 2000. We have limited experience in integrating and managing acquired companies and selling products such as software applications and related services that produce revenue on a
one-time license fee basis rather than a recurring service fee model. We cannot assure you that we will be successful in fully integrating the acquired companies and their products into
our business and financial model. Moreover, our recently expanded service and product offerings include many services and products that do not fit in our traditional network-based recurring revenue
business model. If we are unable to successfully integrate or manage our other acquired companies and their products, our business, results of operations and financial condition may be harmed.

We may continue to enter into business combinations in order to expand our operations.

We may choose to continue to expand our operations or market presence through business combinations, acquisitions, joint ventures or other strategic alliances
with 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 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 assumption of additional debt, and/or an issuance of equity, which could be dilutive to existing stockholders; the maintenance
of uniform standards, controls and policies; and the impairment of relationships with existing employees and customers. There can be no assurance that we will be successful in overcoming these risks
or any other potential problems encountered in connection with such business combinations or similar transactions, or that such transactions would not 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; 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 industry and general economic factors. In addition, our limited operating history with software application licensing makes 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 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.

38

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

We are dependent on the IBM Value-Added Network.

Pursuant to a contract that expires on December 31, 2002, we have used the IBM VAN as the network platform over which we provide customers with most of our
QRS Exchange products and services. We depend on the IBM VAN for a substantial part of our revenues. Upon the expiration of our contract with IBM, in the event that IBM decides to increase the prices
that it charges us, or reduces the amount of discounts or allowances we currently receive, and we are not able to pass along such increased costs charges to our customers, our business, financial
condition and results of operations could be materially adversely affected. In addition, pursuant to the IBM contract, we currently pay a flat fee to IBM for our use of their network services. If our
use of the network services declines, our gross margins will decrease, thereby also adversely affecting our business and operating results.

Because
we have no right to control the maintenance and operation of the IBM VAN, we are subject to decisions that adversely affect the operation of the VAN and thus on our business and
results of operations. In addition, if IBM becomes unable or unwilling to provide VAN services, we would either have to provide these services directly or arrange for another third party to provide
such services. We cannot assure you 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 the IBM VAN may have a material adverse effect on our business, results of operations and financial condition.

IBM
and AT&T are free to compete against us, and we cannot assure you that either of them will not choose to compete with us in the future. If AT&T markets IBM VAN services to the retail
industry or directly to our customers, or permits one or more of our competitors to use and remarket IBM's VAN services to the retail industry, it could adversely affect our business, financial
condition and results of operations.

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

Our data center is located in a single facility and we have no present intention of establishing an additional data center in a separate location. Notwithstanding
the precautions we have taken to protect ourselves and our customers from delivery interruption events, we cannot assure you that a fire, earthquake, or other natural disaster affecting the data
center would not disable our computer system. Any significant damage to our data center, or disruption of its connectivity to the IBM VAN and the AT&T network, could have a material adverse effect on
our business, financial condition and results of operations.

39

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We may not be able to protect our proprietary technology and information.

Intellectual property laws afford only limited protection. Any patents issued to us may be invalidated, circumvented or challenged, and pending or future patent
applications may not be issued with the scope of the claims we seek, if at all. Existing copyright laws afford only limited protection, and we may not be able to police unauthorized use of our
services, proprietary technology, or information. In addition, the laws of certain countries in which our products and services may be distributed may not protect our proprietary rights as fully as do
the laws of the United States. If unauthorized third parties obtain and use our proprietary technology and information, our business, results of operations and financial condition may be materially
adversely affected. In addition, claims by third parties regarding the infringement of alleged intellectual property rights are a frequent occurrence in our industry. Although we do not believe that
we are infringing any proprietary rights of others, any such third party claims may similarly materially 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, and our bylaws and certificate of incorporation contain certain provisions that may make a
change in control of our company more difficult or prevent the removal of incumbent directors. For example, our certificate of incorporation provides for a classified Board of Directors and our bylaws
and certificate of
incorporation allow our Board of Directors to expand its size and fill any vacancies without stockholder approval. In addition, our stockholders are not entitled to call a meeting, or to act by
written consent. Furthermore, our Board of Directors has the authority to issue preferred stock and to designate voting rights, dividend rates and privileges of the preferred stock, all of which may
be senior to the rights of the common stockholders.

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; changes in analysts' estimates of our financial performance or our failure to meet these estimates; conditions in the Internet commerce, information service, and high technology
industries generally; and conditions in the financial markets generally. We cannot assure you that the market price of our common stock will not continue to experience significant fluctuations in the
future.

40

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Item 7A. 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 December 31, 2001, the weighted average maturity of the marketable securities portfolio was 325 days.

|(Amounts in thousands)         |  | Maturity
2002 |       | Maturity
2003 |   | Total |   | Fair Value at
December 31,
2001 |      
|------------------------------ |  | ------------- | ----- | ------------- | - | ----- | - | ------------------------------- | -----
|Municipal Agencies             |  | $             | 6,475 |               | $ | 1,000 |   | $                               | 7,475
|Corporations                   |  |               | 996   |               |   | 1,206 |   |                                 | 2,202
|                               |  |               |       |               |   |       |   |                                 |      
|Total                          |  | $             | 7,471 |               | $ | 2,206 |   | $                               | 9,677
|                               |  |               |       |               |   |       |   |                                 |      
|Weighted average interest rate |  |               | 3.49  | %             |   | 3.59  | % |                                 | 3.51 
|                               |  |               |       |               |   |       |   |                                 |      

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.

41

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

|                                                                        |  | Page
|----------------------------------------------------------------------- |  | ----
|Report of Independent Accountants                                       |  | 43  
|Independent Auditors' Report                                            |  | 44  
|Consolidated Balance Sheets                                             |  | 45  
|Consolidated Statements of Operations and Comprehensive Earnings (loss) |  | 47  
|Consolidated Statements of Stockholders' Equity                         |  | 48  
|Consolidated Statements of Cash Flows                                   |  | 49  
|Notes to Consolidated Financial Statements                              |  | 51  

42

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Report of Independent Accountants

To
the Board of Directors and Stockholders of QRS Corporation

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive earnings (loss), of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of QRS Corporation and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP
San Francisco, California
February 8, 2002 except for 4th and 5th paragraphs of Note 8, which are as of March 12, 2002
and footnote 1 to the last paragraph of Note 8, which is as of February 13, 2002

43

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INDEPENDENT AUDITORS' REPORT

Board
of Directors and Stockholders QRS Corporation:

We
have audited the accompanying consolidated statements of operations and comprehensive earnings (loss), stockholders' equity and cash flows of QRS Corporation and subsidiaries (the
"Company") for the year ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the results of the Company's operations and its cash flows for the year ended
December 31, 1999, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE &
TOUCHE LLP
San Jose, California
February 4, 2000

44

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QRS CORPORATION  CONSOLIDATED BALANCE SHEETS  (Dollars in thousands)

|                                                                                                                                                 |                                                                                                                           | December 31,
2001    |        | December 31,
2000 |       
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------ | ----------------- | ------
|ASSETS                                                                                                                                           |                                                                                                                           |                      |        |                   |       
|Current assets:                                                                                                                                  |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 | Cash and cash equivalents                                                                                                 |                      | $      | 28,911            |       
|                                                                                                                                                 | Marketable securities available-for-sale                                                                                  |                      |        | 7,496             |       
|                                                                                                                                                 | Accounts receivablenet of allowance for doubtful accounts of $2,041 at December 31, 2001 and $2,072 at December 31, 2000 |                      |        | 22,178            |       
|                                                                                                                                                 | Deferred income tax assets                                                                                                |                      |        |                  |       
|                                                                                                                                                 | Prepaid expenses and other                                                                                                |                      |        | 2,514             |       
|                                                                                                                                                 | Income taxes receivable                                                                                                   |                      |        | 125               |       
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 |                                                                                                                           | Total current assets |        |                   | 61,224
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|Property and equipment:                                                                                                                          |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 | Furniture and fixtures                                                                                                    |                      |        | 2,506             |       
|                                                                                                                                                 | Equipment                                                                                                                 |                      |        | 18,739            |       
|                                                                                                                                                 | Leasehold improvements                                                                                                    |                      |        | 2,216             |       
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 |                                                                                                                           |                      | 23,461 |                   |       
|                                                                                                                                                 | Less accumulated depreciation and amortization                                                                            |                      |        | (11,923           | )     
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 |                                                                                                                           | Total                |        |                   | 11,538
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|Marketable securities available-for-sale                                                                                                         |                                                                                                                           |                      | 2,215  |                   |       
|Capitalized service and product development costsnet of accumulated amortization of $8,515 at December 31, 2001 and $5,293 at December 31, 2000 |                                                                                                                           |                      | 2,838  |                   |       
|Intangible assetsnet of accumulated amortization of $27,244 at December 31, 2001 and $2,221 at December 31, 2000                                |                                                                                                                           |                      | 14,455 |                   |       
|Deferred transaction costs related to acquisition                                                                                                |                                                                                                                           |                      |       |                   |       
|Other assets                                                                                                                                     |                                                                                                                           |                      | 1,658  |                   |       
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       
|                                                                                                                                                 |                                                                                                                           | Total                |        | $                 | 93,928
|                                                                                                                                                 |                                                                                                                           |                      |        |                   |       

See
Notes to consolidated financial statements

45

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QRS CORPORATION  CONSOLIDATED BALANCE SHEETS  (Dollars in thousands, except share and per share amounts)  (Continued)

|                                                         |                                                                                                                                                                                                                                  | December 31,
2001                                           |                            | December 31,
2000 |    
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------- | ----------------- | ---
|LIABILITIES AND STOCKHOLDERS' EQUITY                     |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|Current liabilities:                                     |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|                                                         | Accounts payable                                                                                                                                                                                                                 |                                                             | $                          | 11,914            |    
|                                                         | Accrued compensation                                                                                                                                                                                                             |                                                             |                            | 7,452             |    
|                                                         | Accrued vacation                                                                                                                                                                                                                 |                                                             |                            | 2,095             |    
|                                                         | Deferred acquisition payments                                                                                                                                                                                                    |                                                             |                            | 2,500             |    
|                                                         | Accrued transaction costs related to acquisition                                                                                                                                                                                 |                                                             |                            |                  |    
|                                                         | Deferred revenue                                                                                                                                                                                                                 |                                                             |                            | 3,593             |    
|                                                         | Sublease loss accruals related to business restructuring                                                                                                                                                                         |                                                             |                            | 3,820             |    
|                                                         | Other accrued liabilities                                                                                                                                                                                                        |                                                             |                            | 4,140             |    
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             | Total current liabilities  |                   |    
|Deferred income taxes                                    |                                                                                                                                                                                                                                  |                                                             |                           |                   |    
|Deferred acquisition payments                            |                                                                                                                                                                                                                                  |                                                             |                           |                   |    
|Sublease loss accruals related to business restructuring |                                                                                                                                                                                                                                  |                                                             | 10,602                     |                   |    
|Deferred rent and other                                  |                                                                                                                                                                                                                                  |                                                             | 1,103                      |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             | Total liabilities          |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|Commitments and contingencies (Note 8)                   |                                                                                                                                                                                                                                  |                                                             |                           |                   |    
|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; 15,841,854 shares issued and 15,616,529 shares outstanding at December 31, 2001; and 15,281,111 shares issued and 14,663,015 shares outstanding
at December 31, 2000 |                                                             |                            | 251,752           |    
|                                                         | Deferred compensation                                                                                                                                                                                                            |                                                             |                            | (1,710            | )  
|                                                         | Treasury stock; 225,325 shares at December 31, 2001 and December 31, 2000                                                                                                                                                        |                                                             |                            | (5,530            | )  
|                                                         | Accumulated other comprehensive earnings (loss):                                                                                                                                                                                 |                                                             |                            |                   |    
|                                                         |                                                                                                                                                                                                                                  | Unrealized gain on marketable securities available for sale |                            |                   | 34 
|                                                         |                                                                                                                                                                                                                                  | Cumulative translation adjustments                          |                            |                   | (36
|                                                         | Accumulated deficit                                                                                                                                                                                                              |                                                             |                            | (197,801          | )  
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             | Total stockholders' equity |                   |    
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    
|                                                         | Total                                                                                                                                                                                                                            |                                                             | $                          | 93,928            |    
|                                                         |                                                                                                                                                                                                                                  |                                                             |                            |                   |    

See
Notes to consolidated financial statements

46

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QRS CORPORATION  CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)  Years Ended December 31, 2001, 2000, and 1999  (In thousands, except per share amounts)

|                                                             |                                                                                  | 2001                     |          | 2000    |         | 1999    |       
|------------------------------------------------------------ | -------------------------------------------------------------------------------- | ------------------------ | -------- | ------- | ------- | ------- | ------
|Revenues:                                                    |                                                                                  |                          |          |         |         |         |       
|                                                             | Trading community management                                                     |                          | $        | 80,657  |         | $       | 88,120
|                                                             | Software applications                                                            |                          |          | 38,995  |         |         | 34,409
|                                                             | Global services                                                                  |                          |          | 22,933  |         |         | 19,066
|                                                             |                                                                                  |                          |          |         |         |         |       
|                                                             |                                                                                  | Total revenues           |          |         | 142,585 |         |       
|Cost of revenues:                                            |                                                                                  |                          |          |         |         |         |       
|                                                             | Trading community management                                                     |                          |          | 43,208  |         |         | 47,566
|                                                             | Software applications                                                            |                          |          | 19,616  |         |         | 22,970
|                                                             | Global services                                                                  |                          |          | 25,493  |         |         | 16,613
|                                                             |                                                                                  |                          |          |         |         |         |       
|                                                             |                                                                                  | Total cost of revenues   |          |         | 88,317  |         |       
|                                                             |                                                                                  |                          |          |         |         |         |       
|Gross profit                                                 |                                                                                  |                          | 54,268   |         |         | 54,446  |       
|                                                             |                                                                                  |                          |          |         |         |         |       
|Operating expenses:                                          |                                                                                  |                          |          |         |         |         |       
|                                                             | Sales and marketing                                                              |                          |          | 31,122  |         |         | 31,244
|                                                             | Service and product development                                                  |                          |          | 13,017  |         |         | 9,210 
|                                                             | General and administrative                                                       |                          |          | 24,031  |         |         | 24,575
|                                                             | Amortization of intangible assets (including goodwill)                           |                          |          | 29,160  |         |         | 25,023
|                                                             | In-process research and development                                              |                          |          |        |         |         | 17,880
|                                                             | Restructuring expenses                                                           |                          |          | 19,354  |         |         |      
|                                                             | Impairment loss                                                                  |                          |          | 118,896 |         |         |      
|                                                             |                                                                                  |                          |          |         |         |         |       
|                                                             |                                                                                  | Total operating expenses |          |         | 235,580 |         |       
|Operating (loss) earnings                                    |                                                                                  |                          | (181,312 | )       |         | (53,486 | )     
|Interest income                                              |                                                                                  |                          | 1,296    |         |         | 1,505   |       
|                                                             |                                                                                  |                          |          |         |         |         |       
|(Loss) earnings before income taxes and minority interest    |                                                                                  |                          | (180,016 | )       |         | (51,981 | )     
|Income tax (benefit) expense                                 |                                                                                  |                          | (6,687   | )       |         | (8,182  | )     
|Minority interest in loss from subsidiary                    |                                                                                  |                          |         |         |         | (1,422  | )     
|                                                             |                                                                                  |                          |          |         |         |         |       
|Net (loss) earnings                                          |                                                                                  |                          | (173,329 | )       |         | (42,377 | )     
|Other comprehensive earnings (loss):                         |                                                                                  |                          |          |         |         |         |       
|                                                             | Unrealized (loss) gain from marketable securities available-for-sale, net of tax |                          |          | (90     | )       |         | 260   
|                                                             | Change in cumulative translation adjustment                                      |                          |          | (36     | )       |         |      
|                                                             |                                                                                  |                          |          |         |         |         |       
|Total comprehensive earnings (loss)                          |                                                                                  | $                        | (173,455 | )       | $       | (42,117 | )     
|                                                             |                                                                                  |                          |          |         |         |         |       
|Basic net (loss) earnings per share                          |                                                                                  | $                        | (11.26   | )       | $       | (2.92   | )     
|                                                             |                                                                                  |                          |          |         |         |         |       
|Shares used to compute basic net (loss) earnings per share   |                                                                                  |                          | 15,400   |         |         | 14,524  |       
|                                                             |                                                                                  |                          |          |         |         |         |       
|Diluted net (loss) earnings per share                        |                                                                                  | $                        | (11.26   | )       | $       | (2.92   | )     
|                                                             |                                                                                  |                          |          |         |         |         |       
|Shares used to compute diluted net (loss) earnings per share |                                                                                  |                          | 15,400   |         |         | 14,524  |       
|                                                             |                                                                                  |                          |          |         |         |         |       

See
Notes to consolidated financial statements

47

---

QRS CORPORATION  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  Years Ended December 31, 2001, 2000 and 1999  (Dollars in thousands)

|                                                                                          |  |            |   |   |         |   |   | Accumulated
Other
Comprehensive
Earnings
(Loss) |   |   |      |   |  
|----------------------------------------------------------------------------------------- |  | ---------- | - | - | ------- | - | - | ----------------------------------------------- | - | - | ---- | - | -
|
|
|
|Balance, December 31, 1998                                                                |  | 12,880,862 |   | $ | 65,262  |   | $ |                                                |   | $ | 63   |   | $
|Exercise of warrants                                                                      |  | 15,000     |   |   | 25      |   |   |                                                |   |   |     |   |  
|Reissuance of treasury stock                                                              |  | 11,000     |   |   | 214     |   |   |                                                |   |   |     |   |  
|Issuance of common stock                                                                  |  | 42,250     |   |   | 2,192   |   |   |                                                |   |   |     |   |  
|Exercise of stock options, including tax benefit                                          |  | 675,105    |   |   | 18,078  |   |   |                                                |   |   |     |   |  
|Issuance of common stock under Employee Stock Purchase Plan                               |  | 23,175     |   |   | 683     |   |   |                                                |   |   |     |   |  
|Purchase of fractional shares from stock split                                            |  | (184       | ) |   | (9      | ) |   |                                                |   |   |     |   |  
|Other comprehensive earningsunrealized loss on marketable securities available-for-sale  |  |           |   |   |        |   |   |                                                |   |   | (199 | ) |  
|Net earnings                                                                              |  |           |   |   |        |   |   |                                                |   |   |     |   |  
|                                                                                          |  |            |   |   |         |   |   |                                                 |   |   |      |   |  
|Balance, December 31, 1999                                                                |  | 13,647,208 |   |   | 86,445  |   |   |                                                |   |   | (136 | ) |  
|Purchase of treasury stock                                                                |  | (198,000   | ) |   | (5,004  | ) |   |                                                |   |   |     |   |  
|Fair value of stock options assumed in acquisition                                        |  |           |   |   | 9,367   |   |   |                                                |   |   |     |   |  
|Issuance of common stock                                                                  |  | 1,255,707  |   |   | 131,177 |   |   |                                                |   |   |     |   |  
|Common stock held in escrow                                                               |  | (392,771   | ) |   |        |   |   |                                                |   |   |     |   |  
|Exercise of stock options, including tax benefit                                          |  | 312,919    |   |   | 13,040  |   |   |                                                |   |   |     |   |  
|Issuance of common stock under Employee Stock Purchase Plan                               |  | 37,952     |   |   | 413     |   |   |                                                |   |   |     |   |  
|Other comprehensive earningsunrealized gain on marketable securities available-for-sale  |  |           |   |   |        |   |   |                                                |   |   | 260  |   |  
|Net loss                                                                                  |  |           |   |   |        |   |   |                                                |   |   |     |   |  
|                                                                                          |  |            |   |   |         |   |   |                                                 |   |   |      |   |  
|Balance, December 31, 2000                                                                |  | 14,663,015 |   |   | 235,438 |   |   |                                                |   |   | 124  |   |  
|Issuance of common stock for Tradeweave minority share acquisition                        |  | 334,774    |   |   | 3,847   |   |   |                                                |   |   |     |   |  
|Fair value of warrants issued for Tradeweave minority share acquisition                   |  |           |   |   | 1,372   |   |   |                                                |   |   |     |   |  
|Fair value of stock options assumed from Tradeweave minority share acquisition            |  |           |   |   | 1,044   |   |   |                                                |   |   |     |   |  
|Intrinsic value of unvested stock options from minority share acquisition                 |  |           |   |   |        |   |   | (59                                             | ) |   |     |   |  
|Amortization of intrinsic value of unvested stock options from minority share acquisition |  |           |   |   |        |   |   | 17                                              |   |   |     |   |  
|Issuance of common stock held in escrow                                                   |  | 392,771    |   |   |        |   |   |                                                |   |   |     |   |  
|Exercise of stock options                                                                 |  | 25,869     |   |   | 120     |   |   |                                                |   |   |     |   |  
|Issuance of common stock under Employee Stock Purchase Plan                               |  | 70,695     |   |   | 677     |   |   |                                                |   |   |     |   |  
|Fair value of restricted stock awarded                                                    |  |           |   |   | 3,927   |   |   | (3,927                                          | ) |   |     |   |  
|Issuance of common stock under Restricted Stock plan                                      |  | 129,405    |   |   |        |   |   |                                                |   |   |     |   |  
|Stock option compensation for non-employee                                                |  |           |   |   | 302     |   |   |                                                |   |   |     |   |  
|Amortization and acceleration of restricted stock, net of cancellations                   |  |           |   |   | (505    | ) |   | 2,259                                           |   |   |     |   |  
|Other comprehensive loss                                                                  |  |           |   |   |        |   |   |                                                |   |   | (126 | ) |  
|Net loss                                                                                  |  |           |   |   |        |   |   |                                                |   |   |     |   |  
|                                                                                          |  |            |   |   |         |   |   |                                                 |   |   |      |   |  
|Balance, December 31, 2001                                                                |  | 15,616,529 |   | $ | 246,222 |   | $ | (1,710                                          | ) | $ | (2   | ) | $
|                                                                                          |  |            |   |   |         |   |   |                                                 |   |   |      |   |  

See Notes to consolidated financial statements

48

---



QRS CORPORATION  CONSOLIDATED STATEMENTS OF CASH FLOWS  Years Ended December 31, 2001, 2000, and 1999  (Dollars in thousands)

|                                                                            |                                                                                            | 2001                                                     |                                           | 2000     |        | 1999    |        
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ----------------------------------------- | -------- | ------ | ------- | -------
|Cash flows from operating activities:                                       |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            | Net (loss) earnings                                                                        |                                                          | $                                         | (173,329 | )      | $       | (42,377
|                                                                            | Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: |                                                          |                                           |          |        |         |        
|Depreciation and amortization of property and equipment                     |                                                                                            |                                                          | 8,062                                     |          |        | 6,728   |        
|Amortization of capitalized service and product development costs and other |                                                                                            |                                                          | 4,746                                     |          |        | 4,535   |        
|Amortization of intangible assets (including goodwill)                      |                                                                                            |                                                          | 29,160                                    |          |        | 25,023  |        
|                                                                            | Impairment loss                                                                            |                                                          |                                           | 125,601  |        |         |       
|                                                                            | In-process research and development                                                        |                                                          |                                           |         |        |         | 17,880 
|                                                                            | Stock-based compensation                                                                   |                                                          |                                           | 2,073    |        |         | 213    
|                                                                            | Provision for allowance for doubtful accounts                                              |                                                          |                                           | 2,053    |        |         | 1,977  
|                                                                            | Loss from disposal of property and equipment                                               |                                                          |                                           |         |        |         | 179    
|                                                                            | Minority interest in loss from subsidiary                                                  |                                                          |                                           |         |        |         | (1,422 
|                                                                            | Changes in assets and liabilities, net of effects of acquisitions:                         |                                                          |                                           |          |        |         |        
|                                                                            |                                                                                            | Accounts receivable                                      |                                           |          | 3,061  |         |        
|                                                                            |                                                                                            | Prepaid expenses and other                               |                                           |          | 445    |         |        
|                                                                            |                                                                                            | Income taxes receivable (payable)                        |                                           |          | 3,103  |         |        
|                                                                            |                                                                                            | Deferred income taxes                                    |                                           |          | (7,085 | )       |        
|                                                                            |                                                                                            | Accounts payable                                         |                                           |          | 3,239  |         |        
|                                                                            |                                                                                            | Deferred revenue                                         |                                           |          | 295    |         |        
|                                                                            |                                                                                            | Other accrued liabilities                                |                                           |          | 6,089  |         |        
|                                                                            |                                                                                            | Sublease loss accruals related to business restructuring |                                           |          | 14,422 |         |        
|                                                                            |                                                                                            | Deferred rent and other                                  |                                           |          | (878   | )       |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            |                                                                                            |                                                          | Net cash provided by operating activities |          |        | 21,057  |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|Cash flows from investing activities:                                       |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            | Purchases of marketable securities available-for-sale                                      |                                                          |                                           | (13,722  | )      |         | (15,069
|                                                                            | Sales and maturities of marketable securities available-for-sale                           |                                                          |                                           | 15,357   |        |         | 15,963 
|                                                                            | Purchases of property and equipment                                                        |                                                          |                                           | (3,154   | )      |         | (15,014
|                                                                            | Proceeds from disposal of property and equipment                                           |                                                          |                                           |         |        |         | 131    
|                                                                            | Capitalization of service and product development costs                                    |                                                          |                                           | (2,516   | )      |         | (5,468 
|                                                                            | Acquisition of businesses, net of cash acquired                                            |                                                          |                                           |         |        |         | (4,270 
|                                                                            | Other assets                                                                               |                                                          |                                           | 620      |        |         | (2,166 
|                                                                            | Payment of deferred acquisition payments                                                   |                                                          |                                           | (3,500   | )      |         | (2,000 
|                                                                            | Payment of transaction costs related to acquisitions                                       |                                                          |                                           | (1,400   | )      |         | (1,796 
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            |                                                                                            |                                                          | Net cash used in investing activities     |          |        | (8,315  | )      
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|Cash flows from financing activities:                                       |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            | Proceeds from employee stock purchase plan issuances                                       |                                                          |                                           | 677      |        |         | 413    
|                                                                            | Exercise of stock options                                                                  |                                                          |                                           | 120      |        |         | 5,544  
|                                                                            | Exercise of stock warrants                                                                 |                                                          |                                           |         |        |         |       
|                                                                            | Contributions from minority interest                                                       |                                                          |                                           |         |        |         | 1,683  
|                                                                            | Purchase of fractional shares from stock split                                             |                                                          |                                           |         |        |         |       
|                                                                            | Purchase of treasury stock                                                                 |                                                          |                                           |         |        |         | (5,004 
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|                                                                            |                                                                                            |                                                          | Net cash provided by financing activities |          |        | 797     |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|Net increase (decrease) in cash and cash equivalents                        |                                                                                            |                                                          | 13,539                                    |          |        | (19,040 | )      
|Cash and cash equivalents at beginning of year                              |                                                                                            |                                                          | 15,372                                    |          |        | 34,412  |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|Cash and cash equivalents at end of year                                    |                                                                                            | $                                                        | 28,911                                    |          | $      | 15,372  |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        
|Other cash flow information:                                                |                                                                                            |                                                          |                                           |          |        |         |        
|Taxes paid during the year                                                  |                                                                                            | $                                                        | 56                                        |          | $      | 69      |        
|                                                                            |                                                                                            |                                                          |                                           |          |        |         |        

See Notes to consolidated financial statements

49

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QRS CORPORATION  CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)  Years Ended December 31, 2001, 2000, and 1999  (Dollars in thousands)

|                                            |                                                                    | 2001 |   | 2000  |   | 1999 |        
|------------------------------------------- | ------------------------------------------------------------------ | ---- | - | ----- | - | ---- | -------
|Noncash investing and financing activities: |                                                                    |      |   |       |   |      |        
|                                            | Tax benefit from stock options exercised                           |      | $ |      |   | $    | 7,496  
|                                            | Deferred acquisition payments                                      |      |   |      |   |      | 5,000  
|                                            | Fair value of common stock issued in acquisitions                  |      |   | 3,847 |   |      | 131,177
|                                            | Fair value of stock options assumed in acquisition                 |      |   | 1,044 |   |      | 9,367  
|                                            | Fair value of warrants issued in acquisition                       |      |   | 1,372 |   |      |       
|                                            | Fair value of restricted stock awarded                             |      |   | 3,927 |   |      |       
|                                            | Tax benefit from acquisition of The EDI Connection in 1998         |      |   |      |   |      |       
|                                            | Unrealized gain (loss) on marketable securities available-for-sale |      |   | (90   | ) |      | 260    
|                                            | Unrealized loss from foreign currency exchange                     |      |   | (36   | ) |      |       

On
February 9, 2001, we acquired the outstanding capital stock not previously held by us in our majority-owned subsidiary, Tradeweave Inc. On March 10, 2000, we
acquired substantially all the assets of RockPort Trade Systems, Inc. On January 21, 2000, we acquired the outstanding capital stock of Image Info, Inc. On July 23, 1999, we
acquired the outstanding common shares of Retail Data Services and its affiliate, RDS, Inc. The purchase prices were allocated, as follows:

|                                                                                        |                                              | 2001 |        | 2000   |   | 1999     |       
|--------------------------------------------------------------------------------------- | -------------------------------------------- | ---- | ------ | ------ | - | -------- | ------
|Accounts receivable                                                                     |                                              | $    |       |        | $ | 3,430    |       
|Prepaid expenses and other                                                              |                                              |      |       |        |   | 232      |       
|Accrued transaction costs                                                               |                                              |      | (1,400 | )      |   | (1,750   | )     
|Current liabilities assumed                                                             |                                              |      |       |        |   | (6,841   | )     
|Deferred acquisition payments                                                           |                                              |      |       |        |   |         |       
|                                                                                        |                                              |      |        |        |   |          |       
|                                                                                        | Working capital (deficiency) other than cash |      |        | (1,400 | ) |          | (4,929
|Property and equipment                                                                  |                                              |      |       |        |   | 539      |       
|Other assets                                                                            |                                              |      |       |        |   | 97       |       
|Goodwill                                                                                |                                              |      | 5,121  |        |   | 107,911  |       
|Other intangible assets                                                                 |                                              |      | 3,556  |        |   | 46,476   |       
|In-process research and development                                                     |                                              |      |       |        |   | 17,880   |       
|Deferred acquisition paymentnon current                                                |                                              |      |       |        |   | (5,000   | )     
|Other non-current liability                                                             |                                              |      |       |        |   | (295     | )     
|Fair value of stock options assumed                                                     |                                              |      | (1,044 | )      |   | (9,367   | )     
|Intrinsic value of stock options assumed                                                |                                              |      | 59     |        |   |         |       
|Deferred income taxes                                                                   |                                              |      | (1,073 | )      |   | (17,865  | )     
|Fair value of warrants issued                                                           |                                              |      | (1,372 | )      |   |         |       
|Fair value of common stock issued                                                       |                                              |      | (3,847 | )      |   | (131,177 | )     
|                                                                                        |                                              |      |        |        |   |          |       
|Acquisitions, net of cash acquired of $730 for 2000 and $160 for 1999, and stock issued |                                              |      |        |        |   |          |       
|                                                                                        |                                              | $    |       |        | $ | 4,270    |       
|                                                                                        |                                              |      |        |        |   |          |       

See
Notes to consolidated financial statements

50

---



QRS CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: DESCRIPTION OF THE BUSINESS

We market our products and services in three Solutions Groups: Software Applications, Trading Community Management, and Global Services. Our Software Applications
allow for automated data synchronization, collaborative sourcing and supply, financial order management, international logistics and customs management, collaborative planning and online
merchandising. Our Software Applications include both enterprise applications installed on customers' computer systems as well as hosted applications installed on our computer systems. Our Trading
Community Management solutions allow retailers and their trading partners to exchange electronic business documents (such as purchase orders, invoices, advanced shipping notices), as well as
collaborative business processes, thus eliminating paper, mail delays, and keypunch data errors as these electronic business documents are integrated with trading partner's accounting and inventory
systems. Our Global Services include the collection, analysis and delivery of information, such as pricing and operational merchandising metrics, for use in strategic and tactical decision making;
software implementation and integration services; retail solutions consulting; and technical support and training services for our various solutions..

Note 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying financial statements include the accounts of QRS Corporation and our subsidiaries which include QRS Canada Inc., QRS Sales and Services
Corporation, Tradeweave, Inc. (see Notes 5 and 14), Image Info Inc., Retail Data Services, Inc., RockPort Trade Systems Ltd., QRS PACRIM Corporation, QRS EMEA, Inc.,
QRS France SARL, Image Info LLC (a Delaware LLC) and RockPort Trade Systems LLC (a Delaware LLC). All significant inter-company transactions have been eliminated.

Foreign Currency Translation

The Company considers the local currency to be the functional currency for its international subsidiaries. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments
resulting from this process are charged or credited to accumulated other comprehensive income (loss). Foreign currency transaction gains and losses, which to date have not been material, are included
in the consolidated statements of operations.

Derivatives

We adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, at the
beginning of our fiscal year 2001. The standard requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value
through the statement of operations. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value
of the hedged assets, liabilities or firm commitments through earnings, or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings. The adoption of SFAS No. 133 did not have a material effect on the financial statements of the Company.

51

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Revenue Recognition

We derive revenues from three principal sources:



We
accumulate relevant information from contracts to use in determining the availability of vendor-specific objective evidence and believe that such information complies with the
criteria established in Statement of Position 97-2 as follows: (1) customers are required to pay separately for annual maintenance. Future renewal rates are included as a term of
the contracts. We use the renewal rate as vendor-specific objective evidence of fair value for maintenance. (2) We charge standard hourly rates for consulting services based upon the nature of
the services and experience of the professionals performing the services and such services are separately priced in contracts. (3) Training is separately priced in the contract. Customer
billing occurs in accordance with contract terms. Customer advances and amounts billed to customers in excess of revenues recognized are recorded as deferred revenue. Amounts recognized as revenue in
advance of billing are recorded as unbilled receivables.

Cash and Cash Equivalents

We consider all highly liquid temporary investments with original maturities of three months or less to be cash equivalents. Our cash is deposited primarily in
banks in the United States, United Kingdom, Canada, Hong Kong and France. Deposits in these banks may exceed the amount of insurance, if any, provided on such deposits. We have not experienced any
losses in such deposits and believe we are not exposed to any significant credit risk on cash and cash equivalents.

Marketable Securities Available-For-Sale

Short-term and long-term investments in debt securities on the balance sheet are classified as available-for-sale
and are carried at fair value, with the unrealized gains or losses, net of tax, reported in accumulated other comprehensive income (loss). The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, both of which are included in interest income. Realized gains and losses are recorded on the specific identification method. Realized
gains or losses were not significant in 2001, 2000 and 1999.

Service and Product Development Costs

We account for development costs related to products to be sold in accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed." Development costs are capitalized beginning when a product's technological feasibility has been established and ending when the product is available for general release
to customers. Technological feasibility is reached when the product reaches the beta stage. To date, products and enhancements

52

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have generally reached technological feasibility and have been released for sale at substantially the same time. Accordingly, capitalized amounts were immaterial.

We
account for costs incurred to develop our computer software for internal use in accordance with AICPA Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." As required by SOP 98-1, we capitalize the costs incurred during the application development stage, which include costs to design
the software configuration and interfaces, coding, installation and testing. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred.
Capitalized development costs are amortized over various periods up to three years. Costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing
assessment of recoverability of development costs requires considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic
feasibility, and estimated economic life. For the years ended December 31, 2001, 2000 and 1999, we capitalized product development costs of $2.5 million, $5.5 million, and
$5.8 million, respectively. As described in Note 7, we recognized an impairment loss of $4.3 million in 2001 related to the write-off of capitalized service and
product development costs.

Property and Equipment

Property and equipment are stated at cost. During the third quarter of 2001, we changed the estimated lives for property and equipment other than leasehold
improvements and all subsequent expenditures for these items are capitalized and depreciated on a straight-line basis over useful lives of 30 months. We made this change to reflect
the economic usefulness of our property and equipment, and management believes that this change will not have a material effect on our financial position or results of operations. Expenditures for
property and equipment acquired prior to this change other than leasehold improvements were capitalized and will continue to be depreciated on a straight-line basis over original estimated
useful lives, which were generally three years for software and five years for furniture, fixtures and equipment. We continue to amortize leasehold improvements over the remaining period of the lease
or over the estimated useful life of the improvement, whichever is shorter. As described in Note 7, we recognized an impairment loss of $5.9 million in 2001 related to the
write-down of property and equipment.

In
October 2001, the Financial Accounting Standard Board (the "FASB") issued SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of"
and applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board ("APB") Opinion No. 30, "Reporting Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions." SFAS No. 144 develops one
accounting model (based on the model in SFAS No. 121) for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS
No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. The requirement eliminates APB
No. 30's requirement that discontinued operations be measured at net realizable value or that entities include under "discontinued operations" in the financial statements amounts for operating
losses that have not yet occurred. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be
distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. We adopted SFAS No. 144, effective
January 1, 2002 and our adoption of the statement had no effect on our financial position or results of operations. Depreciation and amortization for the years ended December 31, 2001,
2000 and 1999 was $8.1 million, $6.7 million, and $3.6 million, respectively.

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Goodwill and Other Intangible Assets

As required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," we
review goodwill and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of these assets may not be recoverable. In performing the review for
recoverability, we would estimate the future cash flows expected to result from the use of the asset and its eventual disposition. The amount of impairment loss, if any, would be calculated based on
the excess of the carrying amount of the asset over its fair value. As described in Note 7, we recorded an impairment loss of $115.4 million associated with goodwill and other intangible
assets in 2001.

In
July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadened the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangible assets will be evaluated against these new criteria and may result in certain intangible assets being subsumed into goodwill, or alternatively, amounts initially
recorded as goodwill may be separately identified and recognized apart from goodwill. SFAS No. 142 requires the use of a nonamortization approach to account for purchased goodwill. Under the
nonamortization approach, goodwill will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill is more than its fair value. The provisions of each statement apply to goodwill and intangible assets acquired after June 30, 2001, as well as
goodwill and intangible assets existing at that date. SFAS No. 142 will require us to review goodwill and intangible assets to determine which assets will no longer be amortized, and which
assets may require a change in their estimated useful lives; and to assess potential asset impairment, measured on a "fair value" basis. Under SFAS No. 142, we are required to complete the
initial step of the transitional impairment test within six months of adoption and to complete the final step of the transitional impairment test by the end of the fiscal year. Any impairment loss
resulting from the
transitional impairment test will be recorded as a cumulative effect of a change in accounting principles for the second quarter of 2002. We will adopt the new standards effective January 1,
2002. At December 31, 2001, the carrying amount of goodwill was approximately $1.1 million and we believe our adoption of SFAS No. 142 will not have a material effect on our
financial position or results of operations.

Goodwill
and other intangible assets (including contracts, proprietary databases, trademarks, current technology, assembled workforce and non-compete agreements) purchased in
connection with the acquisitions of businesses are amortized on a straight-line basis over their estimated useful lives, which range from three to seven years. Amortization expense was
$29.2 million, $25.0 million, and $2.0 million in 2001, 2000 and 1999, respectively.

Advertising and Promotional Costs

We expense advertising and promotional costs as they are incurred. Advertising expense for 2001, 2000, and 1999 was $2.1 million, $3.8 million and
$1.0 million, respectively.

Stock Based Compensation

SFAS No. 123 established accounting and disclosure requirements using a fair-value based method of accounting for stock-based employee
compensation plans. As allowed under provisions of SFAS No. 123, we have chosen to continue the intrinsic value based method under the provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and provide pro forma disclosures of net earnings and earnings per share as if the accounting provisions of SFAS No. 123 had been adopted (see Note 11).

54

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Earnings Per Share

We present our earnings per share on a dual basis, basic earnings per share ("EPS") and diluted EPS as required by SFAS No. 128, "Earnings per Share."
Basic EPS excludes dilution and is computed by dividing net earnings by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or converted into common stock.

Stock Split

On June 10, 1999, our Board of Directors authorized a three-for-two split of our common stock for our stockholders of record as of
June 21, 1999. All share and per share amounts have been restated to retroactively reflect the stock split.

Fair Value of Financial Instruments

The amounts reported for cash equivalents, accounts receivables, income taxes receivable, accounts payable and certain other accrued liabilities are considered to
approximate fair values based upon their short-term nature. Financial instruments that potentially subject us to concentrations of credit risks comprise principally cash, investments and
accounts receivable. We invest our excess cash in accordance with our investment policy that has been approved by the Board of Directors and is reviewed periodically to minimize credit risk. The
policy authorizes the investment of excess cash in government securities, municipal securities, bonds, certificates of deposit and commercial paper rated AA or better (see Note 3).

Use of Estimates

The preparation of our 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 revenues and expenses
for the periods presented. Actual results could differ from these estimates.

Comprehensive Earnings

As required by SFAS No.130, "Reporting Comprehensive Income," comprehensive earnings consists of net earnings and other gains or losses affecting stockholder's
equity that are excluded from net earnings. Such gains or losses consist primarily of unrealized gains and losses on marketable securities available for sale and foreign currency translation gains and
losses.

Segment Information

During the first three quarters of 2001, we had two reportable segments as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information:" (1) Tradeweave Message
Exchange, Content and Related Services which was comprised of Trading Community Management, QRS Catalogue, QRS Retail Intelligence Services and Tradeweave Digital Photography; and
(2) Tradeweave Collaboration and Related Services which was comprised of QRS Sourcing, QRS Merchandising, QRS Professional Services, QRS Showroom, Tradeweave Logistics and Tradeweave Sales and
Inventory Analysis. We evaluated performance and allocated resources based on revenues and operating earnings (loss), which includes allocated corporate general and administrative expenses, sales and
marketing expenses and customer support and information delivery expenses. Unallocated assets include cash and cash equivalents, marketable securities available-for-sale,
accounts receivable, income taxes receivable, prepaid expenses and other current assets, the net book value of property and equipment, deferred income tax assets and other non-current
assets.

55

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During
the fourth quarter of 2001, under the leadership of our new management, we realigned our products and services into three Solutions Groups: (1) Trading Community
Management, comprised of QRS Exchange components, Internet Transaction Exchange, Enterprise Business Exchange, Data Exchange, Web Forms, Managed EC and Access Services; (2) Software
Applications, comprised of QRS Catalogue, QRS Sourcing, QRS Merchandising and QRS Showroom; and (3) Global Services, comprised of QRS Retail Intelligence Services, QRS Sourcing and QRS
Merchandising software maintenance, and QRS Professional Services. We track revenues and cost of revenues from each of these Solutions Groups and such amounts have been disclosed on the face of the
Consolidated Statements of Operations. We do not operate these products and services as separate businesses nor do we evaluate their profitability below the gross profit line. We now operate in one
business segment; we provide supply chain management solutions to the retail industry.

Virtually
all of our long-lived assets are located in the United States of America. We market our products and related services to customers in the United States of America,
Canada and Europe. Revenues derived from customers with headquarters located in the United States of America accounted for 95%, 97% and 98% of total revenues in 2001, 2000 and 1999, respectively.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2001 presentation.

Recent Accounting Pronouncements

In November 2001, the FASB Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue 01-09, "Accounting for Consideration Given to
a Customer or a Reseller of the Vendor's Products." This issue presumes that consideration from a vendor to a customer or a reseller should not be recorded as revenue unless (1) the vendor
receives an identifiable benefit in return for the consideration paid that is
sufficiently separable from the sale to the customer, such that the vendor could have entered into an exchange transaction with a party other than a purchaser of its products and services in order to
receive that benefit and (2) the benefit's fair value can be reasonably estimated. This Issue is to be adopted no later than in annual or interim financial statements for periods beginning
after December 15, 2001. We adopted the provisions of this consensus in the fourth quarter of fiscal 2001. Such adoption had no impact on fiscal 2001 as we had not received any payments from
vendors which would fall under the consideration of EITF Issue 01-09. The impact of the adoption of EITF 01-09 was to reduce revenues and cost of revenues by
$1.9 million and $1.3 million during 2000 and 1999, respectively (see Note 8).

In
November 2001, the FASB issued Announcement D-103 which states that out-of-pocket expenses should be recorded as revenue in fiscal periods
commencing after December 15, 2001. We will adopt the provisions of this Announcement as of January 1, 2002.

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Note 3: MARKETABLE SECURITIES, AVAILABLE-OR-SALE

Marketable securities available-for-sale are summarized as follows (in thousands):

|                                                        |  | Amortized
Cost |       | Unrealized
Gains |   | Unrealized
Losses |  | Fair Value
|------------------------------------------------------- |  | -------------- | ----- | ---------------- | - | ----------------- |  | ----------
|December 31, 2001                                       |  |                |       |                  |   |                   |  |           
|Debt issued by                                         |  |                |       |                  |   |                   |  |           
|Municipal Agencies                                      |  | $              | 7,475 |                  | $ | 27                |  | $         
|Corporations                                            |  |                | 2,202 |                  |   | 10                |  |           
|                                                        |  |                |       |                  |   |                   |  |           
|Total marketable securities                             |  |                | 9,677 |                  |   | 37                |  |           
|Less long-term marketable securities available-for-sale |  |                | 2,206 |                  |   | 10                |  |           
|                                                        |  |                |       |                  |   |                   |  |           
|Short-term marketable securities available-for-sale     |  | $              | 7,471 |                  | $ | 27                |  | $         
|                                                        |  |                |       |                  |   |                   |  |           

|                                                        |  | Amortized
Cost |        | Unrealized
Gains |   | Unrealized
Losses |  | Fair Value
|------------------------------------------------------- |  | -------------- | ------ | ---------------- | - | ----------------- |  | ----------
|December 31, 2000                                       |  |                |        |                  |   |                   |  |           
|Debt issued by                                         |  |                |        |                  |   |                   |  |           
|Municipal Agencies                                      |  | $              | 11,312 |                  | $ | 124               |  | $         
|Certificate of deposit                                  |  |                | 825    |                  |   |                  |  |           
|                                                        |  |                |        |                  |   |                   |  |           
|Total marketable securities                             |  |                | 12,137 |                  |   | 124               |  |           
|Less long-term marketable securities available-for-sale |  |                | 2,167  |                  |   | 4                 |  |           
|                                                        |  |                |        |                  |   |                   |  |           
|Short-term marketable securities available-for-sale     |  | $              | 9,970  |                  | $ | 120               |  | $         
|                                                        |  |                |        |                  |   |                   |  |           

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 December 31, 2001 and 2000, the weighted average maturity of the marketable securities portfolio was 325 days and 127 days,
respectively.

December 31, 2001(amounts in thousands):

|                               |  | Maturity
2002 |       | Maturity
2003 |   | Total |   | Fair Value at
December 31,
2001 |      
|------------------------------ |  | ------------- | ----- | ------------- | - | ----- | - | ------------------------------- | -----
|Municipal Agencies             |  | $             | 6,475 |               | $ | 1,000 |   | $                               | 7,475
|Corporations                   |  |               | 996   |               |   | 1,206 |   |                                 | 2,202
|                               |  |               |       |               |   |       |   |                                 |      
|Total                          |  | $             | 7,471 |               | $ | 2,206 |   | $                               | 9,677
|                               |  |               |       |               |   |       |   |                                 |      
|Weighted average interest rate |  |               | 3.49  | %             |   | 3.59  | % |                                 | 3.51 
|                               |  |               |       |               |   |       |   |                                 |      

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December 31, 2000 (amounts in thousands):

|                               |  | Maturity
2001 |       | Maturity
2002 |   | Total |   | Fair Value at
December 31,
2000 |       
|------------------------------ |  | ------------- | ----- | ------------- | - | ----- | - | ------------------------------- | ------
|Municipal Agencies             |  | $             | 9,145 |               | $ | 2,167 |   | $                               | 11,312
|Certificate of deposit         |  |               | 825   |               |   |      |   |                                 | 825   
|                               |  |               |       |               |   |       |   |                                 |       
|Total                          |  | $             | 9,970 |               | $ | 2,167 |   | $                               | 12,137
|                               |  |               |       |               |   |       |   |                                 |       
|Weighted average interest rate |  |               | 5.17  | %             |   | 6.21  | % |                                 | 5.35  
|                               |  |               |       |               |   |       |   |                                 |       

Note 4: INCOME TAXES

We account for income taxes using the asset and liability method under SFAS No. 109, "Accounting for Income Taxes." We provide a deferred tax expense or
benefit for differences between financial accounting and tax reporting. Deferred income taxes represent future net tax effects of temporary differences between the financial statement and tax bases of
assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.

The
income tax (benefit) expense for the years ended December 31, 2001, 2000, and 1999 consisted of (in thousands):

|          |         | 2001 |        | 2000   |   | 1999   |       
|--------- | ------- | ---- | ------ | ------ | - | ------ | ------
|Current:  |         |      |        |        |   |        |       
|          | Federal |      | $      |       |   | $      | (3,762
|          | State   |      |        | 396    |   |        | (796  
|          |         |      |        |        |   |        |       
|          |         |      | 396    |        |   | (4,558 | )     
|          |         |      |        |        |   |        |       
|Deferred: |         |      |        |        |   |        |       
|          | Federal |      |        | (7,482 | ) |        | (3,272
|          | State   |      |        | 399    |   |        | (352  
|          |         |      |        |        |   |        |       
|          |         |      | (7,083 | )      |   | (3,624 | )     
|          |         |      |        |        |   |        |       
|Total     |         | $    | (6,687 | )      | $ | (8,182 | )     
|          |         |      |        |        |   |        |       

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Significant
components of our deferred tax balances as of December 31, 2001 and 2000 are as follows (in thousands):

|                                             |                                                                             | December 31,
2001                     |   | December 31,
2000 |       
|-------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------- | - | ----------------- | ------
|Deferred tax assets:                         |                                                                             |                                       |   |                   |       
|                                             | In-process research and development                                         |                                       | $ | 7,017             |       
|                                             | Allowance for doubtful accounts                                             |                                       |   | 794               |       
|                                             | Other accruals not currently deductible                                     |                                       |   | 1,324             |       
|                                             | Deferred rent                                                               |                                       |   | 367               |       
|                                             | Net operating loss carryforwards                                            |                                       |   | 12,397            |       
|                                             | California enterprise zone credit carryforwards                             |                                       |   | 423               |       
|                                             | Alternative minimum tax credit carryforwards                                |                                       |   | 1,222             |       
|                                             | Research and experimentation credit carryforwards                           |                                       |   | 1,695             |       
|                                             | Sublease loss accruals                                                      |                                       |   | 4,178             |       
|                                             | State income taxes                                                          |                                       |   | 263               |       
|                                             |                                                                             |                                       |   |                   |       
|                                             |                                                                             | Total deferred income tax assets      |   |                   | 29,680
|Deferred tax liabilities:                    |                                                                             |                                       |   |                   |       
|                                             | Capitalized service and product development costs expensed for tax purposes |                                       |   | 992               |       
|                                             | Depreciation                                                                |                                       |   | 589               |       
|                                             | Other intangible assets                                                     |                                       |   | 4,902             |       
|                                             |                                                                             |                                       |   |                   |       
|                                             |                                                                             | Total deferred income tax liabilities |   |                   | 6,483 
|                                             |                                                                             |                                       |   |                   |       
|                                             | Deferred income tax assets (liabilities), net                               |                                       |   | 23,197            |       
|                                             |                                                                             |                                       |   |                   |       
|                                             | Valuation allowance                                                         |                                       |   | (23,197           | )     
|                                             |                                                                             |                                       |   |                   |       
|Net deferred income tax assets (liabilities) |                                                                             | $                                     |  |                   |       
|                                             |                                                                             |                                       |   |                   |       

A
reconciliation of the federal statutory tax rate to our effective tax rate is as follows (in thousands):

|                                               |  | 2001 |         | 2000 |     | 1999 |  
|---------------------------------------------- |  | ---- | ------- | ---- | --- | ---- | -
|Provision at statutory tax rate                |  | $    | (63,006 | )    | (35 | )%   | $
|State income taxes, net of federal tax benefit |  |      | (3,132  | )    |    |      |  
|Research and experimentation credits           |  |      |        |      |    |      |  
|California enterprise zone credits             |  |      |        |      |    |      |  
|Tax exempt interest                            |  |      | (32     | )    |    |      |  
|Minority interest in loss from subsidiary      |  |      |        |      |    |      |  
|Goodwill amortization and impairment loss      |  |      | 34,714  |      | 19  |      |  
|In-process research and development            |  |      |        |      |    |      |  
|Increase in valuation allowance                |  |      | 23,197  |      | 11  |      |  
|Other                                          |  |      | 1,572   |      | 1   |      |  
|                                               |  |      |         |      |     |      |  
|Total                                          |  | $    | (6,687  | )    | (4  | )%   | $
|                                               |  |      |         |      |     |      |  

At
December 31, 2001, we had net operating loss carryforwards available to offset future federal and state taxable income of approximately $32.0 million and
$23.0 million, respectively, which will start to expire in 2020 and 2010, respectively. Research and experimentation tax credit carryforwards of approximately $1.5 million and $239,000
available to offset future federal and California state taxes respectively, which will start to expire in 2009. We also have California state enterprise zone credit

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carryforwards of approximately $650,000, which have no expiration date, and are available to offset future California state taxes. We also have alternative minimum tax credits of approximately
$1.2 million which have no expiration date.

At
December 31, 2001, a valuation allowance of $23.2 million was established to reduce the net deferred income tax assets due to the uncertainty surrounding the realization
of the favorable tax attributes in future tax returns. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be
reduced.

Note 5: ACQUISITIONS



On November 30, 1999, we entered into a Common Stock Purchase Agreement (Common Stock Agreement) with Tradeweave, Inc. (Tradeweave), our subsidiary,
Peter R. Johnson, Chairman of our Board of Directors, and Garth Saloner, a member of our Board of Directors and Chairman of the Compensation Committee of our Board of Directors. Under the terms of the
Common Stock Agreement, during 1999, Tradeweave issued 1,520,000 shares of its common stock to Peter R. Johnson for $380,000 in cash, 480,000 shares of its common stock to Garth Saloner for $120,000
in cash, and an additional 17,999,800 shares of its common stock to us for $4,499,950 in cash. As a result of this transaction, we owned 18,000,000 shares, or 90%, of the outstanding shares of
Tradeweave as of December 31, 1999 and, therefore, included the results of Tradeweave in our consolidated results from the date of acquisition.

During
2000, Tradeweave issued 400,000 shares of its common stock to Peter R. Johnson for $100,000 in cash and 1,141,000 shares of its common stock to various Tradeweave employees for
$285,250 in cash pursuant to exercises of Tradeweave stock options. On September 30, 2000, Tradeweave issued 142,503 shares of its common stock valued at $1.17 per share (as determined by
American Appraisal Associates, Inc., independent appraiser) to Peter R. Johnson for services provided to Tradeweave.

On
June 30, 2000, we entered into a Preferred Stock Purchase Agreement (Preferred Stock Agreement) with Tradeweave, Peter R. Johnson and Garth Saloner. Under the terms of the
Preferred Stock Agreement, during the month of June 2000, Tradeweave issued 529,115 shares of its Series A preferred stock to Peter R. Johnson for $1,034,000 in cash, 135,093 shares of
its Series A preferred stock to Garth Saloner for $264,000 in cash, and 4,964,678 shares of its Series A preferred stock to QRS for $9,702,000 in
cash.As a result of these common stock and preferred stock transactions during 2000, we owned 84.11% of the outstanding shares of Tradeweave as of
December 31, 2000.

On
February 9, 2001, we acquired the outstanding capital stock not previously held by us in our subsidiary, Tradeweave under a merger agreement. The total acquisition cost for the
15.89% minority interest was $7.7 million, comprised of 334,774 shares of our common stock (of which 199,555 shares of our common stock were issued to Mr. Johnson and 47,362 shares of
our common stock were issued to Mr. Saloner) valued at $3.8 million (calculated based on the average share price of our common stock three days prior to the announcement of the
acquisition on February 9, 2001, the acquisition date, or $11.49 per share) for 4,347,711 shares of Tradeweave common stock and preferred stock held by Peter R. Johnson, Chairman of our Board
of Directors, Garth Saloner, a member of our Board of Directors, and certain Tradeweave employees who held shares pursuant to the exercises of Tradeweave stock options; transaction costs of
approximately $1.4 million; and the fair value of employee options assumed of $1.0 million and the fair value of warrants issued to Mr. Johnson and Mr. Saloner of
$1.4 million.

We
assumed the outstanding stock options under the Tradeweave Non-Qualified Stock Option Plan, which were converted to stock options to purchase 138,369 shares of our common
stock. The fair

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value of the stock options assumed was $1.0 million determined using the Black-Scholes method with the following assumptions: expected life of four years, volatility of 88%, weighted average
risk-free interest rate of 6%, and expected dividend rate of 0%. Additionally, we issued warrants to purchase 140,000 shares of our common stock (111,524 shares of our common stock issued
to Mr. Johnson and 28,476 shares of our common stock issued to Mr. Saloner) at a price of $11.0625 per share with a fair value of $1.4 million (determined using the Black-Scholes
method) to Mr. Johnson and Mr. Saloner. The warrants become exercisable in equal amounts over a 4-year period and expire on January 31, 2005. The intrinsic value of
unvested stock options assumed has been included in the financial statements as deferred compensation and is amortized over the remaining vesting period. The acquisition was accounted for as a
purchase transaction (see Note 7).



On March 10, 2000, we acquired substantially all of the assets of RockPort Trade Systems Inc., a Massachusetts corporation (RockPort), pursuant to
an Agreement and Plan of Reorganization (Reorganization Agreement), dated February 29, 2000. The total acquisition cost was $101.0 million, comprised of 814,794 shares of our common
stock valued at $90.1 million calculated based on the average of the share price of our common stock three days prior to the announcement of the acquisition on March 10, 2000 and three
days after this date, or $110.63 per share; transaction costs of $1.5 million and $9.4 million in stock compensation related to stock options assumed. We assumed the obligations of
RockPort under its RockPort Stock Option Plan (RockPort Plan) and the outstanding stock options of RockPort converted to options to purchase 89,645 shares of our common stock. As a result, we recorded
stock compensation of approximately $9.4 million, which has been included in the acquisition cost. The stock compensation represents the estimated fair value of the outstanding stock options
under the RockPort Plan, which were converted into shares of our common stock as of the acquisition date. The acquisition was accounted for as a purchase transaction (see Note 7).

On
January 21, 2000, we acquired all of the outstanding stock of Image Info Inc. (Image Info), pursuant to an Agreement and Plan of Merger, dated January 16, 2000
(Merger Agreement). The total acquisition cost was $51.3 million comprised of $5.0 million paid in cash; $5.0 million in deferred acquisition payment to the former shareholders of
Image Info; 440,914 shares of our common stock valued at $41.0 million calculated based on the average of the share price of our common stock three days prior to the announcement of the
acquisition on January 21, 2000 and three days after this date, or $93.08; and transaction costs of approximately $300,000. Under the terms of the Merger Agreement, we paid $2.5 million
in 2001 to the former shareholders of Image Info. The terms of the Merger Agreement also require that we pay an additional $2.5 million in 2002 to the former shareholders of Image Info if the
revenues from the acquired business meet the contractual levels for 2001. The deferred acquisition payment to the former shareholders of Image Info has been included in the acquisition cost. The
acquisition was accounted for as a purchase transaction (see Notes 6 and 7).



On July 23, 1999, we completed the acquisition of all the outstanding capital stock of Retail Data Services Inc. and RDS Inc. (collectively,
RDS). The total acquisition cost was $21.0 million; comprised of $15.0 million paid in cash; $3.0 million in deferred acquisition payment to the seller; 53,250 shares of common
stock valued at $2.8 million at an average share price of our common stock of $51.88 of which 11,000 shares of common stock were issued from our treasury account; and $250,000 in transaction
costs related to the acquisition. The terms of the purchase agreement required that we pay $2.0 million and $1.0 million to the seller in March 2000 and 2001, respectively, if
revenue from the acquired business met or exceeded the established levels for 1999 and 2000. Revenue from the acquired business for 1999 and 2000 met the established levels and we paid
$2.0 million and $1.0 million to the seller in

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March 2000 and 2001, respectively. Both payments to the seller have been included in the acquisition cost. The acquisition was accounted for as a purchase transaction (see Note 7).

The
amount allocated to in-process research and development of $963,000 was charged to expense during the year ended December 31, 1999 as technological feasibility had
not been established and no alternative future uses existed for the research projects at the acquisition date.

The
purchase prices related to the acquisitions have been allocated to the acquired assets and assumed liabilities on the basis of their estimated fair values as of the date of the
acquisition, as determined by American Appraisal Associates, Inc., independent appraiser. The fair value of the assets acquired and liabilities assumed, is summarized as follows (in thousands):

|                                            |  | Tradeweave |        | RockPort |   | Image Info |   | RDS |       
|------------------------------------------- |  | ---------- | ------ | -------- | - | ---------- | - | --- | ------
|Cash                                        |  | $          |       |          | $ |           |   | $   | 5,000 
|Estimated fair value of common stock issued |  |            | 3,847  |          |   | 90,137     |   |     | 41,040
|Fair value of stock options assumed         |  |            | 1,044  |          |   | 9,367      |   |     |      
|Fair value of warrants issued               |  |            | 1,372  |          |   |           |   |     |      
|Transaction costs                           |  |            | 1,400  |          |   | 1,450      |   |     | 300   
|Deferred acquisition payment                |  |            |       |          |   |           |   |     | 5,000 
|                                            |  |            |        |          |   |            |   |     |       
|Total purchase price                        |  | $          | 7,663  |          | $ | 100,954    |   | $   | 51,340
|                                            |  |            |        |          |   |            |   |     |       
|Preliminary allocation of purchase price:   |  |            |        |          |   |            |   |     |       
|Goodwill                                    |  | $          | 5,121  |          | $ | 76,315     |   | $   | 31,596
|Current technology                          |  |            | 1,523  |          |   | 18,818     |   |     | 17,486
|Customer list and trademark                 |  |            | 821    |          |   | 2,438      |   |     | 2,283 
|Fair value of other intangible assets       |  |            | 877    |          |   |           |   |     | 1,700 
|Intrinsic value of unvested options assumed |  |            | 59     |          |   |           |   |     |      
|Assembled workforce                         |  |            | 335    |          |   | 2,813      |   |     | 938   
|In-process research and development         |  |            |       |          |   | 8,441      |   |     | 9,439 
|Accounts receivable                         |  |            |       |          |   | 2,133      |   |     | 1,297 
|Prepaid and other current assets            |  |            |       |          |   | 226        |   |     | 6     
|Property and equipment                      |  |            |       |          |   | 217        |   |     | 322   
|Other assets                                |  |            |       |          |   | 54         |   |     | 43    
|Cash                                        |  |            |       |          |   | 730        |   |     |      
|Deferred income taxes                       |  |            | (1,073 | )        |   | (9,228     | ) |     | (8,637
|Liabilities assumed                         |  |            |       |          |   | (2,003     | ) |     | (5,133
|                                            |  |            |        |          |   |            |   |     |       
|Total allocation of purchase price          |  | $          | 7,663  |          | $ | 100,954    |   | $   | 51,340
|                                            |  |            |        |          |   |            |   |     |       

The
amounts allocated to the in-process research and development were determined based on appraisals completed by American Appraisal Associates, Inc., independent appraiser,
using established valuation techniques and were expensed upon acquisition, because technological feasibility had not been established and no future alternative uses existed. The value of these
projects was determined by estimating the costs to develop the in-process research and development into commercially viable products, estimating the resulting net cash flows form the sale
of the products resulting from the completion of the projects reduced by the portion of the revenue attributable to core technology, and discounting the net cash flows back to their present value. The
RockPort, Image Info and RDS projects have been completed and the actual costs were in line with estimates. Amounts allocated to intangible assets and goodwill resulting from the above acquisitions
are amortized over periods ranging from three to seven years from the date of acquisition.

62

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The
appraisal techniques used for the acquisitions included certain assumptions, including, the extent, character and utility, the income generating or cost-savings
attributes, the nature and timing of the functional or economic obsolescence and the relative risk and uncertainty associated with an investment in intangible assets.

The
following unaudited pro forma financial results of QRS for the years ended December 31, 2000 and 1999 give effect to the acquisition of RockPort, Image Info and RDS as if the
acquisitions had occurred at the beginning of the periods presented and includes adjustments (increase in amortization of intangible assets, decrease in interest income from the increase in the use of
cash and the related income tax adjustments) directly attributable to the acquisition and expected to have a continuing impact on the combined company.

The
unaudited pro forma financial results are provided for comparative purposes only and are not necessarily indicative of what our actual results would have been had the forgoing
transactions been consummated on such dates, nor does it give effect to the synergies, cost savings and other charges expected to result from the acquisitions. Accordingly, the pro forma financial
results do not purport to be indicative of our results of operations as of the date hereof or for any period ended on the date hereof or for any other future date or period.

Unaudited Pro Forma Financial Information (in thousands, except share and per share amounts):

|                                                        |  | Years Ended December 31, |           
|------------------------------------------------------- |  | ------------------------ | ----------
|
|Revenues                                                |  | $                        | 143,088   
|                                                        |  |                          |           
|Net loss                                                |  | $                        | (27,859   
|                                                        |  |                          |           
|Basic and diluted loss per share                        |  | $                        | (1.90     
|                                                        |  |                          |           
|Shares used to compute basic and diluted loss per share |  |                          | 14,649,832
|                                                        |  |                          |           

Basic
and diluted pro forma loss per share was calculated based on our outstanding common stock at December 31, 2000 and 1999, which reflects 814,794 shares, 440,914 shares and
53,250 shares of our common stock issued, respectively in connection with the acquisition of RockPort, Image Info and RDS. At December 31, 2000, 226,105 shares and 166,666 shares of our common
stock issued in connection with the acquisitions of RockPort and Image Info, respectively were held in escrow and have been excluded from shares used to compute basic and diluted loss per share. The
226,105 and 166,666 shares of our common stock were released from escrow in March and January 2001, respectively.

Note 6: RESTRUCTURING EXPENSES

On February 6, 2001, we announced a reorganization plan that included the full integration of the operations of QRS and Tradeweave and an alignment of our
organization with a single go-to-market strategy focused on enhanced synergies within QRS with resulting cost reductions. As a result, we recorded restructuring expenses of
$4.3 million during the year ended December 31, 2001, comprised of severance of $1.6 million and accelerated stock-based compensation of $507,000 for 77 involuntary terminations
throughout QRS, and facilities closure expense of $2.2 million.

During
September 2001, we discontinued our Tradeweave Digital Photography service due to underperformance. As a result, we recorded restructuring expenses of $3.0 million
during the year ended December 31, 2001, comprised of severance of $127,000 for 17 involuntary terminations in the Tradeweave Digital Photography Group, and facilities closure expense of
$2.9 million.

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Finally, during the fourth quarter of 2001, under the leadership of our new management, we restructured our operations, which included the realignment and certain eliminations of our
products and services, the elimination of full-time positions and the consolidation of our use of real estate. As a result, we recorded restructuring expenses of $12.0 million
during the year ended December 31, 2001, comprised of severance of $2.0 million for 69 involuntary terminations throughout QRS, and facilities closure expense of $10.0 million.

Restructuring
expenses and the related liability as of and for the year ended December 31, 2001 were as follows (in thousands):

|                         |       | Estimated
Costs |        | Adjustments(1) |   | Non-cash |       | Cash
Payments |      | Liability as of
December 31,
2001
|------------------------ | ----- | --------------- | ------ | -------------- | - | -------- | ----- | ------------- | ---- | ---------------------------------
|Severance                |       | $               | 3,733  |                | $ |         |       | $             |     |                                  
|Stock-based compensation |       |                 | 507    |                |   |         |       |               | (507 | )                                
|Facilities closure       |       |                 | 11,490 |                |   | 3,624    |       |               |     |                                  
|                         |       |                 |        |                |   |          |       |               |      |                                  
|                         | Total |                 | $      | 15,730         |   | $        | 3,624 |               | $    | (507                             
|                         |       |                 |        |                |   |          |       |               |      |                                  

---

The
employee severance of $3.7 million includes severance benefits and outplacement services. We expect to pay the severance liability of $2.0 million (included in accrued
compensation) in full by the second quarter of 2003. The facilities closure expense of $15.1 million to close excess facilities was incurred in connection with the closure of the Tradeweave
facility in the first quarter of 2001, the Digital Photography facility in the second quarter of 2001, and the consolidation of the Richmond headquarters from three to two buildings and the closing of
excess office space in New York during the fourth quarter of 2001. These exit costs include payments required under non-cancelable operating leases, which will be paid over the respective
lease terms (less estimated sublease income) through fiscal 2011 after the facilities have been vacated. The outstanding liability related to facilities closure totaled $14.4 million at
December 31, 2001 of which we expect to pay $3.8 million during 2002 and we expect to pay $10.6 million from 2003 through 2011.

Note 7: IMPAIRMENT LOSS

During the third quarter of 2001, we recognized an impairment loss of $10.4 million associated with our Tradeweave Digital Photography service which was
acquired in connection with the acquisition of Image Info in January 2000. The impairment loss was determined based on analysis performed by American Appraisal Associates, Inc., independent
appraiser, and comprised of the write-down of goodwill and other intangible assets of $8.4 million; and the write-off of the carrying amount of property and equipment of
$2.0 million, which was included in cost of revenues, primarily comprised of tenant improvements for the closure of our New York photography studio as well as photographic equipment. In
addition, the impairment loss during the third quarter ended September 30, 2001 also included a charge of $536,000 related to the write-off of the value of a Web-portal,
which was under construction.

During
the fourth quarter of 2001, under the leadership of our new management, we initiated a comprehensive strategic review of our products and services and market opportunities. In
consideration of the current tightening in information technology spending and uncertainties in the marketplace along with analysis performed by American Appraisal Associates, Inc., independent
appraiser, we concluded

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that future cash flows from the assets acquired in connection with our acquisitions of RockPort, Image Info, RDS and Tradeweave would not be sufficient to recover the carrying amount of the acquired
goodwill and other intangible and tangible assets. Therefore, we recorded an impairment loss of $110.4 million for the year ended December 31, 2001, comprised of the
write-down of goodwill and other intangible assets of $60.0 million associated with the QRS Sourcing product acquired in connection with our acquisition of RockPort;
$29.3 million associated with the QRS Merchandising product acquired in connection with our acquisition of Image Info; $10.5 million associated with QRS Retail Intelligence Services
acquired in connection with our acquisition of RDS; and $7.2 million associated with the QRS Showroom product which was recorded in connection with our acquisition of the Tradeweave minority
interest; and write-off of the carrying amount of tenant improvements and other assets of $3.4 million, of which $0.4 million is included in cost of revenues for Global
Services. We recognized an additional impairment loss of $4.3 million (which has been included in cost of revenues) related to the write-off of capitalized service and product
development costs related to the QRS Showroom product as the result of an impairment analysis.

Impairment
loss for the year ended December 31, 2001 and related acquisition values, prior accumulated amortization and balance as of December 31, 2001 were as follows (in
thousands):

|                                                                  |            | Acquired
intangible
assets
(including
goodwill) |         | Less 2001
impairment
loss |   | Less prior
accumulated
amortization |        | Balance as of
December 31,
2001
|----------------------------------------------------------------- | ---------- | ----------------------------------------------- | ------- | ------------------------- | - | ----------------------------------- | ------ | -------------------------------
|Acquisitions:                                                     |            |                                                 |         |                           |   |                                     |        |                                
|                                                                  | RockPort   |                                                 | $       | 100,384                   |   | $                                   | 59,966 |                                
|                                                                  | Image Info |                                                 |         | 54,003                    |   |                                     | 37,700 |                                
|                                                                  | RDS        |                                                 |         | 18,757                    |   |                                     | 10,510 |                                
|                                                                  | Tradeweave |                                                 |         | 8,736                     |   |                                     | 7,248  |                                
|                                                                  |            |                                                 |         |                           |   |                                     |        |                                
|Total                                                             |            | $                                               | 181,880 |                           |   | 115,424                             |        | $                              
|                                                                  |            |                                                 |         |                           |   |                                     |        |                                
|Write-down of property and equipment                              |            |                                                 |         |                           |   | 3,472                               |        |                                
|                                                                  |            |                                                 |         |                           |   |                                     |        |                                
|Subtotal(1)                                                       |            |                                                 |         |                           |   | 118,896                             |        |                                
|Write-down of property and equipment(2)                           |            |                                                 |         |                           |   | 2,455                               |        |                                
|Write-off of capitalized service and product development costs(3) |            |                                                 |         |                           |   | 4,250                               |        |                                
|                                                                  |            |                                                 |         |                           |   |                                     |        |                                
|Total impairment loss                                             |            |                                                 |         |                           | $ | 125,601                             |        |                                
|                                                                  |            |                                                 |         |                           |   |                                     |        |                                

---

Note 8: COMMITMENTS AND CONTINGENCIES

Effective January 1, 2001, we amended our agreement with IBM to eliminate existing volume commitments and penalties for failure to meet usage requirements.
IBM waived all penalty charges incurred by us under the prior agreement. We agreed to purchase a certain amount of network services for a fixed fee over a 2-year period ending
December 31, 2002. If our usage of the network services exceeds the specified usage volume, we will pay an incremental fee for such excess usage based on a schedule of charges. The amended
agreement also allows for the purchasing of additional/other services at a discounted rate, with no volume commitments or penalties. As part of the amendment, we also

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terminated our Retail Management Agreement with IBM. Under the terms of this agreement, IBM paid us $1.9 million and $1.3 million for providing marketing services to the retail industry
during the years ended December 31, 2000 and 1999, respectively (see Note 2).

On
April 30, 1999, AT&T completed its acquisition of IBM Global Network business (renamed AT&T Global Network Services). This acquisition reflected IBM's intent to exit the
telecommunications infrastructure side of its network business while focusing on its e-business related services. The services purchased from IBM under its agreement include both network
connectivity and e-business related value-added services. After the close of the AT&T acquisition, we continue to acquire our network service requirements from IBM with the delivery of a
portion of these services undertaken by AT&T.

In
October 1999, we established an irrevocable letter of credit on behalf of Tradeweave, Inc. for the amount of $825,000 with Wells Fargo Bank, N.A. as security for its
real property lease and general corporate purposes. The letter of credit is outstanding as of December 31, 2001 (see Note 5).

On
September 22, 2000, Gladson and Associates, Inc. (Gladson) filed a complaint for damages, injunctive relief and declaratory relief against us in Contra Costa County
Superior Court. On March 8, 2001, Gladson filed its First Amended Complaint ("FAC") for injunctive relief and damages in the sum of $3.5 million and for punitive damages in the sum of
$5.0 million. The FAC asserts claims for breach of written contract, unfair competition, misappropriation of trade secrets, conversion, fraud, false designation of origin, intentional and
negligent interference with prospective business advantage, and conspiracy. On March 12, 2002, the parties reached a confidential tentative settlement of the action through voluntary mediation.
The final settlement documentation is being prepared.

In
December 2001, we received a written communication from a software vendor stating that our usage of the vendor's software products may have exceeded contractual limits. We
resolved this matter on a mutually amicable basis in March 2002.

As
of December 31, 2001, we recorded a $1.1 million accrual in connection with the above as well as other matters arising during the normal course of business..

We
lease office buildings and certain equipment under various non-cancelable operating lease agreements expiring through the year 2011. The leases for office buildings
generally provide renewal options and additional rents based on increases in operating expenses of the buildings. Our corporate building lease agreement provided for significant periods of "free rent"
when no cash was required. The total cash payments over the life of the lease were divided by the total number of months in the lease period and the average rent is charged to expense each month
during the lease period. Total rent expense related to these operating leases charged to continuing operations for the years ended December 31, 2001, 2000, and 1999 was $20.5 million (of
which $15.1 million, net of projected sublease income was included in restructuring expenses and $14.4 million has been included in liabilities as of December 31, 2001),
$5.1 million and $3.2 million, respectively.

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At
December 31, 2001, future minimum payments under long-term operating leases, which include $25.7 million for unoccupied facilities, are as follows (in
thousands):

|                         |                   | Minimum Lease
Commitments |        | Sublease
Income(1) |   | Net Lease
Commitments
|------------------------ | ----------------- | ------------------------- | ------ | ------------------ | - | ---------------------
|Year Ending December 31: |                   |                           |        |                    |   |                      
|                         | 2002              |                           | $      | 6,294              |   | $                    
|                         | 2003              |                           |        | 5,628              |   |                      
|                         | 2004              |                           |        | 4,808              |   |                      
|                         | 2005              |                           |        | 3,257              |   |                      
|                         | 2006              |                           |        | 3,261              |   |                      
|                         | 2007 & thereafter |                           |        | 29,071             |   |                      
|                         |                   |                           |        |                    |   |                      
|Total                    |                   | $                         | 52,319 |                    | $ | 1,073                
|                         |                   |                           |        |                    |   |                      

---

Note 9: CONCENTRATION OF CREDIT RISK

We provide services and generate revenues by enabling certain hub customers and their trading partners to conduct business over the IBM Global Network. Due to the
large number of trading partners that transact business with each other, including one or more hub customers, the difficulty of allocating trading partner network services to individual hub customers,
and the differences in the manner in which hub customers and trading partners allocate the cost of network services among each other, we cannot precisely attribute revenues to particular trading
relationships. While we continue to refine our estimation techniques, we believe that no individual customer or hub customer trading partnership exceeded 10% of total revenues for any of the three
years in the period ended December 31, 2001. Additionally, no individual customer accounted for 10% or more of the accounts receivable balances as of December 31, 2001, 2000 and 1999.
All of our customers belong to a single segment of the economy, the retail industry. A slowdown or consolidation within such industry can have a material adverse effect on our business and results of
operations. The write-off of accounts receivable was $2.1 million, $2.2 million, and $1.4 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

The
Company relies on the AT&T Global Network for provision of electronic data exchange services to its customers. If AT&T becomes unable or unwilling to provide these services, we would
either have to provide these services directly or arrange for another third party to provide such services. There can be no assurance that we would be able to do so on a timely manner, if at all, or
that the costs of any such arrangements would not materially adversely affect our business and results of operations.

Note 10: RETIREMENT SAVINGS PLANS

We maintain a 401(k) plan, which is a defined contribution plan for all eligible employees. The plan allows discretionary, matching employer contributions of up
to 50% of the maximum allowable employee contribution ($10,500 in 2001 and 2000, and $10,000 in 1999). The matching employer contributions charged to continuing operations during 2001, 2000, and 1999
were approximately $2.2 million, $1.2 million, and $651,000, respectively. Included in the 2001 employer contribution match is an estimated expense of $0.5 million for
contributions to be made on behalf of part-time employees that were eligible to participate in the 401(k) plan based on plan provisions but were not informed of

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their eligibility in a timely manner. We expect these contributions to be made in 2002. We also maintain a non-qualified deferred compensation plan for certain employees whose
contributions and the related employer matching contributions under the 401(k) plan are restricted under the Internal Revenue Code. The supplemental employer matching contributions under this plan
charged to continuing operations during 2001, 2000 and 1999 were $43,000, $71,000 and $64,000, respectively.

Note 11: COMMON STOCK, STOCK OPTIONS AND WARRANTS

On May 11, 2000 our shareholders approved an amendment to our Certificate of Incorporation to increase the number of shares of common stock available for
issuance by an additional 40,000,000 shares to a total of 60,000,000 shares.

Restricted Stock

On December 19, 2000, our Compensation Committee approved the implementation of a restricted share award program pursuant to the stock issuance provisions
of the 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"). Under the terms of the program, each officer (from Vice President level and above) was given the opportunity to surrender his or her
outstanding options under the 1993 Plan with an exercise price of $15.00 or more per share in return for a restricted share award at an exchange ratio of three option shares surrendered for every one
share of common stock awarded under the restricted share program. When the restricted share awards were made under the program on January 3, 2001, the fair market value of our common stock was
$13.69 per share. The executive officers surrendered options covering a total of 875,126 shares of our common stock with a weighted average exercise price of $41.88 per share in return for an
aggregate of 286,875 shares of our common stock subject to vesting. The restricted shares subject to each such award will be issued in a series of six successive equal semi-annual
installments upon the individuals' completion of each successful six months of continued employment with us. The shares are fully vested upon their issuance, and at December 31, 2001, we had
issued 129,405 shares of our common stock under the program.

The
fair value of the 286,875 shares awarded was $3.9 million based on the market price of our common stock, which was $13.69 per share at January 3, 2001, and has been
included in the financial statements as deferred compensation, and is being amortized ratably over the vesting remaining vesting period. During the year ended December 31, 2001, awards of
restricted shares subject to accelerated vesting and cancellation were 57,499 and 36,830, respectively. Stock-based compensation expense recognized during year ended December 31, 2001 related
to the restricted stock program was $1.8 million. Stock-based compensation expense for the year ended December 31, 2001 includes expense from accelerated vesting of restricted stock in
the amount of $772,000, of which $507,000 was included in restructuring expenses (see Note 6). As of December 31, 2001, shares outstanding under the restricted share award program were
120,641.

Stock Options and Employee Stock Purchase Plan

In 1989, our Board of Directors approved a Non-Qualified Stock Option Plan (the "Plan"). The Plan was amended in 1990. The Plan provides for the
granting of options to certain employees and directors to purchase shares of our common stock at prices determined by our Board of Directors.

In
June 1993, our Board of Directors adopted an Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan provides for the purchase of common stock by eligible
employees. A total of 425,000 shares of common stock have been reserved for purchase under the Purchase Plan, which includes an additional allocation approved by the stockholders of 200,000 shares in
May 2001. The purchase price per share is 85% of the lower of (i) the fair market value of the common stock on the participant's entry date (generally, the first business day in May or
November) into the applicable 24-month purchase period or (ii) the fair market value on the annual purchase date (the last business day in December each year). For a participant
whose entry date is subsequent to the start date of the

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purchase period, the clause (i) value will not be less than the fair market value of the common stock on the start date of the purchase period. In 2001, 2000, and 1999, employees acquired
70,695 shares, 37,952 shares, 23,175 shares of our common stock, respectively, under the Purchase Plan. At December 31, 2001, 171,784 shares of our common stock were available for future
purchases under the Purchase Plan.

In
June 1993, our Board of Directors also approved the 1993 Stock Option/Stock Issuance Plan (the "1993 Plan"). A total of 5,450,000 shares of common stock have been reserved for
issuance under the 1993 Plan, which includes additional allocations approved by the stockholders of 750,000, 750,000, 525,000, 600,000, 800,000 shares and 750,000 shares in May 1995, 1996,
1998, 1999, 2000 and 2001, respectively. The 1993 Plan is divided into three separate components: (i) the Discretionary Option Grant Program under which key employees (including officers),
certain non-employee directors and consultants may, at the discretion of the Plan Administrator, be granted options to purchase shares of common stock at an exercise price not less than
85% of the fair market value of such shares on the grant date, (ii) the Automatic Option Grant Program under which option grants will automatically be made at periodic intervals to certain
non-employee members of the Board to purchase shares of common stock at an exercise price equal to 100% of the fair market value of the option shares on the grant date, and
(iii) the Stock Issuance Program under which key employees (including officers), certain non-employee and consultants may, in the Plan Administrator's discretion, be issued shares
of common stock directly, either through the purchase of such shares at a price not less than 85% of their fair market value at the time of issuance or as a bonus tied to the performance of services
or our attainment of financial objectives, without any cash payment required of the recipient.

All
outstanding options under the 1993 Plan have been granted at fair market value on the date of grant and generally vest as follows: 25% of the option vests upon optionee's completion
of one year of service measured from the grant date. The balance of the options vest in a series of 36 successive equal monthly installments upon optionee's completion of each month of service over
the 36-month period. All options have a life of 10 years. Outstanding options granted under earlier plans were granted at fair market value or lesser values, and vest primarily over
periods up to four years.

In
December 1997, our Board of Directors approved the 1997 Special Non-Officer Stock Option Plan, which permits us to grant options to purchase up to 225,000 shares of
common stock. The persons eligible to receive options through this Plan are those employees who are neither our executive officers nor members of our Board of Directors. On February 15, 1999,
our Board of Directors authorized an increase in the number of shares of common stock available for issuance under the 1997 Special Non-Officer Stock Option Plan from 225,000 shares to
450,000 shares, and on May 11, 2000, authorized an increase from 450,000 shares to 675,000 shares.)

In
connection with our February 2001 acquisition of the minority interest in our subsidiary Tradeweave, Inc (see Note 5), we assumed all outstanding options under the
Tradeweave Non-Qualified Stock Option Plan, which were converted to stock options to purchase 138,369 shares of our common stock at exercise prices ranging from $3.25 to $15.29 per share.

In
connection with our March 2000 acquisition of RockPort (see Note 5), we assumed the obligations of RockPort under its RockPort Stock Option Plan (RockPort Plan) and the
outstanding stock options of RockPort converted to options to purchase 89,645 shares of our common stock at exercise prices ranging from $0.15 to $12.27 per share.

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

|                                                                                              |                  | Number of
Options
Available
for Grant |            | Number of
Options
Outstanding |            | Weighted
Average
Exercise Price
|--------------------------------------------------------------------------------------------- | ---------------- | ------------------------------------- | ---------- | ----------------------------- | ---------- | -------------------------------
|Balance, December 31, 1998 (861,011 exercisable at $15.67 weighted average price per share)   |                  | 68,960                                |            | 2,438,334                     |            | $                              
|                                                                                              | Authorized       |                                       | 825,000    |                               |            |                                
|                                                                                              | Granted          |                                       | (734,865   | )                             | 734,865    |                                
|                                                                                              | Exercised        |                                       |            |                               | (675,106   | )                              
|                                                                                              | Canceled         |                                       | 123,850    |                               | (123,850   | )                              
|                                                                                              |                  |                                       |            |                               |            |                                
|Balance, December 31, 1999 (971,860 exercisable at $21.70 weighted average price per share)   |                  | 282,945                               |            | 2,374,243                     |            |                                
|                                                                                              | Authorized       |                                       | 1,114,645  |                               |            |                                
|                                                                                              | Granted          |                                       | (1,361,489 | )                             | 1,361,489  |                                
|                                                                                              | Exercised        |                                       |            |                               | (312,919   | )                              
|                                                                                              | Canceled         |                                       | 328,133    |                               | (328,133   | )                              
|                                                                                              |                  |                                       |            |                               |            |                                
|Balance, December 31, 2000 (1,456,618 exercisable at $28.30 weighted average price per share) |                  | 364,234                               |            | 3,094,680                     |            |                                
|                                                                                              | Authorized       |                                       | 888,369    |                               |            |                                
|                                                                                              | Granted          |                                       | (1,580,667 | )                             | 1,580,667  |                                
|                                                                                              | Exercised        |                                       |            |                               | (25,869    | )                              
|                                                                                              | Canceled         |                                       | 1,436,594  |                               | (1,436,594 | )                              
|                                                                                              | Restricted stock |                                       |            |                               | (286,875   | )                              
|                                                                                              | Repurchased      |                                       |            |                               | 10,271     |                                
|                                                                                              | Expired          |                                       |            |                               | (19,515    | )                              
|                                                                                              |                  |                                       |            |                               |            |                                
|Balance, December 31, 2001 (1,786,246 exercisable at $27.99 weighted average price per share) |                  | 812,411                               |            | 3,212,884                     |            |                                
|                                                                                              |                  |                                       |            |                               |            |                                

The
status of options outstanding as of December 31, 2001 is summarized as follows:

|Options Outstanding |              | Options Exercisable
|------------------- | ------------ | -------------------
|
|$                   | 3.07-3.50    |                    
|                    | 6.00-8.94    |                    
|                    | 9.28-13.53   |                    
|                    | 14.15-19.33  |                    
|                    | 20.75-30.58  |                    
|                    | 32.00-43.17  |                    
|                    | 54.13-75.75  |                    
|                    | 83.00-104.75 |                    
|                    |              |                    
|$                   | 3.07-104.75  |                    
|                    |              |                    

Had compensation cost for our stock-based plans been determined based on the fair value at the grant dates for awards under those plans consistent
with the method of SFAS No. 123, our net

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earnings (loss) and net earnings (loss) per share would have been decreased to the pro forma amounts indicated in the following table:

|                                  |  | Years Ended December 31,
(in thousands, except
per share data)
|--------------------------------- |  | --------------------------------------------------------------
|
|Net earnings (loss)               |  |                                                               
|As reported                       |  | $                                                             
|                                  |  |                                                               
|Pro forma                         |  | $                                                             
|                                  |  |                                                               
|Basic earnings (loss) per share   |  |                                                               
|As reported                       |  | $                                                             
|                                  |  |                                                               
|Pro forma                         |  | $                                                             
|                                  |  |                                                               
|Diluted earnings (loss) per share |  |                                                               
|As reported                       |  | $                                                             
|                                  |  |                                                               
|Pro forma                         |  | $                                                             
|                                  |  |                                                               

The
weighted average fair value of options granted during 2001, 2000 and 1999 was $11.72, $32.25, and $24.96, respectively. Such fair values of each option grant is estimated on the date
of grant and were calculated based on each option grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants made in 2001, 2000, and 1999 under
the 1993, 1997, RockPort and Tradeweave Plans and for purchases made in 2001, 2000, and 1999 under the Employee Stock Purchase Plan: risk-free interest rates are 4.6% in 2001, 6.30% in
2000 and 5.49% in 1999; expected volatility is 95.25% in 2001, 88.82% in 2000 (0% for the Tradeweave Plan), 58.72% in 1999 (0% for the Tradeweave Plan); expected lives in all years are 12 to
18 months beyond each incremental vesting period (total life of 2 to 5.5 years, depending upon each grant's individual vesting schedule). No dividends are assumed for any plan in any
year.

Warrants

Warrants to purchase 10,134 shares of common stock at $12.33 were outstanding at December 31, 2001. These warrants were issued to a bank in connection with
a line of credit prior to our public offering in 1993. These warrants, which are exercisable, expire upon 30-day notification of the warrant holder. During 1999, warrants to purchase
15,000 shares of common stock, issued in connection with the public offering, were exercised.

Warrants
issued to related parties in connection with our acquisition of the minority interest in Tradeweave (see Note 5) to purchase 140,000 shares of our common stock at a price
of $11.0625 were outstanding at December 31, 2001. The warrants become exercisable in equal amounts over a 4-year period and expire on January 31, 2005.

Note 12: TREASURY STOCK

On April 22, 1997, we announced that our Board of Directors authorized the repurchase from time to time of up to $5 million of its common stock in
both open market and block transactions. Our Board of Directors authorized a $5 million increase in this repurchase amount on October 16, 1998, and an additional increase of
$5 million on May 4, 2000 for a total of $15 million. Shares purchased under this program will be held in the corporate treasury for future use including employee stock option
grants and the employee stock purchase plan. We may discontinue purchases of our common stock at any time that management determines additional purchases are not warranted. We have

71

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repurchased 288,825 shares of our common stock since the inception of the buyback program; of which 198,000 shares were repurchased during 2000 for $5,004,000; 88,875 shares were repurchased during
1998 for $1,837,000; and 1,950 shares were repurchased during 1997 for $35,000. During the third quarter of 1998, we reissued 52,500 shares of treasury stock valued at $802,000 in connection with the
acquisition of businesses. On July 23, 1999, we reissued 11,000 shares of treasury stock valued at $571,000 in connection with the acquisition of RDS (see Note 5).

Note 13: EARNINGS PER SHARE

We calculate basic EPS and diluted EPS in accordance with SFAS No. 128. Basic EPS is calculated by dividing net earnings for the period by the weighted
average common shares outstanding for that period. Diluted EPS takes into account the effect of dilutive instruments, such as stock options, 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.

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

|                                   |  | Years Ended December 31,
|---------------------------------- |  | ------------------------
|
|Shares used to compute basic EPS   |  | 15,400,126              
|Add: Effect of dilutive securities |  |                        
|                                   |  |                         
|Shares used to compute diluted EPS |  | 15,400,126              
|                                   |  |                         

Dilutive
potential shares for the years ended December 31, 2001 and 2000 were 269,806 and 544,611 shares, respectively, and have been excluded from the shares used in calculating
diluted loss per share because their effect is antidilutive.

Note 14: RELATED PARTY TRANSACTIONS

On February 9, 2001, we acquired the outstanding capital stock not previously held by us in Tradeweave under a merger agreement (see Note 5).

Note 15: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

|                       |  | 2001 Quarterly |       
|---------------------- |  | -------------- | ------
|
|Revenues               |  | $              | 35,766
|Gross profit(1)(2)(3)  |  |                | 16,055
|Net loss               |  |                | (8,755
|Basic loss per share   |  |                | (0.58 
|Diluted loss per share |  |                | (0.58 

---

72

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|                       |  | 2000 Quarterly |        
|---------------------- |  | -------------- | -------
|
|Revenues(4)            |  | $              | 34,575 
|Gross profit           |  |                | 16,079 
|Net loss               |  |                | (17,779
|Basic loss per share   |  |                | (1.26  
|Diluted loss per share |  |                | (1.26  

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Company's directors and the compliance of certain reporting persons with Section 16(a) of the Securities Exchange Act of 1934
will be set forth under the caption "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement for use in connection with the Annual
Meeting of Stockholders to be held on May 14, 2002 (the "2002 Proxy Statement") and is incorporated herein by reference. The 2002 Proxy Statement is expected to be filed with the Securities and
Exchange Commission within 120 days after the end of the Company's fiscal year.

Information
regarding Company's executive officers is set forth in this Form 10-K in Part I, Item 1.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference from the information set forth under the caption "Executive Compensation" in the 2002
Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference into herein by reference this Form 10-K from the information set forth under
the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2002 Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference from the information set forth under the caption "Certain Relationships and Related
Transactions" in the Company's 2002 Proxy Statement.

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PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

The following documents are filed or incorporated by reference as part of this Form 10-K:

(a)  Items filed as part of report:

1.    Financial Statements

Independent Accountants'/Auditors' Report



2.    Financial Statement Schedules

All schedules are omitted because they are not applicable or not required or because the required information is included in the financial statements or notes
thereto.

(b)  Reports on Form 8-K

None

(c)  Exhibits

|No.  |  | Description                                                                                                                                                                                                                                                
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Certification Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).                                                                     
|3.2  |  | Certificate of Correction to the of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31,
1997).                                               
|3.3  |  | Bylaws of the Company (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).                                                                                                         
|3.4  |  | Certificate of Amendment of Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year ended December 31,
1998).                                                       
|3.5  |  | Certificate of Amendment to the Company's Certificate of Incorporation (incorporated by reference to Exhibit 3.5 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 30,
2001).                                                   
|4.1  |  | Specimen of Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 No. 33-63938).                                                                                        
|10.1 |  | 1993 Stock Option/Stock Issuance Plan (as amended and restated through March 1, 2001) (incorporated by reference to Appendix B filed with Registrant's Definitive Proxy Statement on Schedule 14A for the
Annual Meeting of Shareholders on May 10, 2001).*
|10.2 |  | Employee Stock Purchase Plan (as amended and restated as of March 1, 2001) (incorporated by reference to Appendix C filed with Registrant's Definitive Proxy Statement on Schedule 14A for the Annual Meeting
of Shareholders on May 10, 2001).*           
|10.3 |  | 1997 NonSpecial Non-Officer Stock Option Plan (incorporated by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).*                                                                              

74

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|10.4  |  | Non-qualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.46 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.5  |  | Restricted Share Award Program. (incorporated by reference to Exhibit 10.59 to the Company's Annual Report on Form 10-K for the year ended December 31, 2000).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.6  |  | Tradeweave, Inc. 1999 Stock Option/Stock Issuance Plan (incorporated by reference to Exhibit 10.60 of the Company's Annual Report on Form 10-K for the year ended December 31, 2000).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.7  |  | RockPort Trade Systems, Inc. Stock Option Plan (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8 No. 333-35220).*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.8  |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 No. 33-63938).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.9  |  | Lease Agreement dated April 27, 1990 between the Registrant and Schooner Drive Associates, a California Limited Partnership (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on
Form S-1 No. 33-63938).                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10 |  | Fourth Amendment, dated August 7, 1997, to Lease Agreement between the Registrant and Marina Westshore Partners, LLC, successor in interest to Schooner Drive Association, a California Limited Partnership
(incorporated by reference to Exhibit 10.39 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1997).                                                                                                                                                                                                                                                                                                                             
|10.11 |  | Fifth Amendment, to Lease, dated November 20, 1998, to Lease Agreement between the Registrant and Marina Westshore Partners, LLC (incorporated by reference to Exhibit 10.49 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12 |  | Office Lease Agreement, dated, May 15, 1998, between the Registrant and Marina Westshore Partners, LLC (incorporated by reference to Exhibit 10.50 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.13 |  | First Amendment to Lease, dated November 20, 1998, between the Registrant and Marina Westshore Partners, LLC (incorporated by reference to Exhibit 10.51 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.14 |  | Office Lease Agreement, dated November 20, 1998, between the Registrant and Marina Bay Partners (incorporated by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.15 |  | Business Partner Agreement dated December 31, 1997 between Registrant and International Business Machines Corporation (incorporated by reference to Exhibit 10.44 to the Company's Annual Quarterly Report on
Form 10-Q for the year period ended September 30, 1999). (Confidential treatment applies to certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted and
filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)                                                                      
|10.16 |  | Letter Amendment to International Business Partner Agreement and Change Authorization to Retail Management Agreement dated August 31, 1999 between Registrant and International Business Machines Corporation
(incorporated by reference to Exhibit 10.53 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999). (Confidential treatment applies to certain information contained in this document pursuant to an order of
the Securities and Exchange Commission. Such information has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)

75

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|10.17 |  | Letter Amendment No. 2, dated February 16, 2001, between Registrant and International Business Machines Corporation (incorporated by reference to Exhibit 10.54 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000). (Confidential treatment has been requested for certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted
and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.18 |  | Employment Agreement as of April 2, 2001, between the Registrant and John Simon (incorporated by reference to Exhibit 10.55 to the Company's Annual Report on Form 10-K for the year ended December 31,
2000). (Confidential treatment has been requested for certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.)*                                   
|10.19 |  | Employment Agreement as of January 23, 2001, between the Registrant and Candy Smith (incorporated by reference to Exhibit 10.56 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000).*                                                                                                                                                                                                                                                                                                                                                                            
|10.20 |  | Employment Agreement as of January 30, 2001, between the Registrant and Sean Salehi (incorporated by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000).*                                                                                                                                                                                                                                                                                                                                                                            
|10.21 |  | Employment Agreement as of January 30, 2001, between the Registrant and Mark Self (incorporated by reference to Exhibit 10.58 to the Company's Annual Report on Form 10-K for the year ended December 31,
2000).*                                                                                                                                                                                                                                                                                                                                                                              
|10.22 |  | Employment Agreement as of April 10, 2001 between the Registrant and Vince Morris (incorporated by reference to Exhibit 10.63 to the Company's Quarterly Report on Form 10-Q for the period ended
March 31, 2001).*                                                                                                                                                                                                                                                                                                                                                                            
|10.23 |  | Employment Agreement executed September 24, 2001 between the Registrant and Elizabeth Fetter (incorporated by reference to Exhibit 10.67 to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 2001). (Confidential treatment has been requested for certain information contained in this document pursuant to an order of the Securities and Exchange Commission. Such information has been omitted and filed separately with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.).*               
|10.24 |  | Employment Agreement dated November 28, 2001 between the Registrant and Leonard R. Stein.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.25 |  | Amendment, dated December 17, 2001, to the Employment Agreement executed September 24, 2001 between the Registrant and Elizabeth Fetter.*                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.26 |  | Employment Agreement, dated January 30, 2002, between the Registrant and John C. Parsons.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.27 |  | Employment Agreement dated March 15, 2002, between the Registrant and Fred Ruffin.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.28 |  | Employment Agreement dated March 28, 2001, between the Registrant and Brian Marsden.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|21.1  |  | Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|23.1  |  | Consent of PricewaterhouseCoopers LLP, independent accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|23.2  |  | Consent of Deloitte & Touche LLP, Independent Auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|23.4  |  | Consent of American Appraisal Associates, Inc., Independent Appraiser                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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*
Indicates management contract or compensatory plan or arrangement.

76

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SIGNATURES

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, on this 20th day of March 2002.

| |  | QRS CORPORATION                                                                                                                                          
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | /s/JOHN C. PARSONS, JR.John C. Parsons, Jr.
Senior Vice President, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Elizabeth A. Fetter and John C. Parsons Jr.,acting
alone, as his or her true and lawful attorney-in-fact with authority to execute in the name of each person, and to file with the Securities and Exchange Commission, together
with any exhibits thereto and other documents therewith, any and all amendments to this Annual Report on Form 10-K for the fiscal year ended December 31, 2001 necessary or
advisable to enable QRS Corporation to comply with the Securities Exchange Act of 1934, any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make such other changes in the report as the aforesaid attorney-in-fact executing the same deems appropriate.

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K for the fiscal year ended December 31, 2001 has been signed
by the following persons in the capacities indicated and on the dates indicated.

|Signature                                   |  |                                                                                                               |  | Date          
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------------
|                                            |  |                                                                                                               |  |               
|/s/ELIZABETH A. FETTERElizabeth A. Fetter   |  | President, Chief Executive Officer and Director, (Principal Executive Officer)                                |  | March 20, 2002
|/s/JOHN C. PARSONS, JR.John C. Parsons, Jr. |  | Senior Vice President, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer) |  | March 20, 2002
|/s/PETER R. JOHNSONPeter R. Johnson         |  | Chairman of the Board of Directors                                                                            |  | March 20, 2002
|/s/TANIA AMOCHAEVTania Amochaev             |  | Director                                                                                                      |  | March 20, 2002
|/s/JOHN P. DOUGALLJohn P. Dougall           |  | Director                                                                                                      |  | March 20, 2002
|                                            |  |                                                                                                               |  |               

77

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|/s/GARTH SALONERGarth Saloner       |  | Director |  | March 20, 2002
|----------------------------------- |  | -------- |  | --------------
|/s/PHILIP SCHLEINPhilip Schlein     |  | Director |  | March 20, 2002
|/s/JOHN S. SIMONJohn S. Simon       |  | Director |  | March 20, 2002
|/s/GAREN K. STAGLINGaren K. Staglin |  | Director |  | March 20, 2002

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