##### 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 July 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 organization)
    
    (I.R.S. Employer Identification No.)
 100 Innovation Place, Santa Barbara, California 93108
 (805) 566-6000
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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##### 



QAD INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONITEM 1 Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of 
July 31, 2010 and January 31, 2010
    
    
    1Condensed Consolidated Statements of Operations
for the Three Months and Six Months Ended July 31, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows 
for the Six Months Ended July 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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##### Table of Contents



PART I
 
 ITEM 1 
    
    FINANCIAL STATEMENTS
 QAD INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 (unaudited)
 July 31,
    
    
    January 31,2010
    
    
    2010AssetsCurrent assets:Cash and equivalents
    
    $
    55,763
    
    
    $
    44,678Accounts receivable, net
    
    
    42,738
    
    
    
    61,089Deferred tax assets, net
    
    
    3,549
    
    
    
    3,548Other current assets
    
    
    14,732
    
    
    
    13,680Total current assets
    
    
    116,782
    
    
    
    122,995Property and equipment, net
    
    
    35,174
    
    
    
    37,219Capitalized software costs, net
    
    
    1,269
    
    
    
    2,446Goodwill
    
    
    6,394
    
    
    
    6,348Long-term deferred tax assets, net
    
    
    19,759
    
    
    
    19,411Other assets, net
    
    
    2,541
    
    
    
    2,755Total assets
    
    $
    181,919
    
    
    $
    191,174Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    294
    
    
    $
    285Accounts payable
    
    
    6,741
    
    
    
    7,952Deferred revenue
    
    
    79,651
    
    
    
    85,745Other current liabilities
    
    
    23,208
    
    
    
    24,835Total current liabilities
    
    
    109,894
    
    
    
    118,817Long-term debt
    
    
    16,291
    
    
    
    16,443Other liabilities
    
    
    5,122
    
    
    
    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 35,351,281 shares at both July 31, 2010 and
January 31, 2010
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    144,859
    
    
    
    143,121Treasury stock, at cost (3,824,552 and 4,011,526 shares at
July 31, 2010 and January 31, 2010, respectively)
    
    
    (30,892
    )
    
    
    (32,275
    )Accumulated deficit
    
    
    (55,206
    )
    
    
    (52,480
    )Accumulated other comprehensive loss
    
    
    (8,184
    )
    
    
    (8,850
    )Total stockholders equity
    
    
    50,612
    
    
    
    49,551Total liabilities and stockholders equity
    
    $
    181,919
    
    
    $
    191,174
   1




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QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenue:License fees
    
    $
    6,512
    
    
    $
    6,658
    
    
    $
    12,958
    
    
    $
    12,909Maintenance and other
    
    
    32,033
    
    
    
    32,136
    
    
    
    64,085
    
    
    
    64,953Services
    
    
    12,760
    
    
    
    12,516
    
    
    
    25,103
    
    
    
    28,446Total revenue
    
    
    51,305
    
    
    
    51,310
    
    
    
    102,146
    
    
    
    106,308Costs and expenses:Cost of license fees
    
    
    1,476
    
    
    
    1,769
    
    
    
    3,020
    
    
    
    3,538Cost of maintenance, service and other revenue
    
    
    20,012
    
    
    
    20,457
    
    
    
    41,120
    
    
    
    44,460Sales and marketing
    
    
    12,183
    
    
    
    12,674
    
    
    
    25,689
    
    
    
    26,563Research and development
    
    
    8,819
    
    
    
    9,345
    
    
    
    18,146
    
    
    
    19,671General and administrative
    
    
    7,714
    
    
    
    9,011
    
    
    
    15,141
    
    
    
    16,391Amortization of intangibles from acquisitions
    
    
    13
    
    
    
    174
    
    
    
    27
    
    
    
    347Total costs and expenses
    
    
    50,217
    
    
    
    53,430
    
    
    
    103,143
    
    
    
    110,970Operating income (loss)
    
    
    1,088
    
    
    
    (2,120
    )
    
    
    (997
    )
    
    
    (4,662
    )Other expense (income):Interest income
    
    
    (111
    )
    
    
    (147
    )
    
    
    (244
    )
    
    
    (308
    )Interest expense
    
    
    309
    
    
    
    324
    
    
    
    607
    
    
    
    627Other income, net
    
    
    (99
    )
    
    
    (347
    )
    
    
    (122
    )
    
    
    (98
    )Total other expense (income)
    
    
    99
    
    
    
    (170
    )
    
    
    241
    
    
    
    221Income (loss) before income taxes
    
    
    989
    
    
    
    (1,950
    )
    
    
    (1,238
    )
    
    
    (4,883
    )Income tax expense (benefit)
    
    
    674
    
    
    
    (525
    )
    
    
    (333
    )
    
    
    (793
    )Net income (loss)
    
    $
    315
    
    
    $
    (1,425
    )
    
    $
    (905
    )
    
    $
    (4,090
    )Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )
   2




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QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Six Months EndedJuly 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (905
    )
    
    $
    (4,090
    )Adjustments to reconcile net loss to net cash provided by operating
activities:Depreciation and amortization
    
    
    3,975
    
    
    
    5,451Provision for doubtful accounts and sales adjustments
    
    
    439
    
    
    
    2,019(Gain) loss on disposal of property and equipment
    
    
    (1
    )
    
    
    36Exit costs
    
    
    
    
    
    
    217Stock compensation expense
    
    
    2,751
    
    
    
    2,494Other, net
    
    
    (160
    )
    
    
    (349
    )Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    17,537
    
    
    
    30,853Other assets
    
    
    (1,175
    )
    
    
    (642
    )Accounts payable
    
    
    (1,120
    )
    
    
    (4,406
    )Deferred revenue
    
    
    (5,986
    )
    
    
    (10,151
    )Other liabilities
    
    
    (1,662
    )
    
    
    (9,150
    )Net cash provided by operating activities
    
    
    13,693
    
    
    
    12,282Cash flows from investing activities:Purchase of property and equipment
    
    
    (681
    )
    
    
    (474
    )Capitalized software costs
    
    
    (247
    )
    
    
    (299
    )Other, net
    
    
    2
    
    
    
    29Net cash used in investing activities
    
    
    (926
    )
    
    
    (744
    )Cash flows from financing activities:Repayments of debt
    
    
    (143
    )
    
    
    (130
    )Proceeds from issuance of common stock
    
    
    56
    
    
    
    14Tax payments related to net share settlements of restricted stock
    
    
    (226
    )
    
    
    Changes in book overdraft
    
    
    
    
    
    
    (2,476
    )Dividends paid in cash
    
    
    (1,277
    )
    
    
    (986
    )Net cash used in financing activities
    
    
    (1,590
    )
    
    
    (3,578
    )Effect of exchange rates on cash and equivalents
    
    
    (92
    )
    
    
    1,207Net increase in cash and equivalents
    
    
    11,085
    
    
    
    9,167Cash and equivalents at beginning of period
    
    
    44,678
    
    
    
    31,467Cash and equivalents at end of period
    
    $
    55,763
    
    
    $
    40,634Supplemental disclosure of non-cash activities:Obligations associated with dividend declaration
    
    $
    785
    
    
    $
    772Dividends paid in stock
    
    
    292
    
    
    
    553
   3




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QAD INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. BASIS OF PRESENTATION
  2. COMPUTATION OF NET INCOME (LOSS) PER SHARE
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands, except per share data)Net income (loss)
    
    $
    315
    
    
    $
    (1,425
    )
    
    $
    (905
    )
    
    $
    (4,090
    )Weighted average shares of common
stock outstanding  basic
    
    
    31,473
    
    
    
    30,897
    
    
    
    31,418
    
    
    
    30,826Weighted average shares of common
stock equivalents issued using the
treasury stock method
    
    
    2,014
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares of common
stock and common stock equivalents
outstanding  diluted
    
    
    33,487
    
    
    
    30,897
    
    
    
    31,418
    
    
    
    30,826Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.13
    )
   4




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3. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Net income (loss)
    
    $
    315
    
    
    $
    (1,425
    )
    
    $
    (905
    )
    
    $
    (4,090
    )Foreign currency
translation adjustments
    
    
    (104
    )
    
    
    (1,327
    )
    
    
    666
    
    
    
    (1,977
    )Comprehensive income (loss)
    
    $
    211
    
    
    $
    (2,752
    )
    
    $
    (239
    )
    
    $
    (6,067
    )
 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
July 31, 2010
    
    $
    41,638
    
    
    $
    
    
    
    $
    Money market mutual funds as of
January 31, 2010
    
    $
    26,930
    
    
    $
    
    
    
    $
    
    5




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5. CAPITALIZED SOFTWARE COSTS
  July 31,
    
    
    January 31,2010
    
    
    2010(in thousands)Capitalized software costs:Acquired software technology
    
    $
    4,386
    
    
    $
    4,402Capitalized software development costs
    
    
    4,237
    
    
    
    4,1678,623
    
    
    
    8,569Less accumulated amortization
    
    
    (7,354
    )
    
    
    (6,123
    )Capitalized software costs, net
    
    $
    1,269
    
    
    $
    2,446
   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
    
    
    46
    
    
    
    
    
    
    
    46Balance at July 31, 2010
    
    $
    22,002
    
    
    $
    (15,608
    )
    
    $
    6,394
   6




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7. DEBT
 July 31,
    
    
    January 31,2010
    
    
    2010(in thousands)Note payable
    
    $
    16,585
    
    
    $
    16,728Less current maturities
    
    
    (294
    )
    
    
    (285
    )Long-term debt
    
    $
    16,291
    
    
    $
    16,443
 Note Payable
  Credit Facility
    8. INCOME TAXES
    7




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9. STOCKHOLDERS EQUITY
 Dividends
   10. STOCK-BASED COMPENSATION
  Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Stock-based compensation expense:Cost of maintenance, service and other revenue
    
    $
    196
    
    
    $
    257
    
    
    $
    498
    
    
    $
    513Sales and marketing
    
    
    257
    
    
    
    223
    
    
    
    584
    
    
    
    440Research and development
    
    
    190
    
    
    
    172
    
    
    
    446
    
    
    
    365General and administrative
    
    
    638
    
    
    
    604
    
    
    
    1,223
    
    
    
    1,176Total stock-based compensation expense
    
    $
    1,281
    
    
    $
    1,256
    
    
    $
    2,751
    
    
    $
    2,494
  8




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##### Table of Contents



Option/SAR Information
  Six Months EndedJuly 31,2010
    
    
    2009Expected life in years (1)
    
    
    5.79
    
    
    
    5.25Risk free interest rate (2)
    
    
    2.28
    %
    
    
    1.88
    %Volatility (3)
    
    
    68
    %
    
    
    57
    %Dividend rate (4)
    
    
    2.23
    %
    
    
    3.91
    %
 
 (1)
    
    The expected life of SARs granted under the stock-based compensation plans is based
on historical vested stock options and SAR exercises and post-vest forfeiture patterns and
includes an estimate of the expected term for stock options and SARs that were fully vested
and outstanding.(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.(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 for a period equivalent to the
expected life of the SARs, which it believes is representative of the expected volatility over
the expected life of the SARs.(4)
    
    The Company expects to continue paying quarterly dividends at the same rate as it
has over the last year.  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
    
    
    1,353
    
    
    
    4.48Exercised
    
    
    (19
    )
    
    
    3.12Expired
    
    
    (48
    )
    
    
    8.33Forfeited
    
    
    (130
    )
    
    
    4.40Outstanding at July 31, 2010
    
    
    5,582
    
    
    $
    5.56
    
    
    
    5.3
    
    
    $
    680Vested and expected to vest at
July 31, 2010 (3)
    
    
    5,260
    
    
    $
    5.62
    
    
    
    5.2
    
    
    $
    655Vested and exercisable at July 31, 2010
    
    
    1,674
    
    
    $
    8.02
    
    
    
    2.8
    
    
    $
    245
 
 (1)
    
    On August 12, 2009, the Company completed a one-time Stock Option and Stock Appreciation Right
Exchange Program (the Program). 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.  9




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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)
    
    
    (158
    )
    
    
    6.37Forfeited
    
    
    (4
    )
    
    
    4.21Restricted stock at July 31, 2010
    
    
    1,044
    
    
    $
    5.02
 
 (1)
    
    The number of RSUs vested includes shares withheld on
behalf of employees to satisfy statutory tax withholding
requirements.    10




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##### Table of Contents



11. RESTRUCTURING CHARGES
   Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2009(in thousands)Cost of maintenance, services and other revenue
    
    $
    322
    
    
    $
    734Sales and marketing
    
    
    367
    
    
    
    657Research and development
    
    
    468
    
    
    
    554General and administrative
    
    
    287
    
    
    
    318Total restructuring charges
    
    $
    1,444
    
    
    $
    2,263
 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 July 31, 2010
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  11




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##### Table of Contents



12. COMMITMENTS AND CONTINGENCIES
 Indemnifications
   Legal Actions
  13. BUSINESS SEGMENT INFORMATION
     12




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)
    
    
    (in thousands)Revenue:North America (1)
    
    $
    22,219
    
    
    $
    21,933
    
    
    $
    43,716
    
    
    $
    46,401EMEA
    
    
    15,690
    
    
    
    16,700
    
    
    
    31,314
    
    
    
    33,492Asia Pacific
    
    
    9,685
    
    
    
    9,539
    
    
    
    19,823
    
    
    
    19,579Latin America
    
    
    3,711
    
    
    
    3,138
    
    
    
    7,293
    
    
    
    6,836$
    51,305
    
    
    $
    51,310
    
    
    $
    102,146
    
    
    $
    106,308Operating income (loss):North America
    
    $
    3,221
    
    
    $
    1,953
    
    
    $
    5,018
    
    
    $
    4,797EMEA
    
    
    908
    
    
    
    146
    
    
    
    1,148
    
    
    
    (242
    )Asia Pacific
    
    
    (360
    )
    
    
    419
    
    
    
    (401
    )
    
    
    1,102Latin America
    
    
    508
    
    
    
    (326
    )
    
    
    978
    
    
    
    (205
    )Corporate
    
    
    (3,189
    )
    
    
    (4,312
    )
    
    
    (7,740
    )
    
    
    (10,114
    )$
    1,088
    
    
    $
    (2,120
    )
    
    $
    (997
    )
    
    $
    (4,662
    )
 
 (1)
    
    Sales into Canada accounted for 3% and 4% of North America total revenue in the
three and six months ended July 31, 2010 and for 5% and 4% of North America total revenue for the
three and six months ended July 31, 2009.  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
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009RevenueLicense fees
    
    $
    6,512
    
    
    $
    (146
    )
    
    
    -2
    %
    
    $
    6,658
    
    
    $
    12,958
    
    
    $
    49
    
    
    
    0
    %
    
    $
    12,909Percentage of
total revenue
    
    
    13
    %
    
    
    
    
    
    
    
    
    
    
    13
    %
    
    
    13
    %
    
    
    
    
    
    
    
    
    
    
    12
    %Maintenance and other
    
    
    32,033
    
    
    
    (103
    )
    
    
    0
    %
    
    
    32,136
    
    
    
    64,085
    
    
    
    (868
    )
    
    
    -1
    %
    
    
    64,953Percentage of
total revenue
    
    
    62
    %
    
    
    
    
    
    
    
    
    
    
    63
    %
    
    
    63
    %
    
    
    
    
    
    
    
    
    
    
    61
    %Services
    
    
    12,760
    
    
    
    244
    
    
    
    2
    %
    
    
    12,516
    
    
    
    25,103
    
    
    
    (3,343
    )
    
    
    -12
    %
    
    
    28,446Percentage of
total revenue
    
    
    25
    %
    
    
    
    
    
    
    
    
    
    
    24
    %
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    27
    %Total revenue
    
    $
    51,305
    
    
    $
    (5
    )
    
    
    0
    %
    
    $
    51,310
    
    
    $
    102,146
    
    
    $
    (4,162
    )
    
    
    -4
    %
    
    $
    106,308
 Total Revenue
  15




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##### Table of Contents



License Revenue
  Maintenance and Other Revenue
    16




---



##### Table of Contents



Services Revenue.
  Costs and Expenses
 Restructuring
   Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2009(in thousands)Cost of maintenance, services and other revenue
    
    $
    322
    
    
    $
    734Sales and marketing
    
    
    367
    
    
    
    657Research and development
    
    
    468
    
    
    
    554General and administrative
    
    
    287
    
    
    
    318Total restructuring charges
    
    $
    1,444
    
    
    $
    2,263
  17




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##### Table of Contents



Total Cost of Revenue
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009Cost of revenueCost of license fees
    
    $
    1,476
    
    
    $
    (293
    )
    
    
    -17
    %
    
    $
    1,769
    
    
    $
    3,020
    
    
    $
    (518
    )
    
    
    -15
    %
    
    $
    3,538Cost of
maintenance, services
and other
    
    
    20,012
    
    
    
    (445
    )
    
    
    -2
    %
    
    
    20,457
    
    
    
    41,120
    
    
    
    (3,340
    )
    
    
    -8
    %
    
    
    44,460Total cost revenue
    
    $
    21,488
    
    
    $
    (738
    )
    
    
    -3
    %
    
    $
    22,226
    
    
    $
    44,140
    
    
    $
    (3,858
    )
    
    
    -8
    %
    
    $
    47,998Percentage of revenue
    
    
    42
    %
    
    
    
    
    
    
    
    
    
    
    43
    %
    
    
    43
    %
    
    
    
    
    
    
    
    
    
    
    45
    %
     18




---



##### Table of Contents



Sales and Marketing
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009Sales and marketing
    
    $
    12,183
    
    
    $
    (491
    )
    
    
    -4
    %
    
    $
    12,674
    
    
    $
    25,689
    
    
    $
    (874
    )
    
    
    -3
    %
    
    $
    26,563Percentage of revenue
    
    
    24
    %
    
    
    
    
    
    
    
    
    
    
    25
    %
    
    
    25
    %
    
    
    
    
    
    
    
    
    
    
    25
    %
    Research and Development
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009Research and development
    
    $
    8,819
    
    
    $
    (526
    )
    
    
    -6
    %
    
    $
    9,345
    
    
    $
    18,146
    
    
    $
    (1,525
    )
    
    
    -8
    %
    
    $
    19,671Percentage of revenue
    
    
    17
    %
    
    
    
    
    
    
    
    
    
    
    18
    %
    
    
    18
    %
    
    
    
    
    
    
    
    
    
    
    19
    %
    19




---



##### Table of Contents



General and Administrative
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009General and
administrative
    
    $
    7,714
    
    
    $
    (1,297
    )
    
    
    -14
    %
    
    $
    9,011
    
    
    $
    15,141
    
    
    $
    (1,250
    )
    
    
    -8
    %
    
    $
    16,391Percentage of revenue
    
    
    15
    %
    
    
    
    
    
    
    
    
    
    
    18
    %
    
    
    15
    %
    
    
    
    
    
    
    
    
    
    
    16
    %
    Amortization of Intangibles from Acquisitions.
  20




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##### Table of Contents



Other Expense (Income)
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009Other (income) expenseInterest income
    
    $
    (111
    )
    
    $
    36
    
    
    
    24
    %
    
    $
    (147
    )
    
    $
    (244
    )
    
    $
    64
    
    
    
    21
    %
    
    $
    (308
    )Interest expense
    
    
    309
    
    
    
    (15
    )
    
    
    -5
    %
    
    
    324
    
    
    
    607
    
    
    
    (20
    )
    
    
    -3
    %
    
    
    627Other
(income) expense,
net
    
    
    (99
    )
    
    
    248
    
    
    
    71
    %
    
    
    (347
    )
    
    
    (122
    )
    
    
    (24
    )
    
    
    -24
    %
    
    
    (98
    )Total other
(income) expense
    
    $
    99
    
    
    $
    269
    
    
    
    158
    %
    
    $
    (170
    )
    
    $
    241
    
    
    $
    20
    
    
    
    9
    %
    
    $
    221Percentage of
revenue
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    0
    %
   Income Tax Expense (Benefit)
 Increase (Decrease)
    
    
    
    
    
    
    
    
    
    
    Increase (Decrease)Three Months
    
    
    Compared
    
    
    Three Months
    
    
    Six Months
    
    
    Compared
    
    
    Six MonthsEnded
    
    
    to Prior Period
    
    
    Ended
    
    
    Ended
    
    
    to Prior Period
    
    
    Ended(in thousands)
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009
    
    
    July 31, 2010
    
    
    $
    
    
    %
    
    
    July 31, 2009Income tax expense
(benefit)
    
    $
    674
    
    
    $
    1,199
    
    
    
    228
    %
    
    $
    (525
    )
    
    $
    (333
    )
    
    $
    460
    
    
    
    58
    %
    
    $
    (793
    )Percentage of
revenue
    
    
    1
    %
    
    
    
    
    
    
    
    
    
    
    -1
    %
    
    
    0
    %
    
    
    
    
    
    
    
    
    
    
    -1
    %Effective tax rate
    
    
    68
    %
    
    
    
    
    
    
    
    
    
    
    27
    %
    
    
    27
    %
    
    
    
    
    
    
    
    
    
    
    16
    %
   LIQUIDITY AND CAPITAL RESOURCES
    21




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##### Table of Contents



Six Months 
Ended
    
    
    Six Months 
Ended(in thousands)
    
    July 31, 2010
    
    
    July 31, 2009Net cash provided by operating activities
    
    $
    13,693
    
    
    $
    12,282Net cash used in investing activities
    
    
    (926
    )
    
    
    (744
    )Net cash used in financing activities
    
    
    (1,590
    )
    
    
    (3,578
    )Effect of foreign exchange rates on cash and
equivalents
    
    
    (92
    )
    
    
    1,207Net increase in cash and equivalents
    
    $
    11,085
    
    
    $
    9,167
      22




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### 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: September 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