1.	SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

QAD is a leader in cloud-based enterprise software solutions for global manufacturing companies. The Company’s solutions, called QAD Adaptive Applications, are designed specifically for automotive suppliers, life sciences, consumer products, food and beverage, high technology and industrial products manufacturers. QAD software offers a full set of core manufacturing enterprise resource planning (ERP) and supply chain planning (SCP) capabilities. The Company’s architecture, called the QAD Enterprise Platform, allows customers to upgrade existing functionality by module; and extend or create new applications, providing manufacturers with the flexibility they need to innovate and rapidly adapt to change. QAD was founded in

1979,

incorporated in California in

1986

and reincorporated in Delaware in

1997.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of QAD Inc. and all of its subsidiaries. All subsidiaries are wholly-owned and all significant balances and transactions among the entities have been eliminated from the consolidated financial statements.

USE OF ESTIMATES

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles and, accordingly, include amounts based on informed estimates and judgments of management that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Significant items subject to such estimates and assumptions made by management include, but are

not

limited to, the determination of:

•	the fair value of assets acquired and liabilities assumed for business combinations;

•	the average period of benefit associated with deferred contract acquisition and fulfillment costs;

•	the fair value of certain stock awards issued;

•	the useful life and recoverability of long-lived assets;

•	the fair value of assets held for sale; and

•	the recognition,measurement and valuation of deferred income taxes.

The World Health Organization declared in

March 2020

that the recent outbreak of the coronavirus disease named COVID-

constitutes a pandemic. The Company has undertaken measures to protect its employees, partners and customers. There can be

assurance that these measures will be effective, however, or that the Company can adopt them without adversely affecting its business operations. In addition, the coronavirus outbreak has created and

may

continue to create significant uncertainty in global financial markets, which

may

decrease technology spending, depress demand for the Company’s solutions and harm its business and results of operations. As of the date of issuance of the financial statements, the Company is

not

aware of any specific event or circumstance that would require updates to the Company’s estimates and judgments or revisions to the carrying value of its assets or liabilities. These estimates

may

change, as new events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences

may

be material to the financial statements.

RECLASSIFICATION

Certain prior year amounts included in Notes to Consolidated Financial Statements have been reclassified for consistency with the current year presentation.

FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS

The financial position and results of operations of the Company’s foreign subsidiaries are generally determined using the country’s local currency as the functional currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rates on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to other comprehensive (loss) income, which is included in “Accumulated other comprehensive loss” within the Consolidated Balance Sheets.

Gains and losses resulting from foreign currency transactions and remeasurement adjustments of monetary assets and liabilities

not

held in an entity’s functional currency are included in earnings. Foreign currency transaction and remeasurement (gains) losses for fiscal

2020,

2019

and

2018

totaled $(

0.1

) million, $(

0.2

) million and

$2.5

million, respectively, and are included in “Other (income) expense, net” in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income.

CASH AND EQUIVALENTS

Cash and equivalents consist of cash and short-term marketable securities with maturities of less than

days at the date of purchase. The Company considers all highly liquid investments purchased with an original maturity of

days or less to be cash equivalents. At

January 31, 2020

and

2019,

the Company’s cash and equivalents consisted of money market mutual funds invested in U.S. Treasury and government securities, deposit accounts and certificates of deposit.

SHORT-TERM INVESTMENTS

January 31, 2019,

the Company’s short-term investments consisted of certificates of deposit with maturities greater than

days and less than

one

year. Short-term investments were classified as held-to-maturity, since the Company had the intent and the ability to hold them to maturity. Short-term investments were recorded at amortized cost, which approximated fair value. The Company considered all of its short-term investments as highly liquid and therefore included these securities within current assets on the Consolidated Balance Sheets. Interest on short-term investments was included as a component of “Interest income”.

ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consisted of the following as of

January 31:

	20 20			201 9
	(in thousands)
Accounts receivable	$	83,908		$	84,478
Less allowance for:
Doubtful accounts		(543	)		(487	)
Sales adjustments		(2,397	)		(2,414	)
Accounts receivable, net	$	80,968		$	81,577

Trade accounts receivable are recorded at the invoiced amount and do

not

bear interest. The collectability of accounts receivable is reviewed each period by analyzing balances based on age. Specific allowances for doubtful accounts are recorded for any balances that the Company determines

may

not

be fully collectible due to a customer’s inability to pay. The Company also provides a general reserve based on historical data including an analysis of write-offs and other known factors. Provisions to the allowance for bad debts are included as bad debt expense in “General and Administrative” expense. The determination to write-off specific accounts receivable balances is based on the likelihood of collection and past due status. Past due status is based on invoice date and terms specific to each customer.

The Company does

not

generally provide a contractual right of return; however, in the course of business sales adjustments related to customer dispute resolution

may

occur. A provision is recorded against revenue for estimated sales adjustments in the same period the related revenues are recorded or when current information indicates additional amounts are required. These estimates are based on historical experience, specifically identified customers and other known factors.

ASSETS HELD FOR SALE

During the

second

quarter of fiscal

2020,

the Company vacated its building located in Dublin, Ireland, and moved its operations into leased office space. In fiscal

2020,

Company entered into an agreement to sell the building; however, given the current economic environment there is potential risk to the timing and completion of the sale. The net book value of the building of

$1.6

million was classified as assets held for sale, and is included in “Prepaid expenses and other current assets, net” in the accompanying Consolidated Balance Sheet as of

January 31, 2020.

The net book value approximates fair market value.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The carrying amounts of cash and equivalents, short-term investments, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The Company’s note payable bears a variable market interest rate, subject to certain minimum interest rates. Therefore, the carrying amount outstanding under the note payable reasonably approximates fair value.

Concentration of credit risk with respect to trade receivables is limited due to a large number of customers comprising the Company’s customer base, and their dispersion across many different industries and locations throughout the world.

single customer accounted for

10%

or more of the Company’s total revenue during the fiscal year ended

January 31, 2020.

In the fiscal year ended

January 31, 2019

one

customer accounted for

10%

of total revenue and

other customer accounted for

10%

or more of total revenue. During fiscal

2019

the Company performed a large implementation project with a customer which included consulting services the customer needed to help perform activities their employees were responsible for. Without these services, the revenue from this customer would have been less than

10%.

single customer accounted for

10%

or more of the Company’s total revenue during the fiscal year ended

January 31, 2018.

In addition,

single customer accounted for

10%

or more of accounts receivable at

January 31, 2020

2019.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Additions and significant improvements to property and equipment are capitalized, while maintenance and repairs are expensed as incurred. For financial reporting purposes, depreciation is generally expensed via the straight-line method over the useful life of

three

years for computer equipment and software,

five

years for furniture and office equipment,

years for building improvements, and

years for buildings. Leasehold improvements are depreciated over the shorter of the lease term or the useful life of

five

years.

Certain costs associated with software developed for internal use, including payroll costs for employees, are capitalized once the project has reached the application development stage and are included in property and equipment classified as software. These costs are amortized using the straight-line method over the expected useful life of the software, beginning when the asset is substantially ready for use. Costs incurred related to the preliminary project stage, training and research and development are expensed as incurred.

Property and equipment, net consisted of the following as of

January 31:

	2020			2019
	(in thousands)
Buildings and building improvements	$	29,902		$	32,238
Computer equipment and software		18,345			17,671
Furniture and office equipment		8,004			7,672
Leasehold improvements		7,382			7,309
Land		3,850			3,850
Automobiles		65			54
		67,548			68,794
Less accumulated depreciation and amortization		(38,861	)		(39,173	)
	$	28,687		$	29,621

The changes in property and equipment, net, for the fiscal years ended

January 31

were as follows:

	2020			2019
	(in thousands)
Cost
Balance at February 1	$	68,794		$	67,969
Additions		5,671			4,340
Adjustments (1)		(2,234	)		-
Disposals		(4,286	)		(2,512	)
Impact of foreign currency translation		(397	)		(1,003	)
Balance at January 31		67,548			68,794

Accumulated depreciation
Balance at February 1		(39,173	)		(37,561	)
Depreciation		(5,034	)		(4,734	)
Adjustments (1)		880			-
Disposals		4,207			2,474
Impact of foreign currency translation		259			648
Balance at January 31		(38,861	)		(39,173	)
Property and equipment, net at January 31	$	28,687		$	29,621

(

)

Adjustments relate primarily to a building re-classified to assets held for sale in the

second

quarter of fiscal

2020.

Depreciation and amortization expense of property and equipment for fiscal

2020,

2019

and

2018

was

$5.1

million,

$4.7

million and

$4.6

million, respectively.

CAPITALIZED SOFTWARE COSTS

The Company capitalizes software development costs incurred in connection with the localization and translation of its products once technological feasibility has been achieved based on a working model. A working model is defined as an operative version of the computer software product that is completed in the same software language as the product to be ultimately marketed, performs all the major functions planned for the product and is ready for initial customer testing (usually identified as beta testing). In addition, the Company capitalizes software purchased from

third

parties or through business combinations as acquired software technology, if the related software under development has reached technological feasibility.

The amortization of capitalized software costs is the greater of the straight-line basis over

three

years, the expected useful life, or a computation using a ratio of current revenue for a product compared to the estimated total of current and future revenues for that product.

Capitalized software costs and accumulated amortization at

January 31

were as follows:

	2020			2019
	(in thousands)
Capitalized software costs:
Capitalized software development costs	$	3,356		$	2,314
Acquired software technology		135			135
		3,491			2,449
Less accumulated amortization		(1,569	)		(851	)
Capitalized software costs, net	$	1,922		$	1,598

The Company‘s capitalized software development costs relate to translations and localizations of QAD Adaptive Applications. Acquired software technology costs relate to intellectual property purchased during the

second

quarter of fiscal

2019.

It is the Company’s policy to write off capitalized software development costs once fully amortized. Accordingly, during fiscal

2020,

$0.2

million of costs and accumulated amortization was removed from the Consolidated Balance Sheet and was related to capitalized software development costs which was fully amortized during fiscal

2020.

Amortization of capitalized software costs for fiscal

2020,

2019

and

2018

was

$0.9

million,

$0.6

million and

$0.8

million, respectively. Amortization of capitalized software costs is included in “Cost of license” in the accompanying Consolidated Statements of Operations and Comprehensive (Loss) Income.

The following table summarizes the estimated amortization expense relating to the Company’s capitalized software costs as of

January 31, 2020:

Fiscal Years	(in thousands)
2021	$	984
2022		643
2023		280
2024		15
Thereafter		-
	$	1,922

INTANGIBLE ASSETS

Intangible assets and accumulated amortization at

January 31

were as follows:

	2020			2019
	(in thousands)
Amortizable intangible assets:
Customer relationships	$	1,379		$	1,348
Less accumulated amortization		(394	)		(115	)
Net amortizable intangible assets	$	985		$	1,233

The Company’s intangible assets are related to acquisitions completed in the

second

and

third

quarters of fiscal

2019.

Intangible assets are included in “Other assets, net” in the accompanying Consolidated Balance Sheets, and are amortized over an estimated

five

year useful life.

Amortization of intangible assets from acquisitions was

$0.3

million,

$0.1

million and

$0.4

million for fiscal

2020,

2019

and

2018,

respectively. The following table summarizes the estimated amortization expense relating to the Company’s intangible assets as of

January 31, 2020:

Fiscal Years	(in thousands)
2021	$	276
2022		276
2023		276
2024		157
Thereafter		-
	$	985

IMPAIRMENT ASSESSMENT OF LONG-LIVED ASSETS AND INTANGIBLES OTHER THAN GOODWILL

The Company evaluates long-lived assets, capitalized software and other intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets

may

not

be recoverable. This includes but is

not

limited to significant adverse changes in business climate, market conditions, or other events that indicate an asset's carrying amount

may

not

be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate the carrying value of the asset

may

not

be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

There were

impairments of long-lived assets, capitalized software, or other intangible assets during fiscal

2020,

2019,

and

2018,

respectively.

GOODWILL

The changes in the carrying amount of goodwill for the fiscal years ended

January 31, 2019

and

2020

were as follows:

	Gross Carrying Amount			Accumulated Impairment			Goodwill, Net
	(in thousands)
Balance at January 31, 2018	$	26,631			(15,608	)		11,023
Additions		1,510			—			1,510
Impact of foreign currency translation		(110	)		—			(110	)
Balance at January 31, 2019		28,031			(15,608	)		12,423
Impact of foreign currency translation		(35	)		—			(35	)
Balance at January 31, 2020	$	27,996		$	(15,608	)	$	12,388

Additions to goodwill for the fiscal year ended

January 31, 2019

were a result of immaterial acquisitions where the purchase price exceeded the estimated fair value of the acquired net assets. Pro forma financial information for the acquisitions has

not

been presented, as the effects were

not

material to the Company’s historical consolidated financial statements.

During each of the

fourth

quarters of fiscal

2020,

2019

and

2018,

an impairment analysis was performed at the enterprise level which compared the Company’s market capitalization to its net assets as of the test date,

November 30.

As the market capitalization substantially exceeded the Company’s net assets, there was

indication of goodwill impairment for fiscal

2020,

2019

and

2018.

INCOME TAXES

The provision for income taxes is computed using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income in the period that includes the enactment date.

The Company utilizes a

two

-step approach to recognizing and measuring uncertain income tax positions (tax contingencies). The

first

step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than

not

that the position will be sustained on audit, including resolution of related appeals or litigation processes. The

second

step is to measure the tax benefit as the largest amount which is more than

50%

likely of being realized upon ultimate settlement. The Company considers many factors when evaluating its tax positions and estimating its tax benefits, which

may

require periodic adjustments. The Company includes interest and penalties related to its tax contingencies in income tax expense.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than

not

expected to be realized based on the weight of positive and negative evidence. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income within the carryback or carryforward periods available under the applicable tax law. The Company regularly reviews its deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The Company’s judgments regarding future profitability

may

change due to many factors, including future market conditions and the ability to successfully execute its business plans. Should there be a change in the ability to recover deferred tax assets, the tax provision would increase or decrease in the period in which the assessment is changed.

LEASES

The Company treats a contract as a lease when the contract conveys the right to use a physically distinct asset for a period of time in exchange for consideration, the Company directs the use of the asset and the Company obtains substantially all the economic benefits of the asset. These leases are recorded as right-of-use (ROU) assets and lease obligation liabilities for leases with terms greater than

months. ROU assets represent the Company’s right to use an underlying asset for the entirety of the lease term. Lease liabilities represent the Company's obligation to make payments over the life of the lease. An ROU asset and a lease liability are recognized at commencement of the lease based on the present value of the lease payments over the life of the lease. Initial direct costs are included as part of the ROU asset upon commencement of the lease. Since the interest rate implicit in a lease is generally

not

readily determinable, the Company uses an incremental borrowing rate to determine the present value of the lease payments. The incremental borrowing rate represents the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar lease term to obtain an asset of similar value. The Company used the incremental borrowing rate on

February 1, 2019

for all leases that commenced prior to that date.

The Company has applied the practical expedient available for lessees in which lease and non-lease components are accounted for as a single lease component for all asset classes. The Company also elected the practical expedient to exclude short-term leases (leases with original terms of

months or less) from ROU asset and lease liability accounts.

The Company’s operating lease expense is recognized on a straight-line basis over the lease term. Amortization expense of the ROU asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the incremental borrowing rate. Variable lease payments are expensed as incurred for both operating and finance leases. Variable payments change due to facts or circumstances occurring after the commencement date, other than the passage of time, and do

not

result in a remeasurement of lease liabilities. The Company’s variable lease payments include payments to lessors for taxes, maintenance, insurance and other operating costs as well as payments that are adjusted based on a CPI index or rate and payments in excess of fixed amounts, such as excess mileage charges on leased autos. The Company's lease agreements do

not

contain any significant residual value guarantees or restrictive covenants.

STOCK-BASED COMPENSATION

The Company accounts for share-based payments (equity awards) to employees in accordance with ASC

718,

Compensation—Stock Compensation

(ASC

718

), which requires that share-based payments (to the extent they are compensatory) be recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income based on the fair values of the equity awards as measured at the grant date. The fair value of an equity award is recognized as stock-based compensation expense ratably over the vesting period of the equity award. Determining the fair value of equity awards at the grant date requires judgment.

Fair Value of RSUs

The fair value of restricted stock units (RSUs) is determined on the grant date of the award as the market price of the Company’s common stock on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period. Judgment is required in determining the present value of estimated dividends foregone during the vesting period. The Company estimates the dividends for purposes of this calculation based on the Company’s historical dividend payments per share, which has remained consistent over the last

four

years.

Fair Value of PSUs

The fair value of performance stock units (PSUs) is determined on the grant date of the award as the market price of the Company’s common stock on the date of grant, reduced by the present value of estimated dividends foregone during the vesting period. Judgment is required in determining the present value of estimated dividends foregone during the vesting period. The Company estimates the dividends for purposes of this calculation based on the Company’s historical dividend payments per share, which has remained consistent over the last

three

years. The number of PSUs earned and eligible to vest are determined based on attainment of specified performance criteria. To determine the anticipated achievement of the performance objectives, management must make assumptions regarding the likelihood of the Company meeting those targets. The number of PSUs that vest will be predicated on the Company achieving performance objectives during the measurement period subsequent to the date of grant. Depending on the financial performance levels achieved, a percentage of the PSUs (

200%

of the target award) will vest to the grantees of those stock units.

Fair Value of SARs

The fair value of stock-settled stock appreciation rights (SARs) is determined on the grant date of the award using the Black-Scholes-Merton valuation model. One of the inputs to the Black-Scholes-Merton valuation model is the fair market value of the Company’s stock on the date of grant. Judgment is required in determining the remaining inputs to the Black-Scholes-Merton valuation model. These inputs include the expected life, volatility, the risk-free interest rate and the dividend rate. The following describes the Company’s policies with respect to determining these valuation inputs:

Expected Life -

The expected life valuation input includes a computation that is based on historical vested SAR exercises and post-vest expiration patterns and an estimate of the expected life for SARs that were fully vested and outstanding. Furthermore, based on the Company’s historical pattern of SAR exercises and post-vest expiration patterns the Company determined that there are

two

discernible populations which include the Company’s directors and officers (D&O) and all other QAD employees. The estimate of the expected life for SARs that were fully vested and outstanding is determined as the midpoint of a range as follows: the low end of the range assumes the fully vested and outstanding SARs are exercised or expire unexercised on the vest date and the high end of the range assumes that these SARs are exercised or expire unexercised upon the contractual termination date.

Volatility -

The volatility valuation input is based on the historical volatility of the Company’s common stock, which the Company believes is representative of the expected volatility over the expected life of SARs.

Risk-Free Interest Rate -

The risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the time of grant for the expected term of the SARs.

Dividend Rate -

The dividend rate is based on the Company’s historical dividend payments per share.

The Company records deferred tax assets for equity awards that result in deductions on its income tax returns, based on the amount of stock-based compensation recognized and the fair values attributable to the vested portion of those equity awards. Because the deferred tax assets the Company records are based upon the stock-based compensation expenses in a particular jurisdiction, the aforementioned inputs that affect the fair values of equity awards

may

also indirectly affect income tax expense. If the tax deduction is less than the deferred tax asset, the calculated shortfall would increase income tax expense. If the tax deduction is more than the deferred tax asset, the calculated windfall would decrease income tax expense.

COMPREHENSIVE

(LOSS)

INCOME

Comprehensive (loss) income includes changes in the balances of items that are reported directly as a separate component of stockholders’ equity on the Consolidated Balance Sheets. The components of comprehensive (loss) income are net (loss) income and foreign currency translation adjustments. The Company does

not

provide for income taxes on foreign currency translation adjustments since it does

not

provide for taxes on the unremitted earnings of its foreign subsidiaries. The changes in accumulated other comprehensive loss are included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income.

ADVERTISING EXPENSES

Advertising costs are expensed as incurred. Advertising expenses were

$0.6

million,

$0.7

million and

$0.7

million for fiscal years

2020,

2019

and

2018.

RESEARCH AND DEVELOPMENT

All costs incurred to establish the technological feasibility of the Company’s software products are expensed to research and development (R&D) as incurred. R&D expenses totaled

$54.7

million,

$54.0

million and

$47.7

million in fiscal years

2020,

2019

and

2018,

respectively.

OTHER (INCOME) EXPENSE, NET

The components of other (income) expense, net for fiscal

2020,

2019

and

2018

were as follows:

	Years Ended January 31,
	20 20			201 9			201 8
	(in thousands)
Interest income	$	(2,782	)	$	(2,600	)	$	(1,547	)
Interest expense		630			643			669
Foreign exchange (gains) losses		(50	)		(229	)		2,466
Change in fair value of interest rate swap		368			51			(377	)
Other income, net		(250	)		(209	)		(77	)
Total other (income) expense, net	$	(2,084	)	$	(2,344	)	$	1,134

COMPUTATION OF NET (LOSS) INCOME PER SHARE

Net (loss) income per share of Class A common stock and Class B common stock is computed using the

two

-class method. Holders of Class A common stock are entitled to cash or stock dividends equal to

120%

of the amount of such dividend payable with respect to a share of Class B common stock.

The following table sets forth the computation of basic and diluted net (loss) income per share:

	Years Ended January 31,
	2020			2019			2018
	(in thousands, except per share data)
Net (loss) income	$	(15,949	)	$	10,428		$	(9,065	)
Less: dividends declared		(5,617	)		(5,479	)		(5,367	)
Undistributed net (loss) income	$	(21,566	)	$	4,949		$	(14,432	)

Net (loss) income per share – Class A Common Stock
Dividends declared	$	4,827		$	4,696		$	4,596
Allocation of undistributed net (loss) income		(18,519	)		4,243			(12,358
Net (loss) income attributable to Class A common stock	$	(13,692	)	$	8,939		$	(7,762	)

Weighted average shares of Class A common stock outstanding— basic		16,709			16,267			15,942
Weighted average potential shares of Class A common stock		—			1,585			—
Weighted average shares of Class A common stock and potential common shares outstanding— diluted		16,709			17,852			15,942

Basic net (loss) income per Class A common share	$	(0.82	)	$	0.55		$	(0.49	)
Diluted net (loss) income per Class A common share	$	(0.82	)	$	0.50		$	(0.49	)

Net (loss) income per share – Class B Common Stock
Dividends declared	$	790		$	783		$	771
Allocation of undistributed net (loss) income		(3,047	)		706			(2,074	)
Net (loss) income attributable to Class B common stock	$	(2,257	)	$	1,489		$	(1,303	)

Weighted average shares of Class B common stock outstanding— basic		3,289			3,256			3,213
Weighted average potential shares of Class B common stock		—			166			—
Weighted average shares of Class B common stock and potential common shares outstanding— diluted		3,289			3,422			3,213

Basic net (loss) income per Class B common share	$	(0.69	)	$	0.46		$	(0.41	)
Diluted net (loss) income per Class B common share	$	(0.69	)	$	0.44		$	(0.41	)

Potential common shares consist of the shares issuable upon the release of RSUs and PSUs, and the exercise of SARs. The Company’s unvested RSUs and PSUs, and unexercised SARs are

not

considered participating securities as they do

not

have rights to dividends or dividend equivalents prior to release or exercise.

The following table sets forth the number of potential common shares

not

included in the calculation of diluted earnings per share because their effects were anti-dilutive:

	Years Ended January 31,
	2020		2019		2018
	(in thousands)
Class A		2,473		325		3,236
Class B		221		—		380

RECENT ACCOUNTING PRONOUNCEMENTS

With the exception of those discussed below, there have been

recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (FASB) or adopted by the Company during the fiscal year ended

January 31, 2020,

that are of significance, or potential significance, to the Company.

Recent Accounting Pronouncements Adopted

February

2016,

the FASB issued Accounting Standards Update (ASU)

2016

02,

Leases (Topic

842

This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use (ROU) asset on the balance sheet. The Company adopted ASU

2016

02,

along with related clarifications and improvements, as of

February 1, 2019,

using the modified retrospective approach, which allows the Company to apply Accounting Standards Codification (ASC)

840,

Leases, in the comparative periods presented in the year of adoption. Accordingly, the comparative periods and disclosures have

not

been restated. The cumulative effect of adoption was recorded as an adjustment to the opening balance sheet in the period of adoption.

Adoption of the new standard resulted in the recording of a non-cash transitional adjustment to ROU lease assets and lease liabilities of approximately

$13.1

million and

$13.9

million, respectively, as of

February 1, 2019.

The difference between the ROU lease assets and lease liabilities represented existing deferred rent expense and prepaid rent that were derecognized and recorded to retained earnings in the Consolidated Balance Sheets. The adoption of ASU

2016

did

not

materially impact results of operations or cash flows.

Recent Accounting Pronouncements

Not

Yet Adopted

December 2019,

the FASB issued new guidance which is intended to simplify various aspects to accounting for income taxes by removing certain exceptions to the general principles in Topic

740

for recognizing deferred taxes for investments, performing an intraperiod allocation and calculating income taxes in interim periods. The amendment also clarifies and amends certain areas of existing guidance to reduce complexity and improve consistency in application of Topic

740.

The new standard is effective for fiscal years beginning after

December 15, 2020.

Early adoption is permitted, including adoption in any interim period for which financial statements have

not

yet been issued. Generally, the topics must be applied prospectively upon adoption, with the exception of certain topics which are required to be applied on a retrospective or modified retrospective basis. The Company is evaluating the impact, if any, of adopting this new accounting guidance on its financial statements.

August 2018,

the FASB issued ASU

2018

15,

Intangibles-Goodwill and Other-Internal-Use Software (Subtopic

350

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC

350

40,

in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU

2018

is effective for annual reporting periods, and interim periods within those years, beginning after

December 15, 2019,

and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company does

not

believe adoption of this standard will have a material impact on its consolidated financial statements.

January 2017,

the FASB issued ASU

2017

04,

Intangibles—Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment,

which simplifies the subsequent measurement of goodwill to eliminate Step

from the goodwill impairment test. In addition, it eliminates the requirements for any reporting unit with a

zero

or negative carrying amount to perform a qualitative assessment and, if that fails that qualitative test, to perform Step

of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. ASU

2017

will be effective for the Company’s fiscal year beginning

February 1, 2020.

The new guidance is required to be applied on a prospective basis. The Company does

not

believe adoption of ASU

2017

will have a material impact on its consolidated financial statements.

June 2016,

the FASB issued ASU

2016

13,

Financial Instruments-Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, which includes the Company's accounts receivables, certain financial instruments and contract assets. ASU

2016

replaces the existing incurred loss impairment model with an expected loss methodology, which will generally result in more timely recognition of credit losses. ASU

2016

is effective for annual reporting periods, and interim periods within those years, beginning after

December 15, 2019,

and requires a cumulative effect adjustment to the balance sheet as of the beginning of the

first

reporting period in which the guidance is effective. The Company does

not

believe adoption of ASU

2016

will have a material impact on its consolidated financial statements.