##### 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, 2010
 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
 Yes þ No o.
 Yes o No o.
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 Yes o No þ.




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##### 



QAD INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONITEM 1 Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of October 31, 2010 and January 31, 2010
    
    
    1Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended October 31, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 31, 2010 and 2009
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14ITEM 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 6 Exhibits
    
    
    25SIGNATURES
    
    
    26Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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PART I
 
 ITEM 1  FINANCIAL STATEMENTS
 QAD INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 (unaudited)
 October 31,
    
    
    January 31,2010
    
    
    2010AssetsCurrent assets:Cash and equivalents
    
    $
    57,734
    
    
    $
    44,678Accounts receivable, net
    
    
    41,090
    
    
    
    61,089Deferred tax assets, net
    
    
    3,549
    
    
    
    3,548Other current assets
    
    
    13,419
    
    
    
    13,680Total current assets
    
    
    115,792
    
    
    
    122,995Property and equipment, net
    
    
    34,576
    
    
    
    37,219Capitalized software costs, net
    
    
    904
    
    
    
    2,446Goodwill
    
    
    6,486
    
    
    
    6,348Long-term deferred tax assets, net
    
    
    19,427
    
    
    
    19,411Other assets, net
    
    
    2,528
    
    
    
    2,755Total assets
    
    $
    179,713
    
    
    $
    191,174Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    299
    
    
    $
    285Accounts payable
    
    
    6,468
    
    
    
    7,952Deferred revenue
    
    
    73,881
    
    
    
    85,745Other current liabilities
    
    
    26,047
    
    
    
    24,835Total current liabilities
    
    
    106,695
    
    
    
    118,817Long-term debt
    
    
    16,214
    
    
    
    16,443Other liabilities
    
    
    4,457
    
    
    
    6,363Commitments 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 35,352,991 and 35,351,281 shares at October 31, 2010 and
January 31, 2010, respectively
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    145,514
    
    
    
    143,121Treasury stock, at cost (3,660,720 and 4,011,526 shares at
October 31, 2010 and January 31, 2010, respectively)
    
    
    (29,685
    )
    
    
    (32,275
    )Accumulated deficit
    
    
    (54,773
    )
    
    
    (52,480
    )Accumulated other comprehensive loss
    
    
    (8,744
    )
    
    
    (8,850
    )Total stockholders equity
    
    
    52,347
    
    
    
    49,551Total liabilities and stockholders equity
    
    $
    179,713
    
    
    $
    191,174
   1




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QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share data)
 (unaudited)
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue:License fees
    
    $
    6,761
    
    
    $
    8,409
    
    
    $
    19,719
    
    
    $
    21,318Maintenance and other
    
    
    33,221
    
    
    
    33,779
    
    
    
    97,306
    
    
    
    98,732Services
    
    
    15,427
    
    
    
    14,052
    
    
    
    40,530
    
    
    
    42,498Total revenue
    
    
    55,409
    
    
    
    56,240
    
    
    
    157,555
    
    
    
    162,548Costs and expenses:Cost of license fees
    
    
    932
    
    
    
    1,813
    
    
    
    3,952
    
    
    
    5,351Cost of maintenance,
service and other revenue
    
    
    21,989
    
    
    
    20,719
    
    
    
    63,109
    
    
    
    65,179Sales and marketing
    
    
    13,024
    
    
    
    12,168
    
    
    
    38,713
    
    
    
    38,731Research and development
    
    
    8,134
    
    
    
    8,678
    
    
    
    26,280
    
    
    
    28,349General and administrative
    
    
    7,472
    
    
    
    7,101
    
    
    
    22,613
    
    
    
    23,492Amortization of
intangibles from
acquisitions
    
    
    14
    
    
    
    121
    
    
    
    41
    
    
    
    468Total costs and expenses
    
    
    51,565
    
    
    
    50,600
    
    
    
    154,708
    
    
    
    161,570Operating income
    
    
    3,844
    
    
    
    5,640
    
    
    
    2,847
    
    
    
    978Other expense (income):Interest income
    
    
    (140
    )
    
    
    (132
    )
    
    
    (384
    )
    
    
    (440
    )Interest expense
    
    
    317
    
    
    
    321
    
    
    
    924
    
    
    
    948Other, net
    
    
    139
    
    
    
    (511
    )
    
    
    17
    
    
    
    (609
    )Total other expense (income)
    
    
    316
    
    
    
    (322
    )
    
    
    557
    
    
    
    (101
    )Income before income taxes
    
    
    3,528
    
    
    
    5,962
    
    
    
    2,290
    
    
    
    1,079Income tax expense
    
    
    1,855
    
    
    
    1,208
    
    
    
    1,522
    
    
    
    415Net income
    
    $
    1,673
    
    
    $
    4,754
    
    
    $
    768
    
    
    $
    664Basic net income per share
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.02
    
    
    $
    0.02Diluted net income per share
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.02
    
    
    $
    0.02
   2




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QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Nine Months EndedOctober 31,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    768
    
    
    $
    664Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    5,604
    
    
    
    7,918Provision for doubtful accounts and sales adjustments
    
    
    197
    
    
    
    1,990Loss on disposal of property and equipment
    
    
    49
    
    
    
    38Exit costs
    
    
    
    
    
    
    217Stock compensation expense
    
    
    4,199
    
    
    
    3,667Other, net
    
    
    (240
    )
    
    
    (464
    )Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    20,182
    
    
    
    31,787Other assets
    
    
    349
    
    
    
    (304
    )Accounts payable
    
    
    (1,500
    )
    
    
    (4,052
    )Deferred revenue
    
    
    (14,096
    )
    
    
    (17,452
    )Other liabilities
    
    
    545
    
    
    
    (8,405
    )Net cash provided by
operating activities
    
    
    16,057
    
    
    
    15,604Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,004
    )
    
    
    (645
    )Capitalized software costs
    
    
    (297
    )
    
    
    (314
    )Other, net
    
    
    (7
    )
    
    
    27Net cash used in investing
activities
    
    
    (1,308
    )
    
    
    (932
    )Cash flows from financing activities:Repayments of debt
    
    
    (215
    )
    
    
    (192
    )Proceeds from issuance of common stock
    
    
    122
    
    
    
    56Tax payments related to net share settlements of restricted stock
    
    
    (457
    )
    
    
    Changes in book overdraft
    
    
    
    
    
    
    (2,476
    )Dividends paid in cash
    
    
    (1,934
    )
    
    
    (1,227
    )Net cash used in financing
activities
    
    
    (2,484
    )
    
    
    (3,839
    )Effect of exchange rates on cash and equivalents
    
    
    791
    
    
    
    1,427Net increase in cash and equivalents
    
    
    13,056
    
    
    
    12,260Cash and equivalents at beginning of period
    
    
    44,678
    
    
    
    31,467Cash and equivalents at end of period
    
    $
    57,734
    
    
    $
    43,727Supplemental disclosure of non-cash activities:Obligations associated with dividend declaration
    
    $
    789
    
    
    $
    777Dividends paid in stock
    
    
    423
    
    
    
    1,089
   3




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QAD INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. BASIS OF PRESENTATION
  2. COMPUTATION OF NET INCOME PER SHARE
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per share data)Net income
    
    $
    1,673
    
    
    $
    4,754
    
    
    $
    768
    
    
    $
    664Weighted average shares of common
stock outstanding  basic
    
    
    31,581
    
    
    
    31,120
    
    
    
    31,473
    
    
    
    30,925Weighted average potential common shares
    
    
    1,987
    
    
    
    1,309
    
    
    
    2,004
    
    
    
    976Weighted average shares of common
stock and potential common shares
outstanding  diluted
    
    
    33,568
    
    
    
    32,429
    
    
    
    33,477
    
    
    
    31,901Basic net income per share
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.02
    
    
    $
    0.02Diluted net income per share
    
    $
    0.05
    
    
    $
    0.15
    
    
    $
    0.02
    
    
    $
    0.02
   4




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3. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net income
    
    $
    1,673
    
    
    $
    4,754
    
    
    $
    768
    
    
    $
    664Foreign currency translation adjustments
    
    
    (560
    )
    
    
    (727
    )
    
    
    106
    
    
    
    (2,704
    )Comprehensive income (loss)
    
    $
    1,113
    
    
    $
    4,027
    
    
    $
    874
    
    
    $
    (2,040
    )
 4. FAIR VALUE MEASUREMENTS
  Fair value measurement at reporting date usingQuoted Prices inActive Markets for
    
    
    Significant Other
    
    
    SignificantIdentical Assets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)(in thousands)Money market mutual funds as of
October 31, 2010
    
    $
    42,761
    
    
    $
    
    
    
    $
    Money market mutual funds as of
January 31, 2010
    
    $
    26,930
    
    
    $
    
    
    
    $
    
   5. CAPITALIZED SOFTWARE COSTS
  October 31,
    
    
    January 31,2010
    
    
    2010(in thousands)Capitalized software costs:Acquired software technology
    
    $
    2,065
    
    
    $
    4,402Capitalized software development costs
    
    
    956
    
    
    
    4,1673,021
    
    
    
    8,569Less accumulated amortization
    
    
    (2,117
    )
    
    
    (6,123
    )Capitalized software costs, net
    
    $
    904
    
    
    $
    2,446
   5




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6. GOODWILL
  Gross Carrying
    
    
    AccumulatedAmount
    
    
    Impairment
    
    
    Goodwill, Net(in thousands)Balance at January 31, 2010
    
    $
    21,956
    
    
    $
    (15,608
    )
    
    $
    6,348Impact of foreign currency translation
    
    
    138
    
    
    
    
    
    
    
    138Balance at October 31, 2010
    
    $
    22,094
    
    
    $
    (15,608
    )
    
    $
    6,486
  7. DEBT
 October 31,
    
    
    January 31,2010
    
    
    2010(in thousands)Note payable
    
    $
    16,513
    
    
    $
    16,728Less current maturities
    
    
    (299
    )
    
    
    (285
    )Long-term debt
    
    $
    16,214
    
    
    $
    16,443
 Note Payable
  Credit Facility
   6




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8. INCOME TAXES
    9. STOCKHOLDERS EQUITY
 Dividends
    7




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10. STOCK-BASED COMPENSATION
  Exchange Program
    Stock-Based Compensation Expense
  Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Stock-based compensation expense:Cost of maintenance, service and other revenue
    
    $
    259
    
    
    $
    134
    
    
    $
    757
    
    
    $
    647Sales and marketing
    
    
    297
    
    
    
    271
    
    
    
    881
    
    
    
    711Research and development
    
    
    245
    
    
    
    122
    
    
    
    691
    
    
    
    487General and administrative
    
    
    647
    
    
    
    646
    
    
    
    1,870
    
    
    
    1,822Total stock-based compensation expense
    
    $
    1,448
    
    
    $
    1,173
    
    
    $
    4,199
    
    
    $
    3,667
  8




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##### Table of Contents



Option/SAR Information
  Nine Months EndedOctober 31,2010
    
    
    2009(1)
    
    
    2009(2)Expected life in years(3)
    
    
    5.79
    
    
    
    5.17
    
    
    
    4.78Risk free interest rate(4)
    
    
    2.27
    %
    
    
    2.06
    %
    
    
    1.17
    %Volatility(5)
    
    
    61
    %
    
    
    66
    %
    
    
    69
    %Dividend rate(6)
    
    
    2.23
    %
    
    
    2.40
    %
    
    
    2.16
    %
 
 (1)
    
    The valuation assumptions including the New SARs granted as a result of the Program.(2)
    
    The valuation assumptions excluding the New SARs granted as a result of the Program.(3)
    
    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.(4)
    
    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.(5)
    
    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.(6)
    
    The Company expects to continue paying quarterly dividends at the same rate as it has over the last year.  9




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Weighted
    
    
    WeightedAverage
    
    
    AverageStock Options/
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateSARs
    
    
    Price per
    
    
    Contractual
    
    
    Intrinsic Value(in thousands)
    
    
    Share
    
    
    Term (years)
    
    
    (in thousands)Outstanding at January 31, 2009
    
    
    5,967
    
    
    $
    7.99Granted (1)
    
    
    2,586
    
    
    
    4.26Exercised
    
    
    (91
    )
    
    
    2.98Expired
    
    
    (344
    )
    
    
    7.80Forfeited
    
    
    (314
    )
    
    
    6.94Cancelled (2)
    
    
    (3,378
    )
    
    
    8.15Outstanding at January 31, 2010
    
    
    4,426
    
    
    $
    5.88Granted
    
    
    1,366
    
    
    
    4.48Exercised
    
    
    (55
    )
    
    
    2.93Expired
    
    
    (69
    )
    
    
    6.47Forfeited
    
    
    (172
    )
    
    
    4.45Outstanding at October 31, 2010
    
    
    5,496
    
    
    $
    5.59
    
    
    
    5.1
    
    
    $
    824Vested and expected to vest at
October 31, 2010 (3)
    
    
    5,221
    
    
    $
    5.64
    
    
    
    5.0
    
    
    $
    795Vested and exercisable at October 31, 2010
    
    
    2,725
    
    
    $
    6.63
    
    
    
    3.3
    
    
    $
    505
 
 (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)
    
    Stock options and SARs cancelled during the third quarter of fiscal 2010 as a part of the Program.(3)
    
    The expected-to-vest stock options and SARs are the result of applying the pre-vesting forfeiture
rate assumptions to total outstanding stock options and SARs.      10




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RSU Information
   WeightedAverageGrant DateRSUs
    
    
    Fair Value(in thousands)Restricted stock at January 31, 2009
    
    
    747
    
    
    $
    6.39Granted
    
    
    415
    
    
    
    4.20Vested (1)
    
    
    (203
    )
    
    
    6.65Forfeited
    
    
    (9
    )
    
    
    6.74Restricted stock at January 31, 2010
    
    
    950
    
    
    $
    5.37Granted
    
    
    256
    
    
    
    4.41Vested (1)
    
    
    (321
    )
    
    
    5.60Forfeited
    
    
    (5
    )
    
    
    4.36Restricted stock at October 31, 2010
    
    
    880
    
    
    $
    5.05
 
 (1)
    
    The number of RSUs vested includes shares withheld on
behalf of employees to satisfy statutory tax withholding
requirements.   11. RESTRUCTURING CHARGES
   Three Months
    
    
    Nine MonthsEnded
    
    
    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
  11




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Restructuring Accruals
  Q4 Fiscal 2009
    
    
    Q2 Fiscal 2010
    
    
    Q3 Fiscal 2010Restructuring
    
    
    Restructuring
    
    
    RestructuringPlan
    
    
    Plan
    
    
    Plan
    
    
    Total(in thousands)Balance as of January 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Employee severance pay and related expenses
    
    
    3,351
    
    
    
    
    
    
    
    
    
    
    
    3,351Cash paid
    
    
    (479
    )
    
    
    
    
    
    
    
    
    
    
    (479
    )Balance as of January 31, 2009
    
    $
    2,872
    
    
    $
    
    
    
    $
    
    
    
    $
    2,872Employee severance pay and related expenses
    
    
    819
    
    
    
    1,496
    
    
    
    927
    
    
    
    3,242Cash paid
    
    
    (3,526
    )
    
    
    (1,456
    )
    
    
    (930
    )
    
    
    (5,912
    )(Reversal of) adjustment to previous charges
    
    
    (92
    )
    
    
    (43
    )
    
    
    9
    
    
    
    (126
    )Impact of foreign currency translation
    
    
    24
    
    
    
    3
    
    
    
    
    
    
    
    27Balance as of January 31, 2010
    
    $
    97
    
    
    $
    
    
    
    $
    6
    
    
    $
    103Cash paid
    
    
    (93
    )
    
    
    
    
    
    
    (6
    )
    
    
    (99
    )Impact of foreign currency translation
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Balance as of October 31, 2010
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 12. COMMITMENTS AND CONTINGENCIES
 Indemnifications
   Legal Actions
  13. BUSINESS SEGMENT INFORMATION
   12




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 31,
    
    
    October 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Revenue:North America (1)
    
    $
    24,127
    
    
    $
    23,977
    
    
    $
    67,843
    
    
    $
    70,378EMEA
    
    
    15,586
    
    
    
    17,990
    
    
    
    46,900
    
    
    
    51,482Asia Pacific
    
    
    11,587
    
    
    
    10,510
    
    
    
    31,410
    
    
    
    30,089Latin America
    
    
    4,109
    
    
    
    3,763
    
    
    
    11,402
    
    
    
    10,599$
    55,409
    
    
    $
    56,240
    
    
    $
    157,555
    
    
    $
    162,548Operating income (loss):North America
    
    $
    2,982
    
    
    $
    4,307
    
    
    $
    8,000
    
    
    $
    8,949EMEA
    
    
    670
    
    
    
    1,155
    
    
    
    1,818
    
    
    
    674Asia Pacific
    
    
    822
    
    
    
    587
    
    
    
    421
    
    
    
    1,546Latin America
    
    
    357
    
    
    
    318
    
    
    
    1,335
    
    
    
    64Corporate
    
    
    (987
    )
    
    
    (727
    )
    
    
    (8,727
    )
    
    
    (10,255
    )$
    3,844
    
    
    $
    5,640
    
    
    $
    2,847
    
    
    $
    978
 
 (1)
    
    Sales into Canada accounted for 4% of North America total revenue in both the three
and nine months ended October 31, 2010 and 2009. 14. SUBSEQUENT EVENTS
     13




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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
       14




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  RESULTS OF OPERATIONS
  Revenue
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009RevenueLicense fees
    
    $
    6,761
    
    
    $
    (1,648
    )
    
    
    -20
    %
    
    $
    8,409
    
    
    $
    19,719
    
    
    $
    (1,599
    )
    
    
    -8
    %
    
    $
    21,318Percentage of total revenue
    
    
    12
    %
    
    
    
    
    
    
    
    
    
    
    15
    %
    
    
    12
    %
    
    
    
    
    
    
    
    
    
    
    13
    %Maintenance and other
    
    
    33,221
    
    
    
    (558
    )
    
    
    -2
    %
    
    
    33,779
    
    
    
    97,306
    
    
    
    (1,426
    )
    
    
    -1
    %
    
    
    98,732Percentage of total revenue
    
    
    60
    %
    
    
    
    
    
    
    
    
    
    
    60
    %
    
    
    62
    %
    
    
    
    
    
    
    
    
    
    
    61
    %Services
    
    
    15,427
    
    
    
    1,375
    
    
    
    10
    %
    
    
    14,052
    
    
    
    40,530
    
    
    
    (1,968
    )
    
    
    -5
    %
    
    
    42,498Percentage of total revenue
    
    
    28
    %
    
    
    
    
    
    
    
    
    
    
    25
    %
    
    
    26
    %
    
    
    
    
    
    
    
    
    
    
    26
    %Total revenue
    
    $
    55,409
    
    
    $
    (831
    )
    
    
    -1
    %
    
    $
    56,240
    
    
    $
    157,555
    
    
    $
    (4,993
    )
    
    
    -3
    %
    
    $
    162,548
  15




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##### Table of Contents



Total Revenue
  License Revenue
  Maintenance and Other Revenue
  16




---



##### Table of Contents



Services Revenue.
  Costs and Expenses
 Restructuring
   17




---



##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    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
 Total Cost of Revenue
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009Cost of revenueCost of license fees
    
    $
    932
    
    
    $
    (881
    )
    
    
    -49
    %
    
    $
    1,813
    
    
    $
    3,952
    
    
    $
    (1,399
    )
    
    
    -26
    %
    
    $
    5,351Cost of maintenance, services and other
    
    
    21,989
    
    
    
    1,270
    
    
    
    6
    %
    
    
    20,719
    
    
    
    63,109
    
    
    
    (2,070
    )
    
    
    -3
    %
    
    
    65,179Total cost revenue
    
    $
    22,921
    
    
    $
    389
    
    
    
    2
    %
    
    $
    22,532
    
    
    $
    67,061
    
    
    $
    (3,469
    )
    
    
    -5
    %
    
    $
    70,530Percentage of revenue
    
    
    41
    %
    
    
    
    
    
    
    
    
    
    
    40
    %
    
    
    43
    %
    
    
    
    
    
    
    
    
    
    
    43
    %
     18




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##### Table of Contents



Sales and Marketing
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009Sales and marketing
    
    $
    13,024
    
    
    $
    856
    
    
    
    7
    %
    
    $
    12,168
    
    
    $
    38,713
    
    
    $
    18
    
    
    
    0
    %
    
    $
    38,731Percentage of revenue
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    22
    %
    
    
    25
    %
    
    
    
    
    
    
    
    
    
    
    24
    %
    Research and Development
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009Research and development
    
    $
    8,134
    
    
    $
    (544
    )
    
    
    -6
    %
    
    $
    8,678
    
    
    $
    26,280
    
    
    $
    (2,069
    )
    
    
    -7
    %
    
    $
    28,349Percentage of revenue
    
    
    15
    %
    
    
    
    
    
    
    
    
    
    
    15
    %
    
    
    16
    %
    
    
    
    
    
    
    
    
    
    
    17
    %
   19




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##### Table of Contents



General and Administrative
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009General and administrative
    
    $
    7,472
    
    
    $
    371
    
    
    
    5
    %
    
    $
    7,101
    
    
    $
    22,613
    
    
    $
    (879
    )
    
    
    -4
    %
    
    $
    23,492Percentage of revenue
    
    
    13
    %
    
    
    
    
    
    
    
    
    
    
    13
    %
    
    
    14
    %
    
    
    
    
    
    
    
    
    
    
    15
    %
     20




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##### Table of Contents



Other Expense (Income)
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009Other expense (income)Interest income
    
    $
    (140
    )
    
    $
    (8
    )
    
    
    -6
    %
    
    $
    (132
    )
    
    $
    (384
    )
    
    $
    56
    
    
    
    13
    %
    
    $
    (440
    )Interest expense
    
    
    317
    
    
    
    (4
    )
    
    
    -1
    %
    
    
    321
    
    
    
    924
    
    
    
    (24
    )
    
    
    -3
    %
    
    
    948Other, net
    
    
    139
    
    
    
    650
    
    
    
    127
    %
    
    
    (511
    )
    
    
    17
    
    
    
    626
    
    
    
    103
    %
    
    
    (609
    )Total other
expense (income)
    
    $
    316
    
    
    $
    638
    
    
    
    198
    %
    
    $
    (322
    )
    
    $
    557
    
    
    $
    658
    
    
    
    651
    %
    
    $
    (101
    )Percentage of revenue
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    -1
    %
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    0
    %
  Income Tax Expense
 Three Months
    
    
    Increase (Decrease)
    
    
    Three Months
    
    
    Nine Months
    
    
    Increase (Decrease)
    
    
    Nine MonthsEnded
    
    
    Compared
    
    
    Ended
    
    
    Ended
    
    
    Compared
    
    
    EndedOctober 31,
    
    
    to Prior Period
    
    
    October 31,
    
    
    October 31,
    
    
    to Prior Period
    
    
    October 31,(in thousands)
    
    2010
    
    
    $
    
    
    %
    
    
    2009
    
    
    2010
    
    
    $
    
    
    %
    
    
    2009Income tax expense
    
    $
    1,855
    
    
    $
    647
    
    
    
    54
    %
    
    $
    1,208
    
    
    $
    1,522
    
    
    $
    1,107
    
    
    
    267
    %
    
    $
    415Percentage of revenue
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    3
    %
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    0
    %Effective tax rate
    
    
    53
    %
    
    
    
    
    
    
    
    
    
    
    20
    %
    
    
    66
    %
    
    
    
    
    
    
    
    
    
    
    39
    %
   LIQUIDITY AND CAPITAL RESOURCES
   21




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##### Table of Contents



Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 31,
    
    
    October 31,(in thousands)
    
    2010
    
    
    2009Net cash provided by operating activities
    
    $
    16,057
    
    
    $
    15,604Net cash used in investing activities
    
    
    (1,308
    )
    
    
    (932
    )Net cash used in financing activities
    
    
    (2,484
    )
    
    
    (3,839
    )Effect of foreign exchange rates on cash and equivalents
    
    
    791
    
    
    
    1,427Net increase in cash and equivalents
    
    $
    13,056
    
    
    $
    12,260
     22




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##### Table of Contents



earned
   
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange Rates.
   23




---



##### Table of Contents



Interest Rates.
  
 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 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
  25




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##### Table of Contents



QAD Inc.
(Registrant)Date: December 9, 2010
    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)  26