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EX-3.1 - CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION - RAND WORLDWIDE INCdex31.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - RAND WORLDWIDE INCdex312.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - RAND WORLDWIDE INCdex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - RAND WORLDWIDE INCdex311.htm
EX-10.1 - EXHIBIT 10.1 - RAND WORLDWIDE INCdex101.htm
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-31265

 

 

Rand Worldwide, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware   84-1035353

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

161 Worcester Road, Suite 401, Framingham, MA   01701
(Address of Principal Executive Offices)   (Zip Code)

(508) 663-1400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨    (Not Applicable)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: as of May 10, 2011, there were 51,882,678 shares of common stock, par value $.01 per share, outstanding.

 

 

 


Table of Contents

RAND WORLDWIDE, INC. AND SUBSIDIARIES

INDEX

 

          Page  

PART I

   FINANCIAL INFORMATION   

ITEM 1.

   Financial Statements   
   Consolidated Balance Sheets – March 31, 2011 and June 30, 2010 (Unaudited)   
   Consolidated Statements of Operations – Three months ended March 31, 2011 and 2010 (Unaudited)   
   Consolidated Statements of Operations – Nine months ended March 31, 2011 and 2010 (Unaudited)   
   Consolidated Statement of Stockholders’ Equity – Nine months ended March 31, 2011 (Unaudited)   
   Consolidated Statements of Cash Flows – Nine months ended March 31, 2011 and 2010 (Unaudited)   
   Notes to Consolidated Financial Statements (Unaudited)   

ITEM 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations   

ITEM 4.

   Controls and Procedures   

PART II

   OTHER INFORMATION   

ITEM 6.

   Exhibits   

SIGNATURES

     

EXHIBIT INDEX

     


Table of Contents

PART I. FINANCIAL INFORMATION

Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

 

     March 31,
2011
     June 30,
2010
 

Assets

     

Current assets:

     

Cash

   $ 2,294,000       $ 1,198,000   

Accounts receivable, less allowance of $580,000 as of March 31, 2011 and $390,000 as of June 30, 2010

     17,735,000         8,203,000   

Other receivables

     1,243,000         433,000   

Inventory

     175,000         152,000   

Prepaid expenses and other current assets

     941,000         1,030,000   
                 

Total current assets

     22,388,000         11,016,000   

Property and equipment:

     

Computer software and equipment

     6,888,000         3,623,000   

Office furniture and equipment

     1,835,000         430,000   

Leasehold improvements

     709,000         380,000   
                 
     9,432,000         4,433,000   

Less accumulated depreciation and amortization

     7,528,000         2,610,000   
                 
     1,904,000         1,823,000   

Customer list, net of accumulated amortization of $2,908,000 as of March 31, 2011 and $2,334,000 as of June 30, 2010

     4,031,000         1,638,000   

Goodwill

     15,244,000         7,232,000   

Trade name, net of accumulated amortization of $1,156,000 as of March 31, 2011

     2,625,000         —     

Other assets

     407,000         406,000   
                 

Total assets

   $ 46,599,000       $ 22,115,000   
                 

See accompanying notes.


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets (continued)

(unaudited)

 

     March 31,
2011
    June 30,
2010
 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Borrowings under line of credit

   $ 2,788,000      $ 3,325,000   

Accounts payable and accrued expenses

     14,326,000        9,017,000   

Accrued compensation and related benefits

     1,806,000        974,000   

Deferred revenue

     3,606,000        2,582,000   

Income taxes payable

     57,000        34,000   

Obligations under capital leases

     133,000        55,000   

Related party term notes

     —          6,576,000   
                

Total current liabilities

     22,716,000        22,563,000   

Long term liabilities:

    

Deferred tax liability

     1,865,000        —     

Obligations under capital leases

     23,000        35,000   

Related party term notes

     —          6,061,000   

Other long term liabilities

     —          114,000   
                

Total liabilities

     24,604,000        28,773,000   

Series A redeemable preferred stock, $0.001 par value; 31,858,922 shares authorized; 31,000,000 shares issued and outstanding; liquidation preference of $38,086,000 at June 30, 2010 (note 10)

     —          38,086,000   

Stockholders’ equity:

    

Convertible Preferred Stock, $0.01 par value; 1,300,537 shares authorized, 1,298,728 shares issued; 1,090,150 shares outstanding with an aggregate liquidation preference of $1,591,000 at March 31, 2011 (note 10)

     11,000        —     

Common stock, $0.01 par value; 80,000,000 shares authorized; issued and outstanding shares 51,882,678 at March 31, 2011

     519,000        —     

Common stock, $0.001 par value; 11,010,000 shares authorized; issued and outstanding shares 9,500,000 at June 30, 2010

     —          10,000   

Additional paid-in capital

     64,869,000        —     

Accumulated deficit

     (44,726,000     (45,528,000

Accumulated other comprehensive income

     1,322,000        774,000   
                

Total stockholders’ equity (deficit)

     21,995,000        (44,744,000
                

Total liabilities and stockholders’ equity (deficit)

   $ 46,599,000      $ 22,115,000   
                

See accompanying notes.


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

     Three Months Ended March 31,  
     2011     2010  

Revenues:

    

Product sales

   $ 16,343,000      $ 6,620,000   

Service revenue

     5,450,000        4,170,000   

Commission revenue

     5,630,000        2,703,000   
                
     27,423,000        13,493,000   

Cost of revenue:

    

Cost of product sales

     11,028,000        4,335,000   

Cost of service revenue

     3,775,000        3,117,000   
                
     14,803,000        7,452,000   

Gross margin

     12,620,000        6,041,000   

Other operating expenses:

    

Selling, general and administrative

     9,902,000        5,715,000   

Depreciation and amortization

     468,000        276,000   
                
     10,370,000        5,991,000   
                

Operating income

     2,250,000        50,000   

Other expense, net

     (150,000     (640,000
                

Income (loss) before income taxes

     2,100,000        (590,000

Income tax expense

     30,000        30,000   
                

Net income (loss)

     2,070,000        (620,000

Preferred stock dividends

     (38,000     (720,000
                

Net income (loss) available to common stockholders

   $ 2,032,000      $ (1,340,000
                

Income (loss) per common share, basic

   $ 0.04      $ (0.04
                

Income (loss) per common share, diluted

   $ 0.04      $ (0.04
                

Shares used in computing income (loss) per common share:

    

Weighted average shares used in computation - basic

     51,882,678        34,232,672  (1) 

Weighted average shares used in computation - diluted

     55,613,839        34,232,672  (1) 

See accompanying notes.

 

(1)

The weighted average shares for the three months ended March 31, 2010 have been restated to reflect the shares issued as part of the Merger.


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

     Nine Months Ended March 31,  
     2011     2010  

Revenues:

    

Product sales

   $ 36,509,000      $ 19,396,000   

Service revenue

     15,342,000        12,524,000   

Commission revenue

     14,062,000        6,616,000   
                
     65,913,000        38,536,000   

Cost of revenue:

    

Cost of product sales

     24,377,000        12,653,000   

Cost of service revenue

     10,779,000        9,528,000   
                
     35,156,000        22,181,000   

Gross margin

     30,757,000        16,355,000   

Other operating expenses:

    

Selling, general and administrative

     27,503,000        17,521,000   

Depreciation and amortization

     1,305,000        817,000   
                
     28,808,000        18,338,000   
                

Operating income (loss)

     1,949,000        (1,983,000

Other expense, net

     (651,000     (1,832,000
                

Income (loss) from continuing operations before income taxes

     1,298,000        (3,815,000

Income tax expense

     126,000        35,000   
                

Income (loss) from continuing operations

     1,172,000        (3,850,000

Loss from discontinued operations, net of tax

     —          (380,000

Gain on sale of discontinued operations, net of tax

     —          3,274,000   
                

Net income (loss)

   $ 1,172,000      $ (956,000
                

Net income (loss) from continuing operations

   $ 1,172,000      $ (3,850,000

Preferred stock dividends

     (475,000     (1,200,000
                

Net income (loss) from continuing operations available to common stockholders

   $ 697,000      $ (5,050,000
                

Income (loss) per common share from continuing operations, basic

   $ 0.01      $ (0.15

Income (loss) per common share from discontinued operations, basic

     —          0.12   
                

Income (loss) per common share, basic

   $ 0.01      $ (0.03
                

Income (loss) per common share from continuing operations, diluted

   $ 0.01      $ (0.15

Income per common share from discontinued operations, diluted

     —          0.12   
                

Income (loss) per common share, diluted

   $ 0.01      $ (0.03
                

Shares used in computing income (loss) per common share:

    

Weighted average shares used in computation - basic

     48,702,279        34,232,672  (1) 

Weighted average shares used in computation - diluted

     52,434,092        34,232,672  (1) 

See accompanying notes.

 

(1)

The weighted average shares for the nine months ended March 31, 2010 have been restated to reflect the shares issued as part of the Merger


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity (Unaudited)

 

    Convertible
Preferred Stock
    Common Stock                          
    Number of
Shares
    Par Value     Number of
Shares
    Par Value     Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Income
    Total  

Balance at July 1, 2010

    —        $ —          9,500,000      $ 10,000      $ —        $ (45,528,000   $ 774,000      $ (44,744,000

Accretion of dividends on Series A preferred stock

              (370,000       (370,000

Exchange of common stock, preferred stock and retirement of related-party debt

        (9,499,990     (10,000     51,266,000            51,256,000   

Restatement of securities to reflect equity structure of Avatech

        34,232,672        342,000        (342,000         —     

Merger consideration – Avatech

    1,090,150        11,000        17,643,057        177,000        14,038,000            14,226,000   

Vesting of stock options granted to employees

            9,000            9,000   

Issuance of common stock under employee stock purchase plan

        6,939          3,000            3,000   

Preferred stock dividends

            (105,000         (105,000

Foreign currency translation adjustment

                548,000        548,000   

Net income for the nine months ended March 31, 2011

              1,172,000          1,172,000   
                                                               

Balance at March 31, 2011

    1,090,150      $ 11,000        51,882,678      $ 519,000      $ 64,869,000      $ (44,726,000   $ 1,322,000      $ 21,995,000   
                                                               

See accompanying notes.


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

     Nine Months Ended March 31,  
     2011     2010  

Cash flows from operating activities

    

Net income (loss) from continuing operations

   $ 1,172,000      $ (3,850,000

Adjustments to reconcile net income (loss) to net cash used in operating activities:

    

Provision for bad debts

     160,000        —     

Depreciation and amortization

     1,450,000        1,074,000   

Stock-based compensation

     9,000        30,000   

Deferred income taxes

     34,000        —     

Changes in operating assets and liabilities net of those acquired:

    

Accounts and other receivables

     (5,207,000     (144,000

Inventory

     110,000        407,000   

Prepaid expenses and other current assets

     442,000        (194,000

Other assets

     102,000        —     

Accounts payable and accrued expenses

     920,000        (1,533,000

Accrued compensation and related benefits

     436,000        —     

Deferred revenue

     —          604,000   

Income taxes payable

     23,000        209,000   

Net effect of recapitalization of term notes

     115,000        —     

Other long term liabilities

     (114,000     —     
                

Net cash used in operating activities of continuing operations

     (348,000     (3,397,000
                

Net cash used in operating activities of discontinued operations

     —          (816,000
                

Net cash used in operating activities

     (348,000     (4,213,000
                

Cash flows from investing activities

    

Cash acquired through reverse acquisition

     2,123,000        —     

Purchases of property and equipment, net

     (366,000     (328,000
                

Net cash provided by (used in) investing activities of continuing operations

     1,757,000        (328,000
                

Net cash provided by investing activities of discontinued operations

     —          3,908,000   
                

Net cash provided by investing activities

     1,757,000        3,580,000   
                

Cash flows from financing activities

    

Proceeds from borrowings under line of credit

     62,641,000        23,160,000   

Payment of borrowings under line of credit

     (63,274,000     (20,545,000

Repayment of related party term notes

     —          (5,590,000

Proceeds from issuance of common stock to employees

     3,000        —     

Payment of preferred stock dividends

     (105,000     —     
                

Net cash used in financing activities of continuing operations

     (735,000     (2,975,000
                

Net cash used in financing activities of discontinued operations

     —          (543,000
                

Net cash used in financing activities

     (735,000     (3,518,000

Effect of exchange rate changes on cash from continuing operations

     422,000        372,000   

Effect of exchange rate changes on cash from discontinued operations

     —          (118,000
                

Net change in cash and cash equivalents

     1,096,000        (3,897,000

Cash - beginning of period

     1,198,000        4,529,000   
                

Cash - end of period

   $ 2,294,000      $ 632,000   
                


Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2011

1. Basis of Presentation

Rand Worldwide Inc. (“Rand Worldwide”) is a leading supplier in the design automation, facilities and data management software marketplace. Rand Worldwide also provides value-added services, such as training, technical support and other consulting and professional services to corporations, government agencies and educational institutions worldwide.

On August 17, 2010, Avatech Solutions Inc. (“Avatech”) acquired all the outstanding common stock of Rand Worldwide, Inc. in a reverse merger transaction (the “Merger”). As a result of the Merger and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), the consolidated financial statements represent a continuation of Rand Worldwide and thus include the results of Rand Worldwide for the full nine months ended March 31, 2011 and the results of Avatech from the date of acquisition through March 31, 2011. Balances reported for prior periods reflect the accounts of pre-Merger Rand Worldwide only. All intercompany accounts and transactions between Avatech, Rand and its consolidated affiliated companies have been eliminated in consolidation. See Note 2 for further information regarding this transaction and basis of presentation. All references to the consolidated entity of both Avatech and Rand Worldwide are identified herein as the “Company.”

As of January 1, 2011, the Company officially changed its name to Rand Worldwide Inc. and changed its official stock ticker symbol from AVSO.OB to RWWI.OB.

The Company is organized into three divisions: IMAGINiT Technologies (“IMAGINiT”), Enterprise Applications and ASCENT – Center for Technical Knowledge (“ASCENT”). The IMAGINiT division is one of the largest value-added resellers of Autodesk, Inc. (“Autodesk”) products in the world, providing Autodesk solutions and value-added services to customers in the manufacturing, infrastructure, building, and media and entertainment industries and also sells its own proprietary software products and related services, enhancing its total client solution offerings. IMAGINiT operates from locations across North America, Australia, Singapore and Malaysia.

The Enterprise Applications division of the business offers various products and services including data archiving solutions, facilities management solutions, as well as training for customers using that use products other than those from Autodesk. ASCENT is the courseware division of Rand Worldwide and is a leading developer of professional training materials and knowledge products for engineering software tools. Executive management performs their primary analyses based upon geographic location and operations by geographic segment and are disclosed within Note 12.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Article 8 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules or regulations. The interim financial statements are unaudited, and reflect all adjustments (consisting of normal recurring accruals) which are, in management’s opinion, necessary to present a fair statement of results of the interim periods presented. These financial statements should be read in conjunction with the audited financial statements and the notes thereto in Avatech’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010 and Rand Worldwide’s Form 10-KT for the transition period of November 1, 2009 to June 30, 2010. Operating results for the nine months ended March 31, 2011 are not necessarily indicative of results for the full fiscal year or any future interim period.

2. Reverse Merger Transaction

On August 17, 2010, Avatech acquired all the outstanding common stock of Rand Worldwide as a result of the Merger. Rand Worldwide is also a software reseller in the design automation marketplace. The Company believes the Merger will expand its overall geographic presence and increase market share.


Table of Contents

In consideration for the Merger, Rand Worldwide’s stockholder received shares of Avatech common stock representing approximately 66% of the outstanding shares of Avatech common stock and Avatech’s stockholders retained approximately 34% of the outstanding shares of Avatech common stock. When calculated based on the number of shares of Avatech common stock outstanding on a fully diluted basis, the common stock issued to the Rand Worldwide stockholder was equal to approximately 59% of the total common equivalent shares as of the date of the Merger. As the Rand Worldwide stockholder acquired more than 50% of the outstanding shares of Avatech common stock, Rand Worldwide was deemed, for accounting and SEC reporting purposes to be the continuing reporting entity. As such, the consolidated financial statements include the accounts of Avatech from the date of acquisition through March 31, 2011 and pre-Merger Rand Worldwide for the full nine months ended March 31, 2011. Balances reported for prior periods reflect the accounts of pre-Merger Rand Worldwide only. Additionally, the equity structure of Rand Worldwide has been restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of Avatech common stock issued in the Merger.

RWWI Holdings, LLC (“RWWI Holdings”) was formed in the recapitalization by the stockholders of Rand Worldwide prior to the Merger to hold their interests in Avatech. Accordingly, RWWI Holdings holds approximately 66% of the outstanding shares of Rand Worldwide. RWWI Holdings is not part of the Company’s consolidated group.

Recognized amounts of identifiable intangible assets acquired and liabilities assumed

The Company accounted for the transaction using the acquisition method in accordance with ASC 805, “Business Combinations”. Accordingly, the consideration has been allocated to the tangible and intangible assets acquired and liabilities assumed based upon their respective estimated fair values on the acquisition date. The Company’s allocation of the total consideration transferred of $14,226,000 is summarized below:

 

Net tangible assets acquired

   $ 2,449,000   

Deferred income tax assets

     392,000   

Trade name

     2,649,000   

Customer list

     3,010,000   

Goodwill

     8,151,000   

Deferred tax liability

     (2,425,000
        

Total consideration transferred

   $ 14,226,000   
        

Identifiable intangible assets

Fair values for the trade name and customer list were determined based on the income approach. The following table presents certain information on the acquired identifiable intangible assets:

 

Intangible asset

   Discount rate used     Estimated useful life  

Trade name

     19.0     15 years   

Customer list

     21.0     15 years   

Goodwill

Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. These benefits include expansion opportunities and increased presence in the design automation marketplace.

Pro Forma — Financial Information

The following reflects the unaudited pro forma combined results of operations for the nine months ended March 31, 2011 of Avatech and Rand Worldwide as if the acquisition had taken place as of July 1, 2010:

 

Total revenue

   $ 69,922,000   

Net income

     806,000   

Earnings per common share, basic

     0.02   

Earnings per common share, diluted

     0.01   


Table of Contents

In connection with the Merger, during the nine months ended March 31, 2011, Avatech and Rand Worldwide incurred combined non-recurring costs of $2,251,000, including $932,000 in professional fees, $873,000 in severance costs, $233,000 in accrued lease costs for office closings, $151,000 due to accelerated vesting of stock options, $30,000 for the corporate name change and $32,000 in additional board fees. The $2,251,000 of non-recurring costs are included in the proforma results shown above, however only $1,893,000 of such costs are included in the consolidated statement of operations for the nine months ended March 31, 2011, because $358,000 of these costs were incurred by Avatech prior to the Merger.

3. Recent Accounting Pronouncements

In April 2010, the FASB issued an update regarding the milestone method of revenue recognition under ASC 605. ASC 605 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition. The amendments in this update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The Company’s adoption of ASC 605 did not have a material effect on the Company’s consolidated financial statements.

4. Supplemental Disclosure of Cash Flow Information

The Company paid interest of approximately $50,000 and $64,000 during the three months ended March 31, 2011 and 2010, respectively, and approximately $172,000 and $170,000 during the nine months ended March 31, 2011 and 2010, respectively. The Company also paid federal and state income taxes of approximately $50,000 and $30,000 during the three months ended March 31, 2011 and 2010, respectively and approximately $372,000 and $585,000 during the nine months ended March 31, 2011 and 2010, respectively.

See Note 2 for non-cash balances acquired as the result of the Merger and Note 13 for the non-cash settlement of term notes.

5. Employee Stock Compensation Plans

The Board of Directors may grant options under the Avatech Solutions, Inc. 2002 Stock Option Plan (the “Plan”) to purchase shares of the Company’s common stock at an exercise price of not less than the fair market value of the common stock on the date of grant. The Plan provides for the granting of either incentive or non-qualified stock options to purchase an aggregate of up to 3,100,000 shares of common stock to eligible employees, officers, and directors of the Company. Stock options generally expire after 10 years. Options generally vest ratably over three or four years, depending on the specific grant award. As of the date of the Merger with Rand Worldwide, all of Avatech’s outstanding stock options became fully vested in accordance with their respective option agreements. For the three months and nine months ended March 31, 2011, total stock compensation expense charged against income for this Plan was $3,000.

For the nine months ended March 31, 2011, the Company recorded $9,000 of stock compensation expense, which included $5,000 of expense prior to the Merger for the vesting of common stock options granted by pre-merger Rand Worldwide, and $4,000 of expense for stock options granted after the merger. All common stock options outstanding for pre-merger Rand Worldwide were converted into options to purchase membership interests in RWWI Holdings, an entity which is not part of the Company’s consolidated group.

The following are the assumptions made in computing the fair value of stock-based awards:

 

     Three months ended
March  31,
     Nine months ended
March  31,
 
     2011     2010      2011     2010  

Average risk-free interest rate

     0.20     —           0.20     —     

Dividend yield

     0     —           0     —     

Expected term

     10.0 years        —           10.0 years        —     

Average expected volatility

     1.08        —           1.08        —     

Weighted average fair value of granted options

   $ 0.64        —         $ 0.64        —     


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Expected volatilities are based on historical volatility of the Company’s common stock. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of stock option activity during the nine months ended March 31, 2011 and related information is included in the table below:

 

     Options     Weighted-
Average

Exercise  Price
     Aggregate
Intrinsic
Value
 

Outstanding at July 1, 2010

     983,609      $ 0.30      

Conversion of Rand Worldwide options into RWWI Holdings, LLC options

     (983,609     0.30      

Avatech options assumed in Merger

     1,605,177        0.93      

Granted

     16,200        0.70      

Forfeited

     (93,010     0.75      

Expired

     (755     7.07      
                   

Outstanding at March 31, 2011

     1,527,612      $ 0.94       $ 78,000   
                         

Exercisable at March 31, 2011

     1,516,812      $ 0.94       $ 78,000   
                         

Weighted-average remaining contractual life

     5.3 Years        
             

All options granted have an exercise price equal to the fair market value of the Company’s common stock on the date of grant. Exercise prices for options outstanding as of March 31, 2011 ranged from $0.17 to $3.81 as follows:

 

Range of Exercise Prices

   Options
Outstanding
     Weighted
Average
Exercise
Prices of
Options
Outstanding
     Weighted
Average
Remaining
Contractual Life
of Options
Outstanding
     Options
Exercisable
     Weighted
Average
Exercise
Prices of
Options
Exercisable
     Weighted
Average
Remaining
Contractual Life
of Options
Exercisable
 

$  0.17 – 0.34

     94,547       $ 0.30         2.7 years         94,547       $ 0.30         2.7 years   

    0.35 – 0.75

     324,800         0.59         5.6 years         314,000         0.59         5.5 years   

    0.76 – 0.91

     663,000         0.86         5.7 years         663,000         0.86         5.7 years   

    1.05 – 3.81

     445,265         1.45         5.1 years         445,265         1.45         5.1 years   
                             
     1,527,612               1,516,812         
                             

Assuming that no additional share-based payments are granted after March 31, 2011, $7,000 of compensation expense will be recognized in the consolidated statement of operations over a weighted-average period of 2.0 years.

6. Borrowings Under Line of Credit

On December 31, 2010, certain subsidiaries of the Company entered into a new line of credit facility which permits up to $9 million of borrowings limited to 85% of aggregate eligible accounts receivable with PNC


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Bank, National Association. The interest rate is, at the Company’s option, either (i) the “Eurodollar Rate”, which is calculated by using the LIBOR rate plus an applicable margin ranging from 2.5% to 3.25% or (ii) the bank’s “Alternate Base Rate”, which is calculated by using the base rate of the bank, the federal funds open rate, or the daily LIBOR rate plus an applicable margin ranging from 1.75% to 2.75%. The interest rate as of March 31, 2011 was 5%. The Company had outstanding borrowings from the bank under its credit line of approximately $2.8 million as of March 31, 2011 and had $3.3 million outstanding as of June 30, 2010. The line expires on December 31, 2012 and is secured by most of the assets of the Company including 65% of the stock in one of its subsidiaries and 100% of the stock of a separate subsidiary.

7. Obligations Under Capital Leases

The Company has incurred various capital lease obligations for computer equipment purchased in prior years. This capital lease obligation totaled $156,000 and $90,000 as of March 31, 2011 and 2010, respectively.

8. Income Taxes

Income taxes are accounted for under the liability method, under which deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against the net deferred tax assets is recorded if based upon the weight of available evidence it is more likely than not that some or all of the deferred tax assets will not be realized. The Company records liabilities for income tax contingencies if it is probable that the Company has incurred a tax liability and the liability or range of loss can be reasonably estimated.

As of March 31, 2011 the Company had established a valuation allowance of its net deferred tax assets of approximately $15 million in all jurisdictions including the United States, because it believes that it is more likely than not that the tax assets in those jurisdictions will not be realized prior to their expiration.

The Canadian Subsidiary of Rand Worldwide, Rand A Technology Corporation, is currently being audited by the Canada Revenue Agency for tax years 2005 through 2009. Management believes that it has properly recorded the tax expense for the periods under review and expects no material adjustments to the respective returns or to its financial statements.

9. Earnings Per Share

Basic earnings per common share is computed by dividing net earnings available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share include the potential dilution that would occur from common shares issuable upon the exercise of outstanding stock options and warrants and the conversion of preferred stock. As of March 31, 2011, 5,149,395 shares of common stock were issuable upon the conversion or exercise of options, warrants and preferred stock. For the three months ended March 31, 2011 and 2010, there were 3,951,130 and 1,103,609, shares of common stock equivalents, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended March 31, 2011 and 2010, there were 3,951,130 and 1,050,992, shares of common stock equivalents, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive.


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The following summarizes the computations of basic and diluted earnings per common share for the three and nine months ended March 31, 2011 and 2010:

 

     Three Months Ended March 31,  
     2011     2010  

Net income (loss)

   $ 2,070,000      $ (620,000

Payment and/or accretion of preferred stock dividends

     (38,000     (720,000
                

Net income (loss) available to common stockholders

   $ 2,032,000      $ (1,340,000
                

Weighted average shares used in computing basic net income (loss) per share:

     51,882,678        34,232,672  (1) 

Assumed conversion of preferred stock

     3,621,783        —     

Effect of outstanding stock options

     109,378        —     
                

Weighted average shares used in computing basic net income (loss) per share:

     55,613,839        34,232,672  (1) 
                

Income (loss) per common share, basic

   $ 0.04      $ (0.04
                

Income (loss) per common share, diluted

   $ 0.04      $ (0.04
                

 

     Nine Months Ended March 31,  
     2011     2010  

Numerator for basic and diluted earnings per share:

    

Net income (loss) from continuing operations

   $ 1,172,000      $ (3,850,000

Loss from discontinued operations, net of tax

     —          (380,000

Gain on disposition of discontinued operations, net of tax

     —          3,274,000   
                

Net income (loss)

     1,172,000        (956,000
                

Net income (loss) from continuing operations

     1,172,000        (3,850,000

Payment and/or accretion of preferred stock dividends

     (475,000     (1,200,000
                

Net income (loss) from continuing operations available to common stockholders

   $ 697,000      $ (5,050,000
                

Weighted average shares used in computing basic net income (loss) per share:

     48,702,279        34,232,672  (1) 

Weighted average shares used in computing diluted net income (loss) per share:

     52,434,092        34,232,672  (1) 

Income (loss) per common share from continuing operations, basic

   $ 0.01      $ (0.15

Income per common share from discontinued operations, basic

     —          0.12   
                

Income (loss) per common share, basic

   $ 0.01      $ (0.03
                

Income (loss) per common share from continuing operations, diluted

   $ 0.01      $ (0.15

Income per common share from discontinued operations diluted

     —          0.12   
                

Income (loss) per common share, diluted

   $ 0.01      $ (0.03
                

 

(1) 

The weighted average shares for the three and nine months ended March 31, 2010 have been restated to reflect the shares issued as part of the Merger.

10. Preferred stock

Series A Redeemable Preferred Stock

On November 1, 2007, Rand Worldwide issued 31,000,000 shares of Series A redeemable preferred stock (“Series A”) for $1.00 per share. At June 30, 2010, 31,858,922 shares of Series A were authorized and designated, of which 31,000,000 shares were issued and outstanding. The net proceeds from the issuance of the Series A Convertible Preferred Stock were classified as temporary equity in the accompanying consolidated balance sheets as the terms of the issuance do not warrant classification as a liability nor as equity.


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Immediately prior to and on the date of the Merger with Avatech, Rand Worldwide completed a recapitalization which had the effect of exchanging its preferred stock for common stock. Prior to the merger with Avatech, Rand Worldwide had outstanding term notes totaling approximately $12.6 million to its majority shareholder. In connection with the recapitalization of Rand Worldwide, its Series A Redeemable Preferred Stock, related-party notes payable, and accrued interest on the related-party notes payable were converted into common stock. As a result of the recapitalization, Rand Worldwide no longer has outstanding term notes and no longer has any outstanding Series A Preferred Stock.

Convertible Preferred Stock

At March 31, 2011, 1,089,213 shares of Series D Convertible Preferred Stock (the “Series D shares”) were outstanding with the following terms:

Redemption Feature- The Series D shares are redeemable in the event that the Company is engaged in a business combination that is approved by the Board of Directors and subsequently submitted and approved by a vote of the Company’s stockholders. The terms of the Merger with Rand Worldwide did not trigger any redemption provisions of the Series D shares. Any director who holds shares of Series D is not eligible to vote on the proposed business combination. The redemption price is $0.30 (upon conversion) per share plus an amount equal to all declared and unpaid dividends accrued on such shares since the original issue date.

Voting Rights- Each holder of the Series D shares shall vote together with all other classes and series of stock of the Company as a single class on all actions. Each share shall entitle the holder to one vote per share of common stock into which the preferred stock is then convertible on each such action. In addition, these holders have special voting rights in connection with certain matters, including the issuance of senior stock or debentures, certain mergers, the dissolution of the Company and any amendment to the charter or the terms of the securities that would impair their rights.

Dividend Rate- The holders of the Series D shares are entitled to receive cumulative dividends at a rate of 10% per annum when and as declared by the Board of Directors. Dividends are paid quarterly to preferred stockholders.

Conversion Feature- The Series D shares are convertible at any time beginning 120 days after the original issuance date at the option of the holder and automatically converts into common stock if the common stock trades for more than $2.25 per share for 60 consecutive trading days. Each Series D share is convertible into shares of common stock by multiplying the appropriate conversion rate in effect by the number of shares of preferred stock being converted. As of March 31, 2011, the conversion rate would yield two shares of common stock for each share of Series D share; however, this rate may be adjusted due to stock splits, dividends, and other events defined in the stock purchase agreement between the Company and the holders of the Series D shares.

Liquidation Preference- In the event of a liquidation, dissolution or winding up of the Company, the holders of Series D shares are entitled to receive for each share, prior and in preference to any distribution of any of the assets or surplus funds to the holders of common stock, an amount equal to $0.60 per share plus all accumulated but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders are insufficient to permit the payment of the preferential amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the preferred stockholders.

At March 31, 2011, 937 shares of Series E Convertible Preferred Stock (the “Series E shares”) were outstanding with the following terms:

Redemption Feature- The Series E shares are redeemable in the event that the Company is engaged in a business combination that is approved by the Board of Directors and subsequently submitted and approved by a vote of the Company’s stockholders. The terms of the Merger with Rand Worldwide did not trigger any redemption provisions of the Series E shares. Any director who holds shares of Series E is not eligible to vote on the proposed business combination. The redemption price is $0.65 per share (upon conversion) plus an amount equal to all declared and unpaid dividends accrued on such shares since the original issue date.


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Voting Rights- Each holder of the Series E shares shall vote together with all other classes and series of stock of the Company as a single class on all actions. Each share shall entitle the holder to one vote per share of common stock into which the preferred stock is then convertible on each such action. In addition, these holders have special voting rights in connection with certain matters, including the issuance of senior stock or debentures, certain mergers, the dissolution of the Company and any amendment to the charter or the terms of the securities that would impair their rights.

Dividend Rate- The holders of the Series E shares are entitled to receive cumulative dividends at a rate of 10% per annum when and as declared by the Board of Directors. Dividends are paid quarterly to preferred stockholders.

Conversion Feature- The Series E shares are convertible at any time beginning 120 days after the original issuance date at the option of the holder and automatically converts into common stock if the common stock trades for more than $2.25 per share for 60 consecutive trading days. Each Series E share is convertible into shares of common stock by multiplying the appropriate conversion rate in effect by the number of shares of preferred stock being converted. As of March 31, 2011 the conversion rate would yield 1,538.5 shares of common stock for each share of Series E; however, this rate may be adjusted due to stock splits, dividends, and other events defined in the stock purchase agreements between the Company and the holders of the Series E shares.

Liquidation Preference- In the event of a liquidation, dissolution or winding up of the Company, the holders of Series E shares are entitled to receive for each share, prior and in preference to any distribution of any of the assets or surplus funds to the holders of common stock, an amount equal to $0.65 per share (upon conversion) plus all accumulated but unpaid dividends. If upon the occurrence of such event, the assets and funds thus distributed among the holders are insufficient to permit the payment of the preferential amount, then the entire assets and funds of the Company legally available for distribution shall be distributed ratably among the preferred stockholders.

11. Liquidity and Capital Resources

The Company had a working capital deficit of $328,000 as of March 31, 2011, however management believes that its near-term needs can be met from its available cash resources and its line of credit.

12. Segment Information

The Company’s continuing operations include business in North America, Singapore/Malaysia and Australia. Revenue for any particular geographic region is determined by sales made by the Company to the customers in that particular region. The Company’s chief operating decision maker and CEO evaluates business results based primarily on these geographic regions. The following table illustrates certain financial information about these geographies in the corresponding fiscal periods:

Three Months Ended March 31, 2011

 

     North America      Singapore/Malaysia      Australia      Total  

Revenue-

           

Product sales

   $ 14,898,000       $ 990,000       $ 455,000       $ 16,343,000   

Service revenue

     5,177,000         113,000         160,000         5,450,000   

Commission revenue

     5,401,000         85,000         144,000         5,630,000   
                                   

Total revenue

     25,476,000         1,188,000         759,000         27,423,000   
                                   

Cost of revenue-

           

Cost of product sales

     9,899,000         813,000         316,000         11,028,000   

Cost of service revenue

     3,580,000         106,000         89,000         3,775,000   
                                   

Total cost of revenue

     13,479,000         919,000         405,000         14,803,000   
                                   

Gross margin

     11,997,000         269,000         354,000         12,620,000   

Total operating expenses

     9,835,000         199,000         336,000         10,370,000   
                                   

Income from operations

   $ 2,162,000       $ 70,000       $ 18,000       $ 2,250,000   
                                   


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Three Months Ended March 31, 2010

 

     North America      Singapore/Malaysia     Australia      Total  

Revenue-

          

Product sales

   $ 5,691,000       $ 519,000      $ 410,000       $ 6,620,000   

Service revenue

     3,960,000         39,000        171,000         4,170,000   

Commission revenue

     2,543,000         41,000        119,000         2,703,000   
                                  

Total revenue

     12,194,000         599,000        700,000         13,493,000   
                                  

Cost of revenue-

          

Cost of product sales

     3,629,000         411,000        295,000         4,335,000   

Cost of service revenue

     2,944,000         59,000        114,000         3,117,000   
                                  

Total cost of revenue

     6,573,000         470,000        409,000         7,452,000   
                                  

Gross margin

     5,621,000         129,000        291,000         6,041,000   

Total operating expenses

     5,602,000         164,000        225,000         5,991,000   
                                  

Income (loss) from operations

   $ 19,000       $ (35,000   $ 66,000       $ 50,000   
                                  

Nine Months Ended March 31, 2011

 

     North America      Singapore/Malaysia      Australia      Total  

Revenue-

           

Product sales

   $ 33,009,000       $ 2,103,000       $ 1,397,000       $ 36,509,000   

Service revenue

     14,325,000         395,000         622,000         15,342,000   

Commission revenue

     13,551,000         151,000         360,000         14,062,000   
                                   

Total revenue

     60,885,000         2,649,000         2,379,000         65,913,000   
                                   

Cost of revenue-

           

Cost of product sales

     21,765,000         1,639,000         973,000         24,377,000   

Cost of service revenue

     10,156,000         308,000         315,000         10,779,000   
                                   

Total cost of revenue

     31,921,000         1,947,000         1,288,000         35,156,000   
                                   

Gross margin

     28,964,000         702,000         1,091,000         30,757,000   

Total operating expenses

     27,301,000         558,000         949,000         28,808,000   
                                   

Income from operations

   $ 1,663,000       $ 144,000       $ 142,000       $ 1,949,000   
                                   


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Nine Months Ended March 31, 2010

 

     North America     Singapore/Malaysia      Australia      Total  

Revenue-

          

Product sales

   $ 16,534,000      $ 1,900,000         962,000       $ 19,396,000   

Service revenue

     11,754,000        249,000         521,000         12,524,000   

Commission revenue

     6,241,000        86,000         289,000         6,616,000   
                                  

Total revenue

     34,529,000        2,235,000         1,772,000         38,536,000   
                                  

Cost of revenue-

          

Cost of product sales

     10,467,000        1,523,000         663,000         12,653,000   

Cost of service revenue

     8,994,000        184,000         350,000         9,528,000   
                                  

Total cost of revenue

     19,461,000        1,707,000         1,013,000         22,181,000   
                                  

Gross margin

     15,068,000        528,000         759,000         16,355,000   

Total operating expenses

     17,304,000        435,000         599,000         18,338,000   
                                  

Income (loss) from operations

   $ (2,236,000   $ 93,000       $ 160,000       $ (1,983,000
                                  

13. Related Party Term Notes

On October 31, 2007, Rand Worldwide entered into a term loan agreement (the “Term Notes”) with Ampersand Capital Partners (“Ampersand”), which owned 100% of the outstanding preferred stock and 89% of the outstanding common stock of Rand Worldwide as of October 31, 2009. The Term Notes consisted of two promissory notes: one for $10.0 million bearing interest of 10% or 12% per year based upon the timing of repayments, and another for $3.5 million bearing interest of 10% or 14% per year based upon the timing of repayments. Per the original terms of the promissory notes, all principal and interest were to be fully repaid by November 1, 2012, with scheduled principal and interest payments beginning in December 2007. As of June 30, 2010, these notes had an outstanding balance of $12,637,000.

As a result of a recapitalization prior to the Merger, Rand Worldwide’s Term Notes are no longer outstanding and the Company has no remaining financial obligations relative to its Term Notes or the related formerly-accruing interest. The Term Notes were subsequently converted into equity and the net affects of the forgiveness of these Notes of $115,000 are disclosed within the Consolidated Statements of Cash Flows.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

This report contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of “forward-looking statements.” Statements that are not historical in nature, including those that include the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which Rand Worldwide, Inc. operates and the performance of the combined company following the Merger, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, the cost of funds, and demand for the Company’s products and services; changes in the Company’s competitive position or competitive actions by other companies; the Company’s ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; ability to integrate the Rand Worldwide and Avatech businesses; and other circumstances beyond the Company’s control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized or, if substantially realized, will have the expected consequences on the Company’s business or operations. Except as required by applicable laws, the Company does not intend to publish updates or revisions of any forward-looking statements to reflect new information, future events or otherwise.

Overview

Rand Worldwide, Inc. merged with Avatech on August 17, 2010. The merger brings new products and services to the existing customer base of each former entity and expands the Company’s sales, support and services reach into 49 cities throughout the US, Canada, Singapore, Malaysia and Australia. Immediately following the merger, Company management was focused on integrating the personnel, policies and practices of the two companies into the consolidated entity. The two companies had very similar operations but largely in different geographic locations so the bulk of management’s efforts following the merger were spent identifying the best practices to employ in the combined organization and in consolidating information systems and operating practices. As of March 31, 2011, the post merger work has been substantially completed and management’s focus has shifted more to the strategic direction of the Company (as described below) and to growing its business.

The Company is a leading provider of design engineering, data archiving, facilities and data management solutions for the manufacturing, building design, engineering, and total infrastructure markets. The Company also specializes in technical support, training, and consulting services aimed at improving design and documentation efficiencies and the seamless integration of workflow processes. This combination of technology solutions and services enables customers to enhance productivity, profitability, and competitive position.

The Company’s business strategy is built on three core principles designed to leverage its existing strengths with expected market opportunities:

 

   

Maintain and profitably grow its strong position in the Autodesk software community.

 

   

Profitably grow its consulting and services business by leveraging its expertise in design engineering.

 

   

Acquire and integrate diverse, yet complementary, software and services businesses to extend its product offerings to its large customer base and expand its market potential.


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This strategy was designed to match the Company’s product and service offerings more precisely with the needs of its customers, while providing avenues of growth and diversification. The business strategy of the combined post-merger organization remains consistent with that of the former Avatech and the pre-merger Rand Worldwide.

Product Sales- Product sales consist primarily of the resale of packaged design software, including:

 

   

Autodesk 2D and 3D computer aided design software for customers in the mechanical, architectural and civil engineering sectors, as well as visualization and animation technology to companies in the media and entertainment industry;

 

   

Autodesk data management software;

 

   

Archibus facilities management software for space planning, strategic planning, and lease/property administration;

 

   

Leica 3D laser scanning equipment for the Architectural, Engineering and Construction sector;

 

   

ASCENT internally developed courseware for a variety of engineering applications; and

 

   

Autonomy data archiving solutions

Service Revenue- The Company provides services in the form of training, implementation, consulting services, software development, custom courseware development and technical support to its customers. The Company employs a technical staff of approximately 106 personnel associated with these types of services. The Company also offers support and implementation services to complement the data archive solutions provided and sold through its RAND Secure Archive Division.

Commission Revenue- The Company offers Autodesk’s subscription programs, which entitle subscribers to receive software upgrades and web support directly from Autodesk. Because the Company does not participate in the delivery of these subscription products or the web support, the Company records the gross profit from the sale of Autodesk software subscriptions as commission revenue. In addition, the Company sells technology upgrades to existing Autodesk customers through the Autodesk Subscription program where the customers receive the latest releases of Autodesk software, incremental product enhancements, and personalized web support direct from Autodesk. Based on its analysis of the Autodesk Subscription program, the Company records the net proceeds that it receives from Autodesk for subscription sales in accordance with the provisions of FASB ASC 605.

The Company also generates commission revenue from the resale of Autodesk software to various customers, a number of which Autodesk considers “major accounts.” Autodesk designates these customers as major accounts based on specific criteria, primarily sales volume, and typically gives these customers volume discounts. The Company is responsible for managing and reselling Autodesk products to a number of these major account customers; however, software products are shipped directly from Autodesk to the customers. The Company receives commissions upon shipment of the products from Autodesk to the customer based on the product sales price.

Cost of Product Sales-The cost of product sales consists of the cost of purchasing products from software suppliers or hardware manufacturers as well as the associated shipping and handling costs. The Company earns incentives from its main supplier based upon the achievement of certain quarterly sales targets and these incentives, when achieved, serve to reduce the cost of product sales. The incentive targets are set annually and while the targets have changed over time in amount and structure, the Company has generally been able to focus its sales efforts in a manner to achieve margins on its product sales that are within a relatively narrow range period to period.

Cost of Service Revenue-Cost of service revenue includes the direct costs associated with the implementation of software and hardware solutions as well as training, support services, and professional services. These costs consist primarily of compensation, employee benefits, travel, printed materials and the costs of third-party contractors engaged by the Company. The cost of service revenue does not include an allocation of overhead costs.

Selling, General and Administrative Expense- Selling, general and administrative expense consist primarily of compensation and other expenses associated with the Company’s sales force, management, finance, human resources, and information systems. Advertising and public relations expenses and expenses for facilities, such as rent and utilities, are also included in selling, general and administrative expense.


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Depreciation and Amortization Expense- Depreciation expense represents the period costs associated with our investment in property and equipment, consisting principally of computer equipment, software, furniture and fixtures, and leasehold improvements. Amortization expense represents the period costs of the acquired customer list and trade name intangible assets. The Company computes depreciation and amortization expenses using the straight-line method. The Company leases all of its facilities and depreciates leasehold improvements over the lesser of the lease term or the estimated useful life of the asset.

Interest Expense- Interest expense consists of interest on capital lease obligations and borrowings from lines of credit. Prior to the Merger on August 17, 2010, interest expense also included interest on related-party term loans.

Company management was very pleased with the results of its operations for the three months ended March 31, 2011 as revenue and gross margin levels were high across all categories. There was a large sale which totaled approximately $2.6 million revenue for the quarter and primarily consisted of product sales and commission revenues. The Company’s spending remained in control during the period, thus resulting in reported net income of approximately $2.1 million for the third fiscal quarter. These positive results continued to strengthen the Company’s balance sheet and enhanced overall liquidity.

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

The following tables set forth a comparison of the Company’s results of operations for the three month period ended March 31, 2011 to the three month period ended March 31, 2010. The amounts are derived from selected items reflected in the Company’s unaudited Consolidated Statements of Operations included elsewhere in this report. The three month financial results are not necessarily indicative of future results.

Due to the Merger on August 17, 2010 between Avatech Solutions, Inc. and Rand Worldwide, the reported financial results represent a continuation of Rand Worldwide’s operations and include Avatech’s results from the date of the merger. As previously noted, the integration of the Company’s policies, practices and systems was substantially complete by March 31, 2011 and the Company expects that future results will reflect the full synergies that have been created by the merger.

The results for the three months ended March 31, 2010 are that of the pre-merger Rand Worldwide while the results for the three months ended March 31, 2011 include Rand Worldwide and Avatech Solutions.

Revenues

 

     Three Months Ended March 31,  
     2011      2010      %
change
 

Revenues:

        

Product sales

   $ 16,343,000       $ 6,620,000         146.9

Service revenue

     5,450,000         4,170,000         30.7

Commission revenue

     5,630,000         2,703,000         108.3
                    

Total revenues

   $ 27,423,000       $ 13,493,000         103.2
                          

Revenues. Total revenues for the three months ended March 31, 2011 increased by $13,930,000, or 103.2%, when compared to the same period in the prior fiscal year.

Product sales increased $9,723,000 or 146.9% for the three months ended March 31, 2011 when compared to the same period in the prior fiscal year. This increase was due in part to the addition of Avatech’s results for the quarter, which contributed an estimated $3.6 million to product revenue.


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Additionally, Rand Worldwide’s existing business increased by approximately $6.1 million from the same period in the prior fiscal year, due to a single large sale of $2.1 million in product revenue, a $400,000 increase in the ASCENT courseware business due to an expansion of the ASCENT distribution channel, combined with economic improvements in the markets served by the Company.

Service revenues increased $1,280,000 or 30.7% for the three months ended March 31, 2011 when compared with the same period in the prior fiscal year. The addition of Avatech’s results for the quarter contributed an estimated $1.6 million in services revenue. Without the addition of Avatech’s results, service revenues for Rand Worldwide would have decreased $351,000 due mainly to a decision made in the prior year to scale back the PLM services offered by the Company.

Commission revenues increased $2,927,000 or 108.3% for the three months ended March 31, 2011 when compared with the same period in the prior fiscal year. The addition of Avatech’s results for the quarter contributed an estimated $2.1 million of commission revenue, while Rand Worldwide’s existing business increased $844,000 from the same period in the prior fiscal year due to high subscription renewals and a large sale.

Cost of Revenues and Gross Margin

 

     Three Months Ended March 31,  
     2011      2010      %
change
 

Cost of revenue:

        

Cost of product sales

   $ 11,028,000       $ 4,335,000         154.4

Cost of service revenue

     3,775,000         3,117,000         21.1
                    

Total cost of revenue

   $ 14,803,000       $ 7,452,000         98.6
                          

Gross margin

   $ 12,620,000       $ 6,041,000      
                    

Cost of revenue. The total cost of revenue increased $7,351,000 or 98.6%, for the three months ended March 31, 2011 when compared to the same period in the prior fiscal year.

Cost of product sales increased 154.4% during the three months ended March 31, 2011 when compared with the same period in the prior fiscal year, while product sales increased 146.9%. Product costs increased at a higher rate than product sales due mainly to lower margins earned on the large single product sale of $2.1 million that was previously mentioned.

Cost of service revenue increased 21.1% for the three months ended March 31, 2011 when compared to the same period in the prior fiscal year, while service revenues increased 30.7%. The addition of Avatech’s results for the quarter contributed an estimated $1.4 million of additional service costs not incurred in the prior year. The remaining portion of Rand’s business had offsetting cost decreases of $737,000 as a result of reductions in force relating to the Company’s exit from the PLM Consulting market totaling $460,000 and also from targeted workforce reductions which were part of the Company’s efforts to reduce its cost and improve margins. Cost of service revenue as a percentage of related revenue decreased to 69.3% during the three months ended March 31, 2011 from 74.7% during the same period in the prior fiscal year for the reasons explained above.

Gross margin. The Company’s overall gross margin percentage of 46.0% for the three months ended March 31, 2011 was higher than the 44.8% gross margin in the same period in the prior fiscal year due to changes in revenue mix as the Company exited the underperforming PLM Consulting business and saw larger gains in product and commission revenues than in services.


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Other Operating Expenses

 

     Three Months Ended March 31,  
     2011      2010      %
change
 

Other operating expenses:

        

Selling, general and administrative

   $ 9,902,000       $ 5,715,000         73.3

Depreciation and amortization

     468,000         276,000         69.6
                    

Total other operating expenses

   $ 10,370,000       $ 5,991,000         73.1
                          

Selling, General and Administrative Expense. Selling, general and administrative expenses increased $4,187,000, or 73.3%, for the three months ended March 31, 2011 when compared to the same period in the prior fiscal year. Selling, general and administrative expense as a percent of total revenues was 36.1% for the three months ended March 31, 2011, a decrease from 42.3% for the same period in the prior fiscal year. The increase in selling, general and administrative expenses includes an estimated $3.1 million from the additional operations of Avatech. If Rand Worldwide had not merged with Avatech, its selling, general and administrative expenses would have increased by approximately $1,087,000, primarily as a result of increased sales commissions and variable compensation due to increased revenues.

Depreciation and Amortization. Depreciation and amortization expenses increased $192,000, or 69.6%, for the three months ended March 31, 2011 when compared to the same period in the prior fiscal year. Rand Worldwide’s depreciation and amortization increased $24,000 from the prior year due to the build out of new corporate headquarters, the construction of a new company website and investment into infrastructure for the Rand Secure Archive Division. Depreciation and amortization resulting from the addition of Avatech was $168,000 for the quarter ended March 31, 2011, and included $74,000 of depreciation of property and equipment and $94,000 in amortization of acquired intangible assets.

Other (Expense) Income, net

 

     Three Months Ended March 31,  
     2011     2010     %
change
 

Other expense, net

   $ (150,000   $ (640,000     (76.6 )% 
                        

Other (Expense) Income, net. The Company incurred $150,000 in other expense, net, during the three months ended March 31, 2011, compared to $640,000 during the same period in the prior fiscal year. The operations of Avatech did not materially increase or decrease other expense. The decreases in other expense were primarily due to reduced interest expense on related-party term notes.

Prior to the Merger with Avatech, Rand Worldwide had outstanding term notes totaling approximately $12.6 million held by its majority shareholder. Immediately prior to its merger with Avatech, Rand Worldwide completed a recapitalization which had the effect of exchanging common stock for its Series A Redeemable Preferred Stock and accrued dividends thereon, as well as its related-party notes payable, and accrued interest thereon. As a result of the recapitalization, Rand Worldwide no longer has outstanding term Series A Redeemable Preferred Stock or term notes. Rand Worldwide incurred $0 and $378,000 of interest expense on these term notes for the three months ended March 31, 2011 and 2010, respectively.

Income Tax Expense

 

     Three Months Ended March 31,  
     2011      2010      %
change
 

Income tax expense

   $ 30,000       $ 30,000         0
                          

Income Tax Expense. The Company recorded $30,000 of income tax expense from continuing operations during the three months ended March 31, 2011 and 2010.

As of March 31, 2011, the Company had U.S. federal net operating loss carryforwards available to reduce future taxable income of approximately $28.7 million a portion of which may be limited as to annual utilization under Internal Revenue Code Section 382. These carryforwards expire between 2011 and 2029. As of March 31, 2011, the Company also had foreign net operating loss carryforwards of approximately $18.2 million available to reduce future taxable income. These carryforwards expire between 2011 and 2029 for some jurisdictions and for other jurisdictions the losses may be carried forward indefinitely.


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As of March 31, 2011, the Company had established a valuation allowance of its net deferred tax assets of approximately $15 million in all jurisdictions including the United States, because it believes that it is more likely than not that the tax assets in those jurisdictions will not be realized prior to their expiration.

Nine Months Ended March 31, 2011 Compared to the Nine Months Ended March 31, 2010

The following tables set forth a comparison of the Company’s results of continuing operations for the nine month period ended March 31, 2011 to the nine month period ended March 31, 2010. The amounts are derived from selected items reflected in the Company’s unaudited Consolidated Statements of Operations included elsewhere in this report. The nine month financial results are not necessarily indicative of future results.

Due to the Merger on August 17, 2010 between Avatech Solutions, Inc. and Rand Worldwide, the reported financial results represent a continuation of Rand Worldwide’s operations and include Avatech’s results from the date of the merger. As such, the Fiscal Year 2010 results are that of Rand Worldwide, while the Fiscal Year 2011 results include Rand Worldwide for the full nine months and Avatech for the period of August 18, 2010 through March 31, 2011.

Revenues

 

     Nine Months Ended March 31,  
     2011      2010      %
change
 

Revenues:

        

Product sales

   $ 36,509,000       $ 19,396,000         88.2

Service revenue

     15,342,000         12,524,000         22.5

Commission revenue

     14,062,000         6,616,000         112.5
                    

Total revenues

   $ 65,913,000       $ 38,536,000         71.0
                          

Revenues. Total revenues for the nine months ended March 31, 2011 increased by $27,377,000, or 71.0%, when compared to the same period in the prior fiscal year.

Product sales increased $17,113,000, or 88.2% for the nine months ended March 31, 2011 when compared to the same period in the prior fiscal year. This increase resulted from the addition of Avatech’s results for the nine months, which contributed an estimated $9.3 million to product revenue. Additionally, Rand Worldwide’s existing business increased approximately $7.8 million from the same period in the prior fiscal year due in part to a single large sale of $2.1 million in product revenue, a $416,000 increase in the ASCENT courseware business due to an expansion of the ASCENT distribution channel, combined with economic improvements in the markets served by the Company.

Service revenues increased $2,818,000 or 22.5% for the nine months ended March 31, 2011 when compared with the same period in the prior fiscal year. The addition of Avatech’s results for the nine months contributed an estimated $4.5 million in services revenue. Without the addition of Avatech’s results, service revenues for Rand Worldwide would have decreased $1.7 million due to a $741,000 decrease resulting from exiting the PLM consulting market and $1,514,000 due to declines in e-mail archiving and data storage services. The decrease was offset slightly by increases of $570,000 in services related to the sale of Autodesk products.

Commission revenues increased $7,446,000 or 112.5% for the nine months ended March 31, 2011 when compared with the same period in the prior fiscal year. The addition of Avatech’s results for the nine months contributed an estimated $ 5.2 million of commission revenue, while Rand Worldwide’s existing business increased $2.2 million from the same period in the prior fiscal year due in part to a single large sale in December 2010, combined with economic improvements in the markets served by the Company.


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Cost of Revenues and Gross Margin

 

     Nine Months Ended March 30,  
     2011      2010      %
change
 

Cost of revenue:

        

Cost of product sales

   $ 24,377,000       $ 12,653,000         92.7

Cost of service revenue

     10,779,000         9,528,000         13.1
                    

Total cost of revenue

   $ 35,156,000       $ 22,181,000         58.5
                          

Gross margin

   $ 30,757,000       $ 16,355,000      
                    

Cost of revenue. The total cost of revenue increased $12,975,000 or 58.5%, for the nine months ended March 31, 2011 when compared to the same period in the prior fiscal year.

Cost of product sales increased 92.7% during the nine months ended March 31, 2011 when compared with the same period in the prior fiscal year, while product revenue increased 88.2%. Product costs increased at a higher rate than product revenues due to the competitive pricing environment in the Company’s primary North American markets.

Cost of service revenue increased 13.1% for the nine months ended March 31, 2011 when compared to the same period in the prior fiscal year, while service revenues increased 22.5%. The addition of Avatech’s results for the nine months contributed an estimated $3.5 million of additional service costs not incurred in the prior year. The remaining portion of Rand Worldwide’s business had offsetting cost decreases of $2.3 million as a result of reductions in force relating to the Company’s exit from the PLM consulting market totaling $1,743,000 and also from targeted workforce reductions which were part of the Company’s efforts to reduce its costs and improve margins. Cost of service revenue as a percentage of related revenue decreased to 70.3% during the nine months ended March 31, 2011 from 76.1% during the same period in the prior fiscal year for the reasons explained above.

Gross margin. The Company’s overall gross margin percentage of 46.7% for the nine months ended March 31, 2011 was higher than the 42.4% gross margin in the same period in the prior fiscal year due to changes in revenue mix as the Company exited the underperforming PLM Consulting business and saw larger gains in product and commission revenues than in services.

Other Operating Expenses

 

     Nine Months Ended March 31,  
     2011      2010      %
change
 

Other operating expenses:

        

Selling, general and administrative

   $ 27,503,000       $ 17,521,000         56.9

Depreciation and amortization

     1,305,000         817,000         59.7
                    

Total other operating expenses

   $ 28,808,000       $ 18,338,000         57.1
                          

Selling, General and Administrative Expense. Selling, general and administrative expenses increased $9,982,000, or 56.9%, for the nine months ended March 31, 2011 when compared to the same period in the prior fiscal year. Selling, general and administrative expense as a percent of total revenues was 41.7% for the nine months ended March, 2011, a decrease from 45.5% for the same period in the prior fiscal year. The increase in selling, general and administrative expenses is the result of $1.6 million in one-time costs associated with the merger and another $8.2 million resulting from the additional operations of Avatech. If Rand Worldwide had not merged with Avatech, its selling, general and administrative expenses would have increased by approximately $182,000, primarily due to higher commissions and variable compensation as the result of higher revenues.


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Depreciation and Amortization. Depreciation and amortization expenses increased $488,000, or 59.7%, for the nine months ended March 31, 2011 when compared to the same period in the prior fiscal year. Rand Worldwide’s depreciation and amortization increased $67,000 from the prior year due to the build out of new corporate headquarters, the construction of a new company website and investment into infrastructure for the Rand Secure Archive Division. Depreciation and amortization resulting from the addition of Avatech was $421,000 for the period of August 17, 2010 to March 31, 2011, and included $186,000 of depreciation of property and equipment and $235,000 in amortization of acquired intangible assets.

Other (Expense) Income, net

 

     Nine Months Ended March 31,  
     2011     2010     %
change
 

Other expense, net

   $ (651,000   $ (1,832,000     (64.5 %) 
                        

Other (Expense) Income, net. The Company incurred $651,000 in other expense, net, during the nine months ended March 31, 2011, compared to $1,832,000 during the same period in the prior fiscal year. The addition of Avatech did not materially affect other income and expense. The decreases in other expense were due to the retirement of Rand Worldwide’s term notes.

Prior to the Merger with Avatech, Rand Worldwide had outstanding term notes totaling approximately $12.6 million held by its majority shareholder. Immediately prior to its merger with Avatech, Rand Worldwide completed a recapitalization which had the effect of exchanging common stock for its Series A Redeemable Preferred Stock and accrued dividends thereon, as well as its related-party notes payable, and accrued interest thereon. As a result of the recapitalization, Rand Worldwide no longer has outstanding term Series A Redeemable Preferred Stock or term notes. Rand Worldwide incurred $165,000 and $1,466,000 of interest expense on these term notes for the nine months ended March 31, 2011 and 2010, respectively.

Income Tax Expense

 

     Nine Months Ended March 31,  
     2011      2010      %
change
 

Income tax expense

   $ 126,000       $ 35,000         260.0
                          

Income Tax Expense. The Company recorded $126,000 of income tax expense from continuing operations during the nine months ended March 31, 2011, compared to $35,000 in income tax expense from continuing operations recorded for the same period in the prior fiscal year.

As of March 31, 2011, the Company had U.S. federal net operating loss carryforwards available to reduce future taxable income of approximately $28.7 million a portion of which may be limited as to annual utilization under Internal Revenue Code Section 382. These carryforwards expire between 2011 and 2029. As of March 31, 2011, the Company also had foreign net operating loss carryforwards of approximately $18.2 million available to reduce future taxable income. These carryforwards expire between 2011 and 2029 for some jurisdictions and for other jurisdictions the losses may be carried forward indefinitely.

As of March 31, 2011 the Company had established a valuation allowance of its net deferred tax assets of approximately $15 million in all jurisdictions including the United States, because it believes that it is more likely than not that the tax assets in those jurisdictions will not be realized prior to their expiration.


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Liquidity and Capital Resources

The Company has financed its operations and met its capital expenditure requirements primarily through cash flows provided by operations and borrowings under short-term lines of credit.

On December 31, 2010, certain subsidiaries of the Company entered into a combined line of credit with PNC Bank, National Association by amending the existing line of credit held by Rand Worldwide. The Company’s new line of credit permits up to $9 million of borrowing limited to 85% of aggregate eligible accounts receivable. The interest rate is, at the Company’s option, either (i) the “Eurodollar Rate”, which is calculated by using the LIBOR rate plus an applicable margin ranging from 2.5% to 3.25% or (ii) the bank’s “Alternate Base Rate”, which is calculated by using the base rate of the bank, the federal funds open rate, or the daily LIBOR rate plus an applicable margin ranging from 1.75% to 2.75%. The interest rate as of March 31, 2011 was 5%. The Company had outstanding borrowings from the bank under its credit line of approximately $2.8 million as of March 31, 2011 and had $3.3 million outstanding as of June 30, 2010. The line expires on December 31, 2012 and is secured by 65% of the stock in one of its subsidiaries and 100% of the stock of a separate subsidiary.

The Company’s operating assets and liabilities consist primarily of accounts receivable, cash, borrowings under line of credit, accounts payable, and deferred revenue. Changes in these balances are affected principally by the timing of sales, collections and vendor payments. The Company purchases approximately 97% of its product from one principal supplier that provides it with credit to finance those purchases.

The Company’s investing activities consist principally of investments in computer and office equipment. Cash purchases of equipment for the nine months ended March 31, 2011 increased to $366,000 from $328,000 for the same period in fiscal year 2010. The Company also acquired $2,123,000 cash as a result of the Merger.

For the nine months ended March 31, 2011, net cash used in operating activities was $348,000, compared with cash used in operating activities of $3,397,000 during the same period in fiscal year 2010. The decrease in cash used in operating activities was due mainly to an increase of $5.2 million in accounts receivable balances due to increased sales volumes. This increase was offset by increases in accounts payable and accrued compensation and decreases in prepaid expenses.

For the nine months ended March 31, 2011, the Company used cash of $735,000 in financing activities, compared with $2,975,000 for the same period in fiscal year 2010. The primary difference between periods is due to the repayment of the term notes of $5,590,000 that occurred in the prior period.

Immediately prior to its Merger with Avatech, Rand Worldwide completed a recapitalization which had the effect of exchanging common stock for its Series A Redeemable Preferred Stock and accrued dividends thereon, as well as its related-party term notes, and accrued interest thereon. As a result of the recapitalization, Rand Worldwide no longer has outstanding any related-party term notes or Series A Redeemable Preferred Stock. The terms of the Series A Redeemable Preferred Stock are detailed in Note 10.

The terms of the Series D and E Preferred Stock are detailed in Note 10.

The Company had a working capital deficit of $328,000 at March 31, 2011, however management believes the Company’s near-term needs will be met from its available cash resources and its line of credit.

Because the Company is one of the largest resellers of Autodesk software and because Autodesk has continued to state its intention to continue to strengthen its relationships with its resellers, the Company expects to continue to be a leading seller of Autodesk software. The Company is a party to a Value Added Reseller Agreement with Autodesk effective February 1, 2010. The agreement provides for an initial term of twelve months that, subject to certain requirements and termination rights of the parties, automatically renews on an annual basis for two additional twelve month periods. The agreement designates the Company as an authorized reseller of Autodesk software and prescribes the authorized sales territories, authorized products and services, rebate and incentive program details and marketing support.


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Operating Leases

The Company leases certain office space and equipment under noncancellable operating lease agreements that expire in various years through 2019 and that, generally, do not contain significant renewal options. Future minimum payments under all noncancellable operating leases with initial terms of one year or more consisted of the following at March 31, 2011:

 

Twelve months ending March 31:

  

2012

   $ 2,637,000   

2013

     1,860,000   

2014

     1,514,000   

2015

     1,091,000   

2016

     608,000   

Thereafter

     764,000   
        

Total minimum lease payments

   $ 8,474,000   
        

Capital Leases

The Company has various computer equipment used in training facilities and by employees throughout its office locations. These capital lease obligations totaled $156,000 as of March 31, 2011 with approximately $133,000 representing the short-term balance of the lease and shown as Obligations under capital leases in the accompanying balance sheets. Payments for the leases are made either monthly or quarterly through April 2015 and depreciation expense on this equipment was approximately $136,000 as of March 31, 2011. Future minimum payments consisted of the following at March 31, 2011:

 

Twelve months ending March 31:

  

2012

   $ 157,000   

2013

     2,000   

2014

     2,000   

2015

     1,000   
        

Total minimum lease payments

     162,000   

Less:

  

Taxes

     2,000   

Imputed interest

     4,000   
        

Present value of future minimum lease payments

   $ 156,000   
        

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed under the Securities Exchange Act of 1934 with the Securities and Exchange Commission, such as this Quarterly Report, is recorded, processed, summarized and reported within the periods specified in those rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. An evaluation of the effectiveness of these disclosure controls as of March 31, 2011 was carried out under the supervision and with the participation of management, including the CEO and the CFO. Based on that evaluation, management, including the CEO and the CFO, has concluded that as of that date, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.


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Changes in Internal Control over Financial Reporting

Before the Merger, Rand Worldwide was a privately-held company with internal control over financial reporting that was not designed or maintained to comply in all respects with SEC Rule 13a-15, which specifies the internal control over financial reporting that public companies which have filed or been required to file a Form 10-K are required to maintain. The Company is currently in the process of integrating Rand Worldwide’s business operations into the Company’s internal control over financial reporting. In many cases, this involves designing and documenting new internal controls and procedures appropriate to the combined company.

Since the Merger occurred during the first fiscal quarter, there has not been time to properly document and test any new controls. Accordingly, we have excluded all the controls and procedures of the former Rand Worldwide business from our evaluation of changes in internal controls required by SEC Rule 13a-15(d) as of the end of the quarter. At this time, we anticipate that the fiscal 2011 management report under Section 404 of the Sarbanes-Oxley Act of 2002 will include controls relating to the period-end financial close process but will exclude the other controls for the business operations of the former Rand Worldwide.

Other than as described above, there have been no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

The exhibits filed or furnished with this report are listed in the Exhibit Index that immediately follows the Signatures to this report, which list is incorporated herein by reference.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  RAND WORLDWIDE, INC.
Date: May 16, 2011   By:  

/s/ Marc L. Dulude

  Marc L. Dulude
  Chief Executive Officer
  (Principal Executive Officer)
Date: May 16, 2011   By:  

/s/ Lawrence Rychlak

  Lawrence Rychlak
  President and Chief Financial Officer
  (Principal Financial and Accounting Officer)


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EXHIBIT INDEX

 

Exhibit

  

Description

  3.1    Certificate of Amendment of Amended and Restated Certificate of Incorporation
10.1    Employment Agreement dated March 30, 2011 between Rand Worldwide, Inc. and Marc Dulude*
31.1    Rule 15d-14(a) Certification of Chief Executive Officer
31.2    Rule 15d-14(a) Certification of Chief Financial Officer
32.1    Section 1350 Certifications††

 

* Incorporated herein by reference to the filing of such exhibit with the Company’s Current Report on Form 8-K, filed on April 4, 2011.
 

Filed herewith.

†† 

Furnished herewith.