##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2009
 OR
 o
    
    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 0-22823
 QAD Inc.
  Delaware
    
    77-0105228(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
 100 Innovation Place, Santa Barbara, California 93108
 (805) 566-6000
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



QAD INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONITEM 1 Financial Statements (unaudited)Condensed Consolidated Balance Sheets 
as of
October 31, 2009 and January 31, 2009
    
    
    1Condensed Consolidated Statements of Operations

for the Three and Nine Months Ended October 31, 2009 and 2008
    
    
    2Condensed Consolidated Statements of Cash Flows

for the Nine Months Ended October 31, 2009 and 2008
    
    
    3Notes to Condensed Consolidated Financial
Statements
    
    
    4ITEM 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk
    
    
    31ITEM 4 Controls and Procedures
    
    
    31PART II  OTHER INFORMATIONITEM 1 Legal Proceedings
    
    
    32ITEM 1A Risk Factors
    
    
    32ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32ITEM 3 Defaults Upon Senior Securities
    
    
    32ITEM 4 Submission of Matters to a Vote of Security Holders
    
    
    32ITEM 5 Other Information
    
    
    32ITEM 6 Exhibits
    
    
    32SIGNATURES
    
    
    33Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I
 
 ITEM 1 
    
    FINANCIAL STATEMENTS
 QAD INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (in thousands, except share data)
 (unaudited)
 October 31,
    
    
    January 31,2009
    
    
    2009AssetsCurrent assets:Cash and equivalents
    
    $
    43,727
    
    
    $
    31,467Accounts receivable, net
    
    
    40,225
    
    
    
    70,954Other current assets
    
    
    18,780
    
    
    
    19,164Total current assets
    
    
    102,732
    
    
    
    121,585Property and equipment, net
    
    
    38,575
    
    
    
    41,438Capitalized software costs, net
    
    
    3,054
    
    
    
    5,699Goodwill
    
    
    6,338
    
    
    
    6,237Other assets, net
    
    
    18,035
    
    
    
    18,786Total assets
    
    $
    168,734
    
    
    $
    193,745Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    280
    
    
    $
    266Accounts payable
    
    
    6,411
    
    
    
    12,494Deferred revenue
    
    
    68,665
    
    
    
    81,392Other current liabilities
    
    
    24,553
    
    
    
    31,081Total current liabilities
    
    
    99,909
    
    
    
    125,233Long-term debt
    
    
    16,511
    
    
    
    16,717Other liabilities
    
    
    4,395
    
    
    
    4,324Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value. Authorized 5,000,000
shares; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value. Authorized 150,000,000
shares; issued 35,350,481 shares at both October 31, 2009 and
January 31, 2009
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    142,446
    
    
    
    139,930Treasury stock, at cost (4,113,646 and 4,597,758 shares at
October 31, 2009 and January 31, 2009, respectively)
    
    
    (33,031
    )
    
    
    (36,614
    )Accumulated deficit
    
    
    (52,050
    )
    
    
    (49,103
    )Accumulated other comprehensive loss
    
    
    (9,481
    )
    
    
    (6,777
    )Total stockholders equity
    
    
    47,919
    
    
    
    47,471Total liabilities and stockholders equity
    
    $
    168,734
    
    
    $
    193,745
   1




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##### Table of Contents



QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:License fees
    
    $
    8,409
    
    
    $
    13,055
    
    
    $
    21,318
    
    
    $
    36,448Maintenance and other
    
    
    33,779
    
    
    
    32,687
    
    
    
    98,732
    
    
    
    101,341Services
    
    
    14,052
    
    
    
    22,025
    
    
    
    42,498
    
    
    
    66,329Total revenue
    
    
    56,240
    
    
    
    67,767
    
    
    
    162,548
    
    
    
    204,118Costs and expenses:Cost of license fees
    
    
    1,813
    
    
    
    2,689
    
    
    
    5,351
    
    
    
    7,474Cost of maintenance, service and other revenue
    
    
    20,719
    
    
    
    28,548
    
    
    
    65,179
    
    
    
    86,200Sales and marketing
    
    
    12,168
    
    
    
    17,825
    
    
    
    38,731
    
    
    
    55,938Research and development
    
    
    8,678
    
    
    
    10,794
    
    
    
    28,349
    
    
    
    33,165General and administrative
    
    
    7,101
    
    
    
    8,260
    
    
    
    23,492
    
    
    
    25,180Amortization of intangibles from acquisitions
    
    
    121
    
    
    
    184
    
    
    
    468
    
    
    
    559Total costs and expenses
    
    
    50,600
    
    
    
    68,300
    
    
    
    161,570
    
    
    
    208,516Operating income (loss)
    
    
    5,640
    
    
    
    (533
    )
    
    
    978
    
    
    
    (4,398
    )Other expense (income):Interest income
    
    
    (132
    )
    
    
    (366
    )
    
    
    (440
    )
    
    
    (1,213
    )Interest expense
    
    
    321
    
    
    
    309
    
    
    
    948
    
    
    
    948Other expense (income), net
    
    
    (511
    )
    
    
    20
    
    
    
    (609
    )
    
    
    456Total other expense (income)
    
    
    (322
    )
    
    
    (37
    )
    
    
    (101
    )
    
    
    191Income (loss) before income taxes
    
    
    5,962
    
    
    
    (496
    )
    
    
    1,079
    
    
    
    (4,589
    )Income tax expense (benefit)
    
    
    1,208
    
    
    
    1,325
    
    
    
    415
    
    
    
    (605
    )Net income (loss)
    
    $
    4,754
    
    
    $
    (1,821
    )
    
    $
    664
    
    
    $
    (3,984
    )Basic net income (loss) per share
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.13
    )Diluted net income (loss) per share
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.13
    )
   2




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##### Table of Contents



QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)
 (unaudited)
 Nine Months EndedOctober 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    664
    
    
    $
    (3,984
    )Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Depreciation and amortization
    
    
    7,918
    
    
    
    8,232Provision for doubtful accounts and sales adjustments
    
    
    1,990
    
    
    
    562Loss on disposal of property and equipment
    
    
    38
    
    
    
    Exit costs
    
    
    217
    
    
    
    206Stock compensation expense
    
    
    3,667
    
    
    
    4,468Other, net
    
    
    (464
    )
    
    
    (278
    )Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    31,787
    
    
    
    26,410Other assets
    
    
    (304
    )
    
    
    (2,180
    )Accounts payable
    
    
    (4,052
    )
    
    
    95Deferred revenue
    
    
    (17,452
    )
    
    
    (21,840
    )Other liabilities
    
    
    (8,405
    )
    
    
    (2,085
    )Net cash provided by operating activities
    
    
    15,604
    
    
    
    9,606Cash flows from investing activities:Purchase of property and equipment
    
    
    (645
    )
    
    
    (4,810
    )Capitalized software costs
    
    
    (314
    )
    
    
    (821
    )Acquisition of businesses, net of cash acquired
    
    
    (14
    )
    
    
    (6,235
    )Proceeds from sale of marketable securities
    
    
    
    
    
    
    275Proceeds from sale of property and equipment
    
    
    41
    
    
    
    3Net cash used in investing activities
    
    
    (932
    )
    
    
    (11,588
    )Cash flows from financing activities:Repayments of debt
    
    
    (192
    )
    
    
    (221
    )Proceeds from issuance of common stock
    
    
    56
    
    
    
    456Changes in book overdraft
    
    
    (2,476
    )
    
    
    (1,015
    )Cash dividends paid
    
    
    (1,227
    )
    
    
    (2,300
    )Repurchase of common stock
    
    
    
    
    
    
    (2,219
    )Net cash used in financing activities
    
    
    (3,839
    )
    
    
    (5,299
    )Effect of exchange rates on cash and equivalents
    
    
    1,427
    
    
    
    (2,104
    )Net increase (decrease) in cash and equivalents
    
    
    12,260
    
    
    
    (9,385
    )Cash and equivalents at beginning of period
    
    
    31,467
    
    
    
    45,613Cash and equivalents at end of period
    
    $
    43,727
    
    
    $
    36,228Supplemental disclosure of non-cash activities:Future obligations associated with dividend declaration
    
    $
    777
    
    
    $
    767Dividends paid in stock
    
    
    1,089
    
    
    
    
   3




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##### Table of Contents



QAD INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (unaudited)
 1. BASIS OF PRESENTATION
  Reclassifications and Corrections of Previously Issued Financial Statements
   As Previously
    
    
    Effect of
    
    
    AsReported
    
    
    Adjustment
    
    
    Adjusted(in thousands, except per share data)Statement of Operations for the year ended January 31, 2009:Maintenance and other revenue
    
    $
    133,717
    
    
    $
    (637
    )
    
    $
    133,080Services revenue
    
    
    83,050
    
    
    
    (60
    )
    
    
    82,990Total revenue
    
    
    263,440
    
    
    
    (697
    )
    
    
    262,743Operating loss
    
    
    (23,166
    )
    
    
    (697
    )
    
    
    (23,863
    )Loss before income taxes
    
    
    (22,734
    )
    
    
    (697
    )
    
    
    (23,431
    )Income tax expense
    
    
    361
    
    
    
    (72
    )
    
    
    289Net loss
    
    
    (23,095
    )
    
    
    (625
    )
    
    
    (23,720
    )Per common share:Basic net loss per share
    
    
    (0.75
    )
    
    
    (0.02
    )
    
    
    (0.77
    )Diluted net loss per share
    
    
    (0.75
    )
    
    
    (0.02
    )
    
    
    (0.77
    )Balance Sheet as of January 31, 2009:Other current assets
    
    
    19,092
    
    
    
    72
    
    
    
    19,164Total current assets
    
    
    121,513
    
    
    
    72
    
    
    
    121,585Total assets
    
    
    193,673
    
    
    
    72
    
    
    
    193,745Deferred revenue
    
    
    80,695
    
    
    
    697
    
    
    
    81,392Total current liabilities
    
    
    124,536
    
    
    
    697
    
    
    
    125,233Accumulated deficit
    
    
    (48,478
    )
    
    
    (625
    )
    
    
    (49,103
    )Total stockholders equity
    
    
    48,096
    
    
    
    (625
    )
    
    
    47,471Total liabilities and stockholders equity
    
    
    193,673
    
    
    
    72
    
    
    
    193,745
  4




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 2. RECENT ACCOUNTING PRONOUNCEMENTS
 Recently Issued Accounting Standards
 Revenue Recognition
  Fair Value Measurement
  Recently Adopted Accounting Standards
 Accounting Standards Codification
  Subsequent Events
   5




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
 Business Combinations
   3. COMPUTATION OF NET INCOME (LOSS) PER SHARE
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Net income (loss)
    
    $
    4,754
    
    
    $
    (1,821
    )
    
    $
    664
    
    
    $
    (3,984
    )Weighted average shares of common
stock outstanding  basic
    
    
    31,120
    
    
    
    30,671
    
    
    
    30,925
    
    
    
    30,656Weighted average shares of common
stock equivalents using the
treasury stock method
    
    
    1,309
    
    
    
    
    
    
    
    976
    
    
    
    3⁄4Weighted average shares of common
stock and common stock equivalents
outstanding  diluted
    
    
    32,429
    
    
    
    30,671
    
    
    
    31,901
    
    
    
    30,656Basic net income (loss) per share
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.13
    )Diluted net income (loss) per share
    
    $
    0.15
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    (0.13
    )
   6




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 4. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Net income (loss)
    
    $
    4,754
    
    
    $
    (1,821
    )
    
    $
    664
    
    
    $
    (3,984
    )Foreign currency
translation adjustments
    
    
    (727
    )
    
    
    (2,143
    )
    
    
    (2,704
    )
    
    
    (1,843
    )Comprehensive income (loss)
    
    $
    4,027
    
    
    $
    (3,964
    )
    
    $
    (2,040
    )
    
    $
    (5,827
    )
 5. FAIR VALUE MEASUREMENTS
  Fair value measurement at reporting date usingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(in thousands)Money market mutual funds
    
    $
    24,308
    
    
    $
    
    
    
    $
    
    
    
    $
    24,308Total
    
    $
    24,308
    
    
    $
    
    
    
    $
    
    
    
    $
    24,308
    7




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 6. CAPITALIZED SOFTWARE COSTS
  October 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Capitalized software costs:Acquired software technology
    
    $
    9,245
    
    
    $
    8,594Capitalized software development costs
    
    
    4,081
    
    
    
    3,80813,326
    
    
    
    12,402Less accumulated amortization
    
    
    (10,272
    )
    
    
    (6,703
    )Capitalized software costs, net
    
    $
    3,054
    
    
    $
    5,699
   7. GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  North
    
    
    Asia
    
    
    LatinAmerica
    
    
    Pacific
    
    
    America
    
    
    Total(in thousands)Balances, January 31, 2009
    
    $
    4,734
    
    
    $
    887
    
    
    $
    616
    
    
    $
    6,237Impact of foreign currency
translation
    
    
    3⁄4
    
    
    
    40
    
    
    
    61
    
    
    
    101Balances, October 31, 2009
    
    $
    4,734
    
    
    $
    927
    
    
    $
    677
    
    
    $
    6,338
   8




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 7. GOODWILL AND INTANGIBLE ASSETS (Continued)
 Intangible Assets
 October 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Amortizable intangible assets:Customer relationships
    
    $
    1,658
    
    
    $
    1,534Trade name
    
    
    571
    
    
    
    501Covenant not to compete
    
    
    154
    
    
    
    1352,383
    
    
    
    2,170Less accumulated amortization
    
    
    (2,301
    )
    
    
    (1,638
    )Amortizable intangible assets, net
    
    $
    82
    
    
    $
    532
  8. DEBT
 October 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Total debt:Notes payable
    
    $
    16,791
    
    
    $
    16,983Less current maturities
    
    
    (280
    )
    
    
    (266
    )Long-term debt
    
    $
    16,511
    
    
    $
    16,717
 Notes Payable
  Credit Facility
   9




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 8. DEBT (Continued)
    9. INCOME TAXES
      10




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK-BASED COMPENSATION
      Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Stock-based compensation expense:Cost of maintenance, service and other revenue
    
    $
    134
    
    
    $
    271
    
    
    $
    647
    
    
    $
    884Sales and marketing
    
    
    271
    
    
    
    299
    
    
    
    711
    
    
    
    1,107Research and development
    
    
    122
    
    
    
    207
    
    
    
    487
    
    
    
    667General and administrative
    
    
    646
    
    
    
    494
    
    
    
    1,822
    
    
    
    1,810Total stock-based compensation expense
    
    $
    1,173
    
    
    $
    1,271
    
    
    $
    3,667
    
    
    $
    4,468
  11




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK BASED COMPENSATION (Continued)
   Nine Months EndedOctober 31,2009(5)
    
    
    2008Expected life in years (1)
    
    
    5.17
    
    
    
    5.25Risk free interest rate (2)
    
    
    2.06
    %
    
    
    3.20
    %Volatility (3)
    
    
    66
    %
    
    
    50
    %Dividend rate (4)
    
    
    2.40
    %
    
    
    1.37
    %
 
 (1)
    
    Except for the New SARs that were issued as a result of the Program, the expected
life of SARs granted under the stock plans is based on historical exercise patterns, which the
Company believes are representative of future behavior. The expected
life of the New SARs was estimated to be the full remaining contractual term. Excluding the effect of the New SARs
granted as a result of the Program, the weighted average expected life in years would be 4.78.(2)
    
    The risk-free interest rate is based on the U.S. Treasury yield for a term
consistent with the expected life of SARs in effect at the time of grant. Excluding the effect
of the New SARs granted as a result of the Program, the weighted average risk free rate would
be 1.17%.(3)
    
    The Company estimates the volatility of its common stock at the date of grant based
on the historical volatility of the Companys common stock, which it believes is
representative of the expected volatility over the expected life of SARs. Excluding the effect
of the New SARs granted as a result of the Program, the weighted average volatility would be
69%.(4)
    
    The Company expects to continue paying quarterly dividends at the same rate as it
has over the last year. Excluding the effect of the New SARs granted as a result of the
Program, the weighted average dividend rate would be 2.16%.(5)
    
    The valuation of the New SARs granted as a result of the Program are included in the
calculations above.  12




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK BASED COMPENSATION (Continued)
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    RemainingOptions/
    
    
    Price per
    
    
    Contractual
    
    
    AggregateSARs
    
    
    Share
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding at January 31, 2009
    
    
    5,967
    
    
    $
    7.99
    
    
    
    4.9
    
    
    $
    22Granted (1)
    
    
    2,586
    
    
    
    4.26Exercised
    
    
    (20
    )
    
    
    2.87Forfeited / expired / cancelled (2)
    
    
    (3,992
    )
    
    
    8.05Outstanding at October 31, 2009
    
    
    4,541
    
    
    $
    5.83
    
    
    
    5.1
    
    
    $
    1,533Vested and expected to vest at October 31, 2009 (3)
    
    
    4,163
    
    
    $
    5.94
    
    
    
    5.0
    
    
    $
    1,411Vested and exercisable at October 31, 2009
    
    
    1,718
    
    
    $
    7.79
    
    
    
    3.2
    
    
    $
    452
 
 (1)
    
    As a result of the Program a total of 1,539,372 SARs were
granted during the third quarter of fiscal 2010 with an
exercise price of $3.91.(2)
    
    Includes 3,378,161 Options and SARs cancelled during the
third quarter of fiscal 2010 as a part of the Program.(3)
    
    The expected-to-vest Options and SARs are the result of
applying the pre-vesting forfeiture rate assumptions to
total outstanding equity awards.    13




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK BASED COMPENSATION (Continued)
   WeightedAverageGrant DateRSUs
    
    
    Fair Value(in thousands)Restricted stock at January 31, 2009
    
    
    747
    
    
    $
    6.39Granted
    
    
    415
    
    
    
    4.20Vested (1)
    
    
    (192
    )
    
    
    6.56Forfeited
    
    
    (9
    )
    
    
    6.96Restricted stock at October 31, 2009
    
    
    961
    
    
    $
    5.40Restricted stock expected to vest as of October 31, 2009(2)
    
    
    843
    
    
    $
    6.16
 
 (1)
    
    The number of RSUs vested includes shares withheld on behalf
of employees to satisfy statutory tax withholding
requirements.(2)
    
    RSUs expected to vest are net of estimated future forfeitures.  11. STOCKHOLDERS EQUITY
 Cash or Stock Dividend
    12. COMMITMENTS AND CONTINGENCIES
 Indemnifications
   14




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 12. COMMITMENTS AND CONTINGENCIES (Continued)
  Legal Actions
  13. BUSINESS SEGMENT INFORMATION
    Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Revenue:North America (1)
    
    $
    23,977
    
    
    $
    30,504
    
    
    $
    70,378
    
    
    $
    88,803EMEA
    
    
    17,990
    
    
    
    21,487
    
    
    
    51,482
    
    
    
    64,790Asia Pacific
    
    
    10,510
    
    
    
    11,308
    
    
    
    30,089
    
    
    
    36,647Latin America
    
    
    3,763
    
    
    
    4,468
    
    
    
    10,599
    
    
    
    13,878$
    56,240
    
    
    $
    67,767
    
    
    $
    162,548
    
    
    $
    204,118Operating income (loss):North America
    
    $
    4,307
    
    
    $
    2,958
    
    
    $
    8,949
    
    
    $
    8,698EMEA
    
    
    1,155
    
    
    
    (934
    )
    
    
    674
    
    
    
    (1,622
    )Asia Pacific
    
    
    587
    
    
    
    268
    
    
    
    1,546
    
    
    
    2,450Latin America
    
    
    318
    
    
    
    (125
    )
    
    
    64
    
    
    
    (383
    )Corporate
    
    
    (727
    )
    
    
    (2,700
    )
    
    
    (10,255
    )
    
    
    (13,541
    )$
    5,640
    
    
    $
    (533
    )
    
    $
    978
    
    
    $
    (4,398
    )
  15




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 13. BUSINESS SEGMENT INFORMATION (Continued)
 October 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Property and equipment, net:North America
    
    $
    31,980
    
    
    $
    34,580EMEA
    
    
    4,825
    
    
    
    4,731Asia Pacific
    
    
    1,360
    
    
    
    1,704Latin America
    
    
    410
    
    
    
    423$
    38,575
    
    
    $
    41,438
 
 (1)
    
    Sales into Canada accounted for 4% of North America total revenue in both the three
and nine months ended October 31, 2009 and for 4% and 3% of North America total revenue for the
three and nine months ended October 31, 2008. 14. RESTRUCTURING CHARGES
   Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2009(in thousands)Cost of maintenance, services and other revenue
    
    $
    340
    
    
    $
    1,074Sales and marketing
    
    
    468
    
    
    
    1,125Research and development
    
    
    70
    
    
    
    624General and administrative
    
    
    14
    
    
    
    332Total restructuring charges
    
    $
    892
    
    
    $
    3,155
  16




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 14. RESTRUCTURING CHARGES (Continued)
 Q4 Fiscal 2009 Restructuring Plan
  Q2 Fiscal 2010 Restructuring Plan
  Q3 Fiscal 2010 Restructuring Plan
  Restructuring Accruals
  Q4 Fiscal 2009
    
    
    Q2 Fiscal 2010
    
    
    Q3 Fiscal 2010Restructuring
    
    
    Restructuring
    
    
    RestructuringPlan
    
    
    Plan
    
    
    Plan
    
    
    Total(in thousands)Balance as of January 31, 2009
    
    $
    2,872
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    2,872Employee severance pay and related
expenses
    
    
    819
    
    
    
    1,496
    
    
    
    927
    
    
    
    3,242Cash paid
    
    
    (3,514
    )
    
    
    (1,436
    )
    
    
    (622
    )
    
    
    (5,572
    )Reversal of previous charges
    
    
    (76
    )
    
    
    (11
    )
    
    
    3⁄4
    
    
    
    (87
    )Impact of foreign currency translation
    
    
    30
    
    
    
    3
    
    
    
    3⁄4
    
    
    
    33Balance as of October 31, 2009
    
    $
    131
    
    
    $
    52
    
    
    $
    305
    
    
    $
    488
 15. SUBSEQUENT EVENT
   17




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ITEM 2 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  INTRODUCTION
  OVERVIEW
       18




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CRITICAL ACCOUNTING POLICIES
  Revenue Recognition
      19




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Accounts Receivable Allowances
  20




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##### Table of Contents



Goodwill and Intangible Assets
   Capitalized Software Development Costs.
 Valuation of Deferred Tax Assets
  21




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##### Table of Contents



Tax Contingency Reserves:
  Stock-based Compensation Expense
     22




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:License fees
    
    
    15
    %
    
    
    19
    %
    
    
    13
    %
    
    
    18
    %Maintenance and other
    
    
    60
    
    
    
    48
    
    
    
    61
    
    
    
    50Services
    
    
    25
    
    
    
    33
    
    
    
    26
    
    
    
    32Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Costs and expenses:Cost of license fees
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    4Cost of maintenance, service and other revenue
    
    
    37
    
    
    
    42
    
    
    
    40
    
    
    
    42Sales and marketing
    
    
    22
    
    
    
    27
    
    
    
    24
    
    
    
    28Research and development
    
    
    15
    
    
    
    16
    
    
    
    17
    
    
    
    16General and administrative
    
    
    13
    
    
    
    12
    
    
    
    15
    
    
    
    12Amortization of intangibles from acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    90
    
    
    
    101
    
    
    
    99
    
    
    
    102Operating income (loss)
    
    
    10
    
    
    
    (1
    )
    
    
    1
    
    
    
    (2
    )Other expense (income)
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes
    
    
    11
    
    
    
    (1
    )
    
    
    1
    
    
    
    (2
    )Income tax expense (benefit)
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    Net income (loss)
    
    
    8
    %
    
    
    (3
    )%
    
    
    1
    %
    
    
    (2
    )%
 Comparison of revenues
 Total Revenue
  23




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License Revenue
  Maintenance and Other Revenue
    24




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Services Revenue.
  Comparison of costs and expenses
 Restructuring
    Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2009
    
    
    2009(in thousands)Cost of maintenance, services and other revenue
    
    $
    340
    
    
    $
    1,074Sales and marketing
    
    
    468
    
    
    
    1,125Research and development
    
    
    70
    
    
    
    624General and administrative
    
    
    14
    
    
    
    332Total restructuring charges
    
    $
    892
    
    
    $
    3,155
  25




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##### Table of Contents



Q4 Fiscal 2009 Restructuring Plan
  Q2 Fiscal 2010 Restructuring Plan
  Q3 Fiscal 2010 Restructuring Plan
  Restructuring Accruals
  Q4 Fiscal 2009
    
    
    Q2 Fiscal 2010
    
    
    Q3 Fiscal 2010Restructuring
    
    
    Restructuring
    
    
    RestructuringPlan
    
    
    Plan
    
    
    Plan
    
    
    Total(in thousands)Balance as of January 31, 2009
    
    $
    2,872
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    2,872Employee severance pay and related expenses
    
    
    819
    
    
    
    1,496
    
    
    
    927
    
    
    
    3,242Cash paid
    
    
    (3,514
    )
    
    
    (1,436
    )
    
    
    (622
    )
    
    
    (5,572
    )Reversal of previous charges
    
    
    (76
    )
    
    
    (11
    )
    
    
    3⁄4
    
    
    
    (87
    )Impact of foreign currency translation
    
    
    30
    
    
    
    3
    
    
    
    3⁄4
    
    
    
    33Balance as of October 31, 2009
    
    $
    131
    
    
    $
    52
    
    
    $
    305
    
    
    $
    488
 Total Cost of Revenue.
  26




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##### Table of Contents



Sales and Marketing.
  Research and Development.
   27




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##### Table of Contents



General and Administrative.
 .
 Amortization of Intangibles from Acquisitions.
  Other Expense (Income)
  Income Tax Expense:
   28




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LIQUIDITY AND CAPITAL RESOURCES
          29




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CONTRACTUAL OBLIGATIONS
 Credit Facility
      30




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##### Table of Contents



Notes Payable
  
 ITEM 3 
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange
  Interest Rates.
  
 ITEM 4 
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
  31




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##### Table of Contents



PART II
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibits31.1
    
    
    Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    
    Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32




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##### Table of Contents



QAD Inc.
(Registrant)Date: December 10, 2009
    By:
    /s/ DANIEL LENDERDaniel LenderExecutive Vice President, Chief Financial Officer
(on behalf of the Registrant)By:
    /s/ KARA BELLAMYKara BellamySenior Vice President, Corporate Controller
(Chief Accounting Officer)  33