##### 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, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-22823
 QAD Inc.
  Delaware
    
    77-0105228(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
 100 Innovation Place, Santa Barbara, California 93108
 (805) 566-6000
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



QAD INC.
INDEX
 PagePART I  FINANCIAL INFORMATIONITEM 1 Financial Statements (unaudited)Condensed Consolidated Balance Sheets as of
July 31, 2009 and January 31, 2009
    
    
    1Condensed Consolidated Statements of Operations
for the Three and Six Months Ended July 31, 2009 and 2008
    
    
    2Condensed Consolidated Statements of Cash Flows
for the Six Months Ended July 31, 2009 and 2008
    
    
    3Notes to Condensed Consolidated Financial
Statements
    
    
    4ITEM 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    17ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk
    
    
    29ITEM 4 Controls and Procedures
    
    
    30PART II  OTHER INFORMATIONITEM 1 Legal Proceedings
    
    
    31ITEM 1A Risk Factors
    
    
    31ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31ITEM 3 Defaults Upon Senior Securities
    
    
    31ITEM 4 Submission of Matters to a Vote of Security Holders
    
    
    31ITEM 5 Other Information
    
    
    31ITEM 6 Exhibits
    
    
    31SIGNATURES
    
    
    32Exhibit 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 31,2009
    
    
    2009AssetsCurrent assets:Cash and equivalents
    
    $
    40,634
    
    
    $
    31,467Accounts receivable, net
    
    
    40,601
    
    
    
    70,954Other current assets
    
    
    18,692
    
    
    
    19,164Total current assets
    
    
    99,927
    
    
    
    121,585Property and equipment, net
    
    
    39,560
    
    
    
    41,438Capitalized software costs, net
    
    
    3,978
    
    
    
    5,699Goodwill
    
    
    6,316
    
    
    
    6,237Other assets, net
    
    
    18,808
    
    
    
    18,786Total assets
    
    $
    168,589
    
    
    $
    193,745Liabilities and stockholders equityCurrent liabilities:Current portion of long-term debt
    
    $
    275
    
    
    $
    266Accounts payable
    
    
    5,973
    
    
    
    12,494Deferred revenue
    
    
    75,037
    
    
    
    81,392Other current liabilities
    
    
    23,450
    
    
    
    31,081Total current liabilities
    
    
    104,735
    
    
    
    125,233Long-term debt
    
    
    16,578
    
    
    
    16,717Other liabilities
    
    
    4,354
    
    
    
    4,324Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value. Authorized 5,000,000
shares; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value. Authorized 150,000,000
shares; issued 35,350,481 shares at both July 31, 2009 and
January 31, 2009
    
    
    35
    
    
    
    35Additional paid-in capital
    
    
    141,477
    
    
    
    139,930Treasury stock, at cost (4,285,001 and 4,597,758 shares at
July 31, 2009 and January 31, 2009, respectively)
    
    
    (34,299
    )
    
    
    (36,614
    )Accumulated deficit
    
    
    (55,537
    )
    
    
    (49,103
    )Accumulated other comprehensive loss
    
    
    (8,754
    )
    
    
    (6,777
    )Total stockholders equity
    
    
    42,922
    
    
    
    47,471Total liabilities and stockholders equity
    
    $
    168,589
    
    
    $
    193,745
   1




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##### Table of Contents



QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:License fees
    
    $
    6,658
    
    
    $
    11,432
    
    
    $
    12,909
    
    
    $
    23,393Maintenance and other
    
    
    32,136
    
    
    
    34,495
    
    
    
    64,953
    
    
    
    68,654Services
    
    
    12,516
    
    
    
    23,586
    
    
    
    28,446
    
    
    
    44,304Total revenue
    
    
    51,310
    
    
    
    69,513
    
    
    
    106,308
    
    
    
    136,351Costs and expenses:Cost of license fees
    
    
    1,769
    
    
    
    2,497
    
    
    
    3,538
    
    
    
    4,785Cost of maintenance, service and other revenue
    
    
    20,457
    
    
    
    29,963
    
    
    
    44,460
    
    
    
    57,652Sales and marketing
    
    
    12,674
    
    
    
    19,864
    
    
    
    26,563
    
    
    
    38,113Research and development
    
    
    9,345
    
    
    
    11,297
    
    
    
    19,671
    
    
    
    22,371General and administrative
    
    
    9,011
    
    
    
    8,597
    
    
    
    16,391
    
    
    
    16,920Amortization of intangibles from acquisitions
    
    
    174
    
    
    
    197
    
    
    
    347
    
    
    
    375Total costs and expenses
    
    
    53,430
    
    
    
    72,415
    
    
    
    110,970
    
    
    
    140,216Operating loss
    
    
    (2,120
    )
    
    
    (2,902
    )
    
    
    (4,662
    )
    
    
    (3,865
    )Other expense (income):Interest income
    
    
    (147
    )
    
    
    (462
    )
    
    
    (308
    )
    
    
    (847
    )Interest expense
    
    
    324
    
    
    
    323
    
    
    
    627
    
    
    
    639Other expense (income), net
    
    
    (347
    )
    
    
    94
    
    
    
    (98
    )
    
    
    436Total other expense (income)
    
    
    (170
    )
    
    
    (45
    )
    
    
    221
    
    
    
    228Loss before income taxes
    
    
    (1,950
    )
    
    
    (2,857
    )
    
    
    (4,883
    )
    
    
    (4,093
    )Income tax benefit
    
    
    (525
    )
    
    
    (1,424
    )
    
    
    (793
    )
    
    
    (1,930
    )Net loss
    
    $
    (1,425
    )
    
    $
    (1,433
    )
    
    $
    (4,090
    )
    
    $
    (2,163
    )Basic net loss per share
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.07
    )Diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.07
    )
   2




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##### Table of Contents



QAD INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Six Months EndedJuly 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (4,090
    )
    
    $
    (2,163
    )Adjustments to reconcile net loss to net cash provided by operating
activities:Depreciation and amortization
    
    
    5,451
    
    
    
    5,450Provision for doubtful accounts and sales adjustments
    
    
    2,019
    
    
    
    47Loss (gain) on disposal of property and equipment
    
    
    36
    
    
    
    (1
    )Exit costs
    
    
    217
    
    
    
    Stock compensation expense
    
    
    2,494
    
    
    
    3,197Other, net
    
    
    (349
    )
    
    
    (154
    )Changes in assets and liabilities, net of effects from acquisitions:Accounts receivable
    
    
    30,853
    
    
    
    27,108Other assets
    
    
    (642
    )
    
    
    (2,672
    )Accounts payable
    
    
    (4,406
    )
    
    
    (3,601
    )Deferred revenue
    
    
    (10,151
    )
    
    
    (15,968
    )Other liabilities
    
    
    (9,150
    )
    
    
    (4,167
    )Net cash provided by operating activities
    
    
    12,282
    
    
    
    7,076Cash flows from investing activities:Purchase of property and equipment
    
    
    (474
    )
    
    
    (2,918
    )Capitalized software costs
    
    
    (299
    )
    
    
    (434
    )Acquisition of businesses, net of cash acquired
    
    
    (12
    )
    
    
    (2,491
    )Proceeds from sale of property and equipment
    
    
    41
    
    
    
    3Net cash used in investing activities
    
    
    (744
    )
    
    
    (5,840
    )Cash flows from financing activities:Repayments of debt
    
    
    (130
    )
    
    
    (139
    )Proceeds from issuance of common stock
    
    
    14
    
    
    
    435Changes in book overdraft
    
    
    (2,476
    )
    
    
    (610
    )Dividends paid
    
    
    (986
    )
    
    
    (1,533
    )Repurchase of common stock
    
    
    
    
    
    
    (2,219
    )Net cash used in financing activities
    
    
    (3,578
    )
    
    
    (4,066
    )Effect of exchange rates on cash and equivalents
    
    
    1,207
    
    
    
    406Net increase (decrease) in cash and equivalents
    
    
    9,167
    
    
    
    (2,424
    )Cash and equivalents at beginning of period
    
    
    31,467
    
    
    
    45,613Cash and equivalents at end of period
    
    $
    40,634
    
    
    $
    43,189Supplemental disclosure of non-cash activities:Obligations associated with dividend declaration
    
    $
    772
    
    
    $
    764Dividends paid in stock
    
    
    553
    
    
    
    
   3




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




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 2. RECENT ACCOUNTING PRONOUNCEMENTS
      5




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 2. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
   3. COMPUTATION OF NET LOSS PER SHARE
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands, except per share data)Net loss
    
    $
    (1,425
    )
    
    $
    (1,433
    )
    
    $
    (4,090
    )
    
    $
    (2,163
    )Weighted average shares of common
stock outstanding  basic
    
    
    30,897
    
    
    
    30,620
    
    
    
    30,826
    
    
    
    30,648Weighted average shares of common
stock equivalents issued using the
treasury stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares of common
stock and common stock equivalents
outstanding  diluted
    
    
    30,897
    
    
    
    30,620
    
    
    
    30,826
    
    
    
    30,648Basic net loss per share
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.07
    )Diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.07
    )
   6




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 4. COMPREHENSIVE LOSS
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Net loss
    
    $
    (1,425
    )
    
    $
    (1,433
    )
    
    $
    (4,090
    )
    
    $
    (2,163
    )Foreign currency
translation
adjustments
    
    
    (1,327
    )
    
    
    (17
    )
    
    
    (1,977
    )
    
    
    300Comprehensive loss
    
    $
    (2,752
    )
    
    $
    (1,450
    )
    
    $
    (6,067
    )
    
    $
    (1,863
    )
 5. FAIR VALUE MEASUREMENTS
  Fair value measurement at reporting date usingQuoted Prices in
    
    
    
    
    
    
    SignificantActive Markets for
    
    
    Significant Other
    
    
    UnobservableIdentical Assets
    
    
    Observable Inputs
    
    
    InputsDescription
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total(in thousands)Money market mutual funds
    
    $
    24,285
    
    
    $
    
    
    
    $
    
    
    
    $
    24,285Total
    
    $
    24,285
    
    
    $
    
    
    
    $
    
    
    
    $
    24,285
    7




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 6. CAPITALIZED SOFTWARE COSTS
  July 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Capitalized software costs:Acquired software technology
    
    $
    9,084
    
    
    $
    8,594Capitalized software development costs
    
    
    4,063
    
    
    
    3,80813,147
    
    
    
    12,402Less accumulated amortization
    
    
    (9,169
    )
    
    
    (6,703
    )Capitalized software costs, net
    
    $
    3,978
    
    
    $
    5,699
   7. GOODWILL AND INTANGIBLE ASSETS
 Goodwill
  North
    
    
    Asia
    
    
    LatinAmerica
    
    
    Pacific
    
    
    America
    
    
    Total(in thousands)Balances, January 31, 2009
    
    $
    4,734
    
    
    $
    887
    
    
    $
    616
    
    
    $
    6,237Impact of foreign currency
translation
    
    
    
    
    
    
    25
    
    
    
    54
    
    
    
    79Balances, July 31, 2009
    
    $
    4,734
    
    
    $
    912
    
    
    $
    670
    
    
    $
    6,316
   8




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 7. GOODWILL AND INTANGIBLE ASSETS (Continued)
 Intangible Assets
 July 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Amortizable intangible assets:Customer relationships
    
    $
    1,630
    
    
    $
    1,534Trade name
    
    
    557
    
    
    
    501Covenant not to compete
    
    
    155
    
    
    
    1352,342
    
    
    
    2,170Less accumulated amortization
    
    
    (2,140
    )
    
    
    (1,638
    )Amortizable intangible assets, net
    
    $
    202
    
    
    $
    532
  8. DEBT
 July 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Total debt:Notes payable
    
    $
    16,853
    
    
    $
    16,983Less current maturities
    
    
    (275
    )
    
    
    (266
    )Long-term debt
    
    $
    16,578
    
    
    $
    16,717
 Notes Payable
  Credit Facility
   9




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##### Table of Contents



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




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK-BASED COMPENSATION
   Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)Stock-based compensation expense:Cost of maintenance, service and other revenue
    
    $
    257
    
    
    $
    320
    
    
    $
    513
    
    
    $
    613Sales and marketing
    
    
    223
    
    
    
    421
    
    
    
    440
    
    
    
    808Research and development
    
    
    172
    
    
    
    216
    
    
    
    365
    
    
    
    460General and administrative
    
    
    604
    
    
    
    636
    
    
    
    1,176
    
    
    
    1,316Total stock-based compensation expense
    
    $
    1,256
    
    
    $
    1,593
    
    
    $
    2,494
    
    
    $
    3,197
   Six Months EndedJuly 31,2009
    
    
    2008Expected life in years (1)
    
    
    5.25
    
    
    
    5.25Risk free interest rate (2)
    
    
    1.88
    %
    
    
    3.22
    %Volatility (3)
    
    
    57
    %
    
    
    50
    %Dividend rate (4)
    
    
    3.91
    %
    
    
    1.31
    %
 
 (1)
    
    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.(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, which it believes is
representative of the expected volatility over the expected life of SARs.(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. STOCK BASED COMPENSATION (Continued)
  Weighted
    
    
    WeightedAverage
    
    
    AverageExercise
    
    
    RemainingOptions/
    
    
    Price per
    
    
    Contractual
    
    
    AggregateSARs
    
    
    Share
    
    
    Term
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    (years)
    
    
    (in thousands)Outstanding at January 31, 2009
    
    
    5,967
    
    
    $
    7.99
    
    
    
    4.9
    
    
    $
    22Granted
    
    
    67
    
    
    
    2.79Exercised
    
    
    (5
    )
    
    
    3.05Expired
    
    
    (292
    )
    
    
    7.94Forfeited
    
    
    (206
    )
    
    
    7.93Outstanding at July 31, 2009
    
    
    5,531
    
    
    $
    7.94
    
    
    
    3.9
    
    
    $
    300Vested and expected to vest at
July 31, 2009 (1)
    
    
    5,344
    
    
    $
    7.95
    
    
    
    3.9
    
    
    $
    289Vested and exercisable at July 31, 2009
    
    
    3,778
    
    
    $
    8.09
    
    
    
    3.3
    
    
    $
    232
 
 (1)
    
    The expected-to-vest options and SARs are the result of
applying the pre-vesting forfeiture rate assumptions to
total outstanding equity awards.     12




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 10. STOCK BASED COMPENSATION (Continued)
  WeightedAverageGrant DateRSUs
    
    
    Fair Value(in thousands)Restricted stock at January 31, 2009
    
    
    747
    
    
    $
    6.39Granted
    
    
    100
    
    
    
    2.65Vested (1)
    
    
    (134
    )
    
    
    7.17Forfeited
    
    
    (6
    )
    
    
    7.03Restricted stock at July 31, 2009
    
    
    707
    
    
    $
    5.71Restricted
stock expected to vest as of July 31, 2009 (2)
    
    
    637
    
    
    $
    6.33
 
 (1)
    
    The number of RSUs vested includes shares withheld on behalf
of employees to satisfy statutory tax withholding
requirements.(2)
    
    RSUs expected to vest are net of estimated future forfeitures.  11. STOCKHOLDERS EQUITY
 Cash or Stock Dividend
   12. COMMITMENTS AND CONTINGENCIES
 Indemnifications
    13




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 12. COMMITMENTS AND CONTINGENCIES (Continued)
 Legal Actions
  13. BUSINESS SEGMENT INFORMATION
    Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)
    
    
    (in thousands)Revenue:North America (1)
    
    $
    21,933
    
    
    $
    29,997
    
    
    $
    46,401
    
    
    $
    58,299EMEA
    
    
    16,700
    
    
    
    21,948
    
    
    
    33,492
    
    
    
    43,303Asia Pacific
    
    
    9,539
    
    
    
    13,206
    
    
    
    19,579
    
    
    
    25,339Latin America
    
    
    3,138
    
    
    
    4,362
    
    
    
    6,836
    
    
    
    9,410$
    51,310
    
    
    $
    69,513
    
    
    $
    106,308
    
    
    $
    136,351Operating income (loss):North America
    
    $
    1,953
    
    
    $
    2,594
    
    
    $
    4,797
    
    
    $
    5,740EMEA
    
    
    146
    
    
    
    (403
    )
    
    
    (242
    )
    
    
    (688
    )Asia Pacific
    
    
    419
    
    
    
    1,130
    
    
    
    1,102
    
    
    
    2,182Latin America
    
    
    (326
    )
    
    
    (501
    )
    
    
    (205
    )
    
    
    (258
    )Corporate
    
    
    (4,312
    )
    
    
    (5,722
    )
    
    
    (10,114
    )
    
    
    (10,841
    )$
    (2,120
    )
    
    $
    (2,902
    )
    
    $
    (4,662
    )
    
    $
    (3,865
    )
  14




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##### Table of Contents



QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 13. BUSINESS SEGMENT INFORMATION (Continued)
 July 31,
    
    
    January 31,2009
    
    
    2009(in thousands)Property and equipment, net:North America
    
    $
    32,784
    
    
    $
    34,580EMEA
    
    
    4,865
    
    
    
    4,731Asia Pacific
    
    
    1,489
    
    
    
    1,704Latin America
    
    
    422
    
    
    
    423$
    39,560
    
    
    $
    41,438
 
 (1)
    
    Sales into Canada accounted for 5% and 4% of North America total revenue in the
three and six months ended July 31, 2009 and for 4% and 3% of North America total revenue for the
three and six months ended July 31, 2008. 14. 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
 Q4 Fiscal 2009 Restructuring Plan
   15




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QAD INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
 14. RESTRUCTURING CHARGES (Continued)
 Q2 Fiscal 2010 Restructuring Plan
  Restructuring Accruals
  Q4 Fiscal 2009
    
    
    Q2 Fiscal 2010Restructuring
    
    
    RestructuringPlan
    
    
    Plan
    
    
    Total(in thousands)Balance as of January 31, 2009
    
    $
    2,872
    
    
    $
    
    
    
    $
    2,872Employee severance pay and related expenses
    
    
    819
    
    
    
    1,496
    
    
    
    2,315Cash paid
    
    
    (3,524
    )
    
    
    (1,264
    )
    
    
    (4,788
    )Reversal of previous charges
    
    
    (52
    )
    
    
    
    
    
    
    (52
    )Impact of foreign currency translation
    
    
    28
    
    
    
    4
    
    
    
    32Balance as of July 31, 2009
    
    $
    143
    
    
    $
    236
    
    
    $
    379
  15. SUBSEQUENT EVENT
     16




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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
       17




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CRITICAL ACCOUNTING POLICIES
  Revenue Recognition
      18




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19




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Accounts Receivable Allowances
 Goodwill and Intangible Assets
    Capitalized Software Development Costs.
  20




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Valuation of Deferred Tax Assets
 Tax Contingency Reserves.
  Stock-based Compensation Expense
    21




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RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJuly 31,
    
    
    July 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue:License fees
    
    
    13
    %
    
    
    16
    %
    
    
    12
    %
    
    
    17
    %Maintenance and other
    
    
    63
    
    
    
    50
    
    
    
    61
    
    
    
    50Services
    
    
    24
    
    
    
    34
    
    
    
    27
    
    
    
    33Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
    
    
    
    100Costs and expenses:Cost of license fees
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    4Cost of maintenance, service and other revenue
    
    
    40
    
    
    
    43
    
    
    
    42
    
    
    
    42Sales and marketing
    
    
    25
    
    
    
    29
    
    
    
    25
    
    
    
    28Research and development
    
    
    18
    
    
    
    16
    
    
    
    19
    
    
    
    16General and administrative
    
    
    18
    
    
    
    12
    
    
    
    16
    
    
    
    13Amortization of intangibles from acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total costs and expenses
    
    
    104
    
    
    
    104
    
    
    
    105
    
    
    
    103Operating loss
    
    
    (4
    )
    
    
    (4
    )
    
    
    (5
    )
    
    
    (3
    )Other expense (income)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before income taxes
    
    
    (4
    )
    
    
    (4
    )
    
    
    (5
    )
    
    
    (3
    )Income tax benefit
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Net loss
    
    
    (3)
    %
    
    
    (2
    )%
    
    
    (4)
    %
    
    
    (2
    )%
 Comparison of revenues
 Total Revenue
   22




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License Revenue .
  Maintenance and Other Revenue
    23




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Services Revenue.
  Comparison of 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
 Q4 Fiscal 2009 Restructuring Plan
   24




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Q2 Fiscal 2010 Restructuring Plan
  Restructuring Accruals
  Q4 Fiscal 2009
    
    
    Q2 Fiscal 2010Restructuring
    
    
    RestructuringPlan
    
    
    Plan
    
    
    Total(in thousands)Balance as of January 31, 2009
    
    $
    2,872
    
    
    $
    
    
    
    $
    2,872Employee severance pay and related expenses
    
    
    819
    
    
    
    1,496
    
    
    
    2,315Cash paid
    
    
    (3,524
    )
    
    
    (1,264
    )
    
    
    (4,788
    )Reversal of previous charges
    
    
    (52
    )
    
    
    
    
    
    
    (52
    )Impact of foreign currency translation
    
    
    28
    
    
    
    4
    
    
    
    32Balance as of July 31, 2009
    
    $
    143
    
    
    $
    236
    
    
    $
    379
  Total Cost of Revenue.
   25




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##### Table of Contents



Sales and Marketing.
  Research and Development.
  General and Administrative.
  Amortization of Intangibles from Acquisitions.
  26




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##### Table of Contents



Other Expense (Income)
  Income Tax Benefit.
  LIQUIDITY AND CAPITAL RESOURCES
    27




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##### Table of Contents



billed
 earned
   28




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CONTRACTUAL OBLIGATIONS
 Credit Facility
     Notes Payable
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Exchange
   29




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##### Table of Contents



Interest Rates.
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures.
 Changes in internal control over financial reporting.
  30




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##### Table of Contents



PART II
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (1)
    
    To elect seven directors, as nominated:
 Votes For
    
    
    Votes WithheldKarl F. Lopker
    
    
    25,702,463
    
    
    
    4,227,874Pamela M. Lopker
    
    
    25,730,710
    
    
    
    4,199,626Scott J. Adelson
    
    
    29,199,275
    
    
    
    731,062Terence R. Cunningham
    
    
    25,717,076
    
    
    
    4,213,261Thomas J. OMalia
    
    
    25,607,354
    
    
    
    4,322,982Lee D. Roberts
    
    
    25,717,076
    
    
    
    4,213,261Peter R. van Cuylenberg
    
    
    25,720,212
    
    
    
    4,210,125
 (2)
    
    To approve the Stock Option and Stock Appreciation Right Exchange Program:
 Votes For
    
    Votes Against
    
    Abstentions17,658,654
    
    5,684,133
    
    564,231
 (3)
    
    To approve an amendment of the Companys 2006 Stock Incentive Program
increasing the number of shares of common stock available for issuance from 5,300,000 shares
to 8,300,000 shares:
 Votes For
    
    Votes Against
    
    Abstentions18,498,432
    
    4,845,355
    
    563,231
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibits31.1
    
    
    Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    
    Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1
    
    
    Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  31




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QAD Inc.
(Registrant)Date: September 10, 2009
    By:
    /s/ DANIEL LENDERDaniel LenderExecutive Vice President, Chief Financial Officer
(on behalf of the Registrant)By:
    /s/ KARA BELLAMYKara BellamySenior Vice President, Corporate Controller
(Chief Accounting Officer)  32




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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