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<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>UNITED STATES </B>&nbsp;</P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>SECURITIES AND EXCHANGE COMMISSION </B>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Washington, DC 20549 </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P> <P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>FORM
8-K </B>&nbsp;</P>

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<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Current Report </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 12pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Pursuant to Section&nbsp;13 or 15(d)
of The Securities Exchange Act of 1934 </B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Date of report (Date of earliest event
reported):&nbsp;January 6, 2015</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P> <P STYLE="font: 24pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>QAD
Inc.</B></P>

<P STYLE="font: 24pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>(Exact
Name of Registrant as Specified in Charter)</B></FONT><B><FONT STYLE="font-size: 8"> </FONT></B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</P>



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    <TD STYLE="vertical-align: top; text-align: center; width: 32%"><FONT STYLE="font-size: 10pt"><B>Delaware</B></FONT></TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center; width: 32%"><FONT STYLE="font-size: 10pt"><B>0-22823</B></FONT></TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center; width: 32%"><FONT STYLE="font-size: 10pt"><B>77-0105228</B></FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(State or Other Jurisdiction</B><BR>
<B>of Incorporation)</B></P></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt"><B>Commission File Number</B></FONT></TD>
    <TD STYLE="vertical-align: bottom"></TD>
    <TD STYLE="vertical-align: top">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(IRS Employer</B>&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Identification No.)</B></P></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;&nbsp;</P>

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    <TD STYLE="width: 49%">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; width: 2%">&nbsp;</TD>
    <TD STYLE="width: 49%">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt"><B>100 Innovation Place, Santa Barbara, CA</B></FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt"><B>93108</B></FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt"><B>(Address of Principal Executive Offices)</B></FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: top; text-align: center"><FONT STYLE="font-size: 10pt"><B>(Zip Code)</B></FONT></TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Registrant&#8217;s telephone number,
including area code:&nbsp;(805) 566-6000</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (<I>see</I> General Instruction
A.2. below):</P>

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    <TD STYLE="width: 4%"><FONT STYLE="font: 10pt Wingdings">&uml;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) </FONT></TD></TR>
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    <TD STYLE="width: 4%"><FONT STYLE="font: 10pt Wingdings">&uml;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) </FONT></TD></TR>
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    <TD STYLE="width: 4%"><FONT STYLE="font: 10pt Wingdings">&uml;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) </FONT></TD></TR>
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    <TD STYLE="width: 4%"><FONT STYLE="font: 10pt Wingdings">&uml;</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) </FONT></TD></TR>
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    <TD STYLE="width: 12%"><FONT STYLE="font-size: 10pt"><B>Item 8.01</B></FONT></TD>
    <TD STYLE="width: 88%"><FONT STYLE="font-size: 10pt"><B>Other Events </B></FONT></TD></TR>
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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">QAD Inc. (the &#8220;Company&#8221;) is
filing this Form 8-K to update its &#8220;Risk Factors&#8221; relating to the Company and its business. The following risk factors
shall be deemed to be filed pursuant to the Securities Exchange Act of 1934, as amended.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="margin: 0pt">&nbsp;</P>


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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>RISK FACTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our cloud service offerings </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Defects and disruptions in our services could diminish demand
for our service and subject us to liability.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our cloud service offerings are complex and
incorporate a variety of hardware and proprietary and third-party software, and may have errors or defects that could result in
unanticipated downtime for our customers and harm to our reputation and our business. We have from time to time found defects in
our services and new defects may be discovered in the future, especially in connection with the integration of new technologies
and the introduction of new services. As a result, we could lose future sales and existing customers could elect to not renew or
make warranty or other claims against us and potentially expose us to the expense and risk of litigation.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Our revenue and profitability will be
adversely affected if we do not properly manage our cloud service offerings</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The pricing and other terms of some of our
cloud agreements require us to make estimates and assumptions at the time we enter into these contracts that could differ from
actual results. Early termination, increased costs or unanticipated delays could have a material adverse effect on our profit margin
and generate negative cash flow. Further, if we experience delays in implementing new cloud customers (whether due to product defects,
system complexities or other factors) then customers may delay the deployment of additional users and sites, which could adversely
affect our revenue growth. If we fail to meet our system availability commitments or other customer obligations then we may be
required to give credits or refund fees, and we may be subject to litigation and loss of customer business. For example, if we
were to miss our system availability commitments then we are obligated under our customer contracts to issue one day&rsquo;s credit
against future fees for each hour of system unavailability. We expend significant resources to improve the reliability and security
of our cloud offerings and the cost of these investments could reduce our operating margins.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We rely on third-party hosting and other service providers.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We currently serve our customers from third-party
data center hosting facilities located in the United States and other countries. We do not control the operation of any of these
facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures
and similar events. They may also be subject to breaches of computer hardware and software security, break-ins, sabotage, intentional
acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or
an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities
could result in lengthy interruptions in our service. Even with our disaster recovery precautions, our services could be interrupted.
Any loss or interruption of these services could significantly increase our expenses and/or result in errors or a failure of our
services which could adversely affect our business. In addition, these vendor services may not continue to be available at reasonable
prices or on commercially reasonable terms, or at all.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We may be exposed to liability and loss from security breaches.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our cloud services involve the storage and
transmission of customers&rsquo; proprietary information, and security breaches could expose us to a risk of loss of this information,
litigation and possible liability. These security measures may be breached in numerous ways, including remote or on-site break-ins
by computer hackers or</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt">employee error during transfer of data to
additional data centers or at any time, and result in unauthorized access to our own and our customers&rsquo; data, intellectual
property and other confidential business information. Additionally, third parties may attempt to induce employees or customers
into disclosing sensitive information such as user names, passwords or other information in order to gain access to our own and
our customers&rsquo; data, intellectual property and other confidential business information. Because the techniques used to obtain
unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target,
we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result
in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and
adversely impact our future sales which could have a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Our solutions could be used to collect
and store personal information of our customers&rsquo; employees or customers, and therefore privacy concerns could result in additional
cost and liability to us or inhibit sales of our solutions.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Personal privacy has become a significant
issue in the United States and in many other countries where we offer our solutions. The regulatory framework for privacy issues
worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government
bodies and agencies have adopted, or are considering adopting, laws and regulations regarding the collection, use, disclosure and
retention of personal information. In the United States, these include, for example, rules and regulations promulgated under the
authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Gramm-Leach-Bliley
Act, or GLB, and state breach notification laws. Internationally, virtually every jurisdiction in which we operate has established
its own data security and privacy legal framework with which we or our customers must comply, including the Data Protection Directive
established in the European Union and the Federal Data Protection Act passed in Germany.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">In addition to laws and regulations, privacy
advocacy and industry groups or other private parties may propose new and different privacy standards that either legally or contractually
apply to us. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain,
it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our existing
data management practices or the features of our solutions. If so, in addition to the possibility of fines, lawsuits and other
claims, we could be required to fundamentally change our business activities and practices or modify our solutions, which could
have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with
applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability to
us, damage our reputation, inhibit sales of subscriptions and harm our business. Furthermore, the costs of compliance with, and
other burdens imposed by, the laws, regulations, and privacy standards that are applicable to the businesses of our customers may
limit the use and adoption of, and reduce the overall demand for, our solutions. Privacy concerns, whether valid or not valid,
may inhibit market adoption of our solutions particularly in certain industries and foreign countries.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Changes in laws may adversely affect our business</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The laws and regulations applicable to hosted
service providers are unsettled, particularly in the areas of privacy and security. Changes in these laws could affect our ability
to provide services from or to some locations and could increase both the costs and risks associated with providing the services.
Further, our customers are subject to laws and regulations concerning their use of personally identifiable information from their
customers and other contacts. Such laws and regulations may restrict our customers&rsquo; use of personally identifiable information
to a degree that limits demand for our services and thereby harms our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The market for cloud services may not develop as quickly
as we expect.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The market for enterprise cloud computing
application services is not as mature as the market for traditional enterprise software, and it is uncertain whether these services
will achieve and sustain high levels of demand and market acceptance. Our success will depend on the willingness of customers to
increase their use of enterprise cloud computing application services in general, and for ERP applications in particular. Some
enterprises may be unwilling to use enterprise cloud computing application services because they have concerns regarding security
risks, international transfers of data, evolving regulation, government or other third-party access to data, use of outsourced
services providers, and unwillingness to abandon past infrastructure investments. If the market for</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">enterprise cloud computing application services does not evolve
in the way we anticipate or if customers do not recognize the benefits of our cloud solutions over traditional on-premise enterprise
software products, and as a result we are unable to increase sales of subscriptions to our cloud offerings, then our revenues may
not grow or may decline and our operating results would be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our focus on cloud services may result in the loss of other
business opportunities</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We have focused our sales force, management
team and other personnel toward growing our cloud business. This redirection of resources could potentially result in the loss
of sales opportunities in our traditional license, maintenance and services businesses. If our cloud business does not grow in
accordance with our expectations and we are not able to cover the shortfall with other sales opportunities, then our business could
be harmed.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with rapid technological change and complexity
</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The market for our products and services is characterized
by rapid technological change.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Customer requirements for products can change
rapidly as a result of innovation or change within the computer hardware and software industries, the introduction of new products
and technologies and the emergence of, adoption of, or changes to, industry standards. Our future success, including with our cloud
service offerings, will depend upon our ability to continue to enhance our current product line and to develop and introduce new
products and services that keep pace with technological developments, satisfy increasingly sophisticated customer requirements,
keep pace with industry and compliance standards and achieve market acceptance. Our failure to successfully develop or acquire
and market product enhancements or new products could have a material adverse effect on our business. Developing software and cloud
offerings is expensive. We will continue to make significant investments in research and development, and we may not realize significant
new revenue from these investments for several years, if at all.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>New software releases and enhancements may adversely affect
our software sales.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The actual or anticipated introduction of
new products, technologies and industry standards can render existing products obsolete or unmarketable or result in delays in
the purchase of those products. Significant delays in launching new products may also jeopardize our ability to compete. Failure
by us to anticipate or respond to developments in technology or customer requirements, significant delays in the introduction of
new products or failure by us to maintain overall customer satisfaction could have a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Services engagements are increasingly complex and pose additional
risks.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Services engagements may involve increased
technological complexity, customer customization requests and other challenges, including in connection with our cloud environments,
and demand a significant number of specialized technical resources. Our failure to successfully address these issues could have
a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our revenue, expenses and pricing </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Because of significant fluctuations in
our revenue, period-to-period comparisons of our revenue or profit may not be meaningful</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our quarterly and annual operating results
have fluctuated in the past and may do so in the future. Such fluctuations have resulted from the seasonality of our customers&rsquo;
manufacturing businesses and budget cycles and other factors. Moreover, there can be no assurance that our revenue will grow in
future periods or that we will be profitable on a quarterly or annual basis.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>A significant portion of our revenue in
any quarter may be derived from a limited number of large, non-recurring license sales.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We may experience large individual license
sales, which may cause significant variations in license fees being reported on a quarterly basis. We also believe that the purchase
of our products is discretionary and may involve a significant commitment of a customer&rsquo;s capital resources. Therefore, a
downturn in any significant customer&rsquo;s business could have a significant adverse impact on our revenue and profit. Further,
we have historically recognized a substantial portion of our license revenue from sales booked and shipped in the last month of
a quarter and, as a result, the magnitude of quarterly fluctuations in license fees may not become</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt">evident until the end of a particular quarter.
Our revenue from license fees in any quarter is substantially dependent on orders booked and shipped in that quarter. We are unlikely
to be able to generate revenue from alternative sources if we discover a shortfall near the end of a quarter.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our financial forecasts are subject to uncertainty due to
inaccurate sales forecasts</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our revenues, and particularly our new software
license revenue, are difficult to forecast, and, as a result, our financial forecasts are subject to uncertainty. Specifically,
our sales forecasts are based on estimates that our sales personnel make regarding the likelihood of potential sales, including
their expected closing date and fee amounts. If these estimates are inaccurate then our financial forecasts may also be inaccurate.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The margins in our services business may fluctuate</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Services revenue is dependent upon the timing
and size of customer orders to provide the services, as well as upon our related license and subscription sales. In addition, certain
engagements may involve fixed price arrangements and significant staffing which require us to make estimates and assumptions at
the time we enter into these contracts. Variances between these estimates and assumptions and actual results could have an adverse
effect on our profit margin and generate negative cash flow and negative services margins. To the extent that we are not successful
in securing orders from customers to provide services, or to the extent we are not successful in achieving the expected margin
on such services, our results of operations may be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The margins in our cloud service offerings may fluctuate</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our cloud service offerings may involve fixed
price arrangements, fixed and up-front costs and significant staffing which require us to make estimates and assumptions at the
time we enter into these contracts. Variances between these estimates and assumptions and actual results could have an adverse
effect on our profit margin and/or generate negative cash flow. To the extent that we are not successful in securing orders from
customers to provide cloud services, or to the extent we are not successful in achieving the expected margin on such solutions,
our results may be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Because we recognize revenue from cloud
services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating
results.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We generally recognize revenue from customers
ratably over the terms of their subscription agreements. As a result, most of the revenue we report in each quarter is the result
of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any
one quarter may not be reflected in our revenue results for that quarter. Any such decline, however, will negatively affect our
revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our service, and
potential changes in our attrition rate may not be fully reflected in our results of operations until future periods. Our subscription
model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new
customers must be recognized over the applicable subscription term.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>A significant portion of our revenue is
derived from maintenance renewals with our existing installed base of customers</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Significant portions of our maintenance revenues
are generated from our installed base of customers. Maintenance and support agreements with these customers are traditionally renewed
on an annual basis at the customer&rsquo;s discretion, and there is normally no requirement that a customer renew or that a customer
pay new license or service fees to us following the initial purchase. If our existing customers do not renew their maintenance
agreements or fail to purchase new user licenses or product enhancements or additional services at historical levels, our revenues
and results of operations could be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Our maintenance renewal rate is dependent
upon a number of factors such as our ability to continue to develop and maintain our products, our ability to continue to recruit
and retain qualified personnel to assist our customers, and our ability to promote the value of maintenance for our products to
our customers</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Maintenance renewals are also dependent upon
factors beyond our control such as technology changes and their adoption by our customers, budgeting decisions by our customers,
changes in our customers&rsquo; strategy or ownership and plans by our customers to replace our products with competing products.
If our maintenance renewal rate were to decrease, our revenue and results of operations would be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We encounter pressure to make concessions on our pricing
and pricing models</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We are occasionally obliged to offer deep
discounts and other favorable terms in order to match or exceed the product and service offerings of our competitors. If we do
not adapt our pricing models to reflect changes in customer demand, or if customer demand is adversely impacted by our failure
to adapt our pricing models, our revenues could decrease. Further, broad-based changes to our pricing models could adversely affect
our revenues and operating results as our sales force implements, and our customers and accounting practices adjust to, the new
pricing models.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We may have exposure to additional tax liabilities</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">As a multinational organization, we are subject
to income taxes as well as non-income taxes in the United States and in various foreign jurisdictions. Significant judgment is
required in determining our worldwide income tax provision and other tax liabilities. Although we believe that our tax estimates
are reasonable, the final determination of tax audits or tax disputes may differ from what is reflected in our historical income
tax provisions and accruals.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our tax rate could be adversely affected
by several factors, many of which are outside of our control, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in jurisdictional revenue mix; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changing tax laws, regulations and interpretations thereof; </FONT></TD></TR>
</TABLE>

<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in tax rates; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes to the valuation allowance on deferred tax assets; and </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Assessments and any related tax, interest or penalties. </FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">If we are deemed to owe additional taxes, our results of operations
may be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>We report our results based on the amount
of taxes owed in the various tax jurisdictions in which we operate</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Periodically, we may receive notices that
a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported, in which case,
we may engage in discussions or possible dispute resolutions with these tax authorities. If the ultimate determination of our taxes
owed in any of these jurisdictions is for an amount in excess of the tax provision we have recorded or reserved for, our operating
results, cash flows, and financial condition could be adversely affected. We are also subject to non-income taxes, such as payroll,
sales, use, value-added, net worth, property and goods and services taxes, in the United States and in various foreign jurisdictions.
Audits or disputes relating to non-income taxes may result in additional liabilities that could negatively affect our operating
results, cash flows and financial condition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our personnel restructurings may incur significant expense
and be disruptive</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We have in the past restructured our workforce
on a company-wide, business function or geographic basis in connection with strategic changes, cost containment and other purposes.
Such restructurings, and in particular reductions in the workforce, may result in significant severance and other expenses and
may also reduce productivity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Initiatives to upgrade our internal information
technology systems involve risks which could disrupt our operations, increase our costs or harm our business</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We rely on our internal information technology
systems for development, marketing, support, sales, accounting and financial reporting and other operations. We regularly implement
business process improvements to optimize the performance of these systems. Such improvements require significant capital investments
and personnel resources. Difficulties in implementation could disrupt our operations, increase our costs or otherwise harm our
business. In particular, we are in the process of implementing upgrades to our internal information technology systems supporting
financial operations, which we expect will have a pervasive impact on our business processes and information systems across a significant
portion of our operations. As a result, we may experience significant changes in our operational processes and internal controls
as our implementation progresses. If we are unable to successfully implement these upgrades, including harmonizing our systems,</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">processes and data, our ability to conduct routine business
functions could be negatively impacted and significant disruptions to our business could occur. In addition, such difficulties
could cause us to incur material unanticipated expenses, including additional costs of implementation or costs of conducting business,
or result in errors and delays in invoicing customers, collecting cash, paying vendors and financial reporting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our sales cycle </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Our products involve a long sales cycle
and the timing of sales is difficult to predict. Because the licensing of our primary products generally involves a significant
commitment of capital or a long-term commitment by our customers, the sales cycle associated with a customer&rsquo;s purchase of
our products is generally lengthy</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">This cycle varies from customer to customer
and is subject to a number of significant risks over which we have little or no control. The evaluation process that our customers
follow generally involves many of their personnel and requires complex demonstrations and presentations to satisfy their needs.
Significant effort is required by us to support this approach, whether we are ultimately successful or not. If sales forecasted
for a particular quarter are not realized in that quarter, then we are unlikely to be able to generate revenue from alternative
sources in time to compensate for the shortfall. As a result, a lost or delayed sale could have a material adverse effect on our
quarterly and annual operating results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our solutions</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We may experience defects in our software products and services</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Software products frequently contain defects,
including security flaws, especially when first introduced or when new versions are released. The detection and correction of errors
and security flaws can be time consuming and costly. Defects in our software products, or in the software of third parties, could
affect the ability of our products to work with other hardware or software products. Our software product errors could delay the
development or release of new products or new versions of products and could adversely affect market acceptance of our products.
Errors and security flaws may also adversely affect our ability to conduct our cloud operations. Such defects, together with third-party
products, software customizations and other factors outside our control, may also impair our ability to complete services implementations
on time and within budget. Customers who rely on our software products and services for applications that are critical to their
businesses may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally.
Software product errors and security flaws in our products or services could expose us to product liability, performance and warranty
claims as well as harm our reputation, which could adversely impact our future sales of products and services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Dependence on third-party suppliers </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We are dependent on Progress Software Corporation</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The majority of QAD Enterprise Applications
are written in a programming language that is proprietary to Progress Software Corporation, or &ldquo;Progress.&rdquo; These QAD
Enterprise Applications do not run within programming environments other than Progress and therefore our customers must acquire
rights to Progress software in order to use these QAD Enterprise Applications. We have an agreement with Progress under which Progress
licenses us to distribute and use Progress software related to our products. This agreement remains in effect unless terminated
either by a written three-year advance notice or due to a material breach that is not remedied. If Progress were to provide notice
that it was terminating its agreement with us, this could have a material adverse effect on our business and prospects.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our success is dependent upon our continuing relationship
with Progress</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our success is also dependent upon Progress
continuing to develop, support and enhance its programming language, its toolset and its database, as well as the continued market
acceptance of Progress products. A change in Progress&rsquo; control, management or direction may adversely impact our relationship
with Progress and our ability to rely on Progress products in our business. We have in the past, and may in the future, experience
product release delays because of delays in the release of Progress products or product enhancements. Any of these delays could
have a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We are dependent on other third-party suppliers</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We resell certain software which we license
from third parties other than Progress. 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 our proprietary rights or are commercially favorable to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Certain QAD Enterprise Applications are developed
using embedded programming tools from Microsoft and Sun Microsystems (owned by our competitor Oracle) for the Microsoft .NET framework
and Java Programming environments, respectively. We rely on these environments&rsquo; continued compatibility with customers&rsquo;
desktop and server operating systems. In the event that this compatibility is limited, some of our customers may not be able to
easily upgrade their QAD software. If the present method of licensing the .NET framework as part of Microsoft&rsquo;s Desktop Operating
systems is changed and a separate price were applied to the .NET framework, our expenses could increase substantially. Similarly,
if Oracle decided to charge fees or otherwise change the historical licensing terms for Java technology, our expenses could increase
substantially. For both of the .Net and Java elements, we rely on market acceptance and maintenance of these environments and we
may be adversely affected if these were withdrawn or superseded in the market.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our partner agreements, including development,
product acquisition and reseller agreements, contain confidentiality, indemnity and non-disclosure provisions for the third party
and end user. Failure to establish or maintain successful relationships with these third parties or failure of these parties to
develop and support their software, provide appropriate services and fulfill confidentiality, indemnity and non-disclosure obligations
could have an adverse effect on us. 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. Failure to prevail in any such dispute could have
a material adverse effect on our business.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our proprietary rights and customer
contracts</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our intellectual property may be at risk as a result of a
variety of different factors</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We rely on a combination of protections provided
by applicable copyright, trademark, patent 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 licensing agreements with
each of our customers and these agreements provide for the non-exclusive use of QAD Enterprise Applications. Our license contracts
contain confidentiality and non-disclosure provisions, a limited warranty covering our applications and indemnification for the
customer from infringement actions related to our applications. In addition, we generally license our 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 possible for others to copy or modify our software for impermissible purposes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Despite our efforts, it may be possible for
others to copy portions of our products, reverse engineer them or obtain and use information that we regard as proprietary, all
of which could adversely affect our competitive position. Furthermore, there can be no assurance that our competitors will not
independently develop technology similar to ours. In addition, the laws of certain countries do not protect our proprietary rights
to the same extent as the laws of the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>The success of our business is highly dependent on maintenance
of intellectual property rights</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The unauthorized use of our intellectual
property rights may increase the cost of protecting these rights or reduce our revenues. We may initiate, or be subject to, claims
or litigation for infringement of proprietary rights or to establish the validity of our proprietary rights, which could result
in significant expense to us, cause product shipment delays, require us to enter royalty or licensing agreements and divert the
efforts of our technical and management personnel from productive tasks, whether or not such litigation were determined in our
favor.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>We may be exposed to claims for infringement
or misuse of intellectual property rights and/or breach of license agreement provisions</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Third parties may initiate proceedings against
us claiming infringement or other misuse of their intellectual property rights and/or breach of our agreements with them. The likelihood
of such claims may increase as new patents continue to be issued and the use of open source and other third-party code becomes
more prevalent; and may also increase if we acquire businesses or expand into new markets in the future. Any such claims, regardless
of validity, may cause us to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Pay license fees or monetary damages; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Incur high legal fees in defense of such claims; </FONT></TD></TR>
</TABLE>

<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Alter or stop selling our products; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Satisfy indemnification obligations to our customers; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Release source code to third parties, possibly under open source license terms; and </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Divert management&rsquo;s time and attention from operating our business. </FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We may be exposed to product liability claims and other liability</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">While our customer agreements typically contain
provisions designed to limit our exposure to product liability claims and other liability, we may still be exposed to liability
in the event such provisions may not apply.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We have an errors and omissions insurance policy which may
not totally protect us</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The Company has an errors and omissions insurance
policy. However, this insurance may not continue to be available to us on commercially reasonable terms or at all, or a claim otherwise
covered by our insurance may exceed our coverage limits. We may be subject to product liability claims or errors or omissions claims
that 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our market and the economy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>The market in which we participate is
highly competitive and if we do not compete effectively our operating results could be harmed.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The market for enterprise software solutions
is highly competitive and subject to changing technology, shifting customer needs and introductions of new products and services.
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, larger
marketing budgets and substantially greater financial, technical and other resources. In addition, many of our current and potential
competitors have established marketing relationships and access to larger customer bases. A number of companies offer products
that are similar to our products and target the same markets. Any of these competitors may be able to respond more quickly to new
or changing opportunities, technologies and market trends (such as cloud computing), and devote greater resources to the development,
promotion and sale of their products. Our competitors may also offer extended payment terms or price reductions for their products
and services, either of which could materially and adversely affect our ability to compete successfully. There can be no assurance
that we will be able to compete successfully against current and future competitors or that the competitive pressures that we may
face will not materially adversely affect our business, revenue and results of operations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We are dependent upon achieving success in certain concentrated
markets</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We have made a strategic decision to concentrate
our product development, as well as our sales and marketing efforts, in certain vertical manufacturing industry segments: automotive,
life sciences, consumer products, food and beverage, high technology and industrial products. We also concentrate our efforts on
certain geographies, where costs to stay in compliance with local requirements could be extensive and require a large amount of
resources. An important element of our strategy is the achievement of technological and market leadership recognition for our software
products in these segments and geographies. The failure of our products to achieve or maintain substantial market acceptance in
one or more of these segments or geographies could have an adverse effect on us. If any of these targeted industry segments or
geographies experience a material slowdown or reduced growth, those conditions could adversely affect the demand for our products.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Unfavorable economic conditions may adversely
impact our business, operating results and financial condition</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our operations and performance are subject
to the risks arising from worldwide economic conditions, which are themselves impacted by other events, such as financial crises,
natural disasters and political turmoil. In particular, the negative impact of economic conditions on manufacturing companies could
have a substantial adverse effect on our sales, because our products are focused on supporting manufacturing companies. Ongoing
uncertainty about current global economic conditions may result in reductions in sales of our products, longer sales cycles, slower
adoption of new technologies and increased price competition as manufacturing companies may delay, reduce or forego spending in
response to declining asset values, tight credit, high unemployment, natural disasters, political unrest and negative financial
news. Such economic conditions may also result in our customers extending their payment periods or experiencing reduced ability
to pay amounts owed to us. Uncertainty about current global economic conditions could also increase the volatility of our stock
price. If any of the foregoing occur, our results of operations may be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our third-party relationships </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We are dependent upon the development and maintenance of
sales, services and marketing channels</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We sell and support our products through
direct and indirect sales, services and support organizations throughout the world. We also maintain relationships with a number
of consulting and systems integration organizations that we believe are important to our worldwide sales, marketing, service and
support activities and to the implementation of our products. We believe this strategy allows for additional flexibility in ensuring
our customers&rsquo; needs for services are met in a cost effective, timely and high quality manner. Our services providers generally
do not receive fees for the sale of our software products unless they participate actively in a sale as a sales agent or a distributor.
We are aware that these third-party service providers do not work exclusively with our products and in many instances have similar,
and often more established, relationships with our principal competitors. If these third parties exclusively pursue products or
technology other than QAD software products or technology, or if these third parties fail to adequately support QAD software products
and technology or increase support for competitive products or technology, we could be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with acquisitions we may make </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>We may make acquisitions or investments
in new businesses, products or technologies that involve additional risks.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">As part of our business strategy, we have
made, and expect to continue to make, acquisitions of businesses or investments in companies that offer complementary products,
services and technologies. Such acquisitions or investments involve a number of risks which could adversely affect our business
or operating results, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Our business strategy may not be furthered by an acquisition as we planned; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0; text-indent: 36pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">We may be unable to retain customers, vendors, distributors, business partners or other relationships associated with the acquired business; </FONT></TD></TR>
</TABLE>

<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Our due diligence may not identify significant liabilities or deficiencies associated with the business, assets, products, financial condition or accounting practices of an acquired company; </FONT></TD></TR>
</TABLE>

<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt"><P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P></TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">We may have difficulty integrating an acquired business due to incompatible business cultures;</FONT></TD></TR>
</TABLE>

<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">We may incur significant integration costs related to assimilating the operations and personnel of acquired companies; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Acquisition costs may result in charges in a particular quarter, increasing variability in our quarterly earnings; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">We may not realize the anticipated revenue increase from an acquisition; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">We may be unable to realize the value of the acquired assets relative to the acquisition cost; and </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Acquisitions may distract management from our existing businesses. </FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">These factors could have a material adverse
effect on our business, financial condition and operating results. In addition such acquisitions may cause our future quarterly
financial results to fluctuate due to costs related to</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><BR>
an acquisition, such as the elimination of redundant expenses or write-offs of impaired assets recorded in connection with acquisitions.
Also, consideration paid for any future acquisitions could include our stock. As a result, future acquisitions could cause dilution
to existing stockholders and to earnings per share, though the likelihood of voting dilution is limited by the ability of the
Company to use low-vote Class A common stock. Furthermore, we may incur significant debt to pay for future acquisitions or investments
or our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments
and retirement of outstanding indebtedness.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Risks associated with our international operations </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our operations are international in scope, exposing us to
additional risk</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We derive over half of our total revenue
from sales outside the United States. A significant aspect of our strategy is to focus on developing business in emerging markets.
Our operating results could be negatively impacted by a variety of factors affecting our foreign operations, many of which are
beyond our control. These factors include currency fluctuations, economic, political or regulatory conditions in a specific country
or region, trade protection measures and other regulatory requirements. Additional risks inherent in international business activities
generally include, among others:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Longer accounts receivable collection cycles; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Costs and difficulties of managing international operations and alliances; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Greater difficulty enforcing intellectual property rights; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Import or export requirements; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Natural disasters; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in political or economic conditions; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in regulatory requirements or tax law; and </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Operating in geographies with a higher inherent risk of corruption, which could adversely affect our ability to maintain compliance with domestic and international laws, including, but not limited to, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws. </FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>We may experience foreign currency gains and losses</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We conduct a portion of our business in currencies
other than the United States dollar. Our revenues and operating results may be negatively affected by fluctuations in foreign currency
exchange rates. Changes in the value of major foreign currencies, including the euro, Australian dollar, British pound, Japanese
yen and Brazilian real relative to the United States dollar can significantly and adversely affect our revenues, expenses and operating
results.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>The market for our Class A common stock is volatile</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Our stock price could become more volatile and investments
could lose value</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The market price of our Class A common stock
and the number of shares traded each day has experienced significant fluctuations and may continue to fluctuate significantly.
The market price for our Class A common stock may be affected by a number of factors, including, but not limited to:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Shortfalls in our expected net revenue, earnings or key performance metrics; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in recommendations or estimates by securities analysts; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0; text-indent: 18pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">The announcement of new products by us or our competitors; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Quarterly variations in our or our competitors&rsquo; results of operations; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">A change in our dividend or stock repurchase activities; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Developments in our industry or changes in the market for technology stocks; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Changes in rules or regulations applicable to our business; and </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">Other factors, including economic instability and changes in political or market conditions. </FONT></TD></TR>
</TABLE>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>The dual class structure of our common
stock as contained in our charter documents could adversely impact the market for our common stock.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our dual-class stock structure could adversely
impact the market for our stock. The liquidity of our common stock may be adversely impacted by our dual-class structure because
each class has less of a public float than it would if we had a single class of common stock. In addition, there are fewer Class
B shares than Class A shares and Class B shares may be less desirable to the public due to the 20% higher dividend on Class A shares.
Also, the holding of lower voting Class A common stock may not be permitted by the investment policies of certain institutional
investors or may be less attractive to managers of certain institutional investors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>If research analysts do not publish research
about our business or if they issue unfavorable commentary or downgrade our common stock, our stock price and trading volume could
decline.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">The trading market for our Class A common
stock depends in part on the research and reports that research analysts publish about us and our business. If we do not maintain
adequate research coverage, or if one or more analysts who covers us downgrades our stock or publishes inaccurate or unfavorable
research about our business, the price of our Class A common stock could decline. If one or more of the research analysts ceases
coverage of our company or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which
could cause our stock price or trading volume to decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>We are obligated to maintain proper and
effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting
in a timely manner, or this internal control may not be determined to be effective, which may adversely affect investor confidence
in our company and, as a result, the value of our common stock.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">We are required, pursuant to the Securities
and Exchange Act of 1934, as amended (the &ldquo;Exchange Act&rdquo;), to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material
weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors
have issued an attestation report on our internal controls.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">While we were able to determine in our management&rsquo;s
report for fiscal 2014 that our internal control over financial reporting is effective, as well as provide an unqualified attestation
report from our independent registered public accounting firm to that effect, we may not be able to complete our evaluation, testing,
and any required remediation in a timely fashion or our independent registered public accounting firm may not be able to formally
attest to the effectiveness of our internal control over financial reporting in the future. During the evaluation and testing process,
if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate
before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal
controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors
are unable to attest to the effectiveness of our internal controls or determine we have a material weakness in our internal controls,
we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our
common stock to decline.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>If we are unable to pay quarterly dividends, our reputation
and stock price may be harmed.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our payment of dividends may require the
use of a significant portion of our cash earnings. As a result, we may not retain a sufficient amount of cash to fund our operations
or finance future growth opportunities, new product development initiatives and unanticipated capital expenditures which could
adversely affect our financial performance. Additionally, our board of directors may, at its discretion, decrease or entirely discontinue
the payment of dividends at any time. Our ability to pay dividends will depend on our ability to generate sufficient cash flows
from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors that are
beyond our control. Any failure to pay dividends may negatively impact our reputation and investor confidence in use and may negatively
impact the price of our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Our common stock ownership is concentrated </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>The dual class structure of our common
stock as contained in our charter documents has the effect of concentrating voting control with certain stockholders, including
Karl Lopker and Pamela Lopker, thus limiting our other stockholders&rsquo; ability to influence corporate matters</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our Class B common stock has one vote per
share and our Class A common stock has 1/20<SUP>th</SUP> vote per share. Stockholders who hold shares of our Class B common stock
together held approximately 83% of the voting power of our outstanding capital stock as of October 31, 2014. As of October 31,
2014, Karl Lopker and Pamela Lopker jointly and beneficially owned approximately 59% of the outstanding shares of our Class A and
Class B common stock, representing approximately 58% of the voting power of our outstanding capital stock. Currently they have
sufficient voting control to determine the outcome of a stockholder vote concerning:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">The election and removal of all members of our board of directors, who determine our management and policies; </FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">The merger, consolidation or sale of the Company or all of our assets; and</FONT></TD></TR>
</TABLE>
<P STYLE="margin-top: 0; margin-bottom: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 20pt">&nbsp;</TD>
    <TD STYLE="font-size: 10pt; width: 20pt"><FONT STYLE="font-size: 10pt">&bull;</FONT></TD>
    <TD STYLE="font-size: 10pt"><FONT STYLE="font-size: 10pt">All other matters requiring stockholder approval, regardless of how our other stockholders vote their shares.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">In addition, the holders of our Class B common
stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock
holdings represent less than 50% of the outstanding shares of our common stock. Because of the 20-to-1 voting ratio between our
Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the
combined voting power of our common stock even when the shares of Class B common stock represent as little as 5% of the combined
voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit the ability
of our Class A stockholders to influence corporate matters for the foreseeable future, and, as a result, the market price of our
Class A common stock could be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">This concentrated control limits the ability
of our other stockholders to influence corporate matters and also limits the liquidity of the shares owned by other stockholders.
Karl Lopker&rsquo;s and Pamela Lopker&rsquo;s concentrated control could discourage others from initiating potential merger, takeover
or other change of control transactions; and, transactions could be pursued that our other stockholders do not view as beneficial.
As a result, the market price of our Class A and Class B common stock could be adversely affected.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>We are not required to comply with certain
corporate governance rules of NASDAQ that would otherwise apply to us as a company listed on NASDAQ because we are a controlled
company</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Specifically, we are not required to have
a majority of independent directors on our board of directors and we are not required to have nominating and compensation committees
composed of independent directors. Should the interests of Karl Lopker and Pamela Lopker differ from those of other stockholders,
the other stockholders may not be afforded the protections of having a majority of directors on the board who are independent from
our principal stockholders or our management.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"><I>Provisions in the Company's charter documents
or Delaware law could discourage a takeover that stockholders may consider favorable</I>.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our Certificate of Incorporation contains
certain other provisions that may have an &quot;anti-takeover&quot; effect. The Certificate of Incorporation contains authority
for the Board to issue up to 5,000,000 shares of preferred stock without stockholder approval. Although the Company has no present
intention to issue any such shares, we could issue such shares in a manner that deters or seeks to prevent an unsolicited bid for
us. The Certificate of Incorporation also does not provide for cumulative voting and, accordingly, a significant minority stockholder
could not necessarily elect any designee to the board of directors. In addition, Section 203 of the Delaware Corporation Law may
discourage, delay, or prevent a change in control of us by imposing certain restrictions on various business combinations. Furthermore,
our dual class structure concentrates the voting power of our stock in a small group of stockholders who would have the ability
to control the outcome of a stockholder vote. As a result of these provisions in the Company's Certificate of Incorporation, including
our dual class structure, and Delaware law, our stockholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices and it would be more difficult to replace our directors and management.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>We are dependent upon highly skilled personnel </B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Our performance depends on the talents and
efforts of highly skilled employees, including the continued service of a relatively small number of key technical and senior management
personnel. In particular, our Chairman of the Board and President, Pamela Lopker, and Chief Executive Officer, Karl Lopker, are
critical to overall management of QAD, maintenance of our culture and setting our strategic direction. All of our executive officers
and key employees are at-will employees and we do not have key-person insurance covering any of our employees. Our future success
depends on our continuing ability to attract and retain highly skilled personnel in all areas of our organization. Competition
for such personnel is intense and many of our competitors are larger and have greater financial resources for attracting skilled
personnel. The loss of key technical and senior management personnel or the inability to attract and retain additional qualified
personnel could have an adverse effect on our continued ability to compete effectively.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Pursuant to 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.</P>

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<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="vertical-align: bottom"><FONT STYLE="font-size: 10pt">QAD Inc.</FONT></TD></TR>
<TR>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt">Dated:&nbsp;&nbsp;January 6, 2015</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom"><FONT STYLE="font-size: 10pt">By:</FONT></TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; border-bottom: black 0.5pt solid">/s/ Daniel Lender</P></TD></TR>
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    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Daniel Lender<BR>
Chief Financial Officer, Secretary</P></TD></TR>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
8-K
Current Report
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of report (Date of earliest event
reported): January 6, 2015
QAD
Inc.
(Exact
Name of Registrant as Specified in Charter)
Delaware
0-22823
77-0105228
(State or Other Jurisdiction
of Incorporation)
Commission File Number
(IRS Employer
Identification No.)
100 Innovation Place, Santa Barbara, CA
93108
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number,
including area code: (805) 566-6000
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (
see
General Instruction
A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 8.01
Other Events
QAD Inc. (the "Company") is
filing this Form 8-K to update its "Risk Factors" relating to the Company and its business. The following risk factors
shall be deemed to be filed pursuant to the Securities Exchange Act of 1934, as amended.
RISK FACTORS
Risks associated with our cloud service offerings
Defects and disruptions in our services could diminish demand
for our service and subject us to liability.
Our cloud service offerings are complex and
incorporate a variety of hardware and proprietary and third-party software, and may have errors or defects that could result in
unanticipated downtime for our customers and harm to our reputation and our business. We have from time to time found defects in
our services and new defects may be discovered in the future, especially in connection with the integration of new technologies
and the introduction of new services. As a result, we could lose future sales and existing customers could elect to not renew or
make warranty or other claims against us and potentially expose us to the expense and risk of litigation.
Our revenue and profitability will be
adversely affected if we do not properly manage our cloud service offerings
.
The pricing and other terms of some of our
cloud agreements require us to make estimates and assumptions at the time we enter into these contracts that could differ from
actual results. Early termination, increased costs or unanticipated delays could have a material adverse effect on our profit margin
and generate negative cash flow. Further, if we experience delays in implementing new cloud customers (whether due to product defects,
system complexities or other factors) then customers may delay the deployment of additional users and sites, which could adversely
affect our revenue growth. If we fail to meet our system availability commitments or other customer obligations then we may be
required to give credits or refund fees, and we may be subject to litigation and loss of customer business. For example, if we
were to miss our system availability commitments then we are obligated under our customer contracts to issue one day's credit
against future fees for each hour of system unavailability. We expend significant resources to improve the reliability and security
of our cloud offerings and the cost of these investments could reduce our operating margins.
We rely on third-party hosting and other service providers.
We currently serve our customers from third-party
data center hosting facilities located in the United States and other countries. We do not control the operation of any of these
facilities, and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunications failures
and similar events. They may also be subject to breaches of computer hardware and software security, break-ins, sabotage, intentional
acts of vandalism and similar misconduct. Despite precautions taken at these facilities, the occurrence of a natural disaster or
an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities
could result in lengthy interruptions in our service. Even with our disaster recovery precautions, our services could be interrupted.
Any loss or interruption of these services could significantly increase our expenses and/or result in errors or a failure of our
services which could adversely affect our business. In addition, these vendor services may not continue to be available at reasonable
prices or on commercially reasonable terms, or at all.
We may be exposed to liability and loss from security breaches.
Our cloud services involve the storage and
transmission of customers' proprietary information, and security breaches could expose us to a risk of loss of this information,
litigation and possible liability. These security measures may be breached in numerous ways, including remote or on-site break-ins
by computer hackers or
2
employee error during transfer of data to
additional data centers or at any time, and result in unauthorized access to our own and our customers' data, intellectual
property and other confidential business information. Additionally, third parties may attempt to induce employees or customers
into disclosing sensitive information such as user names, passwords or other information in order to gain access to our own and
our customers' data, intellectual property and other confidential business information. Because the techniques used to obtain
unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target,
we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result
in a loss of confidence in the security of our service, damage our reputation, disrupt our business, lead to legal liability and
adversely impact our future sales which could have a material adverse effect on our business.
Our solutions could be used to collect
and store personal information of our customers' employees or customers, and therefore privacy concerns could result in additional
cost and liability to us or inhibit sales of our solutions.
Personal privacy has become a significant
issue in the United States and in many other countries where we offer our solutions. The regulatory framework for privacy issues
worldwide is currently evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government
bodies and agencies have adopted, or are considering adopting, laws and regulations regarding the collection, use, disclosure and
retention of personal information. In the United States, these include, for example, rules and regulations promulgated under the
authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Gramm-Leach-Bliley
Act, or GLB, and state breach notification laws. Internationally, virtually every jurisdiction in which we operate has established
its own data security and privacy legal framework with which we or our customers must comply, including the Data Protection Directive
established in the European Union and the Federal Data Protection Act passed in Germany.
In addition to laws and regulations, privacy
advocacy and industry groups or other private parties may propose new and different privacy standards that either legally or contractually
apply to us. Because the interpretation and application of privacy and data protection laws and privacy standards are still uncertain,
it is possible that these laws or privacy standards may be interpreted and applied in a manner that is inconsistent with our existing
data management practices or the features of our solutions. If so, in addition to the possibility of fines, lawsuits and other
claims, we could be required to fundamentally change our business activities and practices or modify our solutions, which could
have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with
applicable privacy or data protection laws, regulations and privacy standards, could result in additional cost and liability to
us, damage our reputation, inhibit sales of subscriptions and harm our business. Furthermore, the costs of compliance with, and
other burdens imposed by, the laws, regulations, and privacy standards that are applicable to the businesses of our customers may
limit the use and adoption of, and reduce the overall demand for, our solutions. Privacy concerns, whether valid or not valid,
may inhibit market adoption of our solutions particularly in certain industries and foreign countries.
Changes in laws may adversely affect our business
.
The laws and regulations applicable to hosted
service providers are unsettled, particularly in the areas of privacy and security. Changes in these laws could affect our ability
to provide services from or to some locations and could increase both the costs and risks associated with providing the services.
Further, our customers are subject to laws and regulations concerning their use of personally identifiable information from their
customers and other contacts. Such laws and regulations may restrict our customers' use of personally identifiable information
to a degree that limits demand for our services and thereby harms our business.
The market for cloud services may not develop as quickly
as we expect.
The market for enterprise cloud computing
application services is not as mature as the market for traditional enterprise software, and it is uncertain whether these services
will achieve and sustain high levels of demand and market acceptance. Our success will depend on the willingness of customers to
increase their use of enterprise cloud computing application services in general, and for ERP applications in particular. Some
enterprises may be unwilling to use enterprise cloud computing application services because they have concerns regarding security
risks, international transfers of data, evolving regulation, government or other third-party access to data, use of outsourced
services providers, and unwillingness to abandon past infrastructure investments. If the market for
3
enterprise cloud computing application services does not evolve
in the way we anticipate or if customers do not recognize the benefits of our cloud solutions over traditional on-premise enterprise
software products, and as a result we are unable to increase sales of subscriptions to our cloud offerings, then our revenues may
not grow or may decline and our operating results would be harmed.
Our focus on cloud services may result in the loss of other
business opportunities
.
We have focused our sales force, management
team and other personnel toward growing our cloud business. This redirection of resources could potentially result in the loss
of sales opportunities in our traditional license, maintenance and services businesses. If our cloud business does not grow in
accordance with our expectations and we are not able to cover the shortfall with other sales opportunities, then our business could
be harmed.
Risks associated with rapid technological change and complexity
The market for our products and services is characterized
by rapid technological change.
Customer requirements for products can change
rapidly as a result of innovation or change within the computer hardware and software industries, the introduction of new products
and technologies and the emergence of, adoption of, or changes to, industry standards. Our future success, including with our cloud
service offerings, will depend upon our ability to continue to enhance our current product line and to develop and introduce new
products and services that keep pace with technological developments, satisfy increasingly sophisticated customer requirements,
keep pace with industry and compliance standards and achieve market acceptance. Our failure to successfully develop or acquire
and market product enhancements or new products could have a material adverse effect on our business. Developing software and cloud
offerings is expensive. We will continue to make significant investments in research and development, and we may not realize significant
new revenue from these investments for several years, if at all.
New software releases and enhancements may adversely affect
our software sales.
The actual or anticipated introduction of
new products, technologies and industry standards can render existing products obsolete or unmarketable or result in delays in
the purchase of those products. Significant delays in launching new products may also jeopardize our ability to compete. Failure
by us to anticipate or respond to developments in technology or customer requirements, significant delays in the introduction of
new products or failure by us to maintain overall customer satisfaction could have a material adverse effect on our business.
Services engagements are increasingly complex and pose additional
risks.
Services engagements may involve increased
technological complexity, customer customization requests and other challenges, including in connection with our cloud environments,
and demand a significant number of specialized technical resources. Our failure to successfully address these issues could have
a material adverse effect on our business.
Risks associated with our revenue, expenses and pricing
Because of significant fluctuations in
our revenue, period-to-period comparisons of our revenue or profit may not be meaningful
.
Our quarterly and annual operating results
have fluctuated in the past and may do so in the future. Such fluctuations have resulted from the seasonality of our customers'
manufacturing businesses and budget cycles and other factors. Moreover, there can be no assurance that our revenue will grow in
future periods or that we will be profitable on a quarterly or annual basis.
A significant portion of our revenue in
any quarter may be derived from a limited number of large, non-recurring license sales.
We may experience large individual license
sales, which may cause significant variations in license fees being reported on a quarterly basis. We also believe that the purchase
of our products is discretionary and may involve a significant commitment of a customer's capital resources. Therefore, a
downturn in any significant customer's business could have a significant adverse impact on our revenue and profit. Further,
we have historically recognized a substantial portion of our license revenue from sales booked and shipped in the last month of
a quarter and, as a result, the magnitude of quarterly fluctuations in license fees may not become
4
evident until the end of a particular quarter.
Our revenue from license fees in any quarter is substantially dependent on orders booked and shipped in that quarter. We are unlikely
to be able to generate revenue from alternative sources if we discover a shortfall near the end of a quarter.
Our financial forecasts are subject to uncertainty due to
inaccurate sales forecasts
.
Our revenues, and particularly our new software
license revenue, are difficult to forecast, and, as a result, our financial forecasts are subject to uncertainty. Specifically,
our sales forecasts are based on estimates that our sales personnel make regarding the likelihood of potential sales, including
their expected closing date and fee amounts. If these estimates are inaccurate then our financial forecasts may also be inaccurate.
The margins in our services business may fluctuate
.
Services revenue is dependent upon the timing
and size of customer orders to provide the services, as well as upon our related license and subscription sales. In addition, certain
engagements may involve fixed price arrangements and significant staffing which require us to make estimates and assumptions at
the time we enter into these contracts. Variances between these estimates and assumptions and actual results could have an adverse
effect on our profit margin and generate negative cash flow and negative services margins. To the extent that we are not successful
in securing orders from customers to provide services, or to the extent we are not successful in achieving the expected margin
on such services, our results of operations may be adversely affected.
The margins in our cloud service offerings may fluctuate
.
Our cloud service offerings may involve fixed
price arrangements, fixed and up-front costs and significant staffing which require us to make estimates and assumptions at the
time we enter into these contracts. Variances between these estimates and assumptions and actual results could have an adverse
effect on our profit margin and/or generate negative cash flow. To the extent that we are not successful in securing orders from
customers to provide cloud services, or to the extent we are not successful in achieving the expected margin on such solutions,
our results may be adversely affected.
Because we recognize revenue from cloud
services over the term of the subscription, downturns or upturns in new business may not be immediately reflected in our operating
results.
We generally recognize revenue from customers
ratably over the terms of their subscription agreements. As a result, most of the revenue we report in each quarter is the result
of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any
one quarter may not be reflected in our revenue results for that quarter. Any such decline, however, will negatively affect our
revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our service, and
potential changes in our attrition rate may not be fully reflected in our results of operations until future periods. Our subscription
model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new
customers must be recognized over the applicable subscription term.
A significant portion of our revenue is
derived from maintenance renewals with our existing installed base of customers
.
Significant portions of our maintenance revenues
are generated from our installed base of customers. Maintenance and support agreements with these customers are traditionally renewed
on an annual basis at the customer's discretion, and there is normally no requirement that a customer renew or that a customer
pay new license or service fees to us following the initial purchase. If our existing customers do not renew their maintenance
agreements or fail to purchase new user licenses or product enhancements or additional services at historical levels, our revenues
and results of operations could be adversely affected.
Our maintenance renewal rate is dependent
upon a number of factors such as our ability to continue to develop and maintain our products, our ability to continue to recruit
and retain qualified personnel to assist our customers, and our ability to promote the value of maintenance for our products to
our customers
.
Maintenance renewals are also dependent upon
factors beyond our control such as technology changes and their adoption by our customers, budgeting decisions by our customers,
changes in our customers' strategy or ownership and plans by our customers to replace our products with competing products.
If our maintenance renewal rate were to decrease, our revenue and results of operations would be adversely affected.
5
We encounter pressure to make concessions on our pricing
and pricing models
.
We are occasionally obliged to offer deep
discounts and other favorable terms in order to match or exceed the product and service offerings of our competitors. If we do
not adapt our pricing models to reflect changes in customer demand, or if customer demand is adversely impacted by our failure
to adapt our pricing models, our revenues could decrease. Further, broad-based changes to our pricing models could adversely affect
our revenues and operating results as our sales force implements, and our customers and accounting practices adjust to, the new
pricing models.
We may have exposure to additional tax liabilities
.
As a multinational organization, we are subject
to income taxes as well as non-income taxes in the United States and in various foreign jurisdictions. Significant judgment is
required in determining our worldwide income tax provision and other tax liabilities. Although we believe that our tax estimates
are reasonable, the final determination of tax audits or tax disputes may differ from what is reflected in our historical income
tax provisions and accruals.
Our tax rate could be adversely affected
by several factors, many of which are outside of our control, including:
•
Changes in jurisdictional revenue mix;
•
Changing tax laws, regulations and interpretations thereof;
•
Changes in tax rates;
•
Changes to the valuation allowance on deferred tax assets; and
•
Assessments and any related tax, interest or penalties.
If we are deemed to owe additional taxes, our results of operations
may be adversely affected.
We report our results based on the amount
of taxes owed in the various tax jurisdictions in which we operate
.
Periodically, we may receive notices that
a tax authority in a particular jurisdiction believes that we owe a greater amount of tax than we have reported, in which case,
we may engage in discussions or possible dispute resolutions with these tax authorities. If the ultimate determination of our taxes
owed in any of these jurisdictions is for an amount in excess of the tax provision we have recorded or reserved for, our operating
results, cash flows, and financial condition could be adversely affected. We are also subject to non-income taxes, such as payroll,
sales, use, value-added, net worth, property and goods and services taxes, in the United States and in various foreign jurisdictions.
Audits or disputes relating to non-income taxes may result in additional liabilities that could negatively affect our operating
results, cash flows and financial condition.
Our personnel restructurings may incur significant expense
and be disruptive
.
We have in the past restructured our workforce
on a company-wide, business function or geographic basis in connection with strategic changes, cost containment and other purposes.
Such restructurings, and in particular reductions in the workforce, may result in significant severance and other expenses and
may also reduce productivity.
Initiatives to upgrade our internal information
technology systems involve risks which could disrupt our operations, increase our costs or harm our business
.
We rely on our internal information technology
systems for development, marketing, support, sales, accounting and financial reporting and other operations. We regularly implement
business process improvements to optimize the performance of these systems. Such improvements require significant capital investments
and personnel resources. Difficulties in implementation could disrupt our operations, increase our costs or otherwise harm our
business. In particular, we are in the process of implementing upgrades to our internal information technology systems supporting
financial operations, which we expect will have a pervasive impact on our business processes and information systems across a significant
portion of our operations. As a result, we may experience significant changes in our operational processes and internal controls
as our implementation progresses. If we are unable to successfully implement these upgrades, including harmonizing our systems,
6
processes and data, our ability to conduct routine business
functions could be negatively impacted and significant disruptions to our business could occur. In addition, such difficulties
could cause us to incur material unanticipated expenses, including additional costs of implementation or costs of conducting business,
or result in errors and delays in invoicing customers, collecting cash, paying vendors and financial reporting.
Risks associated with our sales cycle
Our products involve a long sales cycle
and the timing of sales is difficult to predict. Because the licensing of our primary products generally involves a significant
commitment of capital or a long-term commitment by our customers, the sales cycle associated with a customer's purchase of
our products is generally lengthy
.
This cycle varies from customer to customer
and is subject to a number of significant risks over which we have little or no control. The evaluation process that our customers
follow generally involves many of their personnel and requires complex demonstrations and presentations to satisfy their needs.
Significant effort is required by us to support this approach, whether we are ultimately successful or not. If sales forecasted
for a particular quarter are not realized in that quarter, then we are unlikely to be able to generate revenue from alternative
sources in time to compensate for the shortfall. As a result, a lost or delayed sale could have a material adverse effect on our
quarterly and annual operating results.
Risks associated with our solutions
We may experience defects in our software products and services
.
Software products frequently contain defects,
including security flaws, especially when first introduced or when new versions are released. The detection and correction of errors
and security flaws can be time consuming and costly. Defects in our software products, or in the software of third parties, could
affect the ability of our products to work with other hardware or software products. Our software product errors could delay the
development or release of new products or new versions of products and could adversely affect market acceptance of our products.
Errors and security flaws may also adversely affect our ability to conduct our cloud operations. Such defects, together with third-party
products, software customizations and other factors outside our control, may also impair our ability to complete services implementations
on time and within budget. Customers who rely on our software products and services for applications that are critical to their
businesses may have a greater sensitivity to product errors and security vulnerabilities than customers for software products generally.
Software product errors and security flaws in our products or services could expose us to product liability, performance and warranty
claims as well as harm our reputation, which could adversely impact our future sales of products and services.
Dependence on third-party suppliers
We are dependent on Progress Software Corporation
.
The majority of QAD Enterprise Applications
are written in a programming language that is proprietary to Progress Software Corporation, or "Progress." These QAD
Enterprise Applications do not run within programming environments other than Progress and therefore our customers must acquire
rights to Progress software in order to use these QAD Enterprise Applications. We have an agreement with Progress under which Progress
licenses us to distribute and use Progress software related to our products. This agreement remains in effect unless terminated
either by a written three-year advance notice or due to a material breach that is not remedied. If Progress were to provide notice
that it was terminating its agreement with us, this could have a material adverse effect on our business and prospects.
Our success is dependent upon our continuing relationship
with Progress
.
Our success is also dependent upon Progress
continuing to develop, support and enhance its programming language, its toolset and its database, as well as the continued market
acceptance of Progress products. A change in Progress' control, management or direction may adversely impact our relationship
with Progress and our ability to rely on Progress products in our business. We have in the past, and may in the future, experience
product release delays because of delays in the release of Progress products or product enhancements. Any of these delays could
have a material adverse effect on our business.
7
We are dependent on other third-party suppliers
.
We resell certain software which we license
from third parties other than Progress. 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 our proprietary rights or are commercially favorable to us.
Certain QAD Enterprise Applications are developed
using embedded programming tools from Microsoft and Sun Microsystems (owned by our competitor Oracle) for the Microsoft .NET framework
and Java Programming environments, respectively. We rely on these environments' continued compatibility with customers'
desktop and server operating systems. In the event that this compatibility is limited, some of our customers may not be able to
easily upgrade their QAD software. If the present method of licensing the .NET framework as part of Microsoft's Desktop Operating
systems is changed and a separate price were applied to the .NET framework, our expenses could increase substantially. Similarly,
if Oracle decided to charge fees or otherwise change the historical licensing terms for Java technology, our expenses could increase
substantially. For both of the .Net and Java elements, we rely on market acceptance and maintenance of these environments and we
may be adversely affected if these were withdrawn or superseded in the market.
Our partner agreements, including development,
product acquisition and reseller agreements, contain confidentiality, indemnity and non-disclosure provisions for the third party
and end user. Failure to establish or maintain successful relationships with these third parties or failure of these parties to
develop and support their software, provide appropriate services and fulfill confidentiality, indemnity and non-disclosure obligations
could have an adverse effect on us. 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. Failure to prevail in any such dispute could have
a material adverse effect on our business.
Risks associated with our proprietary rights and customer
contracts
Our intellectual property may be at risk as a result of a
variety of different factors
.
We rely on a combination of protections provided
by applicable copyright, trademark, patent 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 licensing agreements with
each of our customers and these agreements provide for the non-exclusive use of QAD Enterprise Applications. Our license contracts
contain confidentiality and non-disclosure provisions, a limited warranty covering our applications and indemnification for the
customer from infringement actions related to our applications. In addition, we generally license our 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 possible for others to copy or modify our software for impermissible purposes.
Despite our efforts, it may be possible for
others to copy portions of our products, reverse engineer them or obtain and use information that we regard as proprietary, all
of which could adversely affect our competitive position. Furthermore, there can be no assurance that our competitors will not
independently develop technology similar to ours. In addition, the laws of certain countries do not protect our proprietary rights
to the same extent as the laws of the United States.
The success of our business is highly dependent on maintenance
of intellectual property rights
.
The unauthorized use of our intellectual
property rights may increase the cost of protecting these rights or reduce our revenues. We may initiate, or be subject to, claims
or litigation for infringement of proprietary rights or to establish the validity of our proprietary rights, which could result
in significant expense to us, cause product shipment delays, require us to enter royalty or licensing agreements and divert the
efforts of our technical and management personnel from productive tasks, whether or not such litigation were determined in our
favor.
8
We may be exposed to claims for infringement
or misuse of intellectual property rights and/or breach of license agreement provisions
.
Third parties may initiate proceedings against
us claiming infringement or other misuse of their intellectual property rights and/or breach of our agreements with them. The likelihood
of such claims may increase as new patents continue to be issued and the use of open source and other third-party code becomes
more prevalent; and may also increase if we acquire businesses or expand into new markets in the future. Any such claims, regardless
of validity, may cause us to:
•
Pay license fees or monetary damages;
•
Incur high legal fees in defense of such claims;
•
Alter or stop selling our products;
•
Satisfy indemnification obligations to our customers;
•
Release source code to third parties, possibly under open source license terms; and
•
Divert management's time and attention from operating our business.
We may be exposed to product liability claims and other liability
.
While our customer agreements typically contain
provisions designed to limit our exposure to product liability claims and other liability, we may still be exposed to liability
in the event such provisions may not apply.
We have an errors and omissions insurance policy which may
not totally protect us
.
The Company has an errors and omissions insurance
policy. However, this insurance may not continue to be available to us on commercially reasonable terms or at all, or a claim otherwise
covered by our insurance may exceed our coverage limits. We may be subject to product liability claims or errors or omissions claims
that 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.
Risks associated with our market and the economy
The market in which we participate is
highly competitive and if we do not compete effectively our operating results could be harmed.
The market for enterprise software solutions
is highly competitive and subject to changing technology, shifting customer needs and introductions of new products and services.
Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition, larger
marketing budgets and substantially greater financial, technical and other resources. In addition, many of our current and potential
competitors have established marketing relationships and access to larger customer bases. A number of companies offer products
that are similar to our products and target the same markets. Any of these competitors may be able to respond more quickly to new
or changing opportunities, technologies and market trends (such as cloud computing), and devote greater resources to the development,
promotion and sale of their products. Our competitors may also offer extended payment terms or price reductions for their products
and services, either of which could materially and adversely affect our ability to compete successfully. There can be no assurance
that we will be able to compete successfully against current and future competitors or that the competitive pressures that we may
face will not materially adversely affect our business, revenue and results of operations.
We are dependent upon achieving success in certain concentrated
markets
.
We have made a strategic decision to concentrate
our product development, as well as our sales and marketing efforts, in certain vertical manufacturing industry segments: automotive,
life sciences, consumer products, food and beverage, high technology and industrial products. We also concentrate our efforts on
certain geographies, where costs to stay in compliance with local requirements could be extensive and require a large amount of
resources. An important element of our strategy is the achievement of technological and market leadership recognition for our software
products in these segments and geographies. The failure of our products to achieve or maintain substantial market acceptance in
one or more of these segments or geographies could have an adverse effect on us. If any of these targeted industry segments or
geographies experience a material slowdown or reduced growth, those conditions could adversely affect the demand for our products.
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Unfavorable economic conditions may adversely
impact our business, operating results and financial condition
.
Our operations and performance are subject
to the risks arising from worldwide economic conditions, which are themselves impacted by other events, such as financial crises,
natural disasters and political turmoil. In particular, the negative impact of economic conditions on manufacturing companies could
have a substantial adverse effect on our sales, because our products are focused on supporting manufacturing companies. Ongoing
uncertainty about current global economic conditions may result in reductions in sales of our products, longer sales cycles, slower
adoption of new technologies and increased price competition as manufacturing companies may delay, reduce or forego spending in
response to declining asset values, tight credit, high unemployment, natural disasters, political unrest and negative financial
news. Such economic conditions may also result in our customers extending their payment periods or experiencing reduced ability
to pay amounts owed to us. Uncertainty about current global economic conditions could also increase the volatility of our stock
price. If any of the foregoing occur, our results of operations may be adversely affected.
Risks associated with our third-party relationships
We are dependent upon the development and maintenance of
sales, services and marketing channels
.
We sell and support our products through
direct and indirect sales, services and support organizations throughout the world. We also maintain relationships with a number
of consulting and systems integration organizations that we believe are important to our worldwide sales, marketing, service and
support activities and to the implementation of our products. We believe this strategy allows for additional flexibility in ensuring
our customers' needs for services are met in a cost effective, timely and high quality manner. Our services providers generally
do not receive fees for the sale of our software products unless they participate actively in a sale as a sales agent or a distributor.
We are aware that these third-party service providers do not work exclusively with our products and in many instances have similar,
and often more established, relationships with our principal competitors. If these third parties exclusively pursue products or
technology other than QAD software products or technology, or if these third parties fail to adequately support QAD software products
and technology or increase support for competitive products or technology, we could be adversely affected.
Risks associated with acquisitions we may make
We may make acquisitions or investments
in new businesses, products or technologies that involve additional risks.
As part of our business strategy, we have
made, and expect to continue to make, acquisitions of businesses or investments in companies that offer complementary products,
services and technologies. Such acquisitions or investments involve a number of risks which could adversely affect our business
or operating results, including:
•
Our business strategy may not be furthered by an acquisition as we planned;
•
We may be unable to retain customers, vendors, distributors, business partners or other relationships associated with the acquired business;
•
Our due diligence may not identify significant liabilities or deficiencies associated with the business, assets, products, financial condition or accounting practices of an acquired company;
•
We may have difficulty integrating an acquired business due to incompatible business cultures;
•
We may incur significant integration costs related to assimilating the operations and personnel of acquired companies;
•
Acquisition costs may result in charges in a particular quarter, increasing variability in our quarterly earnings;
•
We may not realize the anticipated revenue increase from an acquisition;
•
We may be unable to realize the value of the acquired assets relative to the acquisition cost; and
•
Acquisitions may distract management from our existing businesses.
These factors could have a material adverse
effect on our business, financial condition and operating results. In addition such acquisitions may cause our future quarterly
financial results to fluctuate due to costs related to
10
an acquisition, such as the elimination of redundant expenses or write-offs of impaired assets recorded in connection with acquisitions.
Also, consideration paid for any future acquisitions could include our stock. As a result, future acquisitions could cause dilution
to existing stockholders and to earnings per share, though the likelihood of voting dilution is limited by the ability of the
Company to use low-vote Class A common stock. Furthermore, we may incur significant debt to pay for future acquisitions or investments
or our use of cash to pay for acquisitions may limit other potential uses of our cash, including stock repurchases, dividend payments
and retirement of outstanding indebtedness.
Risks associated with our international operations
Our operations are international in scope, exposing us to
additional risk
.
We derive over half of our total revenue
from sales outside the United States. A significant aspect of our strategy is to focus on developing business in emerging markets.
Our operating results could be negatively impacted by a variety of factors affecting our foreign operations, many of which are
beyond our control. These factors include currency fluctuations, economic, political or regulatory conditions in a specific country
or region, trade protection measures and other regulatory requirements. Additional risks inherent in international business activities
generally include, among others:
•
Longer accounts receivable collection cycles;
•
Costs and difficulties of managing international operations and alliances;
•
Greater difficulty enforcing intellectual property rights;
•
Import or export requirements;
•
Natural disasters;
•
Changes in political or economic conditions;
•
Changes in regulatory requirements or tax law; and
•
Operating in geographies with a higher inherent risk of corruption, which could adversely affect our ability to maintain compliance with domestic and international laws, including, but not limited to, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws.
We may experience foreign currency gains and losses
.
We conduct a portion of our business in currencies
other than the United States dollar. Our revenues and operating results may be negatively affected by fluctuations in foreign currency
exchange rates. Changes in the value of major foreign currencies, including the euro, Australian dollar, British pound, Japanese
yen and Brazilian real relative to the United States dollar can significantly and adversely affect our revenues, expenses and operating
results.
The market for our Class A common stock is volatile
Our stock price could become more volatile and investments
could lose value
.
The market price of our Class A common stock
and the number of shares traded each day has experienced significant fluctuations and may continue to fluctuate significantly.
The market price for our Class A common stock may be affected by a number of factors, including, but not limited to:
•
Shortfalls in our expected net revenue, earnings or key performance metrics;
•
Changes in recommendations or estimates by securities analysts;
•
The announcement of new products by us or our competitors;
•
Quarterly variations in our or our competitors' results of operations;
•
A change in our dividend or stock repurchase activities;
•
Developments in our industry or changes in the market for technology stocks;
•
Changes in rules or regulations applicable to our business; and
•
Other factors, including economic instability and changes in political or market conditions.
11
The dual class structure of our common
stock as contained in our charter documents could adversely impact the market for our common stock.
Our dual-class stock structure could adversely
impact the market for our stock. The liquidity of our common stock may be adversely impacted by our dual-class structure because
each class has less of a public float than it would if we had a single class of common stock. In addition, there are fewer Class
B shares than Class A shares and Class B shares may be less desirable to the public due to the 20% higher dividend on Class A shares.
Also, the holding of lower voting Class A common stock may not be permitted by the investment policies of certain institutional
investors or may be less attractive to managers of certain institutional investors.
If research analysts do not publish research
about our business or if they issue unfavorable commentary or downgrade our common stock, our stock price and trading volume could
decline.
The trading market for our Class A common
stock depends in part on the research and reports that research analysts publish about us and our business. If we do not maintain
adequate research coverage, or if one or more analysts who covers us downgrades our stock or publishes inaccurate or unfavorable
research about our business, the price of our Class A common stock could decline. If one or more of the research analysts ceases
coverage of our company or fails to publish reports on us regularly, demand for our Class A common stock could decrease, which
could cause our stock price or trading volume to decline.
We are obligated to maintain proper and
effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting
in a timely manner, or this internal control may not be determined to be effective, which may adversely affect investor confidence
in our company and, as a result, the value of our common stock.
We are required, pursuant to the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), to furnish a report by management on, among other things,
the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material
weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors
have issued an attestation report on our internal controls.
While we were able to determine in our management's
report for fiscal 2014 that our internal control over financial reporting is effective, as well as provide an unqualified attestation
report from our independent registered public accounting firm to that effect, we may not be able to complete our evaluation, testing,
and any required remediation in a timely fashion or our independent registered public accounting firm may not be able to formally
attest to the effectiveness of our internal control over financial reporting in the future. During the evaluation and testing process,
if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate
before the end of the same fiscal year in which the material weakness is identified, we will be unable to assert that our internal
controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors
are unable to attest to the effectiveness of our internal controls or determine we have a material weakness in our internal controls,
we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our
common stock to decline.
If we are unable to pay quarterly dividends, our reputation
and stock price may be harmed.
Our payment of dividends may require the
use of a significant portion of our cash earnings. As a result, we may not retain a sufficient amount of cash to fund our operations
or finance future growth opportunities, new product development initiatives and unanticipated capital expenditures which could
adversely affect our financial performance. Additionally, our board of directors may, at its discretion, decrease or entirely discontinue
the payment of dividends at any time. Our ability to pay dividends will depend on our ability to generate sufficient cash flows
from operations in the future. This ability may be subject to certain economic, financial, competitive and other factors that are
beyond our control. Any failure to pay dividends may negatively impact our reputation and investor confidence in use and may negatively
impact the price of our common stock.
12
Our common stock ownership is concentrated
The dual class structure of our common
stock as contained in our charter documents has the effect of concentrating voting control with certain stockholders, including
Karl Lopker and Pamela Lopker, thus limiting our other stockholders' ability to influence corporate matters
.
Our Class B common stock has one vote per
share and our Class A common stock has 1/20
th
vote per share. Stockholders who hold shares of our Class B common stock
together held approximately 83% of the voting power of our outstanding capital stock as of October 31, 2014. As of October 31,
2014, Karl Lopker and Pamela Lopker jointly and beneficially owned approximately 59% of the outstanding shares of our Class A and
Class B common stock, representing approximately 58% of the voting power of our outstanding capital stock. Currently they have
sufficient voting control to determine the outcome of a stockholder vote concerning:
•
The election and removal of all members of our board of directors, who determine our management and policies;
•
The merger, consolidation or sale of the Company or all of our assets; and
•
All other matters requiring stockholder approval, regardless of how our other stockholders vote their shares.
In addition, the holders of our Class B common
stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock
holdings represent less than 50% of the outstanding shares of our common stock. Because of the 20-to-1 voting ratio between our
Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the
combined voting power of our common stock even when the shares of Class B common stock represent as little as 5% of the combined
voting power of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit the ability
of our Class A stockholders to influence corporate matters for the foreseeable future, and, as a result, the market price of our
Class A common stock could be adversely affected.
This concentrated control limits the ability
of our other stockholders to influence corporate matters and also limits the liquidity of the shares owned by other stockholders.
Karl Lopker's and Pamela Lopker's concentrated control could discourage others from initiating potential merger, takeover
or other change of control transactions; and, transactions could be pursued that our other stockholders do not view as beneficial.
As a result, the market price of our Class A and Class B common stock could be adversely affected.
We are not required to comply with certain
corporate governance rules of NASDAQ that would otherwise apply to us as a company listed on NASDAQ because we are a controlled
company
.
Specifically, we are not required to have
a majority of independent directors on our board of directors and we are not required to have nominating and compensation committees
composed of independent directors. Should the interests of Karl Lopker and Pamela Lopker differ from those of other stockholders,
the other stockholders may not be afforded the protections of having a majority of directors on the board who are independent from
our principal stockholders or our management.
Provisions in the Company's charter documents
or Delaware law could discourage a takeover that stockholders may consider favorable
.
Our Certificate of Incorporation contains
certain other provisions that may have an "anti-takeover" effect. The Certificate of Incorporation contains authority
for the Board to issue up to 5,000,000 shares of preferred stock without stockholder approval. Although the Company has no present
intention to issue any such shares, we could issue such shares in a manner that deters or seeks to prevent an unsolicited bid for
us. The Certificate of Incorporation also does not provide for cumulative voting and, accordingly, a significant minority stockholder
could not necessarily elect any designee to the board of directors. In addition, Section 203 of the Delaware Corporation Law may
discourage, delay, or prevent a change in control of us by imposing certain restrictions on various business combinations. Furthermore,
our dual class structure concentrates the voting power of our stock in a small group of stockholders who would have the ability
to control the outcome of a stockholder vote. As a result of these provisions in the Company's Certificate of Incorporation, including
our dual class structure, and Delaware law, our stockholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices and it would be more difficult to replace our directors and management.
13
We are dependent upon highly skilled personnel
Our performance depends on the talents and
efforts of highly skilled employees, including the continued service of a relatively small number of key technical and senior management
personnel. In particular, our Chairman of the Board and President, Pamela Lopker, and Chief Executive Officer, Karl Lopker, are
critical to overall management of QAD, maintenance of our culture and setting our strategic direction. All of our executive officers
and key employees are at-will employees and we do not have key-person insurance covering any of our employees. Our future success
depends on our continuing ability to attract and retain highly skilled personnel in all areas of our organization. Competition
for such personnel is intense and many of our competitors are larger and have greater financial resources for attracting skilled
personnel. The loss of key technical and senior management personnel or the inability to attract and retain additional qualified
personnel could have an adverse effect on our continued ability to compete effectively.
14
Pursuant to 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.
QAD Inc.
Dated:  January 6, 2015
By:
/s/ Daniel Lender
Daniel Lender
Chief Financial Officer, Secretary
15