##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 31, 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
    
    77-0105228(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 100 Innovation Place, Santa Barbara, California 93108
 (805) 566-6000
 6450 Via Real, Carpinteria, California 93013
 days. Yes þ No o.
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 Act). Yes o No þ.




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##### 



QAD INC.
INDEX
 PART I  FINANCIAL INFORMATION
    
    PageITEM 1
    
    Financial Statements (unaudited)Condensed Consolidated Balance Sheets
as of July 31, 2007 and January 31, 2007
    
    
    1Condensed Consolidated Statements of Operations
for the Three and Six Months Ended July 31, 2007 and 2006
    
    
    2Condensed Consolidated Statements of Cash Flows
for the Six Months Ended July 31, 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
    
    
    25ITEM 4
    
    Controls and Procedures
    
    
    25PART II  OTHER INFORMATIONITEM 1
    
    Legal Proceedings
    
    
    26ITEM 1A
    
    Risk Factors
    
    
    26ITEM 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26ITEM 3
    
    Defaults Upon Senior Securities
    
    
    26ITEM 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    26ITEM 5
    
    Other Information
    
    
    27ITEM 6
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28Exhibit 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)
 July 31,
    
    
    January 31,2007
    
    
    2007AssetsCurrent assets:Cash and equivalents
    
    $
    46,788
    
    
    $
    54,192Restricted cash
    
    
    2,612
    
    
    
    2,612Accounts receivable, net
    
    
    53,075
    
    
    
    68,806Other current assets
    
    
    16,876
    
    
    
    16,352Total current assets
    
    
    119,351
    
    
    
    141,962Property and equipment, net
    
    
    42,202
    
    
    
    42,396Capitalized software costs, net
    
    
    9,525
    
    
    
    9,631Goodwill
    
    
    20,366
    
    
    
    18,834Other assets, net
    
    
    14,687
    
    
    
    14,194Total assets
    
    $
    206,131
    
    
    $
    227,017Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    276
    
    
    $
    272Accounts payable
    
    
    8,221
    
    
    
    11,662Deferred revenue
    
    
    69,276
    
    
    
    77,075Other current liabilities
    
    
    35,453
    
    
    
    37,951Total current liabilities
    
    
    113,226
    
    
    
    126,960Long-term debt
    
    
    17,131
    
    
    
    17,271Other liabilities
    
    
    6,525
    
    
    
    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 35,345,128 and 35,351,923 shares at
July 31, 2007 and January 31, 2007, respectively
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    131,668
    
    
    
    128,757Treasury stock, at cost (4,147,686 and 3,061,400 shares at
July 31, 2007 and January 31, 2007, respectively)
    
    
    (32,023
    )
    
    
    (22,870
    )Accumulated deficit
    
    
    (24,811
    )
    
    
    (21,216
    )Accumulated other comprehensive loss
    
    
    (5,620
    )
    
    
    (7,348
    )Total stockholders equity
    
    
    69,249
    
    
    
    77,358Total liabilities and stockholders equity
    
    $
    206,131
    
    
    $
    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 Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:License fees
    
    $
    14,811
    
    
    $
    13,471
    
    
    $
    25,008
    
    
    $
    23,762Maintenance and other
    
    
    31,766
    
    
    
    30,708
    
    
    
    62,803
    
    
    
    60,898Services
    
    
    17,620
    
    
    
    14,188
    
    
    
    33,030
    
    
    
    27,114Total revenue
    
    
    64,197
    
    
    
    58,367
    
    
    
    120,841
    
    
    
    111,774Costs and expenses:Cost of license fees
    
    
    2,060
    
    
    
    1,854
    
    
    
    3,923
    
    
    
    3,515Cost of maintenance, service and other revenue
    
    
    24,792
    
    
    
    21,091
    
    
    
    47,711
    
    
    
    41,035Sales and marketing
    
    
    17,894
    
    
    
    15,917
    
    
    
    33,987
    
    
    
    31,548Research and development
    
    
    9,946
    
    
    
    10,884
    
    
    
    20,389
    
    
    
    20,257General and administrative
    
    
    8,582
    
    
    
    7,350
    
    
    
    16,709
    
    
    
    13,749Amortization of intangibles from acquisitions
    
    
    197
    
    
    
    31
    
    
    
    408
    
    
    
    41Total costs and expenses
    
    
    63,471
    
    
    
    57,127
    
    
    
    123,127
    
    
    
    110,145Operating income (loss)
    
    
    726
    
    
    
    1,240
    
    
    
    (2,286
    )
    
    
    1,629Other (income) expense:Interest income
    
    
    (578
    )
    
    
    (732
    )
    
    
    (1,163
    )
    
    
    (1,391
    )Interest expense
    
    
    381
    
    
    
    229
    
    
    
    700
    
    
    
    539Other (income) expense, net
    
    
    1
    
    
    
    (248
    )
    
    
    (75
    )
    
    
    (1,632
    )Total other (income) expense
    
    
    (196
    )
    
    
    (751
    )
    
    
    (538
    )
    
    
    (2,484
    )Income (loss) before income taxes
    
    
    922
    
    
    
    1,991
    
    
    
    (1,748
    )
    
    
    4,113Income tax expense (benefit)
    
    
    378
    
    
    
    871
    
    
    
    (400
    )
    
    
    1,584Net income (loss)
    
    $
    544
    
    
    $
    1,120
    
    
    $
    (1,348
    )
    
    $
    2,529Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    0.08Diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    0.08
   2




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##### Table of Contents



QAD INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months EndedJuly 31,2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (1,348
    )
    
    $
    2,529Adjustments to reconcile net (loss) income to net cash provided by
operating activities:Depreciation and amortization
    
    
    4,280
    
    
    
    3,598Provision for doubtful accounts and sales adjustments
    
    
    337
    
    
    
    189(Gain) loss on disposal of property and equipment
    
    
    (85
    )
    
    
    9Exit costs
    
    
    24
    
    
    
    355Stock compensation expense
    
    
    3,000
    
    
    
    2,596Other, net
    
    
    (255
    )
    
    
    (39
    )Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    15,882
    
    
    
    20,024Other assets
    
    
    1,668
    
    
    
    517Accounts payable
    
    
    (3,418
    )
    
    
    (2,657
    )Deferred revenue
    
    
    (9,567
    )
    
    
    (12,788
    )Other liabilities
    
    
    (3,187
    )
    
    
    (4,098
    )Net cash provided by operating activities
    
    
    7,331
    
    
    
    10,235Cash flows from investing activities:Purchase of property and equipment
    
    
    (2,302
    )
    
    
    (2,211
    )Capitalized software costs
    
    
    (733
    )
    
    
    (669
    )Acquisition of businesses, net of cash acquired
    
    
    (224
    )
    
    
    (1,488
    )Proceeds from sale of intangible assets
    
    
    
    
    
    
    906Proceeds from sale of property and equipment
    
    
    99
    
    
    
    177Net cash used in investing activities
    
    
    (3,160
    )
    
    
    (3,285
    )Cash flows from financing activities:Repayments of debt
    
    
    (144
    )
    
    
    (181
    )Proceeds from issuance of common stock
    
    
    1,723
    
    
    
    877Changes in cash overdraft
    
    
    (1,359
    )
    
    
    (83
    )Dividends paid
    
    
    (1,625
    )
    
    
    (1,632
    )Repurchase of common stock
    
    
    (12,283
    )
    
    
    (4,076
    )Net cash used in financing activities
    
    
    (13,688
    )
    
    
    (5,095
    )Effect of exchange rates on cash and equivalents
    
    
    2,113
    
    
    
    (1,300
    )Net (decrease) increase in cash and equivalents
    
    
    (7,404
    )
    
    
    555Cash and equivalents at beginning of period
    
    
    54,192
    
    
    
    59,971Cash and equivalents at end of period
    
    $
    46,788
    
    
    $
    60,526
   3




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 1. BASIS OF PRESENTATION
  2. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
  Fair Value Option for Financial Assets and Financial Liabilities
   4




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 3. COMPUTATION OF NET INCOME (LOSS) PER SHARE
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands, except per share data)Net income (loss)
    
    $
    544
    
    
    $
    1,120
    
    
    $
    (1,348
    )
    
    $
    2,529Weighted average shares of common
stock outstanding  basic
    
    
    31,871
    
    
    
    32,542
    
    
    
    32,144
    
    
    
    32,581Weighted average shares of common
stock equivalents issued using the
treasury stock method
    
    
    822
    
    
    
    687
    
    
    
    
    
    
    
    752Weighted average shares of common
stock and common stock equivalents
outstanding  diluted
    
    
    32,693
    
    
    
    33,229
    
    
    
    32,144
    
    
    
    33,333Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    0.08Diluted net income (loss) per share
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    (0.04
    )
    
    $
    0.08
  4. COMPREHENSIVE INCOME
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Net income (loss)
    
    $
    544
    
    
    $
    1,120
    
    
    $
    (1,348
    )
    
    $
    2,529Foreign currency
translation
adjustments
    
    
    380
    
    
    
    (430
    )
    
    
    1,728
    
    
    
    (1,521
    )Comprehensive income
    
    $
    924
    
    
    $
    690
    
    
    $
    380
    
    
    $
    1,008
  5




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##### Table of Contents



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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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 5. BUSINESS COMBINATIONS (Continued)
 Soft Cell N.V.
      6. CAPITALIZED SOFTWARE COSTS
  July 31,
    
    
    January 31,2007
    
    
    2007(in thousands)Capitalized software costs:Acquired software technology
    
    $
    8,555
    
    
    $
    9,996Capitalized software development costs
    
    
    3,175
    
    
    
    2,63911,730
    
    
    
    12,635Accumulated amortization
    
    
    (2,205
    )
    
    
    (3,004
    )Capitalized software costs, net
    
    $
    9,525
    
    
    $
    9,631
    7




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 6. CAPITALIZED SOFTWARE COSTS (Continued)
   7. GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  North
    
    
    
    
    
    
    Asia
    
    
    LatinAmerica
    
    
    EMEA
    
    
    Pacific
    
    
    America
    
    
    Total(in thousands)Balances, January 31, 2007
    
    $
    3,563
    
    
    $
    14,151
    
    
    $
    316
    
    
    $
    804
    
    
    $
    18,834Additions
    
    
    36
    
    
    
    36
    
    
    
    568
    
    
    
    
    
    
    
    640Impact of foreign currency
translation
    
    
    
    
    
    
    840
    
    
    
    51
    
    
    
    1
    
    
    
    892Balances, July 31, 2007
    
    $
    3,599
    
    
    $
    15,027
    
    
    $
    935
    
    
    $
    805
    
    
    $
    20,366
   Intangible Assets
 July 31,
    
    
    January 31,2007
    
    
    2007(in thousands)Amortizable intangible assetsCustomer relationships
    
    $
    1,470
    
    
    $
    1,430Trade name
    
    
    524
    
    
    
    499Covenant not to compete
    
    
    189
    
    
    
    203Other
    
    
    36
    
    
    
    342,219
    
    
    
    2,166Less: accumulated amortization
    
    
    (795
    )
    
    
    (382
    )Net amortizable intangible assets
    
    $
    1,424
    
    
    $
    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. DEBT
 July 31,
    
    
    January 31,2007
    
    
    2007(in thousands)Total debtNotes payable
    
    $
    17,359
    
    
    $
    17,479Capital lease obligations
    
    
    48
    
    
    
    6417,407
    
    
    
    17,543Less current maturities
    
    
    (276
    )
    
    
    (272
    )Long-term debt
    
    $
    17,131
    
    
    $
    17,271
 Notes Payable
  Credit Facility
     9




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##### Table of Contents



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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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCKHOLDERS EQUITY (Continued)
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Stock-based compensation expense by function:Cost of maintenance, service and other revenue
    
    $
    261
    
    
    $
    217
    
    
    $
    509
    
    
    $
    461Sales and marketing
    
    
    305
    
    
    
    316
    
    
    
    656
    
    
    
    625Research and development
    
    
    203
    
    
    
    221
    
    
    
    424
    
    
    
    425General and administrative
    
    
    754
    
    
    
    559
    
    
    
    1,411
    
    
    
    1,085Total stock-based compensation expense
    
    $
    1,523
    
    
    $
    1,313
    
    
    $
    3,000
    
    
    $
    2,596
   Six Months EndedJuly 31,2007
    
    
    2006Expected life in years (1)
    
    
    5.25
    
    
    
    5.22Risk free interest rate (2)
    
    
    4.59
    %
    
    
    5.01
    %Volatility (3)
    
    
    59
    %
    
    
    72
    %Dividend rate (4)
    
    
    1.04
    %
    
    
    1.30
    %
 (1)
    
    The expected life of options and SARs 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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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCKHOLDERS EQUITY (Continued)
  Weighted
    
    
    WeightedAverage
    
    
    AverageOptions/
    
    
    Exercise
    
    
    Remaining
    
    
    AggregateSARs
    
    
    Price per
    
    
    Contractual
    
    
    Intrinsic(in
thousands)
    
    
    share
    
    
    Term (years)
    
    

Value
(in thousands)Outstanding at January 31, 2007
    
    
    5,634
    
    
    $
    7.38
    
    
    
    5.4
    
    
    $
    7,472Granted
    
    
    1,052
    
    
    
    9.21Exercised
    
    
    (409
    )
    
    
    4.26Expired
    
    
    (118
    )
    
    
    13.03Forfeited
    
    
    (182
    )
    
    
    7.91Outstanding at July 31, 2007
    
    
    5,977
    
    
    $
    7.78
    
    
    
    5.7
    
    
    $
    5,769Vested and expected to vest at
July 31, 2007 (1)
    
    
    5,188
    
    
    $
    7.72
    
    
    
    5.5
    
    
    $
    5,446Vested and exercisable at July 31, 2007
    
    
    2,702
    
    
    $
    7.22
    
    
    
    4.3
    
    
    $
    4,518
 
 (1)
    
    The expected to vest options and SARs are the result of applying the
pre-vesting forfeiture rate assumptions to total outstanding equity
awards.
   Stock Repurchase
    12




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##### Table of Contents



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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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 12. BUSINESS SEGMENT INFORMATION (Continued)
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(in thousands)Revenue:North America
    
    $
    29,908
    
    
    $
    24,493
    
    
    $
    52,876
    
    
    $
    47,994EMEA
    
    
    19,724
    
    
    
    19,486
    
    
    
    39,587
    
    
    
    37,132Asia Pacific
    
    
    10,335
    
    
    
    10,364
    
    
    
    20,366
    
    
    
    19,119Latin America
    
    
    4,230
    
    
    
    4,024
    
    
    
    8,012
    
    
    
    7,529$
    64,197
    
    
    $
    58,367
    
    
    $
    120,841
    
    
    $
    111,774Operating income (loss):North America
    
    $
    5,160
    
    
    $
    4,596
    
    
    $
    7,498
    
    
    $
    8,571EMEA
    
    
    83
    
    
    
    356
    
    
    
    274
    
    
    
    330Asia Pacific
    
    
    432
    
    
    
    767
    
    
    
    775
    
    
    
    1,067Latin America
    
    
    73
    
    
    
    (127
    )
    
    
    (22
    )
    
    
    (470
    )Corporate
    
    
    (5,022
    )
    
    
    (4,352
    )
    
    
    (10,811
    )
    
    
    (7,869
    )$
    726
    
    
    $
    1,240
    
    
    $
    (2,286
    )
    
    $
    1,629July 31,
    
    
    January 31,2007
    
    
    2007(in thousands)Identifiable assets:North America
    
    
    
    
    
    
    
    
    
    $
    110,399
    
    
    $
    126,633EMEA
    
    
    
    
    
    
    
    
    
    
    62,419
    
    
    
    70,489Asia Pacific
    
    
    
    
    
    
    
    
    
    
    25,107
    
    
    
    21,051Latin America
    
    
    
    
    
    
    
    
    
    
    8,206
    
    
    
    8,844$
    206,131
    
    
    $
    227,017
 13.
RECENT DEVELOPMENTS
   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
      15




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Revenue Recognition.
   License Revenue.
   Maintenance Revenue.
 Services Revenue.
  16




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##### Table of Contents



Accounts Receivable Allowances.
 Goodwill and Intangible Assets.
    17




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##### Table of Contents



Capitalized Software Costs.
 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 Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:License fees
    
    
    23
    %
    
    
    23
    %
    
    
    21
    %
    
    
    21
    %Maintenance and other
    
    
    50
    
    
    
    53
    
    
    
    52
    
    
    
    55Services
    
    
    27
    
    
    
    24
    
    
    
    27
    
    
    
    24Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Costs and expenses:Cost of license fees
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3Cost of maintenance, service and other revenue
    
    
    39
    
    
    
    36
    
    
    
    40
    
    
    
    37Sales and marketing
    
    
    28
    
    
    
    27
    
    
    
    28
    
    
    
    28Research and development
    
    
    16
    
    
    
    19
    
    
    
    17
    
    
    
    18General and administrative
    
    
    13
    
    
    
    13
    
    
    
    14
    
    
    
    13Amortization of intangibles from acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    99
    
    
    
    98
    
    
    
    102
    
    
    
    99Operating income(loss)
    
    
    1
    
    
    
    2
    
    
    
    (2
    )
    
    
    1Other (income) expense
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )Income (loss) before income taxes
    
    
    1
    
    
    
    3
    
    
    
    (1
    )
    
    
    3Income tax expense (benefit)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Net income (loss)
    
    
    1
    %
    
    
    2
    %
    
    
    (1
    )%
    
    
    2
    %
 Total Revenue
   19




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##### Table of Contents



License Revenue
  Maintenance and Other Revenue
   Services Revenue.
  20




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##### Table of Contents



Total Cost of Revenue.
  Sales and Marketing.
  Research and Development.
  21




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##### Table of Contents



General and Administrative.
  Amortization of Intangibles from Acquisitions.
  Other (Income) Expense
  Income
Tax Expense (Benefit).
  LIQUIDITY AND CAPITAL RESOURCES
   22




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##### Table of Contents



Working Capital
    billed
 earned
 Net Cash
  Cash Flows
  Operating Activities
  Investing Activities
    23




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##### Table of Contents



Financing Activities
   Contractual Obligations
 Notes Payable
  Credit Facility
    Minority Interest
  Recent
Developments
   24




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##### Table of Contents



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.
  25




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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
  Total Numberof Shares
    
    Maximum Number ofTotal Number
    
    Average
    
    Purchased as Part
    
    Shares that May Yet Beof Shares
    
    Price Paid
    
    of Publicly Announced
    
    Purchased Under thePeriod
    
    Purchased
    
    per Share
    
    Plans or Programs
    
    Plans or Programs (1)5/1/07  5/31/07
    
    
    49,000
    
    
    $
    8.21
    
    
    
    49,000
    
    
    
    1,451,0006/1/07  6/30/07
    
    
    1,343,800
    
    
    $
    8.16
    
    
    
    1,343,800
    
    
    
    107,2007/1/07  7/31/07
    
    
    107,200
    
    
    $
    8.59
    
    
    
    107,200
    
    
    
    
 (1)
    
    In May 2007, the Board of Directors authorized an open market repurchase program for one year to buy up to one million
shares of QAD common stock. Effective June 7, 2007, the Board of Directors increased the authorized shares under the
repurchase program from one million to 1.5 million. As of July 31, 2007, 1,500,000 shares had been repurchased under the
program.
 
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Votes For
    
    Votes WithheldKarl F. Lopker
    
    
    27,920,295
    
    
    
    2,633,500Pamela M. Lopker
    
    
    27,973,535
    
    
    
    2,580,260Peter R. van Cuylenburg
    
    
    29,673,359
    
    
    
    880,436Scott J. Adelson
    
    
    30,341,448
    
    
    
    212,347Thomas J. OMalia
    
    
    29,702,002
    
    
    
    851,793
  26




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##### Table of Contents



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
  27




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##### Table of Contents



QAD Inc.
(Registrant)Date: September 7, 2007
    By:
    /s/ DANIEL LENDERDaniel LenderExecutive Vice President, Chief Financial Officer
(on behalf of the Registrant)  28




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##### Table of Contents



Exhibit No.
    
    Description31.1
    
    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
  29