##### 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 April 30, 2007
 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
(State or other jurisdiction of
incorporation or organization)
    
    77-0105228
(I.R.S. Employer Identification No.)
 6450 Via Real, Carpinteria, California 93013
 (805) 684-6614
 þ o
  o þ o
 o þ




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##### 



QAD INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONITEM 1
    
    Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of
April 30, 2007 and January 31, 2007
    
    
    1Condensed Consolidated Statements of Operations
for the Three Months Ended April 30, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows
for the Three Months Ended April 30, 2007 and 2006
    
    
    3Notes to Condensed Consolidated Financial
Statements
    
    
    4ITEM 2
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    15ITEM 3
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    23ITEM 4
    
    Controls and Procedures
    
    
    24PART II  OTHER INFORMATIONITEM 1
    
    Legal Proceedings
    
    
    25ITEM 1A
    
    Risk Factors
    
    
    25ITEM 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25ITEM 3
    
    Defaults Upon Senior Securities
    
    
    25ITEM 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    25ITEM 5
    
    Other Information
    
    
    25ITEM 6
    
    Exhibits
    
    
    25SIGNATURES
    
    
    
    
    26EXHIBIT 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)
 April 30,
    
    
    January 31,2007
    
    
    2007AssetsCurrent assets:Cash and equivalents
    
    $
    55,463
    
    
    $
    54,192Restricted cash
    
    
    2,612
    
    
    
    2,612Accounts receivable, net
    
    
    54,984
    
    
    
    68,806Other current assets
    
    
    18,357
    
    
    
    16,352Total current assets
    
    
    131,416
    
    
    
    141,962Property and equipment, net
    
    
    42,451
    
    
    
    42,396Capitalized software costs, net
    
    
    9,702
    
    
    
    9,631Goodwill
    
    
    19,898
    
    
    
    18,834Other assets, net
    
    
    14,885
    
    
    
    14,194Total assets
    
    $
    218,352
    
    
    $
    227,017Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    262
    
    
    $
    272Accounts payable
    
    
    8,975
    
    
    
    11,662Deferred revenue
    
    
    74,220
    
    
    
    77,075Other current liabilities
    
    
    31,454
    
    
    
    37,951Total current liabilities
    
    
    114,911
    
    
    
    126,960Long-term debt
    
    
    17,223
    
    
    
    17,271Other liabilities
    
    
    6,589
    
    
    
    4,756Minority interest
    
    
    
    
    
    
    672Commitments 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 35,354,225 and 35,351,923 shares at
April 30, 2007 and January 31, 2007, respectively
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    130,280
    
    
    
    128,757Treasury stock, at cost (2,747,513 and 3,061,400 shares at
April 30, 2007 and January 31, 2007, respectively)
    
    
    (20,522
    )
    
    
    (22,870
    )Accumulated deficit
    
    
    (24,164
    )
    
    
    (21,216
    )Accumulated other comprehensive loss
    
    
    (6,000
    )
    
    
    (7,348
    )Total stockholders equity
    
    
    79,629
    
    
    
    77,358Total liabilities and stockholders equity
    
    $
    218,352
    
    
    $
    227,017
  1




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##### Table of Contents



QAD INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 Three Months EndedApril 30,2007
    
    
    2006License fees
    
    $
    10,197
    
    
    $
    10,291Maintenance and other
    
    
    31,037
    
    
    
    30,190Services
    
    
    15,410
    
    
    
    12,926Total revenue
    
    
    56,644
    
    
    
    53,407Costs and expenses:Cost of license fees
    
    
    1,863
    
    
    
    1,661Cost of maintenance, service and other revenue
    
    
    22,919
    
    
    
    19,944Sales and marketing
    
    
    16,093
    
    
    
    15,631Research and development
    
    
    10,443
    
    
    
    9,373General and administrative
    
    
    8,127
    
    
    
    6,399Amortization of intangibles from acquisitions
    
    
    211
    
    
    
    10Total costs and expenses
    
    
    59,656
    
    
    
    53,018Operating (loss) income
    
    
    (3,012
    )
    
    
    389Other (income) expense:Interest income
    
    
    (585
    )
    
    
    (659
    )Interest expense
    
    
    319
    
    
    
    310Other (income) expense, net
    
    
    (76
    )
    
    
    (1,384
    )Total other (income) expense
    
    
    (342
    )
    
    
    (1,733
    )(Loss) income before income taxes
    
    
    (2,670
    )
    
    
    2,122Income tax (benefit) expense
    
    
    (778
    )
    
    
    713Net (loss) income
    
    $
    (1,892
    )
    
    $
    1,409Basic net (loss) income per share
    
    $
    (0.06
    )
    
    $
    0.04Diluted net (loss) income per share
    
    $
    (0.06
    )
    
    $
    0.04
  2




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QAD INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months EndedApril 30,2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (1,892
    )
    
    $
    1,409Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation and amortization
    
    
    2,185
    
    
    
    1,749Provision for doubtful accounts and sales adjustments
    
    
    243
    
    
    
    156(Gain) loss on disposal of property and equipment
    
    
    (56
    )
    
    
    1Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    (358
    )Exit costs
    
    
    
    
    
    
    112Stock compensation expense
    
    
    1,477
    
    
    
    1,283Other, net
    
    
    (120
    )
    
    
    2Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    13,716
    
    
    
    19,079Other assets
    
    
    26
    
    
    
    (1,696
    )Accounts payable
    
    
    (3,289
    )
    
    
    (1,081
    )Deferred revenue
    
    
    (4,091
    )
    
    
    (3,912
    )Other liabilities
    
    
    (7,180
    )
    
    
    (5,555
    )Net cash provided by operating activities
    
    
    1,019
    
    
    
    11,189Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,209
    )
    
    
    (1,319
    )Capitalized software costs
    
    
    (447
    )
    
    
    (213
    )Acquisition of businesses, net of cash acquired
    
    
    (95
    )
    
    
    (1,067
    )Proceeds from sale of property and equipment
    
    
    57
    
    
    
    159Net cash used in investing activities
    
    
    (1,694
    )
    
    
    (2,440
    )Cash flows from financing activities:Repayments of debt
    
    
    (61
    )
    
    
    (78
    )Proceeds from issuance of common stock
    
    
    1,433
    
    
    
    526Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    358Changes in cash overdraft
    
    
    (423
    )
    
    
    1,307Dividends paid
    
    
    (810
    )
    
    
    (815
    )Net cash provided by financing activities
    
    
    139
    
    
    
    1,298Effect of exchange rates on cash and equivalents
    
    
    1,807
    
    
    
    (1,043
    )Net increase in cash and equivalents
    
    
    1,271
    
    
    
    9,004Cash and equivalents at beginning of period
    
    
    54,192
    
    
    
    59,971Cash and equivalents at end of period
    
    $
    55,463
    
    
    $
    68,975
  3




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. BASIS OF PRESENTATION
  RECLASSIFICATIONS
  2. RECENT ACCOUNTING PRONOUNCEMENTS
 Taxes Collected From Customers
 .
 Uncertainty in Income Taxes
  Fair Value Measurements
  Fair Value Option for Financial Assets and Financial Liabilities
  4




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 3. COMPUTATION OF NET (LOSS) INCOME PER SHARE
  Three Months EndedApril 30,2007
    
    

2006(in thousands, except per share data)Net (loss) income
    
    $
    (1,892
    )
    
    $
    1,409Weighted average shares of common
stock outstanding  basic
    
    
    32,426
    
    
    
    32,621Weighted average shares of common
stock equivalents issued using the
treasury stock method
    
    
    
    
    
    
    801Weighted average shares of common
stock and common stock equivalents
outstanding  diluted
    
    
    32,426
    
    
    
    33,422Basic net (loss) income per share
    
    $
    (0.06
    )
    
    $
    0.04Diluted net (loss) income per share
    
    $
    (0.06
    )
    
    $
    0.04
  4. COMPREHENSIVE (LOSS) INCOME
  Three Months EndedApril 30,2007
    
    
    2006(in thousands)Net (loss) income
    
    $
    (1,892
    )
    
    $
    1,409Foreign currency translation adjustments
    
    
    1,348
    
    
    
    (1,091
    )Comprehensive (loss) income
    
    $
    (544
    )
    
    $
    318
 5




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 5. BUSINESS COMBINATIONS
  FBO Systems, Inc.
   Precision Software Limited
    Bisgen Ltd.
   6




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 5. BUSINESS COMBINATIONS (Continued)
 Soft Cell N.V.
      6. CAPITALIZED SOFTWARE COSTS
  April 30,
    
    
    January 31,2007
    
    
    2007(in thousands)Capitalized software costs:Acquired software technology
    
    $
    9,284
    
    
    $
    9,996Capitalized software development costs
    
    
    2,891
    
    
    
    2,63912,175
    
    
    
    12,635Accumulated amortization
    
    
    (2,473
    )
    
    
    (3,004
    )Capitalized software costs, net
    
    $
    9,702
    
    
    $
    9,631
   7




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 6. CAPITALIZED SOFTWARE COSTS (Continued)
   7. GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  North
    
    
    
    
    
    
    AsiaAmerica
    
    
    EMEA
    
    
    Pacific
    
    
    Latin America
    
    
    Total(in thousands)Balances, January 31, 2007
    
    $
    3,563
    
    
    $
    14,151
    
    
    $
    316
    
    
    $
    804
    
    
    $
    18,834Additions
    
    
    23
    
    
    
    23
    
    
    
    286
    
    
    
    
    
    
    
    332Impact of foreign currency
translation
    
    
    
    
    
    
    710
    
    
    
    18
    
    
    
    4
    
    
    
    732Balances, April 30, 2007
    
    $
    3,586
    
    
    $
    14,884
    
    
    $
    620
    
    
    $
    808
    
    
    $
    19,898
   Intangible Assets
 April 30,
    
    
    January 31,2007
    
    
    2007(in thousands)Amortizable intangible assetsCustomer relationships
    
    $
    1,466
    
    
    $
    1,430Trade name
    
    
    522
    
    
    
    499Covenant not to compete
    
    
    206
    
    
    
    203Other
    
    
    36
    
    
    
    342,230
    
    
    
    2,166Less: accumulated amortization
    
    
    (611
    )
    
    
    (382
    )Net amortizable intangible assets
    
    $
    1,619
    
    
    $
    1,784
 8




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 7. GOODWILL AND INTANGIBLE ASSETS (Continued)
  8. LONG-TERM DEBT
 April 30,
    
    
    January 31,2007
    
    
    2007(in thousands)Total debtNotes payable
    
    $
    17,431
    
    
    $
    17,479Capital lease obligations
    
    
    54
    
    
    
    6417,485
    
    
    
    17,543Less current maturities
    
    
    262
    
    
    
    272Long-term debt
    
    $
    17,223
    
    
    $
    17,271
 Notes Payable
  Credit Facility
    9




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 9. INCOME TAXES
     United States  federal
    
    Fiscal years ended January 31, 2002 and laterUnited States  states
    
    Fiscal years ended January 31, 2002 and laterAustralia
    
    Fiscal years ended January 31, 2002 and laterFrance
    
    Fiscal years ended January 31, 2004 and laterIreland
    
    Fiscal years ended January 31, 1999 and laterNetherlands
    
    Fiscal years ended January 31, 2002 and laterUnited Kingdom
    
    Fiscal years ended January 31, 2004 and later
  10. STOCKHOLDERS EQUITY
 Stock Based Compensation
  10




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCKHOLDERS EQUITY (Continued)
     Three Months EndedApril 30,2007
    
    2006Expected life in years (1)
    
    
    5.25
    
    
    
    5.04Risk free interest rate (2)
    
    
    4.59
    %
    
    
    5.00
    %Volatility (3)
    
    
    59
    %
    
    
    70
    %Dividend rate (4)
    
    
    1.04
    %
    
    
    1.30
    %
 
 (1)
    
    The expected life of equity awards granted under the stock plans is based on historical
exercise patterns, which the Company believes are representative of future behavior.(2)
    
    The risk-free interest rate is based on the U.S. Treasury yield for a term consistent
with the expected life of the equity awards in effect at the time of grant.(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 the equity award.(4)
    
    The Company expects to continue paying quarterly dividends at the same rate as it has
over the last year. 11




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCKHOLDERS EQUITY (Continued)
  Weighted AverageWeighted Average
    
    RemainingEquity Awards
    
    Exercise Price per
    
    Contractual Term
    
    Aggregate Intrinsic(000s)
    
    share
    
    (years)
    
    Value (000s)Outstanding at January 31, 2007
    
    
    5,634
    
    
    $
    7.38
    
    
    
    5.39Granted
    
    
    1,013
    
    
    
    9.24Exercised
    
    
    (316
    )
    
    
    4.53Expired
    
    
    (95
    )
    
    
    14.04Forfeited
    
    
    (140
    )
    
    
    7.87Outstanding at April 30, 2007
    
    
    6,096
    
    
    $
    7.72
    
    
    
    5.84
    
    
    $
    12,166Vested and expected to vest at
April 30, 2007 (1)
    
    
    5,213
    
    
    $
    7.64
    
    
    
    5.66
    
    
    $
    10,915Vested and exercisable at April 30, 2007
    
    
    2,070
    
    
    $
    6.77
    
    
    
    3.86
    
    
    $
    6,588
 
 (1)
    
    The expected to vest equity awards are the result of applying the
pre-vesting forfeiture rate assumptions to total outstanding equity
awards.  Stock Repurchase
  12




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 11. COMMITMENTS AND CONTINGENCIES
 Indemnifications
   Legal Actions
  12. BUSINESS SEGMENT INFORMATION
   13




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 12. BUSINESS SEGMENT INFORMATION (Continued)
  Three Months EndedApril 30,2007
    
    
    2006(in thousands)Revenue:North America
    
    $
    22,968
    
    
    $
    23,501EMEA
    
    
    19,863
    
    
    
    17,646Asia Pacific
    
    
    10,031
    
    
    
    8,755Latin America
    
    
    3,782
    
    
    
    3,505$
    56,644
    
    
    $
    53,407Operating income (loss):North America
    
    $
    2,338
    
    
    $
    3,975EMEA
    
    
    191
    
    
    
    (26
    )Asia Pacific
    
    
    343
    
    
    
    300Latin America
    
    
    (95
    )
    
    
    (343
    )Corporate
    
    
    (5,789
    )
    
    
    (3,517
    )$
    (3,012
    )
    
    $
    389
 April 30,
    
    
    January 31,2007
    
    
    2007(in thousands)Identifiable assets:North America
    
    $
    124,147
    
    
    $
    126,633EMEA
    
    
    61,790
    
    
    
    70,489Asia Pacific
    
    
    23,310
    
    
    
    21,051Latin America
    
    
    9,105
    
    
    
    8,844$
    218,352
    
    
    $
    227,017
 14




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##### Table of Contents



ITEM 2 
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 FORWARD-LOOKING STATEMENTS
  INTRODUCTION
  OVERVIEW
 The Business
     CRITICAL ACCOUNTING POLICIES
  15




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Revenue Recognition.
   License Revenue.
   Maintenance Revenue.
 Services Revenue.
  16




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##### Table of Contents



Accounts Receivable Allowances.
 Goodwill and Intangible Assets.
   Capitalized Software Costs.
 17




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##### Table of Contents



Valuation of Deferred Tax Assets and Tax Contingency Reserves.
  Equity-based Compensation Expense.
   18




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months EndedApril 30,2007
    
    2006Revenue:License fees
    
    
    18
    %
    
    
    19
    %Maintenance and other
    
    
    55
    
    
    
    57Services
    
    
    27
    
    
    
    24Total revenue
    
    
    100
    
    
    
    100Costs and expenses:Cost of license fees
    
    
    3
    
    
    
    3Cost of maintenance, service and other revenue
    
    
    41
    
    
    
    37Sales and marketing
    
    
    28
    
    
    
    29Research and development
    
    
    19
    
    
    
    18General and administrative
    
    
    14
    
    
    
    12Amortization of intangibles from acquisitions
    
    
    
    
    
    
    Total costs and expenses
    
    
    105
    
    
    
    99Operating (loss) income
    
    
    (5
    )
    
    
    1Other (income) expense
    
    
    
    
    
    
    (3
    )(Loss) income before income taxes
    
    
    (5
    )
    
    
    4Income tax (benefit) expense
    
    
    (2
    )
    
    
    1Net (loss) income
    
    
    (3
    )%
    
    
    3
    %
 Total Revenue
 License Revenue
 19




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##### Table of Contents



Maintenance and Other Revenue
  Services Revenue.
 Total Cost of Revenue.
 Sales
and Marketing.
 Research and Development.
 General and Administrative.
 20




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Amortization of Intangibles from Acquisitions.
 Other (Income) Expense
 Income
Tax (Benefit) Expense.
 LIQUIDITY AND CAPITAL RESOURCES
  Working Capital
    billed
 earned
 21




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Net Cash
  Cash Flows
  Operating Activities
  Investing Activities
  Financing Activities
   22




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Contractual Obligations
 Notes Payable
  Credit Facility
     
 ITEM 3 
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange
  Interest Rates.
 23




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ITEM 4 
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
 24




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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
 Exhibits
 31.1
    
    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
 25




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Date: June 11, 2007
    By:
    /s/ DANIEL LENDERDaniel LenderExecutive Vice President, Chief Financial Officer
(on behalf of the Registrant) 26