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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 1996

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

For the Transition Period from to

Commission File Number: 0-27876

JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 86-0787377
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11811 NORTH TATUM BLVD., SUITE 2000
PHOENIX, ARIZONA 85028
(602) 404-5500

(Address and telephone number of principal executive offices)

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

YES X NO
--- ---
The number of shares outstanding of the Registrant's Common Stock, $0.01 par
value, was 12,365,237 as of November 6, 1996.

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JDA SOFTWARE GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

PAGE NO.
--------

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Condensed Consolidated Balance Sheets as of September 30,
1996 and December 31, 1995 3

Condensed Consolidated Statements of Income for the Three
Months Ended September 30, 1996 and 1995 and the Nine Months
Ended September 30, 1996 and 1995 4

Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 5

Notes to Condensed Consolidated Financial Statements 6

Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9

PART II: OTHER INFORMATION

Item 1: Legal Proceedings 21

Item 6: Exhibits and Reports on Form 8-K 21

Signature 22

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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 and DECEMBER 31, 1995
(in thousands; unaudited)

SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
CURRENT ASSETS:

Cash and cash equivalents.............................. $ 14,411 $ 498
Restricted investments................................. -- 14,649
Accounts receivable - net.............................. 15,924 9,835
Prepaid expenses and other current assets.............. 575 277
Deferred tax assets.................................... 460 426
--------- -------
Total current assets.......................... 31,370 25,685
--------- -------
Goodwill, net.......................................... 1,667 --
Property and equipment, net............................ 4,010 2,410
--------- -------
TOTAL...................... $ 37,047 $28,095
========= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Bank line of credit.................................... -- $ 575
Amounts payable to stockholders........................ -- 19,913
Accounts payable....................................... $ 615 881
Income taxes payable................................... 663 300
Accrued and other liabilities.......................... 5,148 2,642
Deferred revenue....................................... 1,816 767
--------- -------
Total current liabilities..................... 8,242 25,078
--------- -------
Other liabilities...................................... 224 309
--------- -------
Total liabilities............................. 8,466 25,387
--------- -------
Series A redeemable convertible preferred stock................. -- 15,000

Total stockholders' equity (deficit)............................ 28,581 (12,292)
--------- -------
TOTAL...................... $ 37,047 $28,095
========= =======

See notes to condensed consolidated financial statements.

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JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data; unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----

REVENUES:
Software licenses............................... $6,098 $4,156 $16,153 $ 9,498
Consulting, maintenance and other
services...................................... 6,416 4,050 16,201 11,313
------ ------ ------- -------
Total revenues........................... 12,514 8,206 32,354 20,811
------ ------ ------- -------

COST OF REVENUES:
Software licenses............................... 21 63 266 147
Consulting, maintenance and other
services...................................... 4,633 2,714 11,154 7,157
------ ------ ------- -------
Total cost of revenues................... 4,654 2,777 11,420 7,304
------ ------ ------- -------

GROSS PROFIT...................................... 7,860 5,429 20,934 13,507
------ ------ ------- -------

OPERATING EXPENSES:
Product development............................. 1,728 1,015 4,593 2,384
Sales and marketing............................. 1,630 1,440 4,783 3,588
General and administrative...................... 1,191 1,071 3,386 2,607
------ ------ ------- -------
Total operating expenses................. 4,549 3,526 12,762 8,579
------ ------ ------- -------

INCOME FROM OPERATIONS............................ 3,311 1,903 8,172 4,928
Interest (income) expense - net................. (173) 119 (277) 311
------ ------ ------- -------
INCOME BEFORE INCOME TAXES........................ 3,484 1,784 8,449 4,617
Provision for income taxes...................... 1,396 418 3,375 787
------ ------ ------- -------
NET INCOME........................................ $2,088 $1,366 $ 5,074 $ 3,830
====== ====== ======= =======
NET INCOME PER SHARE.............................. $ 0.17 $ 0.43
====== =======

PRO FORMA:
Income before income taxes...................... $1,784 $4,617
Provision for income taxes...................... 674 1,743
------ ------
Pro forma net income............................ $1,110 $2,874
====== ======
Pro forma net income per share.................. $0.11 $0.27
====== ======

SHARES USED IN PER SHARE CALCULATION ............. 12,283 10,952 11,884 10,952
====== ====== ====== ======

See notes to condensed consolidated financial statements.

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
------------ ------------
(UNAUDITED)

OPERATING ACTIVITIES:
Net income (loss)....................................... $ 5,074 $ 3,830
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 802 242
Allowance for doubtful accounts....................... 349 195
Deferred income taxes................................. 269 (90)
Changes in assets and liabilities, net of effects from
purchase of JDA Canada:
Accounts receivable................................... (5,788) (1,525)
Receivables from related parties...................... 183
Prepaid expenses and other current assets............. (36) (736)
Accounts payable...................................... (325) (7)
Accrued and other liabilities......................... 2,193 1,097
Deferred revenue...................................... 1,049 147
Interest payable to stockholders...................... (732)
-------- -------
Net cash provided by operating activities......... 2,855 3,336
-------- -------
INVESTING ACTIVITIES:
Purchase of investments................................. (14,432)
Redemption of investments............................... 14,649
Cash acquired from purchase of TDA Canada............... 214
Purchase of equipment and leasehold improvements........ (2,154) (820)
-------- -------
Net cash (used in) provided by investing
activities...................................... 12,709 (15,252)
-------- -------
FINANCING ACTIVITIES:
Initial public offering transactions:
Issuance of common stock.............................. 25,301
Redemption of Series B preferred stock................ (7,500)
Payments on notes to stockholders..................... (4,881)
Stockholder transactions:
Issuance of redeemable preferred stock -- net......... 14,792
Reorganization distribution........................... (2,294)
Dividends............................................. (3,897)
Payments on notes payable to stockholders............. (14,300) (354)
Cash capital contribution from S Corporation
stockholders........................................
Issuance of common stock..............................
Net borrowings (payments) on bank line of credit........ (575) 1,130
Issuance of common stock -- employee stock purchase
plan.................................................. 425
Capital lease payments and other........................ (121) (7)
-------- --------
Net cash provided by (used in) financing
activities...................................... (1,651) 9,370
-------- --------
NET (DECREASE) INCREASE IN CASH........................... 13,913 (2,546)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 498 2,913
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 14,411 $ 367
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest.............................................. $ 1,302 $ 40
======== ========
Income taxes.......................................... $ 2,878 $ 15
======== ========
Assets under capital lease............................ $ 176 $ 159
======== ========
Net issuance of common stock against additional
paid-in capital..................................... $ 66
========
Distributions to stockholders paid with a
note payable........................................ $17,690
========
Conversion of Series A preferred stock.................... $ 7,500
========
Acquisition of JDA Canada:
Common stock issued..................................... $ 2,542
Fair value of assets acquired, other than cash.......... (1,149)
Liabilities assumed..................................... 499
Goodwill................................................ (1,678)
========
Cash acquired........................................... $ 214
========

See notes to condensed consolidated financial statements.

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JDA SOFTWARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and reclassifications considered necessary for a fair and comparable
presentation have been included and are of a normal recurring nature. Operating
results for the nine months ended September 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996.

2. COMPLETION OF INITIAL PUBLIC OFFERING

On March 15, 1996, the Company successfully completed its initial public
offering of common stock. The Company sold 2,182,866 shares of common stock in
the initial public offering for $25,301,290 net of issuance costs of $1,089,560.

In March 1996, subsequent to the initial public offering, all outstanding
shares of the Series A Redeemable Convertible Preferred Stock were converted
into (1) 2,800,000 shares of common stock and (2) 1,250,004 shares of Series B
Redeemable Preferred Stock. The Series B Redeemable Preferred Stock was then
redeemed for $7,500,000 in cash.

3. ACQUISITION OF JDA SOFTWARE SERVICES LTD.

On August 15, 1996, the Company acquired JDA Software Canada Ltd. (formerly
known as JDA Software Services Ltd.) ("JDA Canada") for 143,926 shares of common
stock. JDA Canada was previously an affiliated company, but has been
independently owned since 1987. The acquisition was accounted for as a purchase
resulting in goodwill of $1,677,507, which will be amortized over 15 years.
Unaudited pro-forma operating results for the year ended December 31, 1995, and
the nine months ended September 30, 1996, assuming that the acquisition had
occurred at the beginning of the applicable year are as follows:

YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------

Revenues................................................... $33,273,314 $ 35,026,070
========= =========
Net income................................................. $ 4,318,633 $ 5,099,379
========= =========
Net income per share....................................... $ 0.39 $ 0.43
========= =========

4. NET INCOME PER SHARE

Income per common and common equivalent share for the nine months ended
September 30, 1996 is computed on the weighted average number of common shares
outstanding during the period and includes the effect of shares issuable upon
exercise of stock options utilizing the treasury stock method when the effect of
such issuance is dilutive.

5. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of". The adoption of SFAS No. 121 had no effect on these interim
unaudited condensed consolidated financial statements.

6. COMMON STOCK OFFERING

The Company is preparing for a common stock offering of an aggregate of
2,450,000 shares, of which 750,000 will be sold by the Company and 1,700,000
shares will be sold by selling stockholders.

7. RELATED PARTIES

In March 1996, with the proceeds of the initial public offering, the
Company repaid notes of $4,880,832 held by stockholders.

JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

8. LITIGATION

In February 1996, a dispute arose with one of the Company's customers. The
Company initiated arbitration proceedings against the customer in an effort to
collect approximately $100,000 in remaining amounts due pursuant to its contract
with the customer. The customer counterclaimed for a full refund of the
approximately $985,000 previously paid to the Company, and the Company is
vigorously defending such counterclaim. The arbitration proceedings remain
ongoing, and the parties are engaged in settlement negotiations. Although
management believes, based upon information currently available, that a
settlement can be reached upon terms acceptable to the Company, there can be no
assurance that such will be the case or that any settlement can be reached in
this matter. The Company does not believe that the ultimate outcome of this
proceeding will have a material adverse effect on the Company.

In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6, 1990 (the
"Finder's Agreement"). Niederhoffer alleges entitlement to a finder's fee in
connection with the purchase of convertible preferred stock in the Company in
March 1995 by six investment funds advised by TA Associates, Inc. and its
affiliates ("TA Investment"), and a claim for Common Stock arising from the
related establishment of the Company and reorganization of the Company's wholly
owned subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.

The Company is contesting both the applicability of the Finder's Agreement
to the TA Investment and the related Reorganization and the measurement of the
damages as claimed by Niederhoffer. The arbitration is expected to be concluded
in December 1996, with the arbitrators' decision rendered following conclusion
of the arbitration.

The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares were issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the Common Stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.

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JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. STOCK OPTIONS

The following is a summary of changes in outstanding options related to:

NUMBER OF EXERCISE
SHARES PRICE
--------- ---------------

The 1995 Option Plan:
Outstanding at December 31, 1995............... 1,107,138 $3.50 to $5.25
Exercised.................................... (175,896) $3.50 to $4.25
---------
Outstanding at September 30, 1996.............. 931,242 $3.50 to $5.25
========
Exercisable at September 30, 1996.............. 512,708 $3.50 to $5.25
========
The 1996 Option Plan:
Outstanding at December 31, 1995............... 0
Granted...................................... 305,000 $9.60 to $19.75
Cancelled or expired......................... --
Exercised.................................... (0)
---------
Outstanding at September 30, 1996.............. 305,000 $9.60 to $19.75
========
Exercisable at September 30, 1996.............. 20,000 $9.60
========

10. LINE OF CREDIT

The Company's $2,500,000 line of credit was increased to $5,000,000 on June
17, 1996 and bears interest at the bank's reference rate. The line of credit is
no longer guaranteed by Armstrong and Pakis and matures July 1, 1998.

* * * * * *

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

JDA is an international provider of comprehensive enterprise-wide software
solutions that address the mission-critical business information requirements of
retailing organizations. Prior to the Company's formation in connection with the
Reorganization in March 1995, the Company's operations were conducted by the
Predecessor Companies, the first of which was formed in November 1985. Certain
of these Predecessor Companies operated as S Corporations for tax purposes prior
to the Reorganization. Thus, for periods prior to the Reorganization, the
Company's historical statements of operations do not include a provision for
U.S. federal income taxes and reflect certain tax strategies. See
"Reorganization and Prior S Corporation Status" and Note 1 of Notes to
Consolidated Financial Statements.

In 1986 the Company introduced MMS, its first enterprise retail information
solution, based on the IBM AS/400 platform. The Company's development efforts
through 1993 were focused exclusively on enhancements, revisions and upgrades to
MMS, which is currently in its fourth generation release. In 1994, the Company
acquired DSS, an in-store system, from JDA Software Services Ltd. ("JDA
Canada"), a then-unaffiliated Canadian company. Since 1994 the Company has
significantly increased its product development expenditures to develop products
for emerging, open platforms. The Company began limited beta installations of
ODBMS, an open, client/server enterprise system, and WinDSS, a Windows-based
in-store system, in 1995 and 1996, respectively. The commercial general
availability of ODBMS was announced in September 1996. On August 15, 1996 the
Company acquired JDA Canada in exchange for 143,926 shares of the Company's
newly issued Common Stock. The acquisition was accounted for as a purchase, and
the Company recorded $1.67 million in goodwill which it is amortizing over 15
years.

The Company has historically derived substantially all of its revenues from
software licenses and consulting, maintenance and other services relating to
MMS. The Company expects that revenues related to MMS, which accounted for 93%,
95%, 91% and 86% of total revenues in 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively, will represent a smaller portion of the
Company's total revenues as market acceptance of the Company's newer products,
particularly ODBMS and WinDSS, increases. Revenues from MMS have grown in recent
periods primarily as a result of the Company's increased international presence.
The Company expects that revenues attributable to the license of MMS and ODBMS
enterprise systems will continue to comprise the substantial majority of
software licenses revenues for the foreseeable future.

Consulting, maintenance and other services revenues are derived from a
range of services, including system design and implementation and, to a lesser
extent, software maintenance and support, and training. Historically, the level
of consulting, maintenance and other services revenues has approximated on an
annual basis the level of software license revenues. Consulting, maintenance and
other services revenues were 53% of total revenues in 1993, 49% of total
revenues in each of 1994 and 1995, and 50% of total revenues for the nine months
ended September 30, 1996. Gross margin on consulting, maintenance and other
services has historically been significantly lower than gross margin on software
licenses and the Company expects this relationship to continue. Consulting,
maintenance and other services in support of international licenses typically
have lower gross margins than those achieved domestically due to generally lower
prevailing billing rates in certain of the Company's international markets.
Therefore, planned growth in the Company's international operations may result
in further declines in gross margin on consulting, maintenance and other
services.

The Company is pursuing a strategy of addressing international markets by
developing localized versions of its products and establishing international
subsidiaries with direct sales and consulting capabilities. International
revenues, which include revenues from international subsidiaries and export
sales, comprised 31%, 28%, 39% and 43%, respectively, of total revenues in each
of 1993, 1994, 1995 and the nine months ended September 30, 1996. The Company
has operations in the U.K., Singapore, Canada, Chile, Mexico and Germany and
plans to continue to expand its international infrastructure. The Company
anticipates that

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international revenues will continue to increase as a percentage of total
revenues. However, there can be no assurance that the Company's international
expansion will be successful. In addition, the opening of new offices by the
Company typically results in initial recruiting and training expenses and
reduced labor efficiencies associated with the introduction of products to a new
customer base. Other risks inherent in the Company's international business
activities include changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products, longer accounts receivable
payment cycles, potentially adverse tax consequences, currency fluctuations,
repatriation of earnings and burdens of complying with a wide variety of local
laws.

To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. Historically, the Company has conducted a substantial majority of its
business in currencies which have been relatively stable, and exposure to
fluctuations in such currencies has been considered minimal. Accordingly, the
Company does not currently engage in foreign currency hedging transactions.
However, as the Company continues to expand its international operations,
exposures to gains and losses on foreign currency transactions may increase. The
Company may choose to limit such exposure by entering into forward foreign
exchange contracts or engaging in similar hedging strategies. There can be no
assurance that any currency exchange strategy would be successful in avoiding
exchange-related losses.

The Company's revenues are derived primarily from non-refundable license
fees for its software products and from fees for services complementary to its
products, including software consulting, maintenance and training. The Company
recognizes revenues in accordance with the provisions of American Institute of
Certified Public Accountants Statement of Position No. 91-1, Software Revenue
Recognition. Accordingly, software license revenue is recognized upon the
shipment of a product to the customer if collection is probable and the
Company's remaining obligations under the license agreement are insignificant.
License revenues for licenses with remaining significant obligations are
deferred until the Company's related obligations become insignificant.
Consulting, maintenance and other services are performed and billed under
separate agreements related to the implementation of the Company's software
products, and such revenues generally are recorded when the services are
performed. Maintenance revenues from ongoing customer support and product
upgrades are billed on a monthly basis and are recorded as revenue in the
applicable month.

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RESULTS OF OPERATIONS

Three Months Ended September 30, 1995 and 1996

Revenues

Total revenues were $8.2 million in the three months ended September 30,
1995 and $12.5 million in the comparable period of 1996, representing an
increase of 52%. International revenues comprised 42% and 52% of total revenues
in the three months ended September 30, 1995 and 1996, respectively. The
increase in international revenues as a percentage of total revenues was
primarily attributable to expanded sales and marketing efforts in Europe, Asia
and Latin America, plus the acquisition of JDA Canada on August 15, 1996.

Software Licenses. Software license revenues increased by 47% from $4.2
million in the three months ended September 30, 1995 to $6.1 million in the
comparable period of 1996. The increase was primarily due to a 66%
increase in international software licenses primarily attributable to expanded
sales and marketing efforts in Europe, Asia and Latin America, plus the
acquisition of JDA Canada, combined with a 23% increase in domestic licenses.

Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues increased by 58% from $4.1 million in the three months
ended September 30, 1995 to $6.4 million in the comparable period of 1996. The
increase was primarily attributable to increased software license revenues and
associated implementations, both internationally and domestically.

Cost of Revenues

Cost of Consulting, Maintenance and Other Services. Cost of consulting,
maintenance and other services consists primarily of consultant salaries and
other personnel related expenses incurred in system implementation projects and
software support services. These costs increased by 71% from $2.7 million in the
three months ended September 30, 1995 to $4.6 million in the comparable period
of 1996. These costs represented 67% and 72%, respectively, of consulting,
maintenance and other services revenues in the three months ended September 30,
1995 and 1996. The increase in 1996 was primarily due to expenditures associated
with the Company's domestic and international growth and expansion. The Company
anticipates that the costs of consulting, maintenance and other services will
increase during 1997 both in absolute dollars and as a percentage of revenues
due to the substantial increase in the number of consulting personnel the
Company anticipates during that period. In their first year of employment by the
Company, new consulting personnel typically spend between 2 and 10 weeks in
training, during which period they do not generally generate revenues.

Operating Expenses

Product Development. Product development expenses increased by 70%, from
$1.0 million in the three months ended September 30, 1995 to $1.7 million in the
comparable period of 1996, representing 12% and 14% of total revenues,
respectively. The increase in product development expenses was primarily a
result of an increase in the number of product development personnel from 40 as
of September 30, 1995 to 82 as of September 30, 1996. Significant product
development efforts in 1996 included the continued development of ODBMS(TM) and
WinDSS(TM) and continued enhancements to MMS(TM). The Company believes that a
continued commitment to product development will be required for the Company to
remain competitive. Accordingly, the Company intends to continue to allocate
substantial resources to product development and product development expenses
are expected to increase in absolute dollars in future periods. However, such
expenses may fluctuate as a percentage of total revenues. Product development
costs subsequent to the achievement of technological feasibility have not been
significant during these periods and, accordingly, all such costs have been
expensed as incurred.

Sales and Marketing. Sales and marketing expenses increased by 13%, from
$1.4 million in the three months ended September 30, 1995 to $1.6 million in the
comparable period of 1996, representing 18% and 13% of total revenues,
respectively. The dollar increase is due to the addition of sales and marketing
personnel and related expenses to implement the Company's strategy to increase
its presence in international and domestic markets.

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General and Administrative. General and administrative expenses increased
by 11%, from $1.1 million in the three months ended September 30, 1995 to $1.2
million in the comparable period of 1996, representing 13% and 10% of total
revenues, respectively. The dollar increase was primarily due to increased
staffing and associated expenses necessary to support the Company's increased
scale of operations. The Company anticipates that general and administrative
expenses may continue to increase in absolute dollars, but may fluctuate as a
percentage of total revenues, as the Company expands its operations.

Provision for Income Taxes. The income tax provisions include tax
provisions for U.S. federal income taxes and reflect effective tax rates of 38%
(pro forma) in the three months ended September 30, 1995 and 40% in the
comparable period of 1996. Such tax rates approximate statutory federal, state
and foreign tax rates after a reduction for U.S. research and development
expense tax credits.

Nine Months Ended September 30, 1995 and 1996

Revenues

Total revenues increased by 55% from $20.8 million for the first nine
months ended September 30, 1995 to $32.4 million in the comparable period of
1996. The increase is primarily due to increases in software licenses resulting
from expanded sales and marketing efforts both domestically and internationally,
combined with increases in consulting, maintenance and other services from
associated implementations. International revenues comprised 39% and 43% of
total revenues in the first nine months of 1995 and 1996, respectively.

Software Licenses. Software license revenues increased by 70% from $9.5
million for the nine months ended September 30, 1995 to $16.2 million in the
comparable period in 1996. The increase resulted from expanded sales and
marketing efforts in both domestic and international markets, and was comprised
of increases in software license revenues of 59% domestically and 81%
internationally.

Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues increased by 43% from $11.3 million for the nine months
ended September 30, 1995 to $16.2 million in the comparable period in 1996. The
increase was primarily attributable to increased software license revenues and
associated implementations both domestically and internationally.

Cost of Revenues

Cost of Software Licenses. Cost of software licenses consists primarily of
royalties payable for licensing of third-party software incorporated in the
Company's products and commissions payable to third parties on sales of the
Company's products. Cost of software licenses increased by 81% from $148,000 in
the nine months ended September 30, 1995 to $266,000 in the comparable period in
1996, representing less than 2% of software license revenues in both years. The
increase was primarily attributable to increased software license revenues.

Cost of Consulting, Maintenance and Other Services. Cost of consulting,
maintenance and other services consists primarily of consultant salaries and
other personnel related expenses incurred in system implementation projects and
software support services. These costs increased by 56% from $7.2 million in the
nine months ended September 30, 1995 to $11.2 million in the comparable period
in 1996. These costs represented 63% and 69%, respectively, of consulting,
maintenance and other services revenues, for the nine months ended September 30,
1995 and 1996. The increase in the comparable period in 1996 was primarily due
to expenditures associated with the Company's domestic and international growth
and expansion. The Company anticipates that the costs of consulting, maintenance
and other services will increase during 1997 both in absolute dollars and as a
percentage of revenues due to the substantial increase in the number of
consulting personnel the Company anticipates during that period. In their first
year of employment by the Company, new consulting personnel typically spend
between 2 and 10 weeks in training, during which period they do not generally
generate revenues.

Operating Expenses

Product Development. Product development expenses increased by 93% from
$2.4 million for the nine months ended September 30, 1995 to $4.6 million in the
comparable period in 1996, representing 11% and 14% of total revenues,
respectively. The increase in product development expenses was primarily a
result of an increase in the number of product development personnel from 40 as
of September 30, 1995 to 82 as of September 30, 1996. Significant product
development efforts in 1996 included the continued development of ODBMS and
WinDSS and continued enhancements to MMS. The Company believes that a continued
commitment to product development will be required for the Company to remain
competitive. Accordingly, the Company intends to continue to allocate
substantial resources to product development and product development expenses
are expected to increase in absolute dollars in future periods. However, such
expenses may fluctuate as a percentage of total revenues. Product development
costs subsequent to the achievement of technological feasibility have not been
significant during the period and, accordingly, all such costs have been
expensed as incurred.

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Sales and Marketing. Sales and marketing expenses increased by 33% from
$3.6 million for the nine months ended September 30, 1995 to $4.8 million for
the comparable period in 1996, representing 17% and 15% of total revenues,
respectively. The dollar increase was due to the addition of sales and marketing
personnel and related expenses to implement the Company's strategy to increase
its presence in international and domestic markets.

General and Administrative. General and administrative expenses increased
by 30% from $2.6 million for the nine months ended September 30, 1995 to $3.4
million for the comparable period in 1996, representing 13% and 10% of total
revenues, respectively. The dollar increase was primarily due to increased
staffing and associated expenses necessary to support the Company's increased
scale of operations. The Company anticipates that general and administrative
expenses may continue to increase in absolute dollars, but may fluctuate as a
percent of total revenues, as the Company expands its operations.

Provision for Income Taxes. Substantially all U.S. federal income through
March 30, 1995 was attributed to the stockholders of the predecessor companies
of the Company (the "Predecessor Companies"), reflecting the prior S Corporation
status of certain Predecessor Companies. Accordingly, the Company's tax
provisions do not include U.S. federal income taxes through that date. Pro forma
income tax provisions have been presented for the nine months ended September
30, 1995 in order to indicate the tax provision that would have been recorded
had all income been taxable to the Company. The income tax provisions include
tax provisions for U.S. federal income taxes and reflect effective tax rates of
38% (pro forma) for the nine months ended September 30, 1995 and 40% for the
comparable period in 1996. Such tax rates approximate statutory federal, state
and foreign tax rates after a reduction for U.S. research and development
expense tax credits.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations primarily
through cash generated from operations and, to a lesser extent, borrowings under
its bank lines of credit. As of September 30, 1996, the Company had $14.4
million in cash and cash equivalents and $5.2 million available under its bank
lines of credit.

The Company's operating activities provided cash of $3.3 million and $2.9
million in the nine months ended September 30, 1995 and 1996, respectively. Cash
from operating activities arose principally from the Company's profitable
operations and was utilized for working capital purposes, principally increases
in accounts receivable.

Cash used in investing activities in the nine months ended September 30,
1995 was $15.3 million, and cash of $12.7 million was provided by investing
activities in the comparable period of 1996. Such investing activities
principally consisted of purchases of property and equipment and, in 1995, the
acquisition of $14.4 million of restricted short-term investments used for the
repayment of stockholder notes and the redemption of such investments in 1996.

Cash provided by financing activities was $9.4 million in the nine months
ended September 30, 1995 and cash of $1.7 million was used in financing
activities in the comparable period of 1996. Financing activities in 1995
consisted primarily of borrowings under the bank line of credit, dividends and
other distributions made to the Predecessor Companies' stockholders and the sale
of Series A Preferred Stock to the Company's stockholders. Financing activities
in the nine months ended September 30, 1996 consisted primarily of the issuance
of 2,182,866 shares for the account of the Company in its initial public
offering effective March 14, 1996, and the repayment of shareholder notes
therefrom.

Borrowings under the Company's secured line of credit with Bank of America
Arizona bear interest based upon the bank's publicly announced reference rate.
At September 30, 1996 the Bank of America credit line bore interest at 8.25% and
no borrowings were outstanding under the line of credit. This line of credit
expires July 1, 1998 and the Company intends to seek renewal at that time. JDA
Canada has a cdn $200,000 secured line of credit with the Hongkong Bank of
Canada. This line of credit bears interest at the bank's prime rate plus 1%, and
expires on February 28, 1997. At September 30, 1996, no borrowings were
outstanding under this line of credit.

Capital expenditures were approximately $820,000 and $2.1 million in
the nine months ended September 30, 1995 and 1996, respectively. These
expenditures were for property and equipment, primarily computer hardware and
furniture and fixtures. Within the next nine to twelve months, the Company
anticipates acquiring the building currently utilized in the U.K. and making
necessary capital expenditures to support growth.

The Company believes that the net proceeds from its initial public
offering, another proposed public offering of its Common Stock, its bank lines
of credit and funds generated from operations will provide adequate liquidity to
meet the Company's planned capital and operating requirements for at least the
next twelve months. Thereafter, if the Company's spending plans change, the
Company may find it necessary to seek to obtain additional sources of financing
to support its capital needs, but there can be no assurance that such financing
will be available on commercially reasonable terms, if at all.

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

RISK FACTORS

This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussion containing
such forward-looking statements may be found in the material set forth under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as within the Report generally. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the risk factors set forth below and the matters set
forth in this Report generally. The Company cautions the reader, however, that
this list of factors may not be exhaustive. The Company's business is subject
to a number of risks, several of which are described below. The reader is urged
to consider the more comprehensive summary of such risks found in the Company's
Registration Statement on Form S-1 (No. 333-748), which was declared effective
on March 14, 1996, and the Company's Registration Statement on Form S-1
(No. 333-15659) filed on November 6, 1996.

Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results have varied and are expected to continue to vary in the
future. These fluctuations may be caused by many factors, including, among
others: the size and timing of individual orders; competitive pricing pressures;
customer order deferrals in anticipation of new products; variation of
consulting, maintenance and other services as a percentage of total revenues;
timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in
platforms supporting the Company's products; changes in networking or
communication technology; changes in the Company's operating expenses; personnel
changes; foreign currency exchange rates; fluctuations in the level of warranty
claims; and general industry and economic conditions.

The Company's business has experienced and is expected to continue to
experience some degree of seasonality due in large part to its retail customers'
buying cycles, with license revenues typically higher in the fourth quarter and
consulting revenues typically higher in the first quarter. Further, software
license gross margin is significantly greater than consulting, maintenance and
other services gross margin. As a result, overall gross margin has fluctuated
significantly based on revenue mix, and the Company expects this trend to
continue.

Historically, a significant portion of the Company's quarterly revenues
have been derived from relatively large licenses to a limited number of
customers, and the Company currently anticipates that this trend will continue.
Any significant cancellation or deferral of customer orders could have a
material adverse effect on the Company's operating results in any particular
quarter.

The Company's expense levels are based, in part, on its expectations as to
future revenues and to a large extent are fixed. Licenses of the Company's
products are typically accompanied by a significant amount of systems
implementation consulting. The Company's consulting resources must be managed to
meet future sales, and additional consulting personnel must be hired and trained
in advance of anticipated license revenues. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall
and, accordingly, any significant shortfall of demand in relation to the
Company's expectations or any material delay of customer orders would have an
almost immediate adverse effect on the Company's operating results.

As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of the Company's Common Stock.

Dependence on Retail Industry. The Company has derived substantially all
of its revenues to date from the license of software products and related
services to the retail industry, and its future growth is critically dependent
on increased sales to the retail industry. The success of the Company's
customers is intrinsically linked to economic conditions in the retail industry,
which in turn are subject to intense competitive pressures and are affected by
overall economic conditions. In addition, the Company believes the license of
its products is relatively discretionary and generally involves a significant
commitment of capital, because the Company's products are often accompanied by
large scale hardware purchases or commitments. As a result, although the Company
believes its products can assist retailers in a competitive environment, demand
for the Company's

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products and services could be disproportionately affected by instability or
downturns in the retail industry which may cause customers to exit the industry
or delay, cancel or reduce any planned expenditures for information management
systems and software products. The Company also believes that the retail
industry is experiencing a period of increased consolidation, which has in the
past and may in the future affect the demand for the Company's products. Recent
results in the overall retail industry have been disappointing, and the Company
anticipates that existing or prospective customers may be experiencing or may in
the future experience severe financial hardship. There can be no assurance that
the Company will be able to continue its revenue growth or sustain its
profitability on a quarterly or annual basis or that its results of operations
will not be adversely affected by continuing or future downturns in the retail
industry. Any resulting decline in demand for the Company's products and
services would have a material adverse effect on the Company's business, results
of operations and financial condition.

Management of Growth. The growth in the size and complexity of the
Company's business and expansion of its product lines and its customer base have
placed and are expected to continue to place a significant strain on the
Company's management and operations. The Company anticipates that continued
growth, if any, will require it to recruit and hire a substantial number of new
employees, including consulting and product development personnel, both
domestically and abroad. In particular, the Company's ability to undertake new
projects and increase license revenues is substantially dependent on the
availability of the Company's consulting personnel to assist in the licensing
and implementation of the Company's solutions. The Company will not be able to
continue to increase its business at historical rates without adding significant
numbers of trained consulting personnel. Accordingly, the Company is currently
attempting to significantly increase consulting capacity in anticipation of
future revenues. In their first year of employment by the Company, new
consulting personnel typically spend between 2 to 10 weeks in training, during
which period they do not generally generate revenues. To the extent anticipated
revenues fail to materialize following the hiring and training of new personnel,
the Company's operating results would be adversely affected. There can be no
assurance that qualified personnel will be located, retained or trained in a
timely manner. In the event the Company is unable to increase sufficiently its
consulting capacity, the Company may be required to forego licensing
opportunities or become increasingly dependent on systems integrators and
professional consulting firms to provide implementation services for its
products. The Company's ability to compete effectively and to manage future
growth, if any, also will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. Accordingly, the
Company's future operating results will depend on the ability of its management
and other key employees to continue to implement and improve its systems for
operations, financial control and information management, to recruit, train and
manage its employee base, in particular its direct sales force and consulting
services organization, and to deal effectively with third-party systems
integrators and consultants. There can be no assurance that the Company will be
able to manage or continue to manage its recent or any future growth, and any
failure to do so would have a material adverse effect on the Company's business,
operating results and financial condition.

Ability to Attract and Retain Technical Personnel. The Company is heavily
dependent upon its ability to attract, retain and motivate skilled technical and
managerial personnel, especially highly skilled engineers involved in ongoing
product development and consulting personnel who assist in the license and
implementation of the Company's solutions. In particular, the Company's ability
to install, maintain and enhance its enterprise products is substantially
dependent upon its ability to locate, hire and train qualified software
engineers. The market for such individuals is intensely competitive,
particularly in foreign markets. In this regard the Company, as part of its
strategy, plans to significantly increase the number of consulting personnel in
connection with the roll-out of its ODBMS and WinDSS products and to support
continued development and implementation of its MMS product line. Given the
critical role of the Company's product development and consulting staffs, the
inability to recruit successfully or the loss of a significant part of its
product development or consulting staffs would have a material adverse effect on
the Company. The software industry is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. There can be no
assurance that the Company will be able to retain its current personnel, or that
it will be able to attract,

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assimilate or retain other highly qualified technical and managerial personnel
in the future. The inability to attract, hire or retain the necessary technical
and managerial personnel could have a material adverse effect upon the Company's
business, operating results and financial condition.

Uncertain Market for ODBMS, WinDSS. The Company has recently released
ODBMS in limited commercial installations and WinDSS in limited beta
installations. Both products are open, client/server solutions. The retail
industry has only recently begun limited adoption of open, client/server
information systems. The Company believes that retailers in general may be
relatively cautious in adopting new technologies. In addition, many retailers do
not have the personnel or staff required to implement, operate and maintain an
open, client/server system, and the difficulties associated with implementing
new technology may slow or prevent adoption of the Company's new products.
Because the market for these products is new and evolving, it is difficult to
assess or predict with any assurance the growth rate, if any, and size of this
market. There also can be no assurance that the market for ODBMS or WinDSS will
develop, or that either of these products or related services will be adopted or
utilized. If the market fails to develop, develops more slowly than expected or
becomes saturated with competitors, or if the Company's products do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected.

The Company is directing a significant amount of its product development
expenditures to the ongoing development of ODBMS and WinDSS and a significant
amount of its sales and marketing resources to the full commercial introduction
of ODBMS and WinDSS. A significant effort is still required to develop and
release additional application modules for these products. The Company has
limited experience in developing and marketing products for open system
applications, and ODBMS and WinDSS have not yet been fully implemented in
customers' environments. As a result, there can be no assurance that ODBMS and
WinDSS will not require substantial software enhancements or modifications to
satisfy performance requirements of customers or to fix design defects or
previously undetected errors. It is common for complex software programs such as
ODBMS and WinDSS to contain undetected errors when first released, which are
discovered only after the product has been used over time with different
computer systems and in varying applications and environments. While the Company
is not aware of any significant technical problems with these products, there
can be no assurance that errors will not be discovered, or if discovered, that
they will be successfully corrected on a timely basis, if at all. The Company's
future business growth is substantially dependent on the continued development,
introduction and market acceptance of ODBMS and WinDSS. Should the Company fail
to release a fully commercial version of WinDSS, if customers experience
significant problems with implementation of ODBMS and WinDSS or are otherwise
dissatisfied with the functionality or performance of ODBMS or WinDSS, or if
either of these products fails to achieve market acceptance for any reason, the
Company's business, operating results and financial condition will be materially
adversely affected.

Product Concentration. The Company has derived substantially all of its
revenues from the license of a limited number of information management software
applications for the retail industry and consulting and maintenance services
related to such applications. Software licenses and related consulting,
maintenance and other services revenues from the Company's MMS product line
represented over 90% of the Company's revenues in each of the three most recent
fiscal years, and 86% for the nine months ended September 30, 1996. The Company
expects that revenues related to this product will continue to account for a
substantial but reduced percentage of total revenues as market acceptance of the
Company's newer products increases. The life cycle of the MMS product line is
difficult to estimate due in large measure to the potential effect of new
products, applications and product enhancements, including those introduced by
the Company, changes in the retail industry and future competition. The Company
expects that revenues attributable to its MMS and ODBMS enterprise products will
comprise the substantial majority of software license revenues for the
forseeable future. Any decline in MMS revenues, to the extent not offset by
increases in revenues from other products, would have a material adverse effect
on the Company's business, operating results and financial condition.

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International Operations. In 1993, 1994, 1995 and the nine months ended
September 30, 1996, international revenues, which include revenues from
international subsidiaries and export sales, comprised approximately 31%, 28%,
39% and 43%, respectively, of the Company's revenues. The Company expects that
international revenues will continue to account for a significant percentage of
the Company's revenues for the foreseeable future, and the Company intends to
continue expansion of its international infrastructure. Although the Company
maintains operations in the U.K., Singapore, Canada, Chile, Mexico and Germany,
and is currently investing significant resources in its international
operations, there can be no assurance that the Company will be successful in
expanding its international operations. The Company anticipates that continued
growth of its international operations will require the Company to recruit and
hire a number of new consulting, sales and marketing and support personnel in
the countries in which the Company has established or will establish operations.
In addition, the Company has only limited experience in developing localized
versions of its products and in marketing and distributing its products
internationally. International rollout of the Company's products requires
significant investment by the Company in advance of anticipated future revenues.
The opening of new offices by the Company typically results in initial
recruiting and training expenses and reduced labor efficiencies associated with
the introduction of products to a new market. In particular, successful
introduction of the Company's product into new markets requires the Company to
locate and hire qualified local sales and consulting personnel and train them in
the operation of the Company's products. There can be no assurance that the
countries in which the Company operates will have a sufficient pool of qualified
personnel for the Company to hire from, or that the Company will be successful
at hiring, training or retaining such personnel. In addition, there can be no
assurance that the Company will be able to successfully localize, market, sell
and deliver its products internationally. The inability of the Company to
successfully expand its international operations in a timely manner could
materially adversely affect the Company's business, operating results and
financial condition.

There are a number of other risks inherent in the Company's international
business activities, including unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign countries, longer accounts receivable payment cycles, potentially
adverse tax consequences, currency fluctuations, repatriation of earnings and
the burdens of complying with a wide variety of foreign laws. In addition,
consulting, maintenance and other services in support of international licenses
typically have lower gross margins than those achieved domestically due to lower
prevailing billing rates in certain of the Company's international markets.
Therefore, planned growth in the Company's continued operations may result in
further declines in gross margin on consulting, maintenance and other services.
To the extent the Company's international operations expand, the Company expects
that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. The Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, exposures to gains and losses on foreign currency transactions may
increase. The Company may choose to limit such exposure by entering into forward
foreign exchange contracts or engaging in similar hedging strategies. There can
be no assurance that any currency exchange strategy would be successful in
avoiding exchange-related losses. In addition, revenues of the Company earned in
various countries where the Company does business may be subject to taxation by
more than one jurisdiction, thereby adversely affecting the Company's earnings.

Competition. The market for retail information systems software is
intensely competitive. The Company believes the principal competitive factors in
such market are product quality, reliability, performance and price, vendor and
product reputation, financial stability, features and functions, ease of use and
quality of support. A number of companies offer competitive products addressing
certain of the Company's target markets. In the enterprise systems market, the
Company competes with in-house systems developed by the Company's targeted
customers and with third-party developers such as Intrepid, Island Pacific,
Radius PLC, Retek (which agreed in October 1996 to be acquired by HNC Software,
Inc.), STS Systems and Richter Management Services, among others. In addition,
the Company believes that new market entrants may attempt to develop fully
integrated enterprise-level systems targeting the retail industry. In
particular, SAP Aktiengesellschaft announced in August 1996 its intention to
release an integrated client/server enterprise

system competitive with the Company's products. In the in-store systems market,
which is more fragmented than the enterprise market, the Company competes with
major systems manufacturers such as AT&T/NCR, IBM and ICL, as well as software
companies such as Applied Intelligence Group, CRS Business Computers, Inc., Post
Software International, STS Systems, GERS Retail Systems and Gateway Data
Sciences Corporation, among others. In the market for consulting services, the
Company competes with major systems integrators such as Andersen Consulting,
Deloitte & Touche LLP, Ernst & Young LLP and Price Waterhouse's Management
Horizons Division, as well as independent consulting firms such as the ISSC
Division of IBM. Many of the Company's existing competitors, as well as a number
of potential new competitors, have significantly greater financial, technical
and marketing resources than the Company. There can be no assurance that the
Company will be able to compete successfully against its current or future
competitors or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition.

Technological Change; Market Acceptance of Evolving Standards. The
computer software industry is subject to rapid technological change, changing
customer requirements, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. As a result,
the Company's position in its existing market or other markets that it may enter
could be eroded rapidly by technological advancements not embraced by the
Company. The life cycles of the Company's products are difficult to estimate.
The products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated customer needs. In
particular, the Company believes that it must continue to respond quickly to
users' needs for broad functionality and multi-platform support and to advances
in hardware and operating systems. Introduction of new products embodying new
technologies and the emergence of new industry standards could render the
Company's products obsolete and unmarketable. There can be no assurance that the
Company will not experience future difficulties that could delay or prevent the
successful development, introduction and marketing of new products, or that new
products and product enhancements will meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable to develop and introduce
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition would be materially adversely affected.

In addition, the Company strives to achieve compatibility between the
Company's products and retailing systems platforms the Company believes are or
will become popular and widely adopted. The Company invests substantial
resources in development efforts aimed at achieving such compatibility. Any
failure by the Company to anticipate or respond adequately to technology or
market developments could result in a loss of competitiveness or revenue.

Dependence on Key Personnel. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. In
particular, the services of James D. Armstrong, the Company's Chief Executive
Officer, and Frederick M. Pakis, the Company's President, would be difficult to
replace. The Company does not have in place "key person" life insurance policies
on any of its employees. The loss of the services of any of its executive
officers or other key employees could have a material adverse effect on the
business, operating results and financial condition of the Company.

Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology, including its
software source code. The Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. The Company presently has no patents or
patent applications pending. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties, including customers who receive listings of the source code for the
Company's products pursuant to the terms of their license agreements with the
Company, may attempt to reverse engineer or copy aspects of the Company's
products or to obtain and use information

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that the Company regards as proprietary. As a result, there can be no assurance
that unauthorized use of the Company's technology may not occur.

Certain technology used by the Company's products is licensed from third
parties, generally on a non-exclusive basis. The termination of any such
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its products while it seeks to implement technology offered by
alternative sources, and any required replacement licenses could prove costly.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of the Company's products or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.

In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims and could have a material adverse effect on the Company's
business, operating results and financial condition.

Product Defects; Product Liability; Risk of Integration Difficulties. The
Company's software products are highly complex and sophisticated and could, from
time to time, contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of the Company's products
generally involves a significant amount of customer-specific customization, and
may involve integration with systems developed by third parties. Despite
extensive testing, the Company from time to time has discovered defects or
errors in its products or custom modifications only after its systems have been
used by many customers. The Company has also experienced delays in shipment of
products during the period required to correct such errors. In addition, the
Company or its customers may from time to time experience difficulties relating
to the integration of the Company's products with other hardware or software in
the customer's environment that are unrelated to defects in the Company's
products. There can be no assurance that such defects, errors or difficulties
will not cause future delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or impair customer satisfaction with the Company's products. Since
the Company's products may be used by its customers to perform mission-critical
functions, design defects, software errors, misuse of the Company's products,
incorrect data from external sources or other potential problems within or out
of the Company's control that may arise from the use of the Company's products
could result in financial or other damages to the Company's customers. The
Company does not maintain product liability insurance. Although the Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential claims as well as any liabilities
arising from such claims, such provisions may not effectively protect the
Company against such claims and the liability and costs associated therewith.
Accordingly, any such claim could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company
provides warranties for its products for a period of time (usually 6 or 12
months) after the software is installed and, if applicable, accepted by the
licensee. The Company's license agreements generally do not permit product
returns by the customer, and product returns and warranty expense for 1993,
1994, 1995 and the nine months ended September 30, 1996 represented less than
two percent of total revenues during each of such periods. However, no assurance
can be given that product returns will not increase as a percentage of total
revenues in future periods.

Pending Arbitrations. In February 1996, a dispute arose with one of the
Company's customers. The Company initiated arbitration proceedings against the
customer in an effort to collect approximately $100,000 in remaining amounts due
pursuant to its contract with the customer. The customer counterclaimed for a
full refund of the approximately $985,000 previously paid to the Company, and
the Company is vigorously defending such counterclaim. The arbitration
proceedings remain ongoing, and the parties are engaged in settlement
negotiations. Although management believes, based upon information currently
available, that a settlement can be reached upon terms acceptable to the
Company, there can be no assurance that such will be

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the case or that any settlement can be reached in this matter. The Company does
not believe that the ultimate outcome of this proceeding will have a material
adverse effect on the Company.

The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares are issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
cash paid plus the value of the Common Stock issued, valued as of the date of
the TA Investment. However, any cash awarded in lieu of shares in excess of the
value of such shares at the date of the TA Investment, would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.

Possible Volatility. Since the Company's initial public offering in March
1996, the price of the Company's Common Stock has experienced large
fluctuations. Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of technological
innovations, the introduction of new products or changes in product pricing
policies by the Company or its competitors, proprietary rights or other
litigation (including without limitation the arbitration proceedings described
in "-- Pending Arbitrations"), changes in earnings estimates by analysts or
other factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, market and political conditions such
as recessions or military conflicts, may materially and adversely affect the
market price of the Company's Common Stock.

20
21
PART II: OTHER INFORMATION

Item 1: Legal Proceedings:

In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration with the American Arbitration Association in New York,
New York asserting a claim against JDA Software Services, Inc., a wholly owned
subsidiary of the Company. Niederhoffer's claims are based upon an agreement
between it and JDA Software Services, Inc. dated April 6, 1990 (the "Finder's
Agreement"). Niederhoffer alleges entitlement to a finder's fee in connection
with the purchase of convertible preferred stock in the Company in March 1995 by
six investment funds advised by TA Associates, Inc. and its affiliates ("TA
Investment"), and a claim for Common Stock arising from the related
establishment of the Company and reorganization of the Company's wholly owned
subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.

The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares are issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
cash paid plus the value of the Common Stock issued, valued as of the date of
the TA Investment. However, any cash awarded in lieu of shares in excess of the
value of such shares at the date of the TA Investment, would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.

Item 6: Exhibits and Reports on Form 8-K:

(a) Exhibits:

See Exhibit Index.

(b) Reports on Form 8-K:

On August 30, 1996, the Company filed a Current Report on Form 8-K (the
"8-K"), dated August 15, 1996, which reported the Company's acquisition (the
"Acquisition") of all of the outstanding shares of capital stock of JDA
Software Canada Ltd., a Canadian federal corporation (formerly known as JDA
Software Services Ltd.), in exchange for 143,926 shares of the Company's
Common Stock. The Acquisition was reported under Item 5 (Other Events) of the
Form 8-K, and no financial statements were filed with the 8-K.

22
JDA SOFTWARE GROUP, INC.

SIGNATURE

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.

JDA SOFTWARE GROUP, INC.

Dated: November 8, 1996 By: /s/ THOMAS M. PROUD
-----------------------------------------
Thomas M. Proud
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting
Officer)

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23
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION

3.1* Second Restated Certificate of Incorporation of the Company.
3.2* Bylaws.
4.1* Stock Redemption Agreement among the Company, James D. Armstrong
and Frederick M. Pakis dated March 30, 1995.
10.1** 1996 Employee Stock Purchase Plan, as amended, and form of
agreement thereunder.
10.2** Business Loan Agreement between Bank of America Arizona and JDA
Software, Inc. dated June 17, 1996.
10.3+ Acquisition and Exchange Agreement among the Company and the
Shareholders of JDA Software Services Ltd. dated August 15,
1996.
11.1** Statement regarding computation of earnings per share.

* Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-748), declared effective on March 14, 1996.

** Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-15659), filed on November 6, 1996.

+ Incorporated by reference to the Company's Current Report on Form 8-K dated
August 15, 1996, as filed on August 30, 1996.