<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                                       or

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

                         COMMISSION FILE NUMBER 0-21958

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

DELAWARE                                                68-0102251 
(State or other jurisdiction of             (I.R.S. Employer identification No.)
incorporation or organization)

                   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:
 TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
       None                                             None


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                    Common Stock, par value $0.001 per share
                                (Title of Class)

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

YES                X      NO
             -------------           ---------------

Indicate by check mark 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 amendments to
this Form 10-K. [ X ]

The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 8, 1999 was approximately $433,531,834 based upon the
closing price of $50.375 for shares of the Registrant's common stock 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 a conclusive determination
for other purposes.

Number of shares of common stock outstanding as of February 8, 1999: 8,606,091

                       DOCUMENTS INCORPORATED BY REFERENCE

Designated portions of the following documents are incorporated by reference
into this Report on Form 10-K where indicated:

     1.   QRS Corporation Proxy Statement for the Annual Meeting of Stockholders
          to be held on or about May 11, 1999, Part III. 

The exhibit index appears on Pages 45-47.


<PAGE>



                                 QRS CORPORATION

                          1998 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S>               <C>                                                                                                  <C>        
PART I

ITEM 1            Business.........................................................................................     3

ITEM 2            Facilities.......................................................................................    14

ITEM 3            Legal Proceedings................................................................................    14

ITEM 4            Submission of Matters to a Vote of Security Holders..............................................    14

PART II

ITEM 5            Market for Registrant's Common Equity and Related Stockholder Matters............................    15

ITEM 6            Selected Financial Data..........................................................................    16

ITEM 7            Management's Discussion and Analysis of Financial Condition and
                  Results of Operations............................................................................    17

ITEM 7a           Quantitative and Qualitative Disclosures About Market Risk.......................................    23

ITEM 8            Financial Statements.............................................................................    24

ITEM 9            Changes in and Disagreements with Accountants on Accounting and
                  Financial Disclosure.............................................................................    41

PART III

ITEM 10           Directors and Executive Officers of the Registrant...............................................    41

ITEM 11           Executive Compensation...........................................................................    44

ITEM 12           Security Ownership of Certain Beneficial Owners and Management...................................    44

ITEM 13           Certain Relationships and Related Transactions...................................................    44

PART IV

ITEM 14           Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................    45

                  SIGNATURES.......................................................................................    48

</TABLE>





                                        2

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                                     PART I
ITEM 1.  BUSINESS

EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-K MAY BE CONSIDERED "FORWARD-LOOKING"
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SUCH STATEMENTS INCLUDE DECLARATIONS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT. THESE FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES, AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE LISTED UNDER "BUSINESS--RISK
FACTORS" AND ELSEWHERE HEREIN, AND OTHER RISKS IDENTIFIED FROM TIME TO TIME IN
THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.

Effective May 11, 1998, QuickResponse Services, Inc. changed its corporate name
to QRS Corporation ("QRS" or the "Company"). The Company is a leading provider
of electronic commerce merchandising and logistics solutions that optimize its
customers' performance throughout the retail demand chain. The Company's
products and services are organized and managed as a single product family,
which includes Catalog Services, Network Services, Inventory Management
Services, Logistics Management Services and Professional Services. The Company
provides its retailer, vendor and carrier customers with a single source for
implementing network- centric demand chain management solutions.

The Company's primary products and services, described more completely below in
"Business--QRS Services," are as follows:

-    QRS Catalog Services includes QRS KEYSTONE, a comprehensive product
     information database. QRS KEYSTONE was the first, independent product
     information database using the industry standard Universal Product Code
     ("U.P.C.") numbering system. It is a central repository of timely,
     complete, and accurate vendor product information. Retailers and vendors
     access QRS KEYSTONE can electronically exchange industry standard business
     documents using QRS CONCOURSE.

-    QRS Network Services includes QRS CONCOURSE and QRS ALLIANCE. QRS CONCOURSE
     is the connecting service that provides two-way electronic transmission of
     business data while its partner service, QRS ALLIANCE, allows any size
     manufacturer, retailer or vendor to exchange business documents with its
     partners electronically.

-    QRS Inventory Management Services ("IMS") includes QRS CATALYST, QRS
     MARINER and QRS HORIZON. QRS CATALYST is a management tool that transforms
     sales into actionable information. It enables users to track which products
     are selling by U.P.C. and store location to aid in buying and manufacturing
     decisions. QRS MARINER is an effectively managed tool for increasing sales
     velocity. It is a collaborative solution for retailers and vendors that
     utilize a stock of models and daily sales information to determine
     recommended order quantity and electronically communicates and tracks the
     flow of reordered items. QRS HORIZON is a forecasting tool to project
     consumer demand.

-    QRS Logistics Management Services ("LMS") provides logistics information to
     improve merchandise movement and inventory management. QRS LMS allows
     retailers and vendors to tender and track motor freight shipments to
     carriers, using QRS CONCOURSE, and provide delivery performance reporting.
     QRS LMS represents a single source of information that provides trading
     partners with the data necessary to evaluate carrier performance and
     efficiency.

-    QRS Professional Services provides education and consulting services using
     strategic tools and industry expertise. The professional services team
     enables QRS customers to realize even greater benefits from QRS products.


The Company's business is subject to various risks and uncertainties that are
described herein under "Risk Factors."


                                        3

<PAGE>



The Company was incorporated in California in 1985 and reincorporated into
Delaware in October 1997. In the fourth quarter of 1997, QRS created a wholly
owned Canadian sales subsidiary, QRS Canada, Inc. and during the third quarter
of 1998, the Company created a wholly owned United States subsidiary, QRS Sales
and Services Corporation. Except as otherwise noted, all references to the
Company and QRS refer to the Company and its subsidiaries.

At December 31, 1998, the Company had 292 employees. The Company's principal
executive offices are located at 1400 Marina Way South, Richmond, California
94804, and its telephone number is 510-215-5000.

INDUSTRY BACKGROUND

The United States general merchandise retail industry accounts for revenues in
excess of $2.4 trillion, with approximately 20 retailers recording sales in
excess of $136 billion. As competitive pressures within the industry have
intensified, retailers have focused increasingly upon the importance of
efficient demand chain management to improve their financial performance.
Failure to manage merchandise to meet customer demand results in lost sales.
Kurt Salmon Associates ("KSA"), an independent global management consulting firm
specializing in the retail industry, estimated in a 1997 study that in the soft
goods industry alone, inefficiencies such as inadequate information, excess
inventories and slow communications between vendors and retailers result in over
$25 billion in lost revenues each year. In addition, KSA estimated that the
opportunity exists for $102 billion in annual savings across all general
merchandise and consumer durables markets. Demand chain management is a complex
problem. For example, the average department store carries more than one million
stockkeeping units ("SKUs") at a time--some carry as many as five million--each
unique in terms of product style, size and color. Each retailer's SKUs are
produced by hundreds, or in some cases thousands, of vendors. These vendors are
required to manage rapid production and accurate delivery of ordered merchandise
to multiple retail locations. To address these issues, retailers and vendors
have in recent years sought to develop strategies for optimizing selection,
availability and flow of information and merchandise while minimizing absolute
inventory levels. QRS' network- centric applications align closely with its
customers' needs in providing solutions to improve the efficiencies throughout
the retail demand chain.

Technology has made significant contributions to the evolution of merchandise
management. The replacement of cash registers with point of sale terminals
during the 1980s made possible automatic price look-up and merchandise tracking.
These capabilities, and the rapid spread of bar coding, soon led to the retail
industry's adoption of a standardized product identification, numbering and
communication format. Known as the universal product code, or U.P.C., this
standard has greatly increased the efficiency with which retailers and vendors
can mark, track and exchange product information.

During the same period, advances in data communications and the availability of
public data networks fostered the use of computers for the electronic
transmission of transaction documents, including purchase orders, invoices and
shipping instructions. Such paperless transactions are widely referred to as
electronic data interchange, or EDI. In conjunction with the broad use of
standard U.P.C.-based data, EDI has benefited retailers by lowering costs,
reducing errors and improving the timeliness of the merchandise ordering
process.

Despite the benefits of EDI, retailers have continued to rely on paper U.P.C.
catalogs or magnetic tapes published by each vendor as their primary source of
product information. Although updated frequently, such information quickly
becomes outdated and as a result these catalogs and tapes cannot provide the
real-time information necessary for quick response merchandise management. In
order to efficiently implement merchandise management, retailers and vendors
need an independent, reliable, centralized database containing U.P.C. product
information accessible through a reliable and secure data network.

The growing adoption of the internet and related technologies by business
entities is significantly changing the industry. Internet technologies expand
the market for electronic commerce products to include smaller and less
sophisticated segments, and increase the awareness of all segments of the
market. Increasing competition and more rapid change also accompanies the growth
in market opportunity.


                                        4

<PAGE>



COMPANY PRODUCTS AND SERVICES

In order to improve the flow of information, goods and services throughout the
retail demand chain, the Company offers a range of products and services,
including QRS KEYSTONE (catalog services), QRS CONCOURSE and QRS ALLIANCE
(network services), QRS CATALYST (sales analysis), QRS MARINER (replenishment),
QRS HORIZON, (forecasting), QRS LMS (logistics management services), and QRS
Professional Services (implementation, training and support). The Company
considers these services to be a single product family, which may be implemented
incrementally, allowing customers to integrate functions over time within their
organizations and with their trading partners.

In recognition of the growing importance of the internet and internet related
technologies in the electronic commerce industry, all QRS products incorporate
internet protocol (IP) to facilitate efficient and cost effective electronic
commerce with all trading partners, regardless of size.

QRS CATALOG SERVICES. QRS KEYSTONE is the retail industry's largest U.P.C.
database. As of December 31, 1998, it contained over 67 million U.P.C. entries
and supported a vendor customer base of approximately 7,300 companies. QRS
KEYSTONE classifies a vendor's merchandise entries by name, merchandise
classification, style number and U.P.C., as well as by size, color and other
relevant characteristics. The U.P.C. classification system underlies all
subsequent transaction processing. When loaded into the database, the data is
screened for accuracy and completeness by the Company's software and is further
reviewed by a Company customer support representative. Vendor information is
protected and is available only to trading partners approved by the vendor.

Pricing of QRS KEYSTONE is based upon the formation of trading partnerships
between vendors and retailers. Each time a retailer accesses a vendor's data in
QRS KEYSTONE, a trading partnership is formed and a specific fee is charged for
that month. In addition to the trading partnership charges, a usage fee is
charged based on the actual number of records the retailer retrieves from QRS
KEYSTONE.

There are four methods to access the UPC database: QRS KEYSTONE Genesis, the
original mainframe interface that was developed in 1988; QRS KEYSTONE for
Windows, developed in 1996, which provides additional ordering information
through the enhancement of extended data elements as well as providing new
filtering techniques; QRS KEYSTONE REALTIME, which is a proprietary
computer-to-computer communication interface system providing retailers with a
method of data retrieval from QRS KEYSTONE via their own host; and QRS KEYSTONE
WEB, developed in the fourth quarter of 1997, which is a web-based interface for
vendors and retailers.

QRS NETWORK SERVICES. QRS Network Services consists of QRS CONCOURSE and QRS
ALLIANCE. QRS CONCOURSE is a portfolio of services offering one of the
industry's most secure, reliable and cost effective connectivity packages. It is
designed to remove from customers the distracting demands of providing wide area
network connectivity, allowing customers to focus on their core competencies.

QRS ALLIANCE is a family of electronic commerce enablement tools offering a
complete spectrum of solutions for trading partners of all sizes. QRS ALLIANCE
provides services that allow retailers to achieve 100% electronic commerce with
their trading partners. Products such as QRS QUICKSTEP, an easy-to-use,
Windows-based client facilitate quick implementation of smaller partners. QRS
PASSKEY enables major vendors to achieve 100% electronic commerce with their
independent retail trading partners, while allowing independent retailers to
electronically access information and purchase product from their vendors. QRS
EC SERVICE BUREAU is a comprehensive electronic commerce and EDI enablement
service that saves vendors from investing in systems and in-house expertise.

Within QRS Network Services, QRS INTERNET SERVICES enables organizations to
benefit from a connected world with Internet access, content hosting, web
security, web development and Internet security services.


                                        5

<PAGE>



QRS INVENTORY MANAGEMENT SERVICES (IMS). QRS IMS is an integrated
network-centric suite of inventory management applications that includes QRS
CATALYST (sales analysis), QRS MARINER (replenishment), and QRS HORIZON (a
forecasting tool). Based on individual manufacturer and retailer needs, QRS IMS
is intended to increase both retailers' and manufacturers' sales by having the
right merchandise at the right place at the right time.

QRS CATALYST provides tools for the retailer and vendor to enhance inventory
management. With QRS CATALYST, both retailers and their vendors can view sales
in an easy-to-use Windows environment. The information is available by product,
size, color and specific store location. This service provides immediate
information on which products are best sellers and which are slow movers.

QRS MARINER is a superior offering compared to competitor products in the market
because it permits replenishment models to be run daily, by U.P.C. and by store
location. This provides optimum merchandise management at the SKU level on a
daily basis. Most in-house and third-party applications are run monthly or
bi-monthly and require large capital and operating cost investments. Because all
components of QRS MARINER are network-centric, the Company believes that capital
and operating costs for both the retailer and the manufacturer will be reduced.

QRS HORIZON enables both retailers and their vendors to forecast sales for up to
53 weeks using seasonal and promotional variables. QRS HORIZON supports a
variety of statistical methods, allowing users to facilitate informed buying and
production decisions.

QRS LOGISTICS MANAGEMENT SERVICES (LMS). QRS LMS has approximately 150 enabled
customers and is a market leader in providing logistical information and
communication services. QRS LMS enables shippers to tender and track motor
freight shipments to carriers via QRS CONCOURSE and provides delivery
performance reporting. QRS LMS allows the capture, transmission, storage and
management of shipment information. This provides customers with electronic
access to real-time information and allows both retailers and manufacturers to
conduct electronic commerce for tendering, freight invoicing and other
functions, track the current status of intransit shipments and notify affected
parties of impending service failures.

The proactive notification of potential service failures and easy access to
accurate, timely information helps eliminate the uncertainty surrounding
individual orders or shipments. This generally leads to a reduction in costs and
order-fulfillment cycles as distribution channels become more efficient.

QRS PROFESSIONAL SERVICES. QRS Professional Services provides a team of
experienced consultants to assist retailers and manufacturers design and execute
an electronic commerce plan using strategic tools and industry expertise.
Through analysis of their businesses, QRS Professional Services can determine
what solutions are needed within an organization and what changes or
enhancements should be made to internal systems and/or processes.

The components of QRS Professional Services include: Strategic Consulting,
Readiness Study, Operational Analysis, Implementation Management and Educational
Programs.

MARKETING, SALES AND CUSTOMER SUPPORT

The Company's marketing strategy is to provide a comprehensive inter-enterprise
solution for retail demand chain management. The Company's marketing activities
include participation in industry conventions, trade shows and user groups. The
Company's sales and marketing personnel include numerous individuals with prior
retail, replenishment, transportation and EDI experience.

The Company utilizes experienced software development and customer service
personnel to assist customers in implementing and using the Company's catalog
and network services. The Company operates a 24-hour hotline for customers to
call with questions and problems and has a program to regularly contact its
customers by 

                                       6

<PAGE>

telephone to ensure customer satisfaction, currency of catalog data and
maximization of trading partner opportunities.

The Company provides the capability for any trading partner to trade with any
other trading partner using electronic commerce solutions. Retailers generally
transact business with a number of vendors and vice versa. Generally, the larger
partner, and more advanced user of electronic commerce, is referred to as the
"hub." The Company works with the larger "hubs" to facilitate and standardize
their electronic commerce processes with their many "spokes," or smaller
partners.

In addition to its own sales force, the Company also benefits from the marketing
efforts of International Business Machines Corporation ("IBM"). IBM, in
coordination with the Company, actively promotes the use of its network services
in the retail industry. The Company cooperates with IBM marketing teams to
generate leads and qualify prospects. IBM field sales personnel currently are
compensated for generating EDI revenue for IBM through customer use of QRS
services. On December 8, 1998, AT&T and IBM announced a definitive agreement
pursuant to which AT&T agreed to purchase IBM's Global Network and corporate
networking business. It is the Company's understanding that its network services
agreement will not be transferred to AT&T pursuant to this transaction. See "IBM
Relationship."

RETAILER AND VENDOR CUSTOMERS

The Company markets its services to retailers and vendors, primarily in the
United States and Canada. As of December 31, 1998, the Company's Catalog and
Network Services were being utilized by 240 retailers, representing many
segments of the retail industry, with an emphasis in apparel and department
store retailers. The Company's customers also included 7,329 general merchandise
vendors, selling a variety of goods ranging from apparel and shoes to cosmetics
to electronics and automotive goods.

The Company's customer base of retailers, vendors and shippers increased 25%
from approximately 6,180 customers at December 31, 1997 to approximately 7,719
customers at December 31, 1998. Its QRS KEYSTONE customer base increased by 17%
from approximately 1,800 at December 31, 1997 to approximately 2,100 at December
31, 1998. The number of U.P.C.s active in QRS KEYSTONE grew 18% from 57 million
at December 31, 1997 to 67 million at December 31, 1998. At December 31, 1998,
124 retailers used QRS KEYSTONE, including 21 who required their vendors to use
QRS KEYSTONE.

The Company provides services and generates revenues by enabling certain hub
customers and their trading partners to conduct business over the Company's
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, the Company cannot precisely
attribute revenues to particular trading relationships. While the Company
continues to refine its estimation techniques, the Company believes 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, 1998.

COMPETITION

The Company believes it provides a competitive advantage through its
interenterprise database, its retail focus, relationships and expertise, its
daily management of inventory at the U.P.C. and store level, and its network-
centric applications, which significantly lower customers' capital requirements.

The Company competes on the basis of service offerings, availability and quality
of support, implementation services, sales and marketing resources and price.
The Company's competitors include a number of companies providing EDI and
related network services to retailers and vendors. The EDI services business is
highly competitive, and competitive pricing may materially and adversely affect
the prices the Company can charge for its services. Competition may also affect
the Company's ability to attract new customers and retain and expand 

                                       7

<PAGE>

business with its existing customers and may impact negatively the range of
services offered to its customers. The Company expects competition to increase
as more companies enter the market and existing competitors continue to change
and expand their product offerings. Several companies, including General
Electric Information Services Company, Sterling Commerce, Inc. and others, offer
EDI and certain other network services, including a U.P.C. catalog. In-house
systems and third-party software providers are the Company's largest competitors
relative to QRS IMS. Competitors for the Company's QRS LMS offerings are
primarily other freight carriers who provide outsourcing to customers.

The Company differentiates itself from its competitors in part by providing the
U.P.C. catalog containing product information from the largest number of
vendors. The Company's business and results of operations could be materially
and adversely affected if other competitors introduce catalogs or if any
competitor provides a catalog that is superior to the Company's catalog. Many of
the Company's existing and potential competitors have financial, marketing or
technological resources that exceed those of the Company, and there can be no
assurance that the Company will be able to compete successfully. Some large
retailers and vendors operate private computer networks for transacting business
with their trading partners. It is possible that additional retailers and
vendors, including certain of the Company's existing customers, may develop and
implement similar private networks, thereby reducing the demand for the
Company's services.

IBM RELATIONSHIP

The Company does not operate its own Value-Added Network and has formed a
strategic alliance with IBM to outsource the Company's network operation
requirements. IBM charges the Company for the network services used by the
Company's customers. These charges are subject to specified volume discounts and
allowance.

The Company entered into an agreement with IBM for the purchase of $250 million
of network services over a three-year period commencing January 1, 1998. The
agreement includes specified annual minimum purchases and a graduated adjustment
charge if total purchases fall below the total minimum amount. The Company met
the minimum purchases in 1998 and based on historical and projected usage,
believes that the purchase requirements during the remaining two-year period
will be met.

On December 8, 1998, AT&T and IBM announced a definitive agreement pursuant to
which AT&T agreed to purchase IBM's Global Network and corporate networking
business. This announcement 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. Upon close of the AT&T acquisition, it is anticipated that the Company
will continue to acquire its network service requirements from IBM with the
delivery of a portion of these services to be undertaken by AT&T.

Additionally, the Company and IBM signed a Retail Industry Marketing agreement
under which the Company provides to IBM certain professional services related to
the retail industry. The Company recognized revenues of $1,000,000 in the fourth
quarter of 1997 and $1,000,000 during the year ended December 31, 1998 as a
result of this agreement.

DATA CENTER

The Company operates its primary data center at its Richmond, California
offices. The data center operates 24 hours a day, seven days a week, and is
connected to the Company's network provider through three leased data circuits
in two routings to ensure availability. The data center consists primarily of
leased mainframe, client/server, disk storage, tape drive and other peripheral
technology to provide on-line, batch and back-up operations. Catalog data is
backed up and shipped off site daily. The Company's 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 

                                       8

<PAGE>

center has a separate, isolated power source from the remainder of the facility.
The Company has contracted for an alternative operations facility in the event
of physical disaster.

PRODUCT DEVELOPMENT

The Company is focused on the development and upgrading of its valued-added
applications (QRS Catalog Services, QRS IMS and QRS LMS) and its network
services technology and architecture. The Company is not involved with the
development, maintenance and operation of the IBM Value-Added Network used to
run network applications used by the Company and many of its customers.

In 1998, 1997 and 1996, the Company expensed $4,309,000, $4,365,000 and
$3,127,000, respectively, of product development costs and capitalized
$2,555,000, $1,274,000 and $245,000, respectively, related to the development
and enhancement of the QRS KEYSTONE catalog interface, an Internet-based EDI
product (QRS QUICKSTEP), QRS IMS, and new technology and architecture research.
In order to compete actively in the market of EDI applications, the Company
plans to continue to invest in the development of new and existing software
products and technology. Capitalized software development costs are amortized
over three years. The Company's product development effort consists of in-house
development of software applications and integration of third-party software
tools to provide service offerings and contracted software development.

PROPRIETARY RIGHTS

The Company regards certain features of its software and documentation as
proprietary information and relies on a combination of contract, copyright,
trademark and trade secret laws and other measures for its protection. Although
data provided to QRS by its vendor customers is not proprietary to the Company,
the Company seeks to protect its U.P.C. catalog applications through copyright
laws. The Company has no patents, and existing copyright laws afford only
limited protection. The Company believes that, because of the rapid pace of
technological change in the electronic commerce industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability and experience of the Company's employees, product enhancements and the
timeliness and quality of support services.

UNIQUEST

On May 20, 1993, the Company sold its software and services business to
Uniquest, a publicly held company. The gain recognized from the sale of this
business for the year ended December 31, 1993 was $1,441,000. In connection with
the sale, the Company entered into various agreements with the buyer, including
the sublease of approximately 40,000 square feet of office space through June
30, 2000. Minimum monthly lease payments ranged from $53,000 to $75,000 through
the seven-year term of the lease.

At December 31, 1993, Uniquest was delinquent in its payments and owed the
Company approximately $1,358,000 under sublease and data center cost sharing
agreements. As a result, the Company provided an allowance of $1,018,000 against
these receivables and made additional provisions of $2,009,000 against
nonpayment of future obligations. The result of the allowance and provision
described was to reduce the gain from the sale of the software and services
business by $3,027,000. A $1,700,000 reserve, provided in 1992 for lease
payments related to another vacant building, was included in the sublease loss
reserves at December 31, 1993.

In May 1995, Uniquest ceased operations and made an assignment of assets for the
benefit of its creditors. In connection with the cessation of Uniquest's
operations, the Company's sublease with Uniquest was terminated. The Company
received a payment of $923,000 and wrote off the balance of a note for
delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $740,000. During 1995 the Company recorded $164,000 as sublease
income and $77,000 as data center cost 

                                       9

<PAGE>

reimbursements from Uniquest as reductions of occupancy expense and data center
cost of sales, respectively. There were no sublease income or data center cost
reimbursements recorded in 1996 and 1997.

During the quarter ended March 31, 1998, outstanding matters with regard to the
Uniquest bankruptcy were substantially resolved; accordingly, the Company
recognized a gain on sale of software and services business of $1,494,000 less
applicable income taxes of $598,000 for these discontinued operations. The
remaining sublease loss reserve of $480,000 at March 31, 1998, representing the
provisions established for nonpayment by Uniquest of future sublease obligations
was reclassified to deferred rent and other and will be amortized over the
remaining lease term through June 30, 2010.

RISK FACTORS

INTENSE COMPETITION. The Company competes with a number of companies providing
electronic commerce services to retailers and vendors. The electronic commerce
services business is highly competitive, and competitive pricing may materially
adversely affect the prices the Company can charge. Competition may also affect
the Company's ability to gain new customers and retain and expand business with
its existing customers, and the range of services offered to its customers. The
Company expects competition to increase as more companies enter the market and
existing competitors continue to change and expand their product offerings. Many
of the Company's existing and potential competitors have financial, marketing or
technological resources that exceed those of the Company, and there can be no
assurance that the Company will be able to compete successfully. Some large
retailers and vendors operate private computer networks for transacting business
with their trading partners. It is possible that additional retailers and
vendors, including certain of the Company's existing customers, may develop and
implement similar private networks, thereby reducing the demand for the
Company's services.

IBM has, under certain license and maintenance agreements with the Company, the
right to market the Company's catalog applications in competition with the
Company, in return for prescribed royalty and maintenance payments. IBM has
informed the Company that various types of information regarding such matters as
IBM's current activities, intentions, plans and projections with respect to its
business are confidential to IBM and, accordingly, will not be disclosed.
Although the Company does not believe that IBM has any current intention to
enter the Company's market, there can be no assurance that IBM will not exercise
its license rights and become a competitor, and the Company's inability to
obtain information may limit the Company's ability to provide for any such
contingency. If IBM were to become a competitor, the Company's business and
results of operations could be materially adversely affected. On December 8,
1998, AT&T and IBM announced a definitive agreement pursuant to which AT&T
agreed to purchase IBM's Global Network and corporate networking business. The
Company does not have any insight into the intentions of AT&T to enter the 
Company's market. See "Dependence on IBM."

DEPENDENCE ON KEY CUSTOMERS. While none of the Company's customers accounted for
more than 10% of total revenues for any of the three years in the period ended
December 31, 1998, the Company's customers include several key hubs who
represent a significant amount of the Company's business. The Company provides
services and generates revenues by enabling certain hub customers and their
trading partners to conduct business over the Company's network. While the
estimated revenues attributable to each hub customer and revenues from its
trading partners related only to that hub customer do not exceed 10%, the
estimated revenues attributable to all of the billings of a certain hub customer
and 100 percent of its trading partners may exceed 10%.

Because of the large number of trading partners that transact business with each
other, the difficulty of allocating trading partner network services to any
particular hub customer, and differences in the manner in which hub customers
and trading partners allocate the cost of network services among each other, the
Company cannot precisely attribute revenues to particular hub customer programs.

In addition, one or more of the Company's retail customers could elect either to
develop their own catalog and EDI services or to transfer all or a significant
portion of their trading activities to a competitor. Any such transfer 

                                       10

<PAGE>

could result in many of that retailer's vendor partners electing not to maintain
their U.P.C. catalog information with the Company. Any transfer that results in
a loss or significant reduction in the Company's catalog and network services
business could have a material adverse effect on the Company's business and
results of operations. See "Business - Retailer and Vendor Customers" and Note 8
of the Notes to the Financial Statements.

DEPENDENCE ON IBM. Since 1988, the Company has used the IBM Value-Added Network
("VAN") to provide customers with certain electronic commerce services,
including EDI and connectivity. Currently, IBM solely controls the maintenance
and operation of the VAN. Upon close of the AT&T acquisition of IBM's Global
Network, it is anticipated that the Company will continue to acquire its network
service requirements from IBM with the delivery of a portion of these services
to be undertaken by AT&T. The Company depends on the IBM VAN for a substantial
part of its revenues and such dependence is expected to continue for the
foreseeable future. Since the Company has no right to control the maintenance
and operation of the VAN, decision with respect to such matters may have a
material impact on the Company's business and results of operations. In
addition, disruption or unavailability of the IBM VAN could have a material
adverse effect on the Company's business and results of operations.

IBM currently charges the Company for the network services used by its
customers. These charges are subject to specified volume discounts and
allowances. In the event that IBM and AT&T decide to increase the prices that it
charges the Company or reduces the amount of discounts or allowances, there can
be no assurance that the Company will be able to pass along these changes to its
customers. If it cannot do so, the Company's business and results of operations
could be materially adversely affected. The Company has an agreement with IBM
for the purchase of $250 million of network services over a three-year period
beginning January 1, 1998. The agreement includes specified annual minimum
purchases and a graduated adjustment charge if total purchases fall below the
minimum amount. The Company met the minimum purchases in 1998 and based on
historical and projected usage, believes that the purchase requirements during
the remaining two-year period will be met. Additionally, the Company and IBM
signed a Retail Industry Marketing agreement under which the Company provides to
IBM certain professional services related to the retail industry. The Company
recognized revenues of $1,000,000 in the fourth quarter of 1997 and $1,000,000
during the year ended December 31, 1998 as a result of this agreement. On
December 8, 1998, AT&T and IBM announced a definitive agreement pursuant to
which AT&T agreed to purchase IBM's Global Network and corporate networking
business. It is the Company's understanding that the network services agreement
will not be transferred to AT&T pursuant to this transaction.

While the Company believes that it is the only remarketer of IBM network
services to the retail industry, the Company does not have an exclusive
arrangement with IBM. If IBM and AT&T marketed their network services directly
to the Company's customers or permitted a competitor of QRS to use and remarket
these services to the retail industry, the Company's business and results of
operations could be materially adversely affected. IBM and AT&T are free to
compete against the Company, and there can be no assurance that IBM and AT&T
will not choose to compete with the Company in the future.

IBM provides the Company's customers certain EDI implementation and support
services. If IBM and AT&T were unable or unwilling to provide these services,
the Company would either have to provide these services directly or arrange for
a third party to provide such services. There can be no assurance that the
Company 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 the Company's
business and results of operations. See "Business - Value-Added Network
Services."

TECHNOLOGICAL CHANGE. The EDI services industry is characterized by continuously
evolving standards and technology. The Company's ability to anticipate or guide
retail industry standards, to continue to apply advances in network technology
and to develop new catalog and other applications will be a significant factor
in the Company's ability to grow and remain competitive. Because the Company's
current pricing structure is partially based on the number of characters
transmitted, the Company's business and results of operations could be
materially adversely affected if new compression technology were introduced
which reduces the number of 

                                       11

<PAGE>

characters needed to electronically transmit business documents. In addition,
new technologies could be developed or enhanced that could make existing catalog
and EDI services technologically obsolete. There can be no assurance that the
Company will be able to respond in a timely manner to technological changes or
that the ability of competitors to successfully incorporate evolving standards
and technologies into new services will not render the Company's services
noncompetitive. The failure by the Company to adapt to or incorporate new
standards or technology could have a material adverse effect on the Company's
business and results of operation.

DEPENDENCE ON NEW PRODUCT INTRODUCTIONS. The Company's future growth depends on
its successful and timely introduction of new products and services in markets
that do not currently exist or are just emerging. The Company, however, has not
yet completed development of all of these services and there can be no assurance
that the Company will successfully complete any such development or that if such
development is completed, the Company's planned introduction of these services
will realize market acceptance or will meet the technical or other requirements
of potential customers.

Software products as complex as those used in the electronic commerce industry
may contain undetected errors or failures when first introduced or when new
versions are released. If software errors are discovered after introduction, the
Company could experience delays or lost revenues during the period required to
correct these errors. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of, or delay in, market acceptance, which could have a material adverse
effect on the business, results of operations and financial condition of the
Company. See "Business - Product Development."

DEPENDENCE ON DATA CENTER. QRS Catalog Services runs on a computer system
contained in the Company's data center facility in Richmond, California. The
data center is located in a single facility and the Company has no present
intention of establishing an additional data center in a separate location. The
Company utilizes fault- tolerant IBM mainframe computer equipment. The Company
has arranged for use of off-site computer facilities, if necessary, and has
taken other precautions to protect itself and its customers from events that
could interrupt delivery of the Company's services. These precautions include
off-site storage of back-up data, fire protection and physical security systems
and an early warning detection and Halon fire extinguishing system.
Notwithstanding these precautions, there can be no assurance that a fire,
earthquake or other natural disaster affecting the data center would not disable
the Company's computer system. The Company's data center connects to the IBM San
Francisco hub. In the event that service through this location is interrupted,
the Company has back-up access through the IBM Seattle hub. Any significant
damage to the Company's data center or disruption of its connectivity to the IBM
network could have a material adverse effect on the Company's business and
results of operations. See "Business - Data Center."

ABILITY TO MANAGE GROWTH. The Company has significantly increased its service
offerings and customers. Maintaining profitability during a period of expansion
will depend, among other things, on the Company's ability to manage effectively
its operations. Difficulties in managing continued growth could have a material
adverse effect on the Company's business and results of operations.

DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the performance of its executive officers and other key employees,
particularly the members of senior management. The Company has no "key
personnel" life insurance for any of its senior management and does not
currently intend to purchase any such policies. There is no assurance that QRS
will be able to continue to attract and retain the qualified personnel necessary
for the development of its business. The loss of the services of key personnel
or the failure to recruit necessary additional personnel could have a material
adverse effect on the Company's business and results of operations.

LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company relies on a
combination of copyright, trade secret and trademark laws and nondisclosure
agreements to protect its proprietary rights. Existing copyright laws afford
only limited protection. While the Company uses both internal proprietary and
IBM network security measures, it may be possible for unauthorized third parties
to copy the Company's products and services or to reverse 

                                       12

<PAGE>


engineer or otherwise obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's products and services is
difficult. Further, the laws of certain countries in which the Company's
products or services may be distributed may not protect the Company's products
or services and intellectual rights to the same extent as the laws of the United
States. If unauthorized third parties copy or reverse engineer or otherwise
obtain and use information the Company regards as proprietary, the Company's
business and results of operations could be materially adversely affected.

THE INTERNET. Although the Company believes that the Internet will provide
opportunities to expand the electronic commerce market, there can be no
assurance that the Company's efforts to exploit such opportunities will be
successful or that increased usage of the Internet for electronic commerce or
increased competition will not adversely affect the business, results of
operations, and financial condition of the Company.

FACTORS AFFECTING OPERATION RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS. The Company's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in the Company's quarterly operating results could result from a
variety of factors, including changes in the levels of revenues derived from
each product, the timing of new service announcements by the Company or its
competitors, changes in pricing policies by the Company or its competitors,
market acceptance of new and enhanced versions of the products and services of
the Company or its competitors, the size and timing of significant orders,
changes in operation expenses, changes in the Company's strategy, the
introduction of alternative technologies, the effect of potential acquisitions
and industry and general economic factors. The Company has limited or no control
over many of these factors.

GOVERNMENT REGULATORY AND INDUSTRIAL POLICY RISKS. Current regulations and laws
governing the telecommunications industry generally do not apply to providers of
electronic commerce services and products. Except for government regulations in
certain foreign countries (which may affect the provision of certain of the
Company's services or use of certain of its products) and regulations governing
the ability of the Company to disclose the contents of communications by its
customers, there are no government regulations pertaining to the pricing,
service characteristics or capabilities, geographic distribution or quality
control features of the Company's electronic commerce services or products.
There exists, however, the risk that governmental policies affecting the
electronic commerce industry could be implemented by executive order,
legislation, administrative order, or otherwise. If such policies are adopted,
they could have a material adverse effect on the business, results of
operations, and financial condition of the Company.

VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock has
fluctuated significantly since the initial public offering in August 1993. The
market price of the Common Stock could be subject to significant fluctuations in
the future based on factors such as announcements of new products by QRS or its
competitors, quarterly fluctuations in the Company's financial results or other
electronic commerce services companies' financial results, changes in analysts'
estimates of the Company's financial performance, general conditions in the
electronic commerce services industry and conditions in the financial markets.
In addition, the stock market in general has experienced extreme price and
volume fluctuations, which have particularly affected the market prices for many
high technology companies and which have often been unrelated to the operating
performance of the specific companies. Many technology companies, including the
Company, have recently experienced historic highs in the market price of their
equity securities. There can be no assurance that the market price of the Common
Stock will not decline substantially from such historic highs, or otherwise
continue to experience significant fluctuations in the future.


                                       13

<PAGE>



ITEM 2.  FACILITIES

The Company leases approximately 86,000 square feet of office space in Richmond,
California for its corporate headquarters and has contracted to lease an
additional 48,000 square feet starting in early 2000. A lease for 63,000 square
feet expires on June 30, 2010. A future lease starting in early 2000 for 48,000
square feet expires on June 30, 2010. An existing lease for 23,000 square feet
expires when the previous lease commences, or on June 30, 2000 and includes two
5-year extension periods through June 30, 2010. Management believes that the
Company's current and future facilities and extension agreements are adequate
for its level of business and growth requirements.

ITEM 3.  LEGAL PROCEEDINGS

None

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

None


                                       14

<PAGE>



                                     PART II

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

MARKET INFORMATION

The Company's Common Stock has been traded in the over-the-counter market on the
Nasdaq National Market under the symbol QRSI since the Company's initial public
offering in August 1993. According to records of the Company's transfer agent,
the Company had approximately 101 stockholders of record as of February 8, 1999.
Because many of such shares are held by brokers and other institutions on behalf
of stockholders, the Company is unable to estimate the total number of
beneficial holders of the Common Stock. The following table sets forth the low
and high sales prices of the Company's Common Stock for the two-year period
ended December 31, 1998:
<TABLE>
<CAPTION>

Period Ended                                                      Low                   High
------------------------------------------------------    --------------------   ------------------
<S>                                                                   <C>                  <C>
Quarters ended December 31, 1997:
   First Quarter                                                      $26.38               $35.25
   Second Quarter                                                      23.88                39.06
   Third Quarter                                                       31.00                39.50
   Fourth Quarter                                                      31.75                38.31
Quarters ended December 31, 1998:
   First Quarter                                                       33.25                53.50
   Second Quarter                                                      29.31                51.75
   Third Quarter                                                       27.00                37.69
   Fourth Quarter                                                      21.38                48.00
</TABLE>


DIVIDEND POLICY

The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has paid no cash dividends on its Common Stock and does
not anticipate declaring dividends on its Common Stock in the foreseeable
future.


                                       15

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                               Years Ended December 31,
                                                                        (In thousands, except per share data)
                                             -----------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA                    1998 (1)          1997         1996             1995 (1)        1994
                                             -------------    -----------    -----------    -------------    -------------
<S>                                              <C>            <C>            <C>              <C>              <C>
Revenues                                         $91,926        $71,632        $56,746          $42,134          $31,382
Operating earnings                                16,116         12,639          9,442            2,479            5,311
Earnings from continuing
operations before income taxes                    18,267         14,625         11,019            3,961            5,980
Income tax expense (benefit)                       7,113          5,850          4,408            1,574           (7,985)
Discontinued operations:
  Gain from sale of software and
  services business (2)                              896              -              -                -                -
                                             -------------    -----------    -----------    -------------    -------------
Net earnings                                     $12,050         $8,775         $6,611           $2,387          $13,965
                                             -------------    -----------    -----------    -------------    -------------
                                             -------------    -----------    -----------    -------------    -------------

Basic earnings per share:
       Continuing  operations                      $1.31          $1.04          $0.79            $0.29            $1.74
       Discontinued operations                      0.10              -              -                -                -
                                             -------------    -----------    -----------    -------------    -------------
       Net earnings per share                      $1.41          $1.04          $0.79            $0.29            $1.74
                                             -------------    -----------    -----------    -------------    -------------
                                             -------------    -----------    -----------    -------------    -------------

Diluted earnings per share:
       Continuing  operations                      $1.26          $1.01          $0.77            $0.28            $1.67
       Discontinued operations                      0.10              -              -                -                -
                                             -------------    -----------    -----------    -------------    -------------
       Net earnings per share                      $1.36          $1.01          $0.77            $0.28            $1.67
                                             -------------    -----------    -----------    -------------    -------------
                                             -------------    -----------    -----------    -------------    -------------
</TABLE>



(1) 1998 and 1995 results include write-off of purchased in-process research and
development of $967,000 and $4,318,000, respectively. 

(2) See Note 6 to Consolidated Financial Statements.

<TABLE>
<CAPTION>

                                                                            December 31,
                                                                           (in thousands)
                                      ---------------------------------------------------------------------------------
BALANCE SHEET DATA                         1998              1997             1996              1995           1994
                                      --------------    -------------    -------------    --------------  -------------
<S>                                        <C>              <C>              <C>               <C>            <C>
Working capital                            $50,909          $42,544          $29,416           $30,248        $23,024
Total assets                                83,005           64,002           55,946            46,592         39,910
Stockholders' equity                        67,954           54,729           43,570            35,430         31,427

</TABLE>


                                       16

<PAGE>



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

EXCEPT FOR THE HISTORICAL FINANCIAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS ANNUAL REPORT ON FORM 10-K MAY BE CONSIDERED "FORWARD-LOOKING"
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SUCH STATEMENTS INCLUDE DECLARATIONS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF THE COMPANY AND ITS MANAGEMENT. THESE FORWARD-LOOKING STATEMENTS
ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE A NUMBER OF RISKS AND
UNCERTAINTIES, AND THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE LISTED UNDER "BUSINESS - RISK
FACTORS" AND ELSEWHERE HEREIN, AND OTHER RISKS IDENTIFIED FROM TIME TO TIME IN
THE COMPANY'S REPORTS AND REGISTRATION STATEMENTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.

GENERAL

The Company's products and services are organized and managed as a single
product family, which includes Catalog Services, Network Services, Inventory
Management Services (IMS), Logistics Management Services (LMS), and Professional
Services. The Company derives revenues from five principal and related sources:
the transmission of standard business documents over a network, monthly charges
for accessing Catalog Services, IMS-related fees based on negotiated monthly
service charges, LMS fees, and consulting fees. Network Services pricing is
based primarily on the volume of characters, the type of network access
utilized, and incorporates discounts based on volume.

DELAWARE REINCORPORATION

On October 21, 1997, the Company reincorporated in Delaware (the
"Reincorporation") through the merger (the "Merger") of QuickResponse Services,
Inc., a California corporation ("QRS-California"), with and into the Company. As
a result of the Merger, the outstanding shares of QRS-California were
automatically converted into shares of the Company.

SUBSIDIARIES

In the fourth quarter of 1997, QRS created a wholly owned Canadian sales
subsidiary, QRS Canada, Inc. and during the third quarter of 1998, the Company
created a wholly owned United States subsidiary, QRS Sales and Services
Corporation.


                                       17

<PAGE>



RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
revenues represented by certain line items in the Company's statements of
operations:
<TABLE>
<CAPTION>

                                                            Years Ended December 31,
                                         -------------------------------------------------------------------------
                                                 1998                      1997                      1996
                                         ---------------------     ---------------------    ----------------------
<S>                                                      <C>                       <C>                       <C>
Revenues                                                 100%                      100%                      100%
Cost of sales                                             56                        56                        60
                                         ---------------------     ---------------------    ----------------------

Gross profit                                              44                        44                        40
Operating expenses:
     Sales and marketing                                  13                        13                        11
     Product development                                   5                         6                         6
     General and administrative                            8                         7                         7
     In-process technology expense
         related to acquisitions                           1                         -                         -
                                         ---------------------     ---------------------    ----------------------
Total operating expenses                                  27                        26                        24
                                         ---------------------     ---------------------    ----------------------
Operating earnings                                        17                        18                        16
Interest income                                            2                         2                         3
                                         ---------------------     ---------------------    ----------------------
                                                                   
Earnings before income taxes and
  extraordinary item                                      19%                       20%                       19%
                                         ---------------------     ---------------------    ----------------------
                                         ---------------------     ---------------------    ----------------------
</TABLE>

REVENUES

Revenues increased from $56.7 million in 1996 to $71.6 million in 1997 and to
$91.9 million in 1998, representing increases of 26% from 1996 to 1997 and 28%
from 1997 to 1998. These increases were primarily attributable to an overall
increase in customer base, higher usage of Network and Catalog Services, pricing
adjustments and expanded product offerings. The number of retailers and vendors,
including carriers, increased from 5,178 at December 31, 1996 to 6,180 at
December 31, 1997 and to 7,719 at December 31, 1998. The number of catalog
trading partnerships increased as a result of the increase in the number of
customers and their trading links with each other. Customers increased the
number, type and size of transactions transmitted over the network, as well as
the utilization of Catalog Services. The Company expanded its product offerings
in the Network Services, IMS and Professional Services product family.

COST OF SALES

Cost of sales consists primarily of the cost of purchasing network services, the
cost of the Company's data centers and technical customer support services. Cost
of sales increased from $33.8 million in 1996 to $40.5 million in 1997 and to
$51.1 million in 1998. These increases were principally due to increases in
purchased network services reflecting growth in network services purchased under
a long-term contract, discounted based upon a multi-year volume commitment,
pricing adjustments and an expanded customer support group reflecting growth in
customers and products. Cost of sales as a percentage of revenues decreased from
60% in 1996 to 56% in 1997 primarily due to increases in higher margin revenue
from Catalog Services, increased operating efficiencies in data center
operations, and higher discounts on purchased network services. These margin
benefits were partially offset by increased sales of certain lower margin
network services and volume discounts earned by larger customers. Cost of sales
as a percent of revenues was 56% in 1998 which reflects a yield improvement at
certain non-hub customers, offset by short-term cost increases from recent
service bureau acquisitions.


                                       18

<PAGE>



SALES AND MARKETING EXPENSES

Sales and marketing expenses consist primarily of personnel and related costs in
the Company's sales and marketing organizations as well as the costs of various
marketing programs. Sales and marketing expenses increased from $6.5 million in
1996 to $9.0 million in 1997 and to $12.1 million in 1998, reflecting the
general increase in the number of customers and the size of the Company's
operations. Sales and marketing expenses represented 11% of revenues in 1996 and
13% in each of 1997 and 1998. The increase as a percentage of revenues was due
to the Company's expansion of its retailer and vendor-specific coverage and
growth in its program sales and enablement organization, the group responsible
for rapidly enabling trading partners for key hub customers.

PRODUCT DEVELOPMENT EXPENSES

Product development expenses consist primarily of personnel and equipment costs
related to research, development and implementation of new services and
enhancement of existing services. Product development expenses increased from
$3.1 million in 1996 to $4.4 million in 1997 and decreased slightly to $4.3
million in 1998, and represented 6% of revenues in each of 1996 and 1997 and 5%
of revenues in 1998. In 1996, 1997 and 1998, the Company capitalized $245,000,
$1,274,000 and $2,555,000 of product development costs, respectively. The
increase in capitalized product development costs from 1996 to 1997 and to 1998
is due to increased product development on products which had reached
technological feasibility.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses consist primarily of personnel and related
costs of the Company's finance and administrative organizations, as well as
professional fees and other costs. General and administrative expenses increased
from $3.9 million in 1996 to $5.1 million in 1997 and to $7.3 million in 1998
and represented 7% of revenues in each of 1996 and 1997 and 8% in 1998. The
increase from 1996 to 1997 and to 1998 was primarily due to increased headcount
to support a larger organization and investments in infrastructure.

ACQUISITIONS

In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4.9 million, including $200,000 paid in cash,
assumption of certain liabilities of $3.3 million; shutdown, relocation and
severance expenses of $1.1 million associated with integrating ShipNet's
operations; and $300,000 in transaction costs related to the acquisition.

The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4.3 million of the purchase price was allocated to in-process
research and development and, as technological feasibility had not been
established and no alternative future uses existed at the acquisition date,
charged to expense. The Company allocated $584,000 of the purchase price to
current assets and property and equipment. The Company spent approximately
$600,000 and $330,000 in 1996 and 1997, respectively, in order to complete the
development of the acquired in-process products.

During the third quarter of 1998, the Company acquired the assets of Custom 
Information Systems Corporation and the outstanding common shares of Mueller 
Associates, Inc., dba the EDI Connection, both service bureaus. The total 
acquisition cost was $4.2 million, comprised of $3.0 million paid in cash; 
35,000 shares of Common Stock valued at $802,000 issued from the Company's 
treasury stock account; liabilities assumed of $194,000 and $206,000 in 
transaction costs related to the acquisitions. The acquisitions were 
accounted for as purchase transactions.

In connection with the acquisitions and in conjunction with the Company's
capitalized software policies, $967,000, representing approximately 23% of the
purchase price of $4.2 million, was allocated to in-process 

                                       19

<PAGE>


research and development. As technological feasibility had not been established
and no alternative future uses existed at the acquisition dates, this in-process
research and development was charged to expense. The five acquired projects
under development increase automation and reduce manual processes, replace
third-party software, and/or migrate existing products to a single platform. The
estimated costs to complete these projects are approximately $600,000 and these
projects will be completed by the end of 1999. The acquired companies had
expended approximately $200,000 on these projects prior to acquisition. The
values for the technology under development were estimated through the income
approach by discounting to present value cash flows to be derived from the
future products. The revenue and expense projections were based on historical
trends and future expectations for both the Company and the acquired companies.
The Company did not anticipate any operating expense reductions as a result of
synergy. A discount rate was 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
products have not reached technological feasibility.

The Company allocated $3.2 million of the purchase price to current assets,
property and equipment and intangible assets. The amounts allocated to current
assets and property and equipment were based on the fair market value of the
related assets and the amounts allocated to intangible assets were determined on
the basis of the appraised value of the related intangible assets.

The Company expects no further disbursements related to the acquisition
transactions.

The appraisal techniques used in the Company's 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.

INTEREST INCOME

Interest income consists primarily of interest earned on cash, cash equivalents
and investment securities. Interest income increased from $1.6 million in 1996
to $2.0 million in 1997 and to $2.2 million in 1998. The increase in 1998 is
primarily due to higher balances in the Company's cash, cash equivalents and
investment securities accounts.

INCOME TAX EXPENSE

The Company's income tax expense was $4.4 million, $5.9 million and $7.1 million
for fiscal years 1996, 1997 and 1998, respectively. The Company's effective
income tax rate was 40% in each of 1996 and 1997 and 39% in 1998.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital increased from $42.5 million at December 31, 1997
to $50.1 million at December 31, 1998. Cash, cash equivalents and short-term
marketable securities available-for-sale increased from $33.8 million at
December 31, 1997 to $43.6 million at December 31, 1998. At December 31, 1997
and 1998, $1 million and $1.5 million, respectively, of marketable securities
available-for-sale were classified as non-current assets and, therefore, were
not included in working capital. Total assets increased from $64.0 million at
December 31, 1997 to $83.0 million at December 31, 1998, while total liabilities
increased from $9.3 million at December 31, 1997 to $15.1 million at December
31, 1998.

During 1995, the Company acquired certain assets of ShipNet for $4.9 million
including the assumption of certain liabilities, relocation, personnel and
transaction costs. The Company disbursed approximately $2.3 million, $1.2
million and $1.2 million of such funds in 1995, 1996 and 1997, respectively. In
addition, the Company acquired the assets of Custom Information Systems
Corporation and the outstanding common shares of Mueller Associates, Inc., dba
The EDI Connection, during the third quarter of 1998. The total acquisition cost
was $4.2 million, comprised of $3.0 million paid in cash; 35,000 of common
shares valued at $802,000 issued from the 

                                       20

<PAGE>

treasury stock account; liabilities assumed of $194,000 and $206,000 in
transaction costs related to the acquisitions.

Management believes that the cash, cash equivalents and marketable securities
available-for-sale at December 31, 1998 and cash anticipated to be generated
from future operations will be sufficient for the Company to meet its working
capital needs and capital expenditures through 1999. However, the Company may
choose to raise additional cash through the sale of equity or debt prior to such
time. The Company has no plans to pay dividends with respect to Common Stock in
the foreseeable future.

YEAR 2000 COMPLIANCE

INTRODUCTION - The Year 2000 issue involves computer programs and embedded
microprocessors in computer systems and other equipment that utilize two digits
rather than four to define the applicable year. These systems may be programmed
to assume that all two digit dates are preceded by "19," causing "00" to be
interpreted as 1900 rather than 2000. This could result in the possible failure
of those programs and devices to properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize date
sensitive information could generate erroneous data or a system failure. The
following discussion regarding Year 2000 matters constitutes a "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act.

The Company has conducted an evaluation of the actions necessary to confirm that
its business critical computer and other systems will be able to function
without disruption with respect to the application of dating systems in the Year
2000. This evaluation was conducted with the assistance of consulting services.
The completed deliverable from that review is a detailed Year 2000 readiness
plan.

The Company's plan objective is to achieve an uninterrupted transition into the
Year 2000. The scope of the Year 2000 plan includes: (1) information technology
("IT") such as software and hardware, (2) non-IT systems or embedded technology
such as micro-controllers contained in various safety systems, facilities and
utilities, and (3) readiness of key third parties, including suppliers and
customers. The Company's remedial actions are scheduled for completion during
the third quarter of 1999. However, there can be no assurance that the remedial
actions being implemented by the Company will be completed by the time necessary
to avoid Year 2000 compliance problems.

INFORMATION TECHNOLOGY SYSTEMS - Based on this evaluation, the Company is
upgrading, replacing, and testing many of its IT systems to achieve Year 2000
readiness. Because the Company was founded 11 years ago, the Company believes
that its mainframe systems are largely Year 2000 capable, and that its PC and
midrange based systems will require the majority of attention.

NON INFORMATION TECHNOLOGY SYSTEMS - The Company believes that its
non-information technology Year 2000 exposure is relatively low, since the
Company's product delivery is primarily executed through very modern computer
equipment and related technology that does not have dated, embedded chip
deployment.

PRODUCT AND SERVICE OFFERINGS - The Company has completed a Year 2000 assessment
of its currently offered products and services. Based on this assessment, the
Company believes that its currently offered products and EC services are Year
2000 ready, or will be ready by the third quarter of 1999 through new product
releases or modifications to internal systems. The Company believes that a small
percentage of its customers who receive product support from the Company are
operating product versions that may not be Year 2000 ready or products or
product versions that the Company has replaced or intends to replace with
comparable Year 2000 ready products. The Company believes that the majority of
these customers are migrating and will continue to migrate to Year 2000 ready
versions and products through new releases, which the Company is strongly
encouraging. The Company does not believe that customers who license or migrate
to Year 2000 ready versions of its products, or customers who purchase the
Company's EC services, will experience any Year 2000 failures caused by such
products or services. However, there can be no assurance caused that the
Company's expectations and beliefs as 

                                       21

<PAGE>


to these matters will prove to be accurate. Moreover, the Company's products
employ, and the provision of its services requires the use of, systems comprised
of third-party hardware and software, some of which may not be Year 2000 ready.

THIRD PARTY READINESS - The Company has a process in place to assess the Year
2000 readiness of its business critical vendors and customers, and is working
with these vendors and customers on Year 2000 readiness issues. There can be no
assurances that the systems of other parties upon which the company relies will
be made Year 2000 ready on a timely basis. The Company utilizes third party
vendor equipment, telecommunications products and software products. Disruptions
with respect to computer systems of vendors or customers, whose systems are
outside the control of the Company, could impair the ability of the Company to
provide services to its customers, and could have a material adverse effect upon
the Company's financial condition and results of operations, or require the
Company to incur unanticipated expenses to remedy any problems. See "Risk
Factors Dependence on Data Center."

COSTS - The Company expended approximately $425,000 in 1998 on activities to
prepare for Year 2000 readiness. Approximately $155,000 was for assessments and
customer notification, and $270,000 was for testing and product and
infrastructure modifications. The Company currently estimates that it will cost
an additional $1,200,000, budgeted primarily under its Information Technology
division, prior to January 1, 2000, to modify its in-house information systems,
other systems and internally developed software products affected by the Year
2000 issue. The Company estimates that of the remaining costs, twenty-five
percent (25%) will be for assessment and customer notification, and seventy-five
percent (75%) will be for testing and modifications. All costs associated with
Year 2000 compliance are being funded with cash flow generated from operations
and existing cash balances and are being expensed as incurred.

ADDITIONAL RISKS - Additional aspects of the Year 2000 issue may pose risks to
be considered in evaluating the future growth of the Company. Some commentators
predict that normal purchasing patterns and trends in the industry may be
affected by customers replacing or upgrading applications or systems to address
the Year 2000 issue. The Company has not experienced any discernable trend
indicating a recent or impending material reduction in demand for the Company's
products and services. Furthermore, some commentators have also predicted that a
significant amount of litigation may arise out of Year 2000 readiness issues.
While the Company has not been subject to any Year 2000 claims or lawsuits to
date, there can be not assurance that customers or former customers will not
bring claims or lawsuits against the Company seeking compensation for losses
associated with Year 2000 related failures. A material adverse outcome in a Year
2000 claim or lawsuit could have a material adverse effect on the Company's
business, financial condition and results of operations.

CONTINGENCY PLANING - Contingency plans are under development to address those
business critical systems that may not be Year 2000 ready, in the event the
Company is unable to complete its remedial actions in the planned time frame.

The Company believes that the most reasonably likely worst case scenario is that
a small number of vendors and/or customers will have lingering Year 2000
compliance problems, resulting in additional support for these customers, and
the substitution of a higher number of software vendors than currently
anticipated. As a part of the assessment process, the Company will develop
contingency plans for those business critical vendors or large customers who are
either unable or unwilling to develop remedial plans to become Year 2000 ready.
The Company expects that these plans will involve the acceleration of its Year
2000 readiness activity and the application of additional resources. It is
expected that these contingency plans will be in place by the third quarter of
1999.



                                       22

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company's exposure to market risk associated with changes in interest 
rates relates primarily to the Company's investment portfolio of marketable 
securities. The Company does not use derivative financial instruments in its 
investment portfolio. The stated objectives of the Company's investment 
guidelines are to preserve principal, meet liquidity needs and deliver 
maximum yield subject to the previous conditions. The guidelines limit 
maturity, limit concentration, and limit eligible investments to high credit 
quality US issuers, such as the US Treasuries and agencies of the US 
Government, and highly rated banks and corporations. The Company's 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 Company's marketable securities. The
Company's guidelines do not permit investments with maturities in excess of 24
months. At December 31, 1998, the weighted average maturity of the marketable
securities portfolio was less than 187 days.

<TABLE>
<CAPTION>

                                                        MATURITY                                    
                                        -----------------------------------                               FAIR VALUE AT          
(Amounts in thousands)                        1999                2000               TOTAL                DECEMBER 31, 1998     
                                             ------              ------             -------             --------------------
                                                                                                               
<S>                                            <C>                 <C>                <C>                            <C>
Corporate Bonds                                $6,931                                 $6,931                         $6,976
   Average interest rate                        5.47%                                  5.47%
US Government Agencies                                             $1,500             $1,500                          1,518
   Average interest rate                                            5.57%              5.37%
                                        ---------------     ---------------    ---------------      -------------------------
Total Investment Portfolio                     $6,931              $1,500             $8,431                         $8,494
                                        ---------------     ---------------    ---------------      -------------------------
                                                                                                    -------------------------
   Average interest rate                        5.47%               5.57%              5.36%
                                        ---------------     ---------------    ---------------      
                                        ---------------     ---------------    ---------------      
</TABLE>

FOREIGN CURRENCY RISK

The Company has no significant investments outside the US and does not have
material foreign currency risk.



                                       23

<PAGE>



ITEM 8.   FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                                                                  PAGE
                      <S>                                                           <C>
                      Independent Auditors' Report                                  25

                      Consolidated Balance Sheets                                   26

                      Consolidated Statements of Earnings 
                        and Comprehensive Earnings                                  27

                      Consolidated Statements of Stockholders' Equity               28

                      Consolidated Statements of Cash Flows                         29

                      Notes to Consolidated Financial Statements                   30-40

</TABLE>




                                       24

<PAGE>



INDEPENDENT AUDITORS' REPORT






Board of Directors and Stockholders
QRS Corporation:

We have audited the accompanying consolidated balance sheets of QRS Corporation
and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the
related consolidated statements of earnings and comprehensive earnings,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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 generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.



DELOITTE & TOUCHE LLP
San Jose, California
January 28, 1999


                                       25

<PAGE>



                                 QRS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997
                             (DOLLARS IN THOUSANDS)

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                        1998              1997
                                                                                   --------------    --------------
<S>                                                                                      <C>               <C> 
Current assets:
  Cash and cash equivalents...................................................           $36,642           $16,091
  Marketable securities, available-for-sale...................................             6,976            17,694
  Accounts receivable - net of allowance for doubtful accounts of $1,036 in 1998
    and $873 in 1997..........................................................            19,059            14,567
  Deferred income tax assets..................................................               816               870
  Prepaid expenses and other..................................................             1,179             1,260
                                                                                   --------------    --------------
                               Total current assets.........................              64,672            50,482
                                                                                   --------------    --------------
Property and equipment:
  Furniture and fixtures......................................................             2,476             2,162
  Equipment...................................................................             9,133             7,622
    Leasehold improvements....................................................             2,249             1,800
                                                                                   --------------    --------------
                                                                                          13,858            11,584
  Less accumulated depreciation...............................................             5,708             4,062
                                                                                   --------------    --------------
    Total property and equipment..............................................             8,150             7,522
                                                                                   --------------    --------------
Marketable securities, available-for-sale                                                  1,518             1,000
Deferred income tax assets                                                                 1,578             2,576
Capitalized product development costs - net of accumulated amortization 
 of $3,482 in 1998 and $2,818  in 1997                                                     4,136             2,245
Intangible assets - net of accumulated amortization of $225 in 1998                        2,805                 -
Other assets                                                                                 146               177
                                                                                   --------------    --------------
Total assets                                                                             $83,005           $64,002
                                                                                   --------------    --------------
                                                                                   --------------    --------------
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...........................................................            $7,914             $ 3,733
  Accrued incentive.........................................................              1,710                 588
  Income taxes payable......................................................              1,823                 906
  Accrued vacation..........................................................                818                 564
  Other accrued liabilities.................................................              1,498                 653
Current portion of sublease loss reserves...................................                                  1,494
                                                                                  --------------     --------------
                     Total current liabilities..............................             13,763               7,938
 Deferred rent and other....................................................              1,288               1,335
                                                                                  --------------     --------------
                         Total liabilities..................................             15,051               9,273
                                                                                  --------------     --------------
Commitments and contingencies (Note 7)......................................                -                   -
Stockholders' equity:
  Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued 
   and outstanding..........................................................                -                   -
  Common stock - $0.001 par value;  20,000,000 shares authorized;  
   8,587,241 shares outstanding in 1998 and 8,531,366 in 1997...............           66,002                63,864
  Treasury stock at cost (25,550 shares in 1998 and 1,300 shares in 1997)...             (740)                  (35)
  Accumulated other comprehensive earnings (loss) - unrealized gain (loss) 
   on investments                                                                          63                    (9)
  Retained earnings (deficit)...............................................            2,629                (9,091)
                                                                                  --------------      -------------
                                                                                                     
    Total stockholders' equity..............................................           67,954                54,729
                                                                                  --------------      -------------
Total liabilities and stockholders' equity.................................           $83,005               $64,002
                                                                                  --------------      -------------
                                                                                  --------------      -------------
</TABLE>




                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       26

<PAGE>



                                 QRS CORPORATION
         CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                        1998                1997                 1996
                                                                  -----------------   -----------------    -----------------
<S>                                                                        <C>                 <C>                  <C>
Revenues................................................                   $91,926             $71,632              $56,746
Cost of sales...........................................                    51,140              40,450               33,802
                                                                  -----------------   -----------------    -----------------
Gross profit............................................                    40,786              31,182               22,944
                                                                  -----------------   -----------------    -----------------
Operating expenses:
Sales and marketing...................................                      12,080               9,041                6,512
Product development...................................                       4,309               4,365                3,127
General and administrative............................                       7,314               5,137                3,863
In-process technology expense related to acquisitions.                         967                   -                    -
                                                                  -----------------   -----------------    -----------------
Total operating expenses...........................                         24,670              18,543               13,502
                                                                  -----------------   -----------------    -----------------
Operating earnings......................................                    16,116              12,639                9,442
Interest income ...........................................                  2,151               1,986                1,577
                                                                  -----------------   -----------------    -----------------
Earnings from continuing operations before income taxes.                    18,267              14,625               11,019
Income tax expense .....................................                     7,113               5,850                4,408
                                                                  -----------------   -----------------    -----------------
Earnings from continuing operations after income taxes..                    11,154               8,775                6,611

  Discontinued operations:

Gain from sale of software and services business........                       896                   -                    -
                                                                  -----------------   -----------------    -----------------
Net earnings............................................                    12,050               8,775                6,611

Other comprehensive earnings (loss):
 Unrealized gain (loss) from marketable securities available-
or-sale................................................                        72                (51)                   42
                                                                  -----------------   -----------------    -----------------
Total comprehensive earnings............................                   $12,122              $8,724               $6,653
                                                                  -----------------   -----------------    -----------------
                                                                  -----------------   -----------------    -----------------
Basic earnings per share:
Continuing operations .....................................                  $1.31               $1.04                $0.79
Discontinued operations....................................                   0.10                   -                    -
                                                                  -----------------   -----------------    -----------------
Net earnings per share.....................................                  $1.41               $1.04                $0.79
                                                                  -----------------   -----------------    -----------------
                                                                  -----------------   -----------------    -----------------
Shares used to compute basic earnings per share ........                     8,541               8,464                8,346
                                                                  -----------------   -----------------    -----------------
                                                                  -----------------   -----------------    -----------------
Diluted earnings per share:
Continuing operations ..................................                     $1.26               $1.01                $0.77
Discontinued operations ................................                      0.10                   -                    -
                                                                  -----------------   -----------------    -----------------
Net earnings per share .................................                     $1.36               $1.01                $0.77
                                                                  -----------------   -----------------    -----------------
Shares used to compute diluted earnings per share ......                     8,858               8,727                8,613
                                                                  -----------------   -----------------    -----------------
                                                                  -----------------   -----------------    -----------------
</TABLE>

                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                       27

<PAGE>



                                 QRS CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                             Accumulated
                                                     COMMON STOCK               Other          Retained
                                                                            Comprehensive      Earnings        Stockholders'
                                                 SHARES          Amount    Earnings (Loss)     (Deficit)           Equity
                                            ----------------------------   ---------------     ----------   -----------------
<S>                                              <C>             <C>                 <C>      <C>                 <C>
Balance, January 1, 1996....................     8,305,824       $ 59,907                     $ (24,477)           $ 35,430
Stock option compensation...................                           35                                                35
Exercise of stock options, including tax
  benefit...................................        80,190          1,141                                             1,141
Issuance of common stock under
  Employee Stock Purchase Plan..............        19,206            306                                               306
Exercise of warrant.........................         2,000              5                                                 5
Other comprehensive earnings-unrealized
  gain on marketable securities available-                                            $ 42                               42
  for-sale..................................
Net earnings................................                                                      6,611               6,611
                                            ---------------  ------------- ---------------- -------------   ----------------
Balance, December 31, 1996..................     8,407,220         61,394               42      (17,866)             43,570
Purchase of treasury stock..................        (1,300)           (35)                                              (35)
Stock option compensation...................                           26                                                26
Exercise of stock options, including tax
  benefit...................................       103,270          2,015                                             2,015
Issuance of common stock under
  Employee Stock Purchase Plan..............        17,176            416                                               416
Exercise of warrant.........................         5,000             13                                                13
Other comprehensive loss-unrealized
  loss on marketable securities available-
  for-sale..................................                                           (51)                             (51)
Net earnings................................                                                      8,775               8,775
                                            ---------------  ------------- ---------------- -------------   ----------------
Balance, December 31, 1997..................     8,531,366         63,829               (9)      (9,091)             54,729
Purchase of treasury stock..................       (59,250)        (1,837)                                           (1,837)
Reissuance of treasury stock................        35,000          1,132                          (330)                802
Exercise of stock options, including tax
  benefit...................................        65,550          1,686                                             1,686
Issuance of common stock under
  Employee Stock Purchase Plan..............        14,575            452                                               452
Other comprehensive earnings-unrealized
  gain on marketable securities available-                                              72                               72
  for-sale..................................
Net earnings................................                                                     12,050              12,050
                                            ---------------  ------------  ---------------  ------------   -----------------
Balance, December 31, 1998..................     8,587,241       $ 65,262             $ 63    $   2,629            $ 67,954
                                            ---------------  ------------  ---------------  ------------   -----------------
                                            ---------------  ------------  ---------------  ------------   -----------------
</TABLE>



                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.



                                       28

<PAGE>



                                 QRS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                 1998               1997              1996
                                                                           ----------------    --------------   ----------------
<S>                                                                          <C>               <C>                <C>
Operating activities:
  Net earnings..........................................................           $12,050           $ 8,775            $ 6,611
  Adjustment to reconcile net earnings to net cash provided by operating
    activities:
  Depreciation and amortization...........................................           3,429             1,718              1,153
  Loss from disposal of property and equipment............................             134                 -                  -
  Stock compensation......................................................               -                26                 35
  In-process technology expense related to acquisitions...................             967                 -                  -
  Gain from sale of software and services business........................            (896)                -                  -
  Changes in:
    Accounts receivable...................................................          (4,214)           (5,273)            (1,262)
    Prepaid expenses and other............................................             131              (119)              (329)
    Deferred income tax assets............................................           1,684             3,902              3,877
    Other assets..........................................................            (276)               (2)                (8)
    Accounts payable......................................................           4,181            (1,747)             1,898
    Other accrued liabilities.............................................           2,141               510              1,149
    Deferred rent and other...............................................             (47)             (632)              (682)
                                                                            ----------------   ---------------   ----------------
        Net cash provided by operating activities.........................          19,284             7,158             12,442
                                                                            ----------------   ---------------   ----------------
Investing activities:
  Marketable securities - available for sale, net.......................            10,272              (155)              (572)
  Purchase of property and equipment....................................            (3,192)           (5,925)            (1,551)
  Capitalization of product development costs...........................            (2,555)           (1,274)              (245)
  Acquisition of businesses, net of cash acquired and stock issued......            (2,927)                -                  -
  Payment of liabilities assumed in the acquisition of ShipNet..........                 -            (1,234)            (1,151)
                                                                            ----------------    --------------   ----------------
        Net cash provided by (used in) investing activities.............             1,598            (8,588)            (3,519)
                                                                            ----------------   ---------------   ----------------
Financing activities:
  Proceeds from employee stock purchase plan issuances....................             452               416                306
  Exercise of stock options...............................................           1,054             1,105                328
  Exercise of warrants....................................................               -                13                  5
  Purchase of treasury stock..............................................          (1,837)              (35)                 -
                                                                            ----------------   ---------------   ----------------
        Net cash provided by (used in) financing activities...............            (331)            1,499                639
                                                                            ----------------   ---------------   ----------------
Net increase in cash and cash equivalents.................................          20,551                69              9,562
Cash and cash equivalents at beginning of year............................          16,091            16,022              6,460
                                                                            ----------------    --------------   ----------------
Cash and cash equivalents at end of year..................................         $36,642           $16,091            $16,022
                                                                            ----------------    --------------   ----------------
                                                                            ----------------    --------------   ----------------
Other cash flow information:
    Taxes paid during the year...........................................           $5,742           $ 1,074              $ 498
                                                                            ----------------    --------------   ----------------
                                                                            ----------------    --------------   ----------------
Noncash investing and financing activities:
Tax benefit from stock options exercised.................................             $632             $ 910              $ 813
Reissuance of treasury stock.............................................              802                 -                  -
Unrealized gain (loss) on marketable securities available-for-sale.......               72               (51)                42
</TABLE>



During the third quarter of 1998, the Company acquired the assets of Custom
Information Systems Corporation and the outstanding common shares of The EDI
Connection with the allocation of the purchase price, as follows:
<TABLE>
<CAPTION>
    <S>                                                                                       <C>
    Working capital other than cash                                                           $  (71)
    Property and equipment                                                                       110
    Goodwill                                                                                     736
    Other intangible assets                                                                    1,987
    In-process technology                                                                        967
    Less: Common stock issued in connection with acquisitions                                  (802)
                                                                                      ----------------
    Acquisitions, net of cash acquired of $23 and stock issued                                $2,927
                                                                                      ----------------
                                                                                      ----------------


</TABLE>

                 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       29

<PAGE>



                                 QRS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1:   DESCRIPTION OF THE BUSINESS 

The Company's products and services are organized and managed as a single 
product family, which includes Catalog Services, Network Services, Inventory 
Management Services ("IMS"), Logistics Management Services ("LMS"), and 
Professional Services. The Company derives revenues from five principal and 
related sources: the transmission of standard business documents over a 
network, monthly charges for accessing Catalog Services, IMS-related fees 
based on negotiated monthly service charges, LMS fees, and consulting fees. 
Network Services pricing is based primarily on the volume of characters 
transmitted and the type of network access utilized. Network Services pricing 
also incorporates discounts based on volume.

NOTE 2:   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

During the third quarter of 1998 and fourth quarter of 1997, the Company created
wholly owned United States and Canadian subsidiaries, QRS Sales and Services
corporation and QRS Canada, Inc., respectively. The accompanying financial
statements include the accounts of QRS Corporation and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated.

REVENUE RECOGNITION

All services revenues are recognized in the month in which the service is
performed.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.

MARKETABLE SECURITIES, AVAILABLE-FOR-SALE

The Company classifies its portfolio of marketable debt securities as "Available
for Sale" under Statement of Financial Accounting Standard ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Company
classifies those marketable securities that mature in less than one year as
short-term marketable securities.

INTANGIBLE ASSETS

Intangible assets include goodwill and certain contracts purchased in connection
with the acquisitions of businesses, and are amortized on a straight-line basis
over their estimated useful lives, which range from three to seven years.
Amortization expense was $225,000 in 1998.

PRODUCT DEVELOPMENT COSTS

The Company capitalizes certain development costs related to its product
offerings based upon the establishment of technological feasibility. Capitalized
development costs are amortized over various periods up to three years. 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. Costs incurred to maintain existing product
offerings are expensed as incurred. For the years ended december 31, 1998, 1997
and 1996, the Company capitalized product development costs of $2,555,000,
$1,274,000 and $245,000, respectively.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives, which are generally three years for
software and five years for equipment and hardware. Leasehold improvements are
amortized over the remaining period of the lease or over the estimated useful
life of the improvement, whichever is shorter. Depreciation expense for the
years ended december 31, 1998, 1997 and 1996 was $2,540,000, $1,490,000 and
$924,000, respectively.

                                       30

<PAGE>

STOCK OPTION COMPENSATION

The Company adopted SFAS No. 123, "Accounting for Stock-Based 
Compensation,"effective for the Company's year ended December 31, 1996. 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, the Company has chosen to continue 
the intrinsic value based method and provides pro forma disclosures of net 
earnings and earnings per share as if the accounting provisions of SFAS No. 
123 had been adopted; therefore such adoption has no effect on the Company's 
earnings or cash flows. See note 10.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 requires a dual presentation of
basic and diluted EPS. 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. The Company adopted SFAS No. 128 in the year ended December
31, 1997 as required and restated earnings per share ("EPS") data for all prior
periods to conform with SFAS No. 128.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and equivalents, customer
receivables, accounts payable, and certain other accrued liabilities. The
carrying amounts of these items are a reasonable estimate of their fair values.

USE OF ESTIMATES

The preparation of the Company's 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

Effective January 1, 1998, the Company adopted SFAS No.130, "Reporting
Comprehensive Income." As required by SFAS No. 130, the Company classifies as
components of comprehensive earnings, all items recognized under accounting
standards, which include net earnings and unrealized gains and losses on
marketable securities that are classified as available-for-sale. The adoption of
this new accounting standard had no effect on the financial position of the
Company.

SEGMENT DISCLOSURES

Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company organizes and
manages its products and services as a single product family, and accordingly,
the required disclosures under SFAS No. 131 regarding the Company's products and
services are made to the face of the financial statements. The adoption of SFAS
No. 131 Had no effect on the financial position of the Company.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the 1998
presentation.


                                       31

<PAGE>

NOTE 3:   MARKETABLE SECURITIES, AVAILABLE FOR SALE 

Marketable securities, available-for-sale are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                         AMORTIZED            UNREALIZED          UNREALIZED
                                           COST                 GAINS               LOSSES             FAIR VALUE
                                       ----------------    ---------------     ----------------     -----------------
<S>                                           <C>                   <C>                <C>                  <C>
DECEMBER 31, 1998 
Debt issued by:
U.S. Government Agencies                      $ 1,500               $ 18                                    $ 1,518
Corporate bonds                                 6,931                 57               $ (12)                 6,976
                                       ----------------    ---------------     ----------------     -----------------
Total marketable securities                     8,431                 75                 (12)                 8,494
Less long -term marketable
      securities, available-for-sale            1,500                 18                    -                 1,518
                                       ----------------    ---------------     ----------------     -----------------
Short-term marketable
      securities, available-for-sale          $ 6,931               $ 57               $ (12)               $ 6,976
                                       ----------------    ---------------     ----------------     -----------------
                                       ----------------    ---------------     ----------------     -----------------
</TABLE>


<TABLE>
<CAPTION>
                                        AMORTIZED           UNREALIZED           UNREALIZED
                                           COST               GAINS                LOSSES              FAIR VALUE
                                       ----------------    ---------------     ----------------     -----------------
<S>                                           <C>                    <C>                <C>                <C>
DECEMBER 31, 1997
Debt issued by:
U.S. Government Agencies                      $ 9,995                $10                                   $ 10,005
Corporate bonds                                 8,708                  2                $(21)                 8,689
                                       ----------------    ---------------     ----------------     -----------------
Total marketable securities                    18,703                 12                 (21)                18,694
Less long-term marketable
      securities, available-for-sale              999                  1                    -                 1,000
                                       ----------------    ---------------     ----------------     -----------------
Short-term marketable
      securities, available-for-sale         $ 17,704                $11                $(21)              $ 17,694
                                       ----------------    ---------------     ----------------     -----------------
                                       ----------------    ---------------     ----------------     -----------------
</TABLE>



The long-term marketable securities held at December 31, 1998 have contractual
maturities of two years or less.

NOTE 4:   INCOME TAXES

The Company accounts for income taxes using the asset and liability method under
SFAS No. 109, "Accounting for Income Taxes."

The Company provides a deferred tax expense or benefit for differences between
financial accounting and tax reporting. Deferred income taxes represent
operating loss carryforwards, tax credit carryforwards and future net tax
effects resulting from 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.


                                       32

<PAGE>


The income tax expense (benefit) for the years ended December 31, 1998, 1997 and
1996 consisted of (in thousands):
<TABLE>
<CAPTION>

                             1998                     1997                  1996
                     --------------------     --------------------   -------------------
<S>                              <C>                    <C>                     <C>
Current:
    Federal                      $4,604                 $  1,813                $  906
    State                         1,456                    1,045                   438
                     --------------------     --------------------   -------------------
                                  6,060                    2,858                 1,344
                     --------------------     --------------------   -------------------

Deferred:
    Federal                       1,154                    2,749                 2,519
    State                          (101)                     243                   545
                     --------------------     --------------------   -------------------
                                  1,053                    2,992                 3,064
                     --------------------     --------------------   -------------------

    Total                        $7,113                   $5,850                $4,408
                     --------------------     --------------------   -------------------
                     --------------------     --------------------   -------------------
</TABLE>

Significant components of the Company's deferred tax balances as of December 31,
1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                                         DECEMBER               DECEMBER
                                                                                         31, 1998               31, 1997
                                                                                      --------------------   ---------------------
<S>                                                                                     <C>                     <C>
Deferred tax assets:
         Minimum tax credit carryforwards                                               $       -               $   393
         Research and development credit carryforwards                                          -                   898
         Purchased in-process research and development                                      1,203                   898
         Allowance for doubtful accounts                                                      387                   318
         Other reserves not currently deductible                                            1,370                 1,224
         Deferred rent                                                                        555                   344
         State taxes                                                                          132                    36
                                                                                       -------------------     -------------------
                  Total deferred income tax assets                                          3,647                 4,111

Deferred tax liabilities:
         Depreciation                                                                         347                   247
         Deducted research and development expenses                                           906                   418
                                                                                       -------------------     -------------------
                  Total deferred income tax liabilities                                     1,253                   665
                                                                                       -------------------     -------------------
Deferred income tax assets, net                                                         $   2,394               $ 3,446
                                                                                       -------------------     -------------------
                                                                                       -------------------     -------------------
</TABLE>

A reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                               DECEMBER 31,
                                         ----------------------------------------------------------------------------------------
                                                 1998                               1997                       1996
                                         -------------------------    ----------------------------   ----------------------------
<S>                                         <C>            <C>           <C>               <C>         <C>               <C>
Provision at statutory tax rate........     $6,394         35%           $5,118            35%         $3,746            34%
State income taxes, net of federal
  tax benefit..........................        881          5               880             6             649             6
Other..................................       (162)        (1)             (148)           (1)             13             -
                                         -----------   ------------    -------------   -----------   ------------   -------------
Total..................................     $7,113         39%           $5,850            40%         $4,408            40%
                                         -----------   ------------    -------------   -----------   ------------   -------------
                                         -----------   ------------    -------------   -----------   ------------   -------------
</TABLE>

For income tax purposes, the Company had no remaining and no expired federal
research and development credit carryforwards as of December 31, 1998.


                                       33

<PAGE>



NOTE 5:  ACQUISITIONS

In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4,902,000, comprised of $200,000 paid in cash,
assumption of certain liabilities of $3,302,000, shutdown, relocation and
severance expenses of $1,100,000 associated with rationalizing ShipNet's
operations, and $300,000 in transaction costs related to the acquisition.

The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4,318,000 of the purchase price was allocated to in-process research
and development, and as technological feasibility had not been established and
no alternative future uses existed at the acquisition date, charged to expense.
The Company allocated $584,000 of the purchase price to current assets and
property and equipment. The Company completed the relocation of acquired assets
in the third quarter of 1997 and anticipates no further expense related to the
acquisition of ShipNet.

During the third quarter of 1998, the Company acquired the assets of Custom
Information Systems Corporation and the outstanding common shares of Mueller
Associates, Inc., dba the EDI Connection, both service bureaus. The total
acquisition cost was $4,152,000; comprised of $2,950,000 paid in cash; 35,000 of
common shares valued at $802,000 issued from the Company's treasury stock
account; liabilities assumed of $194,000 and $206,000 in transaction costs
related to the acquisitions.

The acquisitions were accounted for as purchase transactions. In connection with
the acquisitions and in conjunction with the Company's capitalized software
policies, $967,000 of the purchase price was allocated to in- process research
and development, and as technological feasibility had not been established and
no alternative future uses existed at the acquisition dates, charged to expense.
The Company allocated $3,185,000 of the purchase price to current assets,
property and equipment and intangible assets. The amounts allocated to current
assets and property and equipment were based on the fair market value of the
related assets and the amounts allocated to intangible assets were determined on
the basis of the appraised value of the related intangible assets.

The appraisal techniques used in the Company's 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.

NOTE 6:       SUBLEASE LOSS RESERVES AND DISCONTINUED OPERATIONS

On May 20, 1993, the Company divested its software and services business to
Uniquest, a publicly held company. In connection with the sale, the Company
entered into various agreements with the buyer, including the sublease of
approximately 40,000 square feet of office space through June 30, 2000. Minimum
monthly lease payments ranged from $53,000 to $75,000 through the seven-year
term of the lease.

At December 31, 1993, Uniquest owed the Company approximately $1,358,000, which
was delinquent under sublease and data center cost sharing agreements. As a
result, the Company provided an allowance of $1,018,000 against these
receivables and made additional provisions of $2,009,000 against nonpayment of
future obligations. The result of the allowance and provision described was to
reduce the gain from sale of the software and services business by $3,027,000. A
$1,700,000 reserve provided in 1992 for lease payments related to another vacant
building was added to sublease loss reserves at December 31, 1993.

In May 1995, Uniquest ceased operations and made an assignment of assets for the
benefit of its creditors. In connection with the cessation of Uniquest's
operations, the Company's sublease with Uniquest was terminated. The Company
received a payment of $923,000 and wrote off the balance of a note for
delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $740,000. During 1995, the Company recorded $164,000 as sublease
income and $77,000 as data center cost 

                                       34

<PAGE>

reimbursements from Uniquest as reductions of occupancy expense and data
center-cost of sales, respectively. There were no sublease income or data cost
reimbursements during 1996 and 1997.

During the quarter ended March 31, 1998, outstanding matters with regard to the
Uniquest bankruptcy were substantially resolved; accordingly, the Company
recognized a gain on sale of software and services business of $1,494,000 less
applicable income taxes of $598,000 for these discontinued operations. The
remaining sublease loss reserve of $480,000 at March 31, 1998, representing the
provisions established for nonpayment by Uniquest of future sublease obligations
was reclassified to deferred rent and other and will be amortized over the
remaining lease term through June 30, 2010.

NOTE 7:       COMMITMENTS AND CONTINGENCIES

The Company entered into an agreement with IBM for the purchase of $250 million
of network services over a three-year period commencing January 1, 1998. The
agreement includes specified annual minimum purchases and a graduated adjustment
charge if total purchases fall below the total minimum amount. The Company met
the minimum purchases in 1998, and based on historical and projected usage,
believes that the purchase requirements during the remaining two-year period
will be met.

Additionally, the Company and IBM signed a Retail Industry Marketing 
agreement under which the Company provides to IBM certain professional 
services related to the retail industry. The Company recognized revenues of 
$1,000,000 in the fourth quarter of 1997 and $1,000,000 during the year ended 
December 31, 1998 as a result of this agreement.

On December 8, 1998, AT&T Corporation announced a definitive agreement pursuant
to which AT&T agreed to purchase IBM's Global Network and corporate networking
business. Upon close of the AT&T acquisition, it is anticipated that the Company
will continue to acquire its network service requirements from IBM with the
delivery of a portion of these services to be undertaken by AT&T.

The Company leases office buildings and certain equipment under various
non-cancelable operating lease agreements expiring through the year 2010. The
leases for office buildings generally provide renewal options and additional
rents based on increases in operating expenses of the buildings.

The Company's 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. During the periods of "free rent," this expense creates a deferred
liability which is amortized to expense over the life of the lease.

Total rent expense related to these operating leases charged to continuing
operations for the years ended December 31, 1998, 1997 and 1996 was $1,781,000,
$1,372,000 and $1,331,000, respectively.


                                       35

<PAGE>



 At December 31, 1998, future minimum payments under long-term operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>

Year ending December 31:
<S>                                                                   <C>
1999....................................................              $ 1,764
2000....................................................                2,538
2001...................................................                 2,780
2002...................................................                 2,650
2003...................................................                 2,385
2004 & thereafter......................................                13,851
                                                            ------------------
Total                                                                 $25,968
                                                            ------------------
                                                            ------------------
</TABLE>

NOTE 8:       MAJOR TRADING PARTNERSHIP PROGRAMS

The Company provides services and generates revenues by enabling certain hub
customers and their trading partners to conduct business over the Company's
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, the Company cannot precisely
attribute revenues to particular trading relationships. While the Company
continues to refine its estimation techniques, the Company believes 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, 1998.

NOTE 9:       RETIREMENT SAVINGS PLANS

The Company has 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
($10,000 in 1998, $9,500 in 1997 and 1996). The matching employer contributions
charged to continuing operations during 1998, 1997 and 1996 were approximately
$522,000, $324,000 and $238,000, respectively.

Effective December 1, 1997, the Company established 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 1998 were $32,000.

NOTE 10:      COMMON STOCK, STOCK OPTIONS AND WARRANTS

In 1989, the 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 common stock of
the Company at prices determined by the Board of Directors.

In June 1993, the 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 150,000 shares of common stock has been
reserved for purchase under the Purchase Plan. 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 (first business day in January, April, July and October
each year) into a purchase period (first business day in January and through the
last business day in December each year) 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 purchase
period (first business day in January each year), 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 1998 and 1997, employees acquired 14,575 and 17,176 shares
of common stock, respectively, under the Purchase Plan.

                                       36

<PAGE>

In June 1993, the Board of Directors also approved the 1993 Stock Option/Stock
Issuance Plan (the "1993 Plan"). A total of 1,850,000 shares of common stock has
been reserved for issuance under this plan. 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 the Company's 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 vest in equal annual installments over periods up
to four years. Outstanding options granted under earlier plans were granted at
fair market value or lesser values, and vest over different periods, primarily
over periods up to four years.

Stockholders approved additional allocations of 500,000 shares of common stock
to the Stock Option Pool under the 1993 Plan in each of May 1995 and May 1996
(1,000,000 shares total). Stockholders approved additional allocations of
350,000 shares of common stock to the Stock Option Pool under the 1993 Plan in
May 1998.

In December 1997, the Board of Directors approved the 1997 Special Non-Officer
Stock Option Plan, which permits the Company to grant options to purchase up to
150,000 shares of common stock. The persons eligible to receive options through
this plan are those employees who are neither executive officers of the Company
nor members of the Board of Directors.

The following table shows the activity in the Company's stock option plans:

<TABLE>
<CAPTION>
                                                                                                                        WEIGHTED
                                                                                                 NUMBER OF              AVERAGE
                                                                                                  OPTIONS            EXERCISE PRICE
                                                                                             ---------------    -----------------
<S>                                                                                                <C>                   <C>
Balance, December 31, 1995 (93,276 exercisable at $9.72 weighted average
price per share)                                                                                    669,286               $12.94
  Granted................................................................................           265,750                29.79
  Exercised...............................................................................         (80,190)                 4.09
  Canceled...............................................................................          (15,500)                12.82
                                                                                             ---------------    -----------------
Balance, December 31, 1996 (205,408 exercisable at $13.70 weighted average
price per share)                                                                                    839,346                18.96
  Granted................................................................................           614,650                31.64
  Exercised...............................................................................        (103,270)                10.70
  Canceled...............................................................................          (42,245)                23.74
                                                                                             ---------------    -----------------
Balance, December 31, 1997 (320,580 exercisable at $18.36 weighted average
price per share)                                                                                  1,308,481                25.54
                                                                                             ---------------    -----------------
  Granted...................................................................................        465,350                29.65
  Exercised.................................................................................       (65,550)                16.09
  Canceled..................................................................................       (82,725)                33.23
                                                                                             ---------------    -----------------
Balance, December 31, 1998 (574,007 exercisable at $23.51 weighted average
price per share                                                                                   1,625,556               $26.70
                                                                                             ---------------    -----------------
                                                                                             ---------------    -----------------
</TABLE>


                                       37

<PAGE>



Warrants issued in connection with a line of credit and the public offering to
purchase 16,756 shares of common stock at $2.50 To $18.50 Were outstanding at
December 31, 1998. These warrants expire upon 30 day notification of the warrant
holder. Options to purchase approximately 45,971 shares of common stock were
available for future grants under the plans as of December 31, 1998.

The Company applies APB Opinion 25 and related Interpretations in accounting for
its employee stock-based compensation plans. Accordingly, no compensation cost
has been recognized for its Stock Option Plans. Had compensation cost for the
Company's 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,
The Company's net earnings and net earnings per share would have been decreased
to the proforma amounts indicated in the following table. As 1996 was the
initial phase-in period for applying this Statement, the proforma results
indicated are not necessarily representative of the effects on proforma
disclosures of net earnings for future periods as they exclude options that were
granted prior to January 1, 1995, with vesting periods in 1995 and later.

<TABLE>
<CAPTION>

                                                                    YEARS ENDED DECEMBER 31,
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                ----------------------------------------------------------------------------
                                                         1998                      1997                        1996
<S>                                                         <C>                        <C>                         <C>
NET EARNINGS
As reported                                                 $12,050                    $ 8,775                     $ 6,611
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
Proforma                                                     $9,145                    $ 6,916                     $ 5,489
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
BASIC EARNINGS PER SHARE
As reported                                                   $1.41                     $ 1.04                      $ 0.79
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
Proforma                                                      $1.07                     $ 0.82                      $ 0.66
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
DILUTED EARNINGS PER SHARE
As reported                                                   $1.36                     $ 1.01                      $ 0.77
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
Proforma                                                      $1.03                     $ 0.79                      $ 0.64
                                                 --------------------      ---------------------      ----------------------
                                                 --------------------      ---------------------      ----------------------
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made in 1998, 1997 and 1996 under the 1993 Plan and
for purchases made in 1998, 1997 and 1996 under the Employee Stock Purchase
Plan: risk-free interest rates are 4.59% In 1998, 5.91% In 1997 and 6.07% In
1996; expected volatility is 56.3% In 1998, 51.4% In 1997 and 51.0% In 1996;
expected lives in all years are 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. The weighted
average fair value of options granted during 1998, 1997 and 1996 was $13.62,
$14.18 And $13.27, respectively.

The status of options outstanding as of December 31, 1998 is summarized as
follows:

<TABLE>
<CAPTION>

                                 OPTIONS OUTSTANDING                                                    OPTIONS EXERCISABLE
--------------------------------------------------------------------------    -------------------------------------------
                                          WEIGHTED                                     
                                           AVERAGE             WEIGHTED                                   WEIGHTED
RANGE OF                                  REMAINING             AVERAGE                                   AVERAGE
EXERCISE               NUMBER            CONTRACTUAL           EXERCISE               NUMBER             EXERCISE
 PRICES              OUTSTANDING            LIFE                 PRICE             EXERCISABLE             PRICE
-----------------   ------------------   ----------------   ------------------    ------------------   -----------------
    <S>                    <C>                      <C>               <C>                  <C>                  <C>
     $5.25-5.25               25,700                4.3                $5.25                25,700               $5.25
     9.00-12.50               64,795                5.3                10.39                64,545               10.40
    14.13-19.13              296,036                6.4                16.69               171,598               17.57
    21.88-31.88            1,056,825                8.8                28.97               252,415               29.31
    35.56-48.00              182,200                8.7                38.64                59,749               38.06
-----------------   ------------------   ----------------   ------------------    ------------------   -----------------
    $5.25-48.00            1,625,556                8.2               $26.70               574,007              $23.51
-----------------   ------------------   ----------------   ------------------    ------------------   -----------------
-----------------   ------------------   ----------------   ------------------    ------------------   -----------------
</TABLE>


                                       38

<PAGE>

NOTE 11:  TREASURY STOCK

On April 22, 1997, the Company announced that its Board of Directors has
authorized the repurchase from time to time of up to $5 million of its common
stock in both open market and block transactions. The Board of Directors
authorized a $5 million increase in this repurchase amount on October 16, 1998.
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. The Company may discontinue purchases of its Common Stock at any
time that management determines additional purchases are not warranted. The
Company has repurchased 60,550 shares since the inception of the buyback
program, of which 59,250 shares were repurchased during 1998 for $1,837,000 and
1,300 shares were repurchased during 1997 for $35,000. During the third quarter
of 1998, the Company reissued 35,000 shares of treasury stock at $802,000 in
connection with the acquisition of businesses (See Note 5).


NOTE 12:      QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>

                                                                       1998 QUARTERLY
                                   ---------------------------------------------------------------------------------------
                                        QUARTER          QUARTER              QUARTER      QUARTER          YEAR
IN THOUSANDS, EXCEPT PER                 ENDED            ENDED                ENDED       ENDED           ENDED
SHARE DATA                             MARCH 31,         JUNE 30,            SEPT. 30,     DEC.31,         DEC. 31,
                                          1998             1998                 1998       1998             1998
                                   ------------------   --------------    ------------   -------------   -------------
<S>                                         <C>          <C>                 <C>           <C>             <C>
Revenues                                    $20,034      $20,830             $23,618       $27,444         $91,926
Gross profit                                  8,779        9,146              10,299        12,562          40,786
Earnings from continuing                      2,463        2,659               2,471         3,561          11,154
   operations
Discontinued operations                         896            -                   -             -             896
Net earnings                                  3,359        2,659               2,471         3,561          12,050

Basic earnings per share:
Continuing operations                          0.29         0.31                0.29          0.42            1.31
Discontinued operations                        0.10            -                   -             -            0.10
Net earnings                                   0.39         0.31                0.29          0.42            1.41

Diluted earnings per share:
Continuing operations                          0.28         0.30                0.28          0.40            1.26
Discontinued operations                        0.10            -                   -             -            0.10
Net earnings                                   0.38         0.30                0.28          0.40            1.36

</TABLE>

<TABLE>
<CAPTION>

                                                                      1997 QUARTERLY
                                  ------------------------------------------------------------------------
                                       QUARTER       QUARTER        QUARTER       QUARTER          YEAR
                                        ENDED         ENDED          ENDED         ENDED          ENDED
IN THOUSANDS, EXCEPT PER              MARCH 31,      JUNE 30,      SEPT. 30,     DEC. 31,        DEC. 31,
SHARE DATA                               1997          1997          1997         1997(1)          1997
                                  --------------   -----------   ------------  -------------  -------------
<S>                                   <C>           <C>             <C>           <C>            <C>
Revenues                              $16,354       $17,003         $18,253       $20,022        $71,632
Gross profit                            7,231         7,389           7,759         8,803         31,182
Net earnings                            1,925         2,095           2,254         2,501          8,775
Basic earnings per share                 0.23          0.25            0.27          0.29           1.04
Diluted earnings per share               0.22          0.24            0.26          0.29           1.01
</TABLE>


(1) See Note 7


                                       39

<PAGE>



NOTE 13: EARNINGS PER SHARE

The Company calculates 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:
<TABLE>
<CAPTION>

                                                                         YEARS ENDED DECEMBER 31,
                                                    -----------------------------------------------------------------------------
                                                             1998                        1997                      1996
                                                    -----------------------      ---------------------    -----------------------
<S>                                                      <C>                          <C>                        <C>
Shares used to compute basic EPS                         8,541,366                    8,464,000                  8,345,679

Add: Effect of dilutive securities                         316,913                      263,396                    267,321
                                                    -----------------------      ---------------------    -----------------------

Shares used to compute diluted EPS                       8,858,279                    8,727,396                  8,613,000
                                                    -----------------------      ---------------------    -----------------------
                                                    -----------------------      ---------------------    -----------------------
</TABLE>





                                       40

<PAGE>




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
<TABLE>
<CAPTION>

NAME                                      AGE                      POSITION
----                                      ---                      --------
<S>                                       <C>      <C>
Peter R. Johnson (2)(3)                   50       Chairman of the Board of Directors
John Simon                                42       Chief Executive Officer and Director
Shawn M. O'Connor                         39       President and Chief Operating Officer
Peter Papano                              49       Chief Financial Officer and Secretary
Philip Woodworth                          42       Vice President, Product Marketing
Glenn DuBois                              45       Vice President, Sales
Philip Swift                              48       Vice President, Information Services
Tania Amochaev (3)                        49       Director
Steven D. Brooks (2)(3)                   47       Director, Chairman of the Audit Committee
H. Lynn Hazlett, Ph.D.                    62       Director
John P. Dougall                           55       Director
Garth Saloner, Ph.D. (1)(2)               44       Director, Chairman of the Compensation Committee
Philip Schlein (1)                        65       Director
Garen K. Staglin (1)(3)                   54       Director, Chairman of the Executive Committee
</TABLE>


(1)  Member of the compensation committee.
(2)  Member of the audit committee.
(3)  Member of the executive committee.

Mr. Johnson founded the Company in 1985 and has been Chairman of the Board since
the Company's inception.  Mr. Johnson served as President of the Company from
October 1985 to September 1987 and as Chief Executive Officer of the Company
from September 1987 to March 1991 and again from January 1992 to May 1993.  Mr.
Johnson has been President, Chief Executive Officer and Chairman of Peter R.
Johnson & Associates since 1984 and President, Chief Executive Officer and
Chairman of Galaxy Brands International since 1996. Before founding the Company,
Mr. Johnson was a corporate general manager of the Myer Emporium Limited, a
large retailer in Australia.  Mr. Johnson served as the Chief Executive Officer
of Uniquest Incorporated from December 1993 to December 1994.  From 1995 to the
present, Mr. Johnson has been a private investor in and a consultant to
technology companies.  Mr. Johnson is a director of Meridian Data, a software
and systems company, and of several privately held companies. Mr. Johnson also
serves as Chairman and director of NSB, a United Kingdom publicly held company.

Mr. Simon was named Chief Executive Officer in July 1998 and a director of the
Company in December 1997.  Mr. Simon has held various positions with the Company
since 1988, including President from January 1998 until July 1998 and Executive
Vice President from January 1994 to December 1997.  From 1980 to 1988, Mr. Simon
was employed by Carter Hawley Hale Stores, Inc., a retail company, most recently
as Senior Program Manager of its Information Services Division, and prior to
that held a number of merchandising, store management and information services
positions.

Mr. O'Connor joined the Company in February 1995 and became Vice President,
Chief Financial Officer and Secretary in March 1995.  Mr. O'Connor was named
Chief Operating Officer in January 1998 and President in July 1998, and
currently serves in these two capacities.  Before joining the Company, from 1992
to 1994, Mr. O'Connor was Vice President and Chief Financial Officer for
Diasonics Ultrasound, Inc., a medical equipment manufacturer ("Diasonics
Ultrasound").  From 1988 to 1992, Mr. O'Connor held various management positions
with Diasonics Ultrasound.


                                 41


<PAGE>


Mr. Papano joined the Company in August 1998 as Vice President, Finance, Chief
Financial Officer and Secretary.  Prior to joining the Company, from 1991 to May
1998, Mr. Papano served in two principal capacities at Knight-Ridder Information
Inc. (now known as the Dialog Corporation), a company in the information
business that primarily provides online search and current awareness information
products, including Chief Financial Officer from January 1994 to December 1997
and Senior Director of Finance from 1991 to December 1993.  In addition, Mr.
Papano served as Chief Financial Officer for a subsidiary of Dialog Corporation
from December 1997 until May 1998.  He began his career with GTE Corporation in
local and long distance telephone operations.

Mr. Woodworth was named Vice President, Product Marketing in October 1998.  Mr.
Woodworth is responsible for the Company's products and product management and
the development of Internet and Internet technology services that complement the
retail industry and demand chain initiatives that the Company sponsors on behalf
of its retailer customers, vendors and carriers.  Mr. Woodworth has worked for
the Company for over nine years and has held various positions, including Vice
President of Sales and Director of Projects.  Prior to joining the Company, Mr.
Woodworth was employed in the data processing industry for 19 years.

Mr. DuBois joined the Company in July 1997 as Vice President, Sales.  Prior to
joining the Company, from July 1996 to June 1997, he was Vice President of Sales
for the LizWear Division of Liz Claiborne, Inc., a manufacturer of apparel. 
From July 1991 to July 1996, Mr. DuBois was with the Lee Division of VF
Corporation, initially as Director of Business Systems and Planning and,
beginning in 1994, as Regional Vice President of Sales.  Prior to that, from
1983 to 1991, Mr. DuBois served in various management roles in both retail
relations and systems for Levi Strauss.

Mr. Swift joined the Company in October 1996 as Vice President, Product
Development and was named Vice President, Information Services in January 1998. 
Before joining the Company, from January 1992 to September 1996, Mr. Swift was
Department Head of Information Products at VISA, a credit card transaction
processing company.  From 1989 to 1991, Mr. Swift was Senior Project Manager at
Matson Navigation, a shipping company. 

Ms. Amochaev was named a director of the Company in May 1992.  Ms. Amochaev
served as President of the Company from May 1992 until February 1997 and as
Chief Executive Officer from May 1993 until February 1997.  Before joining the
Company, from 1988 to 1992, Ms. Amochaev was Chief Executive Officer of Natural
Language, Inc., a client server database tool software company.  From 1984 to
1987, Ms. Amochaev was President and Chief Executive Officer of Comserv
Corporation, a manufacturing applications software company that was sold in 1987
to Management Science America.  Ms. Amochaev currently serves as a director of
Walker Interactive Systems, Inc., a financial software company, Government
Technology Services, Inc., a computer reseller to the government, and Symantec
Corporation, a software company.

Mr. Brooks was named a director of the Company in January 1994.   Mr. Brooks is
a Managing Director at Broadview Capital Partners ("Broadview"), a private
equity firm focused upon investments in the technology sector.  Mr. Brooks
joined Broadview in February 1999.  From September 1997 to February 1999, Mr.
Brooks served as a Managing Director of Donaldson, Lufkin & Jenrette Securities
Corporation, an investment banking firm.  From January 1997 to August 1997, Mr.
Brooks was a private investor and a consultant to technology companies.  From
1994 to December 1996, Mr. Brooks served as Managing Director and head of Global
Technology Investment Banking at Union Bank of Switzerland Securities, LLC. 
From 1988 to 1994 Mr. Brooks was a private investor and consultant to high
technology firms.  From 1986 to 1988, Mr. Brooks served as Managing Partner of
investment banking at Robertson, Stephens & Co., an investment bank.  In
addition to QRS, Mr. Brooks is a Director of Paychex, Inc., a national payroll
processing and business services company, and VERITAS Software Corporation, a
systems management software company, as well as several private companies.


                                 42


<PAGE>

Dr. Hazlett was named a director of the Company in 1994.   Dr. Hazlett served as
Chief Executive Officer of the Company from February 1997 to June 1998.  He also
served as President of the Company from February 1997 to January 1998 and was a
consultant to the Company from 1995 until February 1997.  From January 1994 to
February 1997, Dr. Hazlett owned and operated Supply Chain Associates, a retail
supply chain consultancy practice.  Dr. Hazlett served as Vice President,
Business Systems at VF Corporation, a global apparel manufacturer, from 1989 to
January 1995.  From 1984 to 1989, Dr. Hazlett served as President and Chief
Executive Officer of Information and Communications, Inc., a division of Carson
Pirie Scott & Company, a conglomerate comprised of 33 department stores, 400
specialty stores and a mail order catalog business.  Prior to that, Dr. Hazlett
served as Corporate Vice President and Chief Information Officer at Levi Strauss
& Co., a manufacturer of apparel.  Dr. Hazlett is a director of the National
Industries for the Blind, a non-profit organization, and TriNet Corporation, a
provider of human resource services. 

Mr. Dougall has been a director of the Company since July 1990.  On  February 5,
1999, Mr. Dougall became Group Chief Executive Officer for Plessy Asia Pacific. 
From December 1997 to February 1999, Mr. Dougall was a private investor.   From
November 1996 to November 1997, Mr. Dougall served as Chairman and Chief
Executive Officer for Aristocrat Leisure Limited, an Australian publicly listed
company and a supplier to gambling and entertainment companies.  From January
1992 to September 1996, Mr. Dougall served as Chief Executive Officer of AWA
Limited, an electronics and telecommunications company.  Mr. Dougall held
various executive positions with the Company from July 1990 to January 1992,
serving as President of the Company from February 1991 to June 1991 and as
President and Chief Executive Officer from June 1991 to January 1992.  From
February 1988 to June 1990, Mr. Dougall was the Executive Director of Paxus
Corporation, a software services and outsourcing firm.

Dr. Saloner was named a director of the Company in December 1993.  Dr. Saloner
has served as the Robert A. Magowan Professor of Strategic Management and
Economics at the Graduate School of Business at Stanford University since 1990. 
He served as Associate Dean for Academic Affairs and Director of Research and
Course Development at Stanford from 1993 to 1996.  From 1982 to 1990, Dr.
Saloner was a professor in the Economics Department of the Massachusetts
Institute of Technology.  Dr. Saloner is a director of Charles River Associates,
an economic consulting firm, Brilliant Digital Entertainment, Inc., a 3D
animation firm, and Next Stage Entertainment, a firm engaged in building a
network of live entertainment theaters. 

Mr. Schlein was named a director of the Company in February 1996.  Mr. Schlein
has been a general partner of BMS Partners L.P., a venture partner of U.S.
Venture Partners, a venture capital firm, since April 1985.  Mr. Schlein held
various executive positions with R.H. Macy & Company, Inc. from September 1957
to December 1973 and was President and Chief Executive Officer of its Macy's
California division from January 1974 to January 1985.  Mr. Schlein currently
serves as a director of Burnham Pacific Incorporated, a commercial real estate
development and leasing company, Ross Stores, Inc., a clothing store chain,
Resound Corporation, a hearing devise manufacturing company, XOOM.com, Inc., an
e-commerce company, and bebe stores, inc., a producer of contemporary women's
apparel and accessories.  Additionally, Mr. Schlein served as a director of
Apple Computer, Inc. from 1979 to 1987.

Mr. Staglin was named a director of the Company in 1991.  Since 1991, Mr.
Staglin has served as the Chief Executive Officer and Chairman of the Board of
Directors of Safelite Glass Corporation, a replacement auto glass manufacturing
and retailing company.  From 1980 to 1991, Mr. Staglin was a Vice President and
General Manager of Automatic Data Processing, a computer networking services
company.  Mr. Staglin has been the owner and manager of Staglin Vineyards from
1985 to the present.  Mr. Staglin currently serves as a director of First Data
Corporation, a supplier of computer services for credit card processing and
other financial services, and CyberCash, Inc., a provider of secure transaction
services for the Internet.  In 1994, Mr. Staglin was named a member of the
Advisory Council to the Stanford Graduate School of Business.


                                       43

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

Pursuant to paragraph G(3) of the General Instructions to Form 10-K, the
information called for in this Part III, Item 11 of Form 10-K is omitted since
the Company will file, not later than 120 days after the close of the fiscal
year ended December 31, 1998, with the Securities and Exchange Commission, its
Proxy Statement, which shall contain, under the caption "Executive Compensation
and Other Information," the information required by this item.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to paragraph G(3) of the General Instructions to Form 10-K, the
information called for in this Part III, Item 12 of Form 10-K is omitted since
the Company will file, not later than 120 days after the close of the fiscal
year ended December 31, 1998, with the Securities and Exchange Commission, its
Proxy Statement, which shall contain, under the caption "Security Ownership of
Certain Beneficial Owners and Management," the information required by this
item.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to paragraph G(3) of the General Instructions to Form 10-K, the
information called for in this Part III, Item 13 of Form 10-K is omitted since
the Company will file, not later than 120 days after the close of the fiscal
year ended December 31, 1998, with the Securities and Exchange Commission, its
Proxy Statement, which shall contain, under the caption "Certain Relationships
and Related Transactions" the information required by this item.


                                       44

<PAGE>



                                     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 Auditors' Report
                  Consolidated Balance Sheets
                  Consolidated Statements of Earnings
                  Consolidated Statements of Stockholders' Equity 
                  Consolidated Statements of Cash Flows
                  Notes to Consolidated Financial Statements

         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 

         EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO.                                 DESCRIPTION
<S>       <C>
2.1       Agreement and Plan of Merger of QuickResponse Delaware, Inc. and
          QuickResponse Services, Inc.*****

3.1       Certification of Incorporation of the Company.*****

3.2       Certificate of Correction of Certificate of Incorporation of the
          Company.*****

3.3       Bylaws of the Company.*****

3.4       Certificate of Amendment of Certificate of Incorporation of the
          Company.

4.1       Specimen of Common Stock Certificate of the Registrant.*

10.1      1993 Stock Option/Stock Insurance Plan and forms of agreement
          thereunder.*

10.2      Employee Stock Purchase Plan.*

10.3      Form of 1990 Nonqualified Stock Option Agreement.*

10.4      Employment Agreement dated April 22, 1992 between the Registrant and
          Tania Amochaev.*

10.5      Employment Agreement dated March 1, 1993 between the Registrant and
          Tania Amochaev.*

10.6      Form of Indemnification Agreement.*

10.7      Lease Agreement dated April 27, 1990 between the Registrant and
          Schooner Drive Associates, a California Limited Partnership.*

10.8      Sublease dated May 1, 1993 between the registrant and PRJ&, Inc.*

10.9      Preferred Stock Purchase and Debt Consolidation Agreement, dated as of
          March 22, 1991 among the Registrant, Peter R. Johnson and
          International Business Machines Corporation.*

10.10     First Amendment dated as of May 20, 1993 to the Preferred Stock
          Purchase and Debt Consolidation Agreement among the Registrant, Peter
          R. Johnson, and International Business Machines Corporation.*


                                       45

<PAGE>

10.11     Replacement Consolidated Convertible Notes dated March 22, 1991 issued
          to International Business Machines Corporation.*

10.12     Security Agreement dated as of March 22, 1991 between the Registrant
          and International Business Machines Corporation.*

10.13     Warrant dated March 22, 1991 issued to International Business Machines
          Corporation.*

10.14     License Agreement dated March 22, 1991 between the Registrant and
          International Business Machines Corporation.*

10.15     First Amendment dated as of May 20, 1993 to the License Agreement
          between the Registrant and International Business Machines
          Corporation.*

10.16     Maintenance and Support Agreement dated March 22, 1991 between the
          Registrant and International Business Machines Corporation.*

10.17     First Amendment dated as of May 20, 1993 to the Maintenance and
          Support Agreement between the Registrant and International Business
          Machines Corporation.*

10.18     Marketing Agreement dated March 22, 1991 between the Registrant and
          International Business Machines Corporation.*

10.19     Common Stock Purchase Agreement dated April 3, 1989 by and among
          Registrant and Retail Shopping International (Aust) Pty. Ltd.,
          Barclays Investment Pty. Ltd., and Peter R. Johnson.*

10.20     Business Loan Agreement dated May 30, 1990 between Registrant and
          Silicon Valley Bank as amended on June 3, 1993.*

10.22     Warrant dated July 16, 1992 issued to Steven D. Brooks.*

10.23     Warrant dated March 31, 1993 issued to Steven D. Brooks.*

10.24     # Volume Discount Agreement dated December 16, 1991 between the
          Registrant and International Business Machines Corporation.*

10.25     Facilities and Cost Sharing Agreement dated May 1, 1993 between the
          Registrant and PRJ&, Inc.*

10.26     Data Center Services Agreement dated April 30, 1993 between the
          Registrant and PRJ&, Inc.*

10.27     Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
          Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*

10.28     Consent and Release Agreement dated as of May 20, 1993 among the
          Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
          International Business Machines Corporation.*

10.29     Separation Agreement dated May 1, 1993 between the Registrant and
          PRJ&, Inc.*

10.30     Assignment, Bill of SALE and Assumption Agreement dated as of May 20,
          1993 between the Registrant and PRJ&, Inc.*

10.31     Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
          Incorporated and Bank of America NT&SA.*

10.32     Pledge Agreement dated as of May 20, 1993 between the Registrant and
          International Business Machines Corporation.*

10.33     Agreement dated as of July 13, 1993 between the Registrant and
          International Business Machines Corporation.*

10.34     # Advantis Industry Remarketer Agreement dated as of January 6, 1994
          between Advantis and the Registrant.**

10.35     Uniquest Forbearance Agreement between Uniquest Incorporated and the
          Registrant.**

10.36     # International Remarketer Agreement dated as of November 11, 1996
          between Advantis and the Registrant.***

10.37     # Employment Agreement dated as of February 6, 1997 between Registrant
          and Lynn Hazlett.***

10.38     Reserved.

                                       46


<PAGE>



10.39     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.****

10.40     Option Agreement dated August 7, 1997 between the Registrant and
          Marina Westshore Partners, LLC.****

10.41     # Employment Agreement dated as of December 24, 1997 between
          Registrant and John Simon.*****

10.42     # Employment Agreement dated as of December 24, 1997 between
          Registrant and Shawn O'Connor.*****

10.43     # Retail Management Agreement dated as of December 31, 1997 between
          Registrant and International Business Machines Corporation.*****

10.44     # Business Partner Agreement dated December 31, 1997 between
          Registrant and International Business Machines Corporation.*****

10.45     1997 Non-Officer Stock Plan.*****

10.46     Non-qualified Deferred Compensation Plan.*****

10.47     ## Employment Agreement dated as of March 8, 1999 between Registrant
          and John Simon.

10.48     ## Employment Agreement dated as of March 8, 1999 between Registrant
          and Shawn O'Connor.

10.49     Fifth Amendment, dated November 20, 1998, to Lease Agreement between
          the Registrant and Marina Westshore Partners, LLC.

10.50     Lease Agreement, dated, MAY 15, 1998, between the Registrant and
          Marina Westshore Partners, LLC.

10.51     First Amendment, dated November 20, 1998, between the Registrant and
          Marina Westshore Partners, LLC

10.52     Lease Agreement, dated November 20, 1998, between the Registrant and
          Marina Bay Partners.

21.1      Subsidiaries of the Registrant.

23.1      Consent of Deloitte & Touche LLP, Independent Auditors.

24.1      Power of Attorney (see page 44).

27.1      Financial Data Schedule

</TABLE>

*     Incorporated by reference to Exhibit of same number of the Registrant's
      Registration Statement on Form S-1 (Registration No. 33-63938).

**    Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1994.
 
***   Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1996.

****  Incorporated by reference to Exhibit of same number filed with the
      Registrant's Quarterly Report on Form 10-Q for the period ended September
      30, 1997.

***** Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1997.

#     Confidential treatment has been granted with respect to portions of this
      document.

##    Confidential treatment has been requested with respect to portions of this
      document.


                                       47

<PAGE>



SIGNATURES

In accordance with the requirements 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 24th day of March, 1999.



                             QRS CORPORATION


                             /s/  Peter Papano
                             ---------------------------------------------------
                             Peter Papano, Chief Financial Officer and Secretary

                                POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Peter Papano, acting
alone, his 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, 1998 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, 1998 has been signed
by the following persons in the capacities indicated and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                                                                                          DATE
<S>                                                                                        <C>
/s/ John S. Simon                                                                          March 24, 1999
----------------------------------------------------------------------
John S. Simon, Chief Executive Officer and Director

/s/ Peter R. Johnson                                                                       March 24, 1999
----------------------------------------------------------------------
Peter R. Johnson, Chairman of the Board of Directors

/s/ Tania Amochaev                                                                         March 24,1999
----------------------------------------------------------------------
Tania Amochaev, Director

/s/ Steven D. Brooks                                                                       March 24,1999
----------------------------------------------------------------------
Steven D. Brooks, Director

/s/ John P. Dougall                                                                        March 24,1999
----------------------------------------------------------------------
John P. Dougall, Director

/s/ H. Lynn Hazlett                                                                        March 24,1999
----------------------------------------------------------------------
H. Lynn Hazlett, Director

/s/ Philip Schlein                                                                         March 24,1999
----------------------------------------------------------------------
Philip Schlein, Director

/s/ Garen K. Staglin                                                                       March 24,1999
----------------------------------------------------------------------
Garen K. Staglin, Director

/s/ Garth Saloner                                                                          March 24,1999
----------------------------------------------------------------------
Garth Saloner, Director

</TABLE>


                                       48

<PAGE>



EXHIBIT INDEX
<TABLE>
<CAPTION>

NO.                                 DESCRIPTION
<S>       <C>
2.1       Agreement and Plan of Merger of QuickResponse Delaware, Inc. and
          QuickResponse Services, Inc.*****

3.1       Certification of Incorporation of the Company.*****

3.2       Certificate of Correction of Certificate of Incorporation of the
          Company.*****

3.3       Bylaws of the Company.*****

3.4       Certificate of Amendment of Certificate of Incorporation of the
          Company.

4.1       Specimen of Common Stock Certificate of the Registrant.*

10.1      1993 Stock Option/Stock Insurance Plan and forms of agreement
          thereunder.*

10.2      Employee Stock Purchase Plan.*

10.3      Form of 1990 Nonqualified Stock Option Agreement.*

10.4      Employment Agreement dated April 22, 1992 between the Registrant and
          Tania Amochaev.*

10.5      Employment Agreement dated March 1, 1993 between the Registrant and
          Tania Amochaev.*

10.6      Form of Indemnification Agreement.*

10.7      Lease Agreement dated April 27, 1990 between the Registrant and
          Schooner Drive Associates, a California Limited Partnership.*

10.8      Sublease dated May 1, 1993 between the Registrant and PRJ&, Inc.*

10.9      Preferred Stock Purchase and Debt Consolidation Agreement, dated as of
          March 22, 1991 among the Registrant, Peter R. Johnson and
          International Business Machines Corporation.*

10.10     First Amendment dated as of May 20, 1993 to the Preferred Stock
          Purchase and Debt Consolidation Agreement among the Registrant, Peter
          R. Johnson, and International Business Machines Corporation.*

10.11     Replacement Consolidated Convertible Notes dated March 22, 1991 issued
          to International Business Machines Corporation.*

10.12     Security Agreement dated as of March 22, 1991 between the Registrant
          and International Business Machines Corporation.*

10.13     Warrant dated March 22, 1991 issued to International Business Machines
          Corporation.*

10.14     License Agreement dated March 22, 1991 between the Registrant and
          International Business Machines Corporation.*

10.15     First Amendment dated as of May 20, 1993 to the License Agreement
          between the Registrant and International Business Machines
          Corporation.*

10.16     Maintenance and Support Agreement dated March 22, 1991 between the
          Registrant and International Business Machines Corporation.*

10.17     First Amendment dated as of May 20, 1993 to the Maintenance and
          Support Agreement between the Registrant and International Business
          Machines Corporation.*

10.18     Marketing Agreement dated March 22, 1991 between the Registrant and
          International Business Machines Corporation.*

10.19     Common Stock Purchase Agreement dated April 3, 1989 by and among
          Registrant and Retail Shopping International (Aust) Pty. Ltd.,
          Barclays Investment Pty. Ltd., and Peter R. Johnson.*

10.20     Business Loan Agreement dated May 30, 1990 between Registrant and
          Silicon Valley Bank as amended on June 3, 1993.*

10.22     Warrant dated July 16, 1992 issued to Steven D. Brooks.*

10.23     Warrant dated March 31, 1993 issued to Steven D. Brooks.*
</TABLE>

                                       50

<PAGE>

<TABLE>
<CAPTION>


<S>       <C>
10.24     # Volume Discount Agreement dated December 16, 1991 between the
          Registrant and International Business Machines Corporation.*

10.25     Facilities and Cost Sharing Agreement dated May 1, 1993 between the
          Registrant and PRJ&, Inc.*

10.26     Data Center Services Agreement dated April 30, 1993 between the
          Registrant and PRJ&, Inc.*

10.27     Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
          Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*

10.28     Consent and Release Agreement dated as of May 20, 1993 among the
          Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
          International Business Machines Corporation.*

10.29     Separation Agreement dated May 1, 1993 between the Registrant and
          PRJ&, Inc.*

10.30     Assignment, Bill of Sale and Assumption Agreement dated as of May 20,
          1993 between the Registrant and PRJ&, Inc.*

10.31     Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
          Incorporated and Bank of America NT&SA.*

10.32     Pledge Agreement dated as of May 20, 1993 between the Registrant and
          International Business Machines Corporation.*

10.33     Agreement dated as of July 13, 1993 between the Registrant and
          International Business Machines Corporation.*

10.34     # Advantis Industry Remarketer Agreement dated as of January 6, 1994
          between Advantis and the Registrant.**

10.35     Uniquest Forbearance Agreement between Uniquest Incorporated and the
          Registrant.**

10.36     # International Remarketer Agreement dated as of November 11, 1996
          between Advantis and the Registrant.***

10.37     # Employment Agreement dated as of February 6, 1997 between Registrant
          and Lynn Hazlett.***

10.38     Reserved.

10.39     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.****

10.40     Option Agreement dated August 7, 1997 between the Registrant and
          Marina Westshore Partners, LLC.****

10.41     # Employment Agreement dated as of December 24, 1997 between
          Registrant and John Simon.*****

10.42     # Employment Agreement dated as of December 24, 1997 between
          Registrant and Shawn O'Connor.*****

10.43     # Retail Management Agreement dated as of December 31, 1997 between
          Registrant and International Business Machines Corporation.*****

10.44     # Business Partner Agreement dated December 31, 1997 between
          Registrant and International Business Machines Corporation.*****

10.45     1997 Non-Officer Stock Plan.*****

10.46     Non-qualified Deferred Compensation Plan.*****

10.47     ## Employment Agreement dated as of March 8, 1999 between Registrant
          and John Simon.

10.48     ## Employment Agreement dated as of March 8, 1999 between Registrant
          and Shawn O'Connor.

10.49     Fifth Amendment, dated November 20, 1998, to Lease Agreement between
          the Registrant and Marina Westshore Partners, LLC.

10.50     Lease Agreement, dated, May 15, 1998, between the Registrant and
          Marina Westshore Partners, LLC.

10.51     First Amendment, dated November 20, 1998, between the Registrant and
          Marina Westshore Partners, LLC

10.52     Lease Agreement, dated November 20, 1998, between the Registrant and
          Marina Bay Partners.

21.1      Subsidiaries of the Registrant.

23.1      Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>

                                       51

<PAGE>

<TABLE>
<CAPTION>
<S>       <C>
24.2      Power of Attorney (see page 44).

27.1      Financial Data Schedule
</TABLE>


*     Incorporated by reference to Exhibit of same number of the Registrant's
      Registration Statement on Form S-1 (Registration No. 33-63938).

**    Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1994.

***   Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1996.

****  Incorporated by reference to Exhibit of same number filed with the
      Registrant's Quarterly Report on Form 10-Q for the period ended September
      30, 1997.

***** Incorporated by reference to Exhibit of same number filed with the
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      1997.

#     Confidential treatment has been granted with respect to portions of this
      document.

##    Confidential treatment has been requested with respect to portions


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