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

FORM 10-K

QAD Inc.
(Exact name of Registrant as specified in its charter)

        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. ý YES    o 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 an amendment to this Form 10-K. o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ý YES    o NO

        As of July 31, 2003, the last business day of the Registrant's most recently completed second fiscal quarter, there were 32,539,302 shares of the Registrant's common stock outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant (based on the closing sale price of such shares on the NASDAQ National Market on July 31, 2003) was approximately $97,228,000. Shares of the Registrant's common stock held by each executive officer and director and by each entity that owns 5% or more of the Registrant's 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.

        As of March 31, 2004, there were 33,975,121 shares of the Registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Items 10 through 14 of Part III incorporate information by reference from the Definitive Proxy Statement for the Registrant's Annual Meeting of Stockholders to be held on June 16, 2004.

QAD INC.
FISCAL YEAR 2004 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

        In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. These statements typically are preceded or accompanied by words like "believe", "anticipate", "expect" and words of similar meaning. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in Item 7 entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in particular the subsection of Item 7 entitled "Factors That May Affect Future Results and Market Price of Stock." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. We undertake no obligation to revise or update or publicly release the results of any revision or update to these forward-looking statements. Readers should carefully review the risk factors and other information described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed by QAD in fiscal 2005.

PART I

ITEM 1. BUSINESS

ABOUT QAD

        QAD, a Delaware Corporation, was founded in 1979 and is a provider of enterprise resource planning (ERP) software applications for global manufacturing companies. QAD enterprise applications provide robust functionality for managing operations and resources for manufacturing within and beyond the enterprise, enabling global manufacturers to collaborate with customers, suppliers and partners to make and deliver the right product, at the right cost, at the right time.

        QAD enterprise applications are focused and optimized for select manufacturing industry segments: automotive, consumer products, electronics, food and beverage, industrial and medical industries. Our applications address the needs of today's multi-national manufacturers, enabling them to think and operate globally while preserving their ability to meet local requirements by providing business-critical functions and processes at two levels: 1) the Enterprise, providing traditional ERP functionality for intra-enterprise functions; and 2) the Extended Enterprise, providing communication capabilities for supplier-management and customer-management functions, including Distributed Order Management (DOM) capabilities for collaborating with customers and suppliers electronically through the order process.

        QAD has built a solid customer base of global Fortune 1000 and mid-market manufacturers who are prospects for future sales of QAD's enterprise applications. With more than 20 years of focus on the manufacturing industry, and approximately 5,200 licensed sites of our software around the world, QAD is well qualified to meet the business and technology requirements of global manufacturing companies worldwide. We develop our products with input from leading global manufacturers within the vertical markets we serve. This vertical industry focus is a key differentiator for QAD, enabling our customers to implement QAD applications rapidly, realize a high return on investment, and achieve a low total cost of ownership compared with the product offerings of other vendors targeting the industries we serve. These benefits earned QAD the title "ERP Value Leader" from industry analyst firm META Group, based on an in-depth study it conducted entitled "Deriving Value From 21^st Century ERP Applications" published in April 2003. The study included QAD and five other significant ERP application providers: SAP, Oracle, JD Edwards, PeopleSoft and Lawson Software.

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        Global service and support are important components of our solutions. We are one of a few select organizations with the capabilities and industry expertise required to implement our solutions almost anywhere in the world, in multiple languages and currencies and support business processes tailored to local financial practices. Our geographic management structure ensures that our global practices meet local requirements and that our services are delivered effectively within each region. We support our customers' global operations through our network of regional support centers and online support, accessible 24 hours a day, seven days a week, virtually anywhere in the world.

CUSTOMERS

        As of January 31, 2004, our software was licensed at approximately 5,200 sites in more than 80 countries. No single customer accounted for more than 10 percent of total revenue during any of our last three fiscal years. The following are among the companies and/or subsidiaries of those companies that have each generated more than $1.0 million in software license, maintenance and services billings over the last three fiscal years:

Automotive

ArvinMeritor, Delco Remy International, Delphi, DURA Automotive Systems, Eaton, Federal Mogul, Ford Motor Company, Freudenberg, GKN, Johnson Controls, Lear, Textron, Webasto

Consumer Products

Applica, Avery Dennison, Black & Decker, Cussons, David Yurman, Sherwin-Williams, Top Flite, Unilever, U.S. Cotton, Villeroy & Boch

Electronics

Akzo Nobel, Anritsu, Celestica, FEI, General Electric, Invensys, Jabil Circuit, Lucent Technologies, Marconi Communications, Philips Electronics, Tyco International

Food and Beverage

Bakkersland, Coca-Cola, Friesland, Goodman Fielder, Hormel Foods, Kraft Foods, Lion Nathan, Mars, National Brands, National Foods, PepsiCo, Rich Products, Sara Lee

Industrial

Actaris, Albany International, Amcor, Enodis, Metso, Mitsui & Co., Rockwell Automation, Saint-Gobain, Thales

Medical

Arrow International, C.R. Bard, Genzyme, GlaxoSmithKline, Johnson & Johnson, Mayne Group, Medtronic, UCB Pharma

INDUSTRY BACKGROUND

        In recent years, businesses have been subject to increasing global competition, resulting in pressure to lower production costs, improve product performance and quality, increase responsiveness to customers, and shorten product development, manufacturing and delivery cycles. Globalization and the outsourcing of manufacturing to countries throughout the world has greatly increased the scope and complexity of multi-national manufacturing organizations while the

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Internet and e-business—the electronic interactions and transactions among companies, employees, partners, customers, suppliers and the marketplace as a whole—have had a profound effect on the way these companies conduct business.

        More recently, a fusion between e-business and ERP applications has occurred. We believe this fusion promotes online collaboration within the Enterprise, as well as across the Extended Enterprise with customers and suppliers. This includes functionality for customer management, supply chain management and e-commerce, as well as traditional ERP functionality for manufacturing and corporate operations. We believe that manufacturers that focus on collaborating across their supply chain, including their distribution channels, suppliers and customers, will reap significant benefits.

Today's Manufacturing Enterprise and Supply Chain Software

        To achieve improved collaboration and communication with customers and suppliers, we believe manufacturers within our target markets typically choose from five types of enterprise solutions:

        Manufacturing industry-focused ERP solutions: These solutions are designed and built with a singular focus on the unique needs of manufacturing enterprises and provide a robust suite of capabilities that enable the integration and management of critical data within a manufacturing enterprise. These solutions support internal and external business processes such as sales order management, procurement, inventory management, product lifecycle management, supply chain management, manufacturing planning and control, service and support, project management, distribution and finance. QAD is a provider of such manufacturing industry-focused ERP solutions that are designed to handle these internal and select external business processes that are highly beneficial for manufacturing operations in the industries we serve. We believe our focus on meeting the needs of manufacturers within the vertical industries we serve has resulted in software applications that are more fully integrated than point solutions (defined below) and result in faster implementations, a lower total cost of ownership and a higher return on investment than mega-suite solutions (also defined below).

        Mega-suite ERP solutions: (a term used by Gartner Research in its October 2002 report entitled "ERP II Will Support Performance/Relationship Management"). These solutions are designed with the goal of trying to satisfy the needs of multiple industries, including manufacturing, but also unrelated industries such as banking, insurance, retail, state and local government, telecommunications, entertainment, education, and others. These solutions attempt to satisfy the diverse needs of these many different industries within a single database and software application and provide a wide set of functionality similar to the focused solutions defined above. However, QAD believes that this lack of focus on the manufacturing sector has caused these mega-suite applications to require manufacturers that purchase their software to experience longer implementation times, a higher total cost of ownership, and a lower return on investment than QAD solutions. We believe this is because the mega-suites' extremely broad industry scope and higher solution complexity limits their effectiveness in addressing the specific needs of manufacturing enterprises, individual plants or divisions.

        Roll-up solutions: These solutions are neither designed nor built as single solutions, but rather are the result of continued consolidation in the ERP market. QAD uses the terminology "Roll-Up" to describe legacy ERP vendors who employ an acquisition strategy. Gartner Research refers to these vendors as "collectors" in their December 2003 report, "Management Update: The ERP Market and Vendors in 2004." In recent years we have seen

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many companies acquiring legacy or point solutions. QAD believes that the resulting solution set is not unified because it usually consists of multiple applications that rely on dissimilar technologies. We believe these Roll-up solutions lack the cohesion and integrated functionality required by global manufacturers.

        Regional solutions: These solutions are designed to provide functionality that is highly targeted to meet the needs of a specific region or country. Vendors of these solutions typically lack the global reach and financial viability that global manufacturers expect of their ERP vendors.

        Point solutions: These solutions are designed to provide a fairly narrow set of functionality. Examples include solutions that provide only procurement capabilities, only product lifecycle management capabilities, or only supply chain management capabilities. We believe these solutions tend to be highly specialized within a limited process scope compared to the four types of ERP suite solutions defined above and they often lack integration with processes to which they are directly related.

QAD MARKET POSITIONING

        In 2003, we crystallized our identity with a new company tagline, "A Passion for Manufacturing." "Passion" articulates the energy and commitment we have to lead in our markets and serve our customers. "Manufacturing" clarifies our intense focus on serving the needs of the manufacturing sector. This defines our primary objective: to be the leading global provider of manufacturing industry-focused ERP and supply chain execution solutions.

        We believe QAD occupies a unique position in the market because we are a global vendor that has an exclusive focus on manufacturing. This helps ensure our solutions are easier to implement and enable our customers to achieve a quicker return on investment. Additionally, we offer software and services that support both global implementations and the unique local requirements of individual countries.

        Our vision for the future charts a path for our global manufacturing customers, and is represented by the theme "6 Weeks to 6 Hours." "6 Weeks to 6 Hours" symbolizes the removal of time and waste out of every layer in the supply chain—from raw materials through consumption. If it currently takes 6 weeks for information to get to the lowest level of the supply chain, we believe it is possible to reduce that to as little as 6 hours. Using technology, our vision is to achieve this compression through integration of our Enterprise and Extended Enterprise solutions, with visibility throughout the supply chain, eliminating the bulk of waste and inventory build-up.

        We position our products as the appropriate response to different market forces that are causing our customers to invest in technology and business improvement projects. Today, these forces include:

        Regulatory Forces: These include government compliance requirements such as the Sarbanes-Oxley Act of 2002 and also include industry and standards requirements such as the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act for automotive recall tracking, UCC.net for item standardization in the consumer goods industry and the Food and Drug Administration Validation for food and drug safety compliance. QAD solutions provide tools and process controls that enable enterprises to comply with the applicable reporting and disclosure requirements.

        Customer Forces: These include the need to increase collaboration with customers and improve responsiveness and customer service. QAD solutions help companies address these forces by automating key customer service functions and by offering the flexibility to interact

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with customers using a variety of communication mechanisms. For example, QAD Customer Self Service (QAD CSS) enables customer self-service via the Internet and QAD Mobile Field Service enables sales representatives to interact with their corporate systems remotely.

        Supply Forces: These include the need to increase collaboration with suppliers and improve the management of inventory. Core functionality within QAD solutions enables real-time collaboration with suppliers via EDI or XML, visualization of inventory through QAD's MFGx.net offerings, and functionality for both supplier and customer managed consignment inventory to help improve inventory management.

        Advanced Manufacturing Forces: These include the introduction of new manufacturing techniques to reduce cost and increase throughput. To help customers address these forces, QAD offers lean manufacturing capabilities within MFG/PRO eB2 and additional lean functionality within the QAD Lean Manufacturing module. QAD Sequencing, a new module for build-to-order manufacturing, also known as "Just-in-Time" manufacturing, is planned for release in fiscal 2005.

        Business Intelligence Forces: These include the demand for performance based metrics. QAD solutions—such as the QAD Decision Support and QAD Desktop Charting modules—help companies leverage and analyze data from their QAD MFG/PRO system to make better informed business decisions.

THE QAD STRATEGY

        Our primary company objective is to be the leading global provider of manufacturing industry-focused ERP and supply chain execution solutions. Our strategy of continuing to provide robust solutions for the manufacturing sector, paired with what we believe are market opportunities within the industries we serve, leads us to see the potential for substantial growth.

        We will continue to target multi-national, large and mid-range manufacturing and distribution companies within the following industries: automotive, consumer products, electronics, food and beverage, industrial and medical industries.

        To help achieve our objectives, we have developed technology, product, and sales and services strategies as outlined below:

        The primary focus of our technology strategy is to allow open, distributed, seamless connections both inside and outside of the enterprise. The ability to collaborate starts with this technology foundation. QAD products are based on industry standards and an open architecture to allow customers to run applications almost anywhere, at any time, and connect to a variety of systems—factory systems, trading partners' platforms and systems, and exchanges.

        The primary focus of our product strategy is to create enterprise solutions that help our customers achieve productivity gains.

        The primary focus of our sales and services strategy is to strive to ensure our clients achieve every possible business benefit from our solutions—thus enabling them to compete more effectively in their respective industries.

        Previously, the technology, product, and sales and service strategies were grouped and summarized using the words "Connect", "Collaborate" and "Compete", respectively.

        Supporting strategies for achieving our objectives include the following:

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Leverage Our Customer Base.  As of January 31, 2004, QAD software was licensed at approximately 5,200 sites in more than 80 countries. With a substantial customer base and

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a maintenance renewal rate in excess of 90%, we expect to continue to benefit from selling additional products and services to existing customers. We plan to leverage our favorable reputation and track record to capitalize on this opportunity to build additional business for our QAD Distributed Order Management application suite and our MFGx.net offerings.

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Expand Our Customer Base.  We leverage our existing relationships to expand our customer base by targeting the many related divisions that reside within the same corporate structure as our existing customers. We believe these divisions may have either outgrown their legacy ERP solutions or need to extend the capabilities of those legacy ERP solutions with our QAD Distributed Order Management and MFGx.net products. We have found that we can be successful generating revenue in new divisions by using our existing customers as "internal" references.



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Leverage our market position in key vertical and regional markets.  We believe we have strong market positions in certain vertical and regional markets and that we can leverage this into leadership positions in those markets and in other markets. For example, in our target automotive vertical market, QAD has customer relationships with some of the largest automotive Tier 1 suppliers. Tier 1 suppliers are those who supply components to the automotive OEM's (Original Equipment Manufacturers). Our focus on meeting the needs of this market, and other vertical markets, has driven us to design specific functionality to meet the market needs. We believe that other industries that we target are adopting many of these same requirements which provides us an opportunity to establish leadership positions in all our target vertical markets. As an example of a regional market advantage, we believe that, based on research conducted by AMR Research in October 2003 entitled "Choosing an Approach to ERP for Operations in China," QAD has a strong market position in China. We believe our position in China can be leveraged to meet the needs of other expanding manufacturing regions in the world such as Eastern Europe and South America with similar requirements such as the management of outsourced manufacturing relationships, low cost ERP implementations and quick ERP implementation times.



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Leverage Global Network of Alliances.  Strategic alliances with partners, such as Progress and Atos Origin, expand our sales reach, improve our marketing impact, and strengthen our strategic position in the industries that we serve. We leverage the expertise of distribution, software, services, and technology partners to meet the diverse needs of our customers. We augment our direct sales organization with a global network of more than 40 distributors and sales agents, as well as numerous service organizations that offer consulting and implementation services to expand our reach.

THE VALUE OF QAD SOLUTIONS

        QAD offers companies a framework built on our established enterprise resource planning (ERP) application suite that can be integrated with other Extended Enterprise applications to provide an end-to-end solution for global manufacturers. QAD solutions can interoperate with legacy systems and other leading applications using our open systems architecture. The result is a powerful suite of enterprise applications for manufacturing companies that leverages a company's existing information technology (IT) investment, supports its evolving business model and enables it to quickly adapt to new market opportunities.

        QAD meets the requirements of multi-national manufacturing customers in the industries we serve by providing solutions that deliver:

        Focused Expertise and Functionality for Key Industries.    Our industry expertise and strategy of developing industry-specific solutions can provide our customers with a significant

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competitive advantage. QAD's focus on key industries has enabled us to achieve strong positions in the automotive, consumer products, electronics, food and beverage, industrial and medical industries. In order to stay at the forefront of the industries we serve, QAD partners with our customers through active industry development groups. These groups play an important role in helping drive the next generation of enhancements and offerings.

        Rapid Implementations and Time-to-Benefit.    The industry-specific features and functionality of QAD solutions mean customers in the industries we serve can have feature-rich solutions for significantly less customization cost, and can implement those solutions in significantly less time than other manufacturing ERP solutions so customers are able to achieve rapid time-to-benefit. QAD's low total cost of ownership, rapid implementations and time-to-benefit among its competitors were verified by a study titled "Deriving Value From 21^st Century ERP Applications" published by industry analyst firm META Group in April 2003.

        Global Functionality.    Our reputation for best-in-class manufacturing applications is supported by a proven track record of successful multi-national deployments. Our solutions are available in as many as 26 languages and incorporate global tax management and multi-currency capabilities tailored to local financial practices and requirements in many of our major markets.

        Increased Velocity and Efficiency of the Supply Chain.    QAD's Extended Enterprise solutions streamline business processes and enable diverse and sophisticated interactions between partners, suppliers and customers. By enabling global manufacturers to efficiently manage resources within and beyond the enterprise, QAD solutions can improve communication and customer delivery performance and reduce purchasing and inventory carrying costs.

        Adaptable, High-Performance Computing.    QAD solutions have the flexibility and scalability that multi-national, large and mid-range manufacturing companies need to quickly and successfully adapt to growth, organizational change, technological advances, market shifts and other challenges. QAD solutions have a reputation for delivering performance that can be sustained as company needs and businesses change and adapt.

        Open Integration Architecture.    Our open systems architecture incorporates Open Applications Group Integration Specification (OAGIS) standards and advanced Internet technologies such as Web-Services, Java and XML in order to deliver open, interoperable end-to-end enterprise and supply chain solutions. The ability of our solutions to interoperate with other applications enables our customers to leverage their IT investments more quickly.

        Single Point-of-Contact for Customers, Partners and Suppliers.    QAD's Extended Enterprise solutions provide a single point-of-contact for customer, partner and supplier interactions. By presenting a single point-of-contact for all trading partner interactions, QAD solutions help unify diverse global operations and process orders intelligently from anywhere to anywhere in the world.

        Global Service and Support.    Global Service and Support are an important component of our solutions. We are one of a few select organizations with the capability to implement our solutions across the globe and support those solutions in multiple languages. Our organization is staffed with approximately 525 support and services professionals, and we support our customers' global operations through our network of regional support centers and online support, accessible 24 hours a day, seven days a week, virtually anywhere in the

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world. QAD Global Services utilizes an established implementation methodology and has earned a reputation for on-time implementations and rapid time-to-benefit for our solutions.

QAD SOLUTIONS

        We target our solutions to address the needs of multi-national, large and mid-range manufacturing and distribution companies within the automotive, consumer products, electronics, food and beverage, industrial and medical industries. Our enterprise applications provide functionality at two levels required by global manufacturers—the Enterprise and the Extended Enterprise.

        Previously, QAD classified business-critical functions and processes across three levels within the global manufacturing enterprise—the Enterprise, the Extended Enterprise, and the Manufacturing Community. Based on a shift in the way the market—including both customers and analysts—organizes and describes the business-critical functions and processes of the global manufacturing enterprise, QAD will no longer use "Manufacturing Community" as terminology that describes a separate level of business-critical functions. Instead, we currently group those same capabilities under the Extended Enterprise level, referring to them as the "visibility" layer around the Extended Enterprise.

        Our solutions include:

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QAD MFG/PRO, QAD's core enterprise resource planning (ERP) application suite and primary product offering, for business-critical functions and processes at the Enterprise level. QAD's enterprise application suite offers a Web-enabled ERP foundation for manufacturers that provides functionality that can help increase inventory turns, improve productivity and profitability, while offering a total cost of ownership that has been validated by industry-analyst firm META Group to be one of the lowest in the industry (April 2003, "Deriving Value from 21^st Century ERP Applications").



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QAD Distributed Order Management and QAD MFGx.net, QAD's Extended Enterprise offerings. QAD Distributed Order Management capabilities enable manufacturers to collaborate with customers and suppliers. QAD MFGx.net is a hosted portal where QAD provides access to its visibility functionality, giving global manufacturers insight and visibility across their Extended Enterprise.

        We also provide interoperability solutions to enable seamless interaction among QAD and other Enterprise applications such as financials, human resources, customer relationship management (CRM), and legacy applications.

QAD MFG/PRO: The QAD Enterprise Application

        Our flagship product, QAD MFG/PRO, is a manufacturing solution designed for the demands of today's business environment. QAD MFG/PRO software includes an integrated set of manufacturing, supply chain execution, financial and customer service applications designed to address the needs of customers in our targeted vertical markets.

        Our QAD MFG/PRO solution set consists of a core ERP application and a number of key extensions. The core ERP application includes four primary areas of functionality—manufacturing, supply chain execution, financial and customer service—while the extensions, including QAD's Advanced Inventory Management (AIM) Warehousing module, provide additional business functionality.

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        QAD's industry experience has allowed it to develop QAD MFG/PRO with unique, industry-specific features. Additional industry-specific functionality is developed in conjunction with our customers through our industry development groups. QAD MFG/PRO software supports multiple currencies and global tax management and is tailored to financial practices and requirements in many of our major geographic markets. Because of our open systems approach, QAD MFG/PRO software is able to interoperate with legacy systems and other leading enterprise applications to give companies best-in-class functionality.

        QAD MFG/PRO software supports single or multiple sites, as well as multiple production and operational processes. These capabilities enable manufacturers to manage multiple hybrid production methods within a single organization or production site and provide the flexibility to adapt to additional sites and processes as an organization's business evolves. Accessible through a Web browser, QAD MFG/PRO software includes an easily deployable Java platform interface that minimizes internal system traffic and can provide low-cost system access for end users.

        QAD MFG/PRO was developed on more than advanced manufacturing principles. It is based on real-world requirements and we believe it to be one of the most comprehensive enterprise application suites for global manufacturers available today. The current version of QAD MFG/PRO eB2—is the result of a significant investment by QAD and includes:

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New lean manufacturing functions to help accelerate lead and cycle times for efficient responsiveness to customers;



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Collaboration functions to better coordinate fulfillment and invoicing with trading partners;



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Service/support management enhancements for better contract management;



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Functions to streamline multi-currency financials and profitability analysis; and



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Desktop interface updates for greater ease of use and minimal user training.

        QAD MFG/PRO software helps our manufacturing customers increase inventory turns and improve the productivity of manufacturing enterprise operations.

QAD Distributed Order Management: A QAD Extended Enterprise Solution

        The QAD Distributed Order Management (QAD DOM) suite of applications extends manufacturing planning and execution capabilities beyond the four walls of a manufacturing enterprise by providing open collaboration with customers and suppliers. With QAD DOM applications, global manufacturers can manage the buying and selling of materials across their Extended Enterprise. QAD DOM applications give manufacturers the ability to take an order—unattended, at a single place, using one of many electronic conduits (such as Customer Self-Service or EDI)—and deliver that order intelligently to suppliers inside and outside of the enterprise. QAD DOM applications are designed to enable manufacturers to increase sales, lower costs, open new global markets, personalize trading relationships and improve customer satisfaction by streamlining and automating the order process.

        Previously, QAD developed and marketed its Distributed Order Management applications under the QAD eQ name. Now, the majority of the functionality previously marketed under the QAD eQ name will be referred to as Distributed Order Management. In November 2003, QAD announced general availability of a component application within its Distributed Order Management application suite called QAD Customer Self-Service (CSS). The application technology that serves as the foundation for QAD CSS was purchased during the third quarter of fiscal 2004.

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        Additionally, the component applications within QAD's Distributed Order Management application suite will now be built on the same technology foundation as other QAD products, including the company's flagship ERP solution, QAD MFG/PRO. Previously, the component applications within QAD's Distributed Order Management application suite were built on the IBM WebSphere platform. In order to capitalize on efficiencies and ensure tight integration and interoperability across all QAD solutions, the company has shifted the underlying technology of its Distributed Order Management application suite to the integrated development platform provided by Progress Software Corporation.

MFGx.net: Visibility Across the Extended Enterprise

        QAD has developed a portal, MFGx.net, through which it delivers global manufacturers visibility across their Extended Enterprise. MFGx.net currently offers this visibility through QAD Supply Visualization, a service that provides real-time inventory visibility to authorized suppliers via the Internet, and QAD Kanban Visualization, a service that provides real-time inventory visibility for manufacturing operations that utilizes kanban production methods whereby inventory is managed in standard containers or lot sizes. "Kanban" is a Japanese term that translates to "card" and refers to the mechanism that communicates inventory consumption or demand.

QAD GLOBAL SERVICES AND SUPPORT

        QAD offers services and support capabilities that are global in scope. And we are one of a few select organizations with the capability to implement our solutions across the globe and support those solutions in multiple languages and currencies. Our organization is staffed with project managers, business consultants, application and technical experts, software engineers and support consultants who focus on bringing world-class, value-added services to our customers.

        In November 2002, QAD added significantly to its service and support capabilities by acquiring TRW Integrated Supply Chain Solutions (TRW ISCS). The acquisition added four new countries to QAD's direct presence in the Europe, Middle East and Africa (EMEA) region, bringing QAD's total direct presence in the EMEA region to 13 countries.

        Our Global Services organization offers the following services to our customers:

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Strategic Consulting.  QAD consultants can assist customers in analyzing the effectiveness of their current QAD implementations, such as through use of our Q-Scan methodology, to outline areas of potential improvement and help a customer maximize their investment.



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Business Solution Design and Implementation.  The QAD consulting team helps customers plan, design, implement, integrate and support our applications in a structured manner focusing on business drivers and client return on investment. Q-Advantage, our implementation framework that facilitates the project planning and design phase, rapid implementation, consistency in delivery and maximization of enterprise resources.



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Technical Services.  Our technical services team addresses critical areas in the life cycle of our customers' product implementation such as performing a pre-installation audit that helps ensure a correct solution fit, rapid installation services and post implementation services that offer the opportunity to continue to improve both technical and operational effectiveness.



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Support Services.  Our customer support organization operates attended and automated support systems around the world, including a global call tracking and escalation system based on our MFG/PRO Service/Support Management module. In addition, our solution-centered support provides customers with online access to customer service solutions 24 hours a day, seven days a week. Our Support Services offerings generate maintenance

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revenue from our installed base averaging approximately 50% of QAD's total annual revenue over the past three fiscal years.

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Learning Services. We offer comprehensive education and training services to our customers and service providers. We are working to enhance our computer-based training curriculum. We have also begun to offer Q-Flow, a training methodology designed to facilitate rapid and in-depth knowledge transfer to the customers through visual, process-flow oriented workshops addressing the client's specific requirements.

        To broaden our service and support offerings, we have entered into partnerships with Atos Origin and other select organizations. These strategic partners are closely aligned to our organization and participate in the selling process.

QAD PRODUCT ALLIANCES

        We have a number of ongoing business alliances that extend the functionality of our software through the addition of integrated best-in-class applications. We have also entered into select joint development agreements with third-party software developers who provide functionality that has been embedded into or integrated with QAD software to deliver more complete solutions for the vertical markets we target. Our alliances include Progress Software Corporation, IBM, Hewlett-Packard and others.

TECHNOLOGY

QAD MFG/PRO eB2 Technology

        MFG/PRO was first introduced in 1986. We have subsequently released a number of product versions and enhancements. Our most recent version, MFG/PRO eB2, has been developed with a commercially available toolset marketed by Progress Software Corporation (Progress) that works with relational databases provided by Progress and Oracle Corporation. MFG/PRO eB2 software operates under UNIX, Linux and Windows NT operating systems and takes advantage of advances in Progress software that open up this fourth-generation language to access by Sun Microsystems' Java language. MFG/PRO eB2 also features an HTML user interface called QAD Desktop2. Using Java technology, we have exposed the functionality of MFG/PRO software for direct access by other business applications. This technology allows documents defined in XML (Extensible Markup Language) to be exchanged between MFG/PRO and other business applications without user involvement, thus automating the interaction between MFG/PRO and other applications, including but not limited to those provided by QAD.

QAD Distributed Order Management (DOM) Technology

        New advances within Progress Software Corporation's fourth-generation language (4GL) and application server, amongst other things, caused us to reevaluate our selection of software elements for the product previously known as QAD eQ. Through the Progress 4GL's increased openness and accessibility through industry standard Web services, many of the complex business operations performed within QAD MFG/PRO became accessible as software components. Instead of rewriting these operations in Java in a separate QAD eQ product, we are now able to access these operations using MFG/PRO software through Progress-based Web services, which we now refer to as Distributed Order Management (DOM). This approach to DOM functionality creates efficiencies that we will be able to capitalize upon now and in the future and we believe it is more cost effective for our customers.

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MFGx.net

        Our current MFGx.net offerings, QAD Supply Visualization and QAD Kanban Visualization, are thin-client products accessible over the Internet, requiring only a standard Web browser for customers and suppliers to share inventory and order information. Components of QAD Supply Visualization and QAD Kanban Visualization are built using Java, JSPs, DHTML, HTML and Java Servlets on the server side. Data is transported in XML format using standard HTTP protocol. The offering is hosted on the Linux operating system. These technologies allow us to leverage our legacy enterprise products while using the most advanced tools to provide our customers with supply chain visibility.

RESEARCH AND DEVELOPMENT

        Our principal research and development staff is focused on developing new functionality for the industries we serve and on continuing updates and improvements to QAD applications to better serve the needs of our customers.

        We maintain two separate technology development efforts within our research and development organization—one for our core Enterprise products and one for our Extended Enterprise products.

        In addition, we have embarked on an opportunistic strategy of acquiring certain niche products to extend and enhance our product offering. These acquisitions involve third-party products, or software developed by a customer, that were already in use with our software but only on a limited basis geographically. We believe that our ability to enhance and globalize these products and distribute, service and support them internationally offers us a unique opportunity.

        We are committed to the continuing development of our products through in-house and third-party development. As of January 31, 2004, approximately 265 research and development personnel, comprised of 225 internal personnel and an additional 40 outside consultants, were involved in the development of QAD solutions. We continue to utilize high quality, cost-effective development resources around the world, wherever possible, and have significant development operations in India, Ireland, and Australia, in addition to our primary development facilities in the United States. Our research and development expenses totaled $36.2 million, $33.4 million and $31.7 million in fiscal 2004, 2003 and 2002, respectively.

SALES AND MARKETING

        QAD sells and supports its products and services through direct and indirect sales channels and service organizations located throughout the world.

        Our direct sales organization is composed of approximately 80 commissioned sales people. We continually align our sales organization in order to ensure that we sustain our effectiveness in the sales process. Within each territory, a focus on the industries we serve is maintained through marketing, local product development and sales training.

        Our indirect sales channel consists of over 40 distributors and sales agents worldwide. We do not grant exclusive rights to any of our distributors or sales agents. Our distributors and sales agents primarily sell independently to companies within their geographic territory, but may also work in conjunction with our direct sales organization. In addition, we leverage our relationships with implementation service providers, hardware vendors and other third parties to identify sales opportunities on a global basis.

        Our marketing strategy includes developing demand for our products by consistently communicating with QAD vertical prospects and key audiences to increase awareness and mind

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share. QAD undertakes a variety of marketing activities such as analyst relations, press relations, investor relations, events, advertising, the development of sales tools, and the continued improvement of our Web site. The global marketing organization plans and coordinates focused campaigns as set forth in our strategic plan. The team utilizes marketing automation tools to support our field sales organization and our direct marketing efforts.

COMPETITION

        The enterprise software applications market is highly competitive, rapidly changing and affected by new product introductions and other market activities, including consolidations among industry participants and the entry of new participants.

        In viewing the competition, QAD separates its competition into four groups: mega-suite vendors, roll-up vendors, regional vendors and point solution vendors.

        Mega-suite vendors, such as Oracle, PeopleSoft, Microsoft, and SAP have a strategy of serving many non-manufacturing industries in addition to the manufacturing space. These vendors have a strategy that includes pursuing mid-market ($250 million to $1 billion in revenues) manufacturing companies—an area that has been traditionally strong for QAD. In 2003, PeopleSoft acquired JD Edwards to further strengthen its manufacturing capabilities. While this acquisition received significant attention from the press and analysts, QAD has not experienced any increased competition from PeopleSoft or JD Edwards.

        A "Roll-up" vendor is a term used by QAD to define vendors that have acquired multiple ERP companies with similar products. Gartner Research refers to these vendors as "collectors" in their December 2003 report, "Management Update: The ERP Market and Vendors in 2004." Our roll-up vendor competition comes from technology companies who focus on growing revenue through the acquisition of legacy or point solutions. Companies such as Agilsys, SSA, Epicor, GEAC, and Mapics are some of the roll-up vendors currently serving the specific needs of manufacturing plants and distribution sites of multi-national manufacturing companies.

        Regional vendors are those companies that we may compete with in specific countries. This category includes such vendors as IFS and Intentia where we see competition most often in Europe and Australia, respectively.

        Point solution vendors provide a narrow set of functionality often specialized in an area that overlaps with the functionality in QAD solutions. Vendors in this category include Agile, Alta, Factory Logic, i2, Manugistics, MatrixOne, Supply Solutions and Yantra.

        QAD's manufacturing industry-focused ERP solutions are designed for the specific needs of manufacturing enterprises in the industries we serve to handle their internal and select external business processes. We believe this focus has helped us deliver software applications and services that are more fully integrated than point solutions or roll-ups, and yield faster implementations, a lower total cost of ownership and a higher return on investment than mega-suite solutions. We also believe that regional vendors lack the global capabilities or financial viability that global manufacturers expect of their ERP vendors.

        As the market for enterprise software continues to develop, companies with significantly greater resources could attempt to increase their presence in these markets by acquiring or forming strategic alliances with our competitors or with our current or potential partners. The dynamic nature of the emerging market space leads us to believe that numerous smaller, but well-capitalized vendors may emerge as strong competitors.

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        Increased competition in these markets is likely to result in price reductions, reduced operating margins and changes in market share, any one of which could adversely affect us. Many of our present or future competitors may have significantly greater financial, technical, marketing and other resources, greater name recognition and a larger installed base of customers than we do. As a result, they may be able to devote greater resources to the development, promotion and sale of their products. Although we believe we offer, and will continue to offer, products that are competitive, we can make no assurance that we will be able to compete successfully with existing or new competitors or that competition will not adversely affect us.

PROPRIETARY RIGHTS AND LICENSING

        Our success is dependent upon our proprietary technology and other intellectual property.    We rely primarily on a combination of the protections provided by applicable copyright, trademark and trade secret laws, as well as on confidentiality procedures and licensing arrangements, to establish and protect our rights in our software and related materials and information. We enter into license agreements with each of our customers. Each of these license agreements provides for the non-exclusive license of QAD software. These licenses generally are perpetual and contain strict confidentiality and non-disclosure provisions, a limited warranty covering the QAD software and indemnification for the customer from infringement actions related to the QAD software.

        The pricing policy under each license is based on a standard price list and may vary based on a number of parameters including the number of end-users, number of sites, number of modules, number of languages, the country in which the license is granted and level of ongoing support, training and services to be provided by QAD.

        In fiscal 2005, QAD will begin implementing a new Business Process Cycle (BPC) pricing and licensing model for some of its solutions. Currently, QAD applications are priced and licensed primarily on a per user basis. These traditional user based metrics were developed in the mainframe era and we believe that over time these metrics will no longer be appropriate for multi-layered solutions, automated processes and computer-to-computer communications. With BPC pricing, QAD products will be licensed based upon a combination of the number of users and the extent to which a QAD customer leverages QAD's software to automate, manage, streamline and optimize its key business processes. This pricing model defines six core business process cycles and measures the number of records involved in a given business process cycle to determine price. The cycles are as follows: Sales (Quote to Cash), Manufacturing (Plan and Execute), Purchasing (Requisition to Payment), Supply Chain (Plan and Fulfill), Service and Support and Fixed Assets. There are no assurances that such a licensing model will be accepted in the marketplace or will yield revenue comparable to the current licensing method.

        To facilitate our customers' ability to customize MFG/PRO, we generally license our MFG/PRO software to end-users in both object code (machine-readable) and source code (human-readable) formats. While this practice facilitates customization, making software available in source code also makes it easier for third-parties to copy or modify our software for impermissible purposes. Distributors or other persons may independently develop a modified version of our software. Our license agreements generally allow the use of our software solely by the customer for internal purposes without the right to sublicense or transfer the software to third-parties. Although we currently have no patents, we have two pending patent applications.

        We believe that the measures we take to protect our proprietary technology and other intellectual property afford only limited protection. Despite our efforts, it may be possible for third-parties to copy portions of our products, to reverse engineer or to obtain and use information that we regard as proprietary. In addition, the laws of certain countries do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, there can

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be no assurance that we will be able to protect our proprietary software against unauthorized copying or use, which could adversely affect our competitive position. Furthermore, there can be no assurance that our competitors will not independently develop technology similar to ours.

        We may be faced with or need to bring infringement claims to protect our rights.    We have been in the past, and may be in the future, subject to claims of intellectual property infringement and may increasingly be subject to these types of claims as the number of products and competitors in our targeted vertical markets grows and the functionality of products in other industry segments overlaps. Although we do not believe that any of our products infringe upon the proprietary rights of third-parties, there can be no assurance that third-parties will not claim infringement by us with respect to current or future products. In addition, we periodically acquire intellectual property from third-parties. In some instances, this intellectual property is prepared on a work-for-hire or similar basis, and in other instances, we license the intellectual property. We have been in the past, and expect to be in the future, party to disputes about ownership, license scope and royalty or fee terms with respect to intellectual property. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements, any of which could have an adverse effect upon us. We may also initiate claims or litigation against third-parties for infringement of our proprietary rights or to establish the validity of our proprietary rights, which could result in significant expense to us and divert the efforts of our technical and management personnel from productive tasks, whether or not such litigation were determined in our favor.

        Our intellectual property rights may be significantly affected by third-party relationships and actions.    We have in the past, and may in the future, resell certain software which we license from third-parties. In addition, we have in the past, and may in the future, jointly develop software in which we will have co-ownership or cross-licensing rights. There can be no assurance that these third-party software arrangements and licenses will continue to be available to us on terms that provide us with the third-party software we require, provide adequate functionality in our products on terms that adequately protect QAD's proprietary rights, or are commercially favorable to us. The loss of or inability to maintain or obtain any of these software licenses, including a loss as a result of a third-party infringement claim, could result in delays or reductions in product shipments until equivalent software, if any, could be identified, licensed or developed and integrated.

        We may be exposed to product liability claims.    While our license agreements with our customers typically contain provisions designed to limit our exposure to potential material product liability claims, it is possible that the limitation of liability provisions may not be effective under the laws of some jurisdictions. Although we have not experienced any product liability claims to date, we may be subject to claims in the future. We have an errors and omissions insurance policy. However, this insurance may not continue to be available to us on commercially reasonable terms, or at all. A successful product liability or errors or omissions claim brought against us could have an adverse effect on us. Moreover, defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of key management personnel, either of which could have an adverse effect on us.

EMPLOYEES

        As of January 31, 2004, we had approximately 1,275 full-time employees of which approximately 525 were in support and services, 225 were in research and development, 300 were in sales and marketing and 225 were in administration. Generally, our employees are not represented by collective bargaining agreements. However, certain employees of our Netherlands and France based subsidiaries are represented by statutory Works Councils as required under the

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local laws. Employees of our Brazil based subsidiary are represented by a collective bargaining agreement with the Data Processing Union. We believe that, in general, our employee relations are good.

BUSINESS SUMMARY

        We believe that QAD is well positioned to continue its success and leadership as a provider of enterprise applications to multi-national, large and mid-range global manufacturing companies. We regard the combination of our applications for Enterprise and Extended Enterprise processes—QAD MFG/PRO, QAD Distributed Order Management, and our QAD MFGx.net offerings, as well as our extensive global support and implementation capabilities—as a uniquely positioned end-to-end solution that provides manufacturers with significant competitive advantages, synchronized processes across the enterprise, increased supply chain efficiency, and the ability to increase profitability.

        We believe our current and future success in the enterprise software applications market can and will be attributed to the following:

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Our solutions can help manufacturers realize new efficiencies and achieve significant performance improvements in many areas of the manufacturing enterprise.



•

Our industry-specific solutions provide our customers with significant competitive advantage and impressive return on investment (ROI).



•

Our solutions implement quickly and have a low total cost of ownership compared to other solutions.



•

Our solutions, service, and support are global in nature and our products are available in as many as 26 languages, incorporating global tax management, multi-currency capabilities and business processes tailored to local financial practices.



•

Our solutions' open architecture allows customers to integrate with other ERP or legacy systems, protecting and extending their existing IT investments.



•

Our continued focus on global manufacturing and six key vertical industries has enabled us to deliver enterprise applications that are targeted at addressing the specific requirements of manufacturers, without extraneous functionality, resulting in systems that are faster to implement, and easier to maintain.



•

We have a passion for manufacturing excellence and for helping our customers achieve competitive advantages.

        QAD's existing customer base of approximately 5,200 licensed sites, our global service and support operations, our internal and extended sales operations, our marketing organization and our strategic partnerships with select partners provide significant resources with which to build our position in the marketplace.

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EXECUTIVE OFFICERS OF THE REGISTRANT

        Set forth below is certain information concerning our executive officers. All ages are as of March 31, 2004.

        Pamela M. Lopker founded QAD in 1979 and has been Chairman of the Board and President since the Company's incorporation in 1981. Prior to founding QAD, Ms. Lopker served as Senior Systems Analyst for Comtek Research from 1977 to 1979. She is certified in Production and Inventory Management by the American Production and Inventory Control Society. Ms. Lopker earned a Bachelor of Arts degree in Mathematics from the University of California, Santa Barbara. She is married to Karl F. Lopker, Chief Executive Officer of QAD.

        Karl F. Lopker has served as Chief Executive Officer and a Director of the Company since joining QAD in 1981. Previously, he founded Deckers Outdoor Corporation in 1973 and was President until 1981. Mr. Lopker is certified in Production and Inventory Management by the American Production and Inventory Control Society. He studied Electrical Engineering and Computer Science at the University of California, Santa Barbara. Mr. Lopker is married to Pamela M. Lopker, Chairman of the Board and President of QAD.

        Daniel Lender has served as Executive Vice President and Chief Financial Officer since July 2003. Previously, he had served as the Company's Vice President of Global Sales Operations and Vice President of Latin America. Mr. Lender joined QAD in 1998 as Treasurer following a nine year tenure with the former Republic National Bank of New York, last serving as Vice President and Treasurer of the Bank's Delaware subsidiary. He earned a Master of Business Administration degree from the Wharton School of the University of Pennsylvania and a Bachelor of Science degree in Applied Economics and Business Management from Cornell University.

        Vincent P. Niedzielski has served as Executive Vice President, Research and Development, since joining QAD in April 1996. Prior to joining QAD, Mr. Niedzielski served as Vice President, Production and Development at Candle Corporation for 12 years. Mr. Niedzielski received a Bachelor of Science degree in Mathematics and Computer Science from the University of Scranton.

        Murray W. Ray has served as Executive Vice President, Global Services and Human Resources since February 2001. He joined QAD in August 1996 and was appointed Vice President of Global Services in October 1998. Prior to joining QAD, Mr. Ray served 11 years at the former Digital Equipment Corp. as an Industrial Marketing Manager and then as a Director of Professional Services. Previously he was a Director of Professional Services at AT&T. Mr. Ray received a

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Bachelor of Science degree in Mathematics and Statistics from the University of Western Australia.

        Roland B. Desilets has served as Executive Vice President, General Counsel and Secretary since April 2001, when he rejoined QAD after spending one year as Vice President and General Counsel of Atlas Commerce, Inc. Mr. Desilets originally joined QAD in 1993 serving as Regional General Counsel until 1998 when he was named Corporate General Counsel. Previously he was Intellectual Property Counsel for Unisys Corporation. Mr. Desilets holds a Juris Doctor degree from Widener University School of Law, a Master of Science degree in Computer Science from Villanova University, and a Bachelor of Science degree in Physics from Ursinus College.

        Michael Lodato has served as Executive Vice President, Chief Marketing Officer at QAD since September 2003. He joined the company in March 2002 as Chief Marketing Officer. Previously, Mr. Lodato was Vice President of Marketing and Market Development at DigitalThink, Inc. Prior to that, he served Siebel Systems, Inc. as Senior Director of Strategic Accounts and held leadership positions at Sybase, Inc. and KPMG Consulting, Inc. (now known as BearingPoint). Mr. Lodato earned a Bachelor of Arts degree in Management Science from the University of California, San Diego.

        Valerie J. Miller has served as Vice President, Corporate Controller and Chief Accounting Officer since June 2001. She joined QAD as Assistant Corporate Controller in May 1999 after serving eight years in various financial positions at Allergan, Inc. Ms. Miller began her career at the public accounting firm of Ernst & Young. She is a Certified Public Accountant and received a Bachelor of Arts degree in Business Economics with an Accounting emphasis from the University of California, Santa Barbara.

SEGMENT REPORTING

        Segment financial information for fiscal 2004, 2003 and 2002 is presented in note 11 within the Notes to Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

        Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments filed pursuant to Section 13(a) or 15(d) of the Securities and Exchange Commission Act of 1934, as amended, are available on our website at www.qad.com, as soon as reasonably practicable after such reports have been electronically filed or furnished to the Securities and Exchange Commission.

ITEM 2. PROPERTIES

        QAD is headquartered in Carpinteria, California, including approximately 71,000 square feet of leased space in three facilities with lease commitments ranging from 2004 to 2011. During fiscal 2005, QAD anticipates completion of the construction of its new company headquarters in Summerland, California where the Company owns 28 acres of property. The construction project adds an additional 83,000 square feet of office space to the previously existing 45,000 square feet, which will allow the consolidation of QAD's corporate operations.

        In connection with the completion of the construction project, two of the existing Carpinteria leased facilities will be vacated by QAD by August 2004, coinciding with the expiration of one of the leases. The other extends until April 2005. Our third existing facility in Carpinteria primarily serves as a data center with its lease expiring in 2011. Currently, under existing local real estate market conditions, QAD has no intention of vacating this leased space.

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        The company has over 30 additional offices located across our four geographic regions with lease commitments ranging from 2004 until 2019. This includes major offices located in the United States, the Netherlands, Australia, the United Kingdom, Mexico, Poland, Thailand, China, Spain, France and Japan.

        In March 2003, QAD completed the sale of the Mark Hill property, a 34-acre undeveloped parcel of property located in Carpinteria, California.

        Although we may seek new or expanded facilities in the future, we expect that our current domestic and international facilities will be sufficient to meet our needs for at least the next 12 months.

ITEM 3. LEGAL PROCEEDINGS

        We are not party to any material legal proceedings. We are from time to time party, either as plaintiff or defendant, to various legal proceedings and claims which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial position or results of operations.

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

        None.

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PART II

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

        QAD common stock has been traded on the NASDAQ National Market (NASDAQ) since our initial public offering in August 1997 (under the symbol QADI). According to records of our transfer agent, we had approximately 350 stockholders of record as of March 31, 2004. The following table sets forth the low and high prices for QAD's common stock as reported by NASDAQ in each quarter of the last two fiscal years.

        During the fiscal 2004 first quarter, QAD purchased approximately 2.9 million shares of its common stock at a price of $5.00 per share in connection with its "Modified Dutch Auction" tender offer. For further discussion of the tender offer, see note 13 within Notes to Consolidated Financial Statements included in Item 15 of this Annual Report on Form 10-K.

        Our policy has been to reinvest earnings to fund future growth. Accordingly, we have not paid dividends and while we do not anticipate declaring dividends on our common stock in the foreseeable future we continue to review this policy.

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ITEM 6. SELECTED FINANCIAL DATA