Quarterly Report (10-q)

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 September 30, 2014

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.)
11201 Dolfield Boulevard, Suite 112, Baltimore, MD		21117
(Address of Principal Executive Offices)		(Zip Code)

[phone]

(Registrant’s telephone number, including area code)

161 Worcester Road, Suite 401, Framingham, MA 01701

(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  x    No  ¨

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 November 10, 2014, there were 29,242,277 shares of common stock, par value $.01 per share, outstanding.

 

 

 

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Table of Contents

RAND WORLDWIDE, INC. AND SUBSIDIARIES

INDEX

 

				Page
PART I		FINANCIAL INFORMATION			3
ITEM 1.		Financial Statements
		Consolidated Balance Sheets – September 30, 2014 and June 30, 2014 (Unaudited)			3
		Consolidated Statements of Operations – Three months ended September 30, 2014 and 2013 (Unaudited)			5
		Consolidated Statements of Comprehensive Loss – Three months ended September 30, 2014 and 2013     (Unaudited)			6
		Consolidated Statement of Stockholders’ Equity – Three months ended September 30, 2014 (Unaudited)			7
		Consolidated Statements of Cash Flows – Three months ended September 30, 2014 and 2013 (Unaudited)			8
		Notes to Consolidated Financial Statements (Unaudited)			9
ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
ITEM 4.		Controls and Procedures			23
PART II		OTHER INFORMATION			23
ITEM 6.		Exhibits			23
SIGNATURES					24
EXHIBIT INDEX					25

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PART I. FINANCIAL INFORMATION

Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)

 

		September 30, 2014				June 30, 2014
Assets
Current assets:
Cash		$	11,281,000			$	9,557,000
Accounts receivable, less allowance of $200,000 as of September 30, 2014 and $211,000 as of June 30, 2014			11,466,000				15,290,000
Income tax receivable			1,141,000				1,088,000
Other receivables			1,305,000				922,000
Inventory			100,000				101,000
Prepaid expenses and other current assets			689,000				2,021,000
Deferred tax assets			141,000				119,000
Total current assets			26,123,000				29,098,000
Property and equipment:
Computer software and equipment			6,254,000				8,160,000
Office furniture and equipment			1,455,000				1,444,000
Leasehold improvements			576,000				579,000
			8,285,000				10,183,000
Less accumulated depreciation and amortization			(6,960,000	)			(7,600,000	)
			1,325,000				2,583,000
Customer list, net of accumulated amortization of $7,291,000 as of September 30, 2014 and $7,173,000 as of June 30, 2014			2,863,000				2,981,000
Goodwill			16,690,000				16,758,000
Trade name, net of accumulated amortization of $1,625,000 as of September 30, 2014 and $1,549,000 as of June 30, 2014			2,306,000				2,382,000
Deferred income taxes			4,974,000				4,732,000
Other assets			210,000				223,000
Total assets		$	54,491,000			$	58,757,000

See accompanying notes.

 

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Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets (continued)

(unaudited)

 

		September 30, 2014				June 30, 2014
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses		$	8,747,000			$	8,901,000
Accrued compensation and related benefits			1,237,000				1,973,000
Deferred revenue			3,325,000				4,227,000
Obligations under capital leases			24,000				188,000
Income tax payable			—				796,000
Total current liabilities			13,333,000				16,085,000
Long-term liabilities:
Obligations under capital leases			—				147,000
Other long-term liabilities			—				205,000
Total liabilities			13,333,000				16,437,000
Stockholders’ equity:
Convertible Preferred Stock, $0.01 par value; 1,300,537 shares authorized, 1,298,728 shares issued; 385,357 shares outstanding with an aggregate liquidation preference of $1,093,000 at September 30, 2014 and June 30, 2014 (note 8)			4,000				4,000
Common stock, $0.01 par value; 80,000,000 shares authorized; issued and outstanding shares of 54,491,296 at September 30, 2014 and June 30, 2014			545,000				545,000
Additional paid-in capital			66,551,000				66,028,000
Accumulated deficit			(26,447,000	)			(25,205,000	)
Accumulated other comprehensive income			505,000				948,000
Total stockholders’ equity			41,158,000				42,320,000
Total liabilities and stockholders’ equity		$	54,491,000			$	58,757,000

See accompanying notes.

 

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Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)

 

		Three Months Ended September 30,
		2014				2013
Revenues:
Product sales		$	11,564,000			$	9,731,000
Service revenue			4,920,000				4,626,000
Commission revenue			4,298,000				3,679,000
			20,782,000				18,036,000
Cost of revenue:
Cost of product sales			7,487,000				6,248,000
Cost of service revenue			3,402,000				3,340,000
			10,889,000				9,588,000
Gross margin			9,893,000				8,448,000
Other operating expenses:
Selling, general and administrative			9,092,000				8,190,000
Depreciation and amortization			414,000				436,000
			9,506,000				8,626,000
Operating income (loss)			387,000				(178,000	)
Other expense, net			(229,000	)			(7,000	)
Income (loss) from continuing operations before income taxes			158,000				(185,000	)
Income tax benefit			447,000				293,000
Income from continuing operations			605,000				108,000
Loss from discontinued operations, net of tax			(684,000	)			(384,000	)
Loss on sale of discontinued operations, net of tax			(1,163,000	)			—
Net loss		$	(1,242,000	)		$	(276,000	)
Preferred stock dividends			(28,000	)			(28,000	)
Net loss available to common stockholders		$	(1,270,000	)		$	(304,000	)
Earnings (loss) per common share attributable to common shareholders – basic:
Income from continuing operations per common share		$	0.01			$	—
Loss from discontinued operations per common share			(0.03	)			(0.01	)
Earnings (loss) per common share attributable to common shareholders – basic		$	(0.02	)		$	(0.01	)
Earnings (loss) per common share attributable to common shareholders – diluted:
Income from continuing operations per common share		$	0.01			$	—
Loss from discontinued operations per common share			(0.03	)			(0.01	)
Earnings (loss) per common share attributable to common shareholders – diluted		$	(0.02	)		$	(0.01	)
Shares used in computing income per common share:
Weighted average shares used in computation - basic			54,491,296				54,004,743
Weighted average shares used in computation - diluted			56,209,693				54,004,743

See accompanying notes.

 

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Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Loss

(unaudited)

 

		Three Months Ended September 30,
		2014				2013
Net loss		$	(1,242,000	)		$	(276,000	)
Other comprehensive income, net of tax:
Net change in cumulative foreign currency translation (loss) gain			(443,000	)			47,000
Comprehensive loss		$	(1,685,000	)		$	(229,000	)

See accompanying notes.

 

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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, 2014			385,357			$	4,000				54,491,296			$	545,000			$	66,028,000			$	(25,205,000	)		$	948,000			$	42,320,000
Vesting of stock options granted to employees																			551,000												551,000
Preferred stock dividends																			(28,000	)											(28,000	)
Foreign currency translation adjustment																											(443,000	)			(443,000	)
Net loss for the three months ended September 30, 2014																							(1,242,000	)							(1,242,000	)
Balance at September 30, 2014			385,357			$	4,000				54,491,296			$	545,000			$	66,551,000			$	(26,447,000	)		$	505,000			$	41,158,000

See accompanying notes.

 

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Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)

 

		Three Months Ended September 30,
		2014				2013
Cash flows from operating activities
Net loss		$	(1,242,000	)		$	(276,000	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Noncash portion of loss from discontinued operations			204,000				—
Loss on sale of discontinued operations, net of tax			1,163,000				—
Bad debt expense			40,000				67,000
Depreciation and amortization			414,000				467,000
Stock-based compensation			551,000				83,000
Deferred income taxes			(264,000	)			(125,000	)
Changes in operating assets and liabilities:
Accounts receivable and other receivables			2,741,000				1,608,000
Income tax receivable			(53,000	)			(305,000	)
Inventory			1,000				(87,000	)
Prepaid expenses and other current assets			(261,000	)			97,000
Other assets			13,000				4,000
Accounts payable and accrued expenses			(416,000	)			(756,000	)
Accrued compensation and related benefits			(704,000	)			44,000
Deferred revenue			574,000				(256,000	)
Income taxes payable			(796,000	)			—
Other long-term liabilities			(205,000	)			(342,000	)
Net cash provided by operating activities			1,760,000				223,000
Cash flows from investing activities
Purchases of property and equipment			(95,000	)			(245,000	)
Proceeds from the sale of discontinued operations			500,000				—
Net cash provided by (used in) by investing activities			405,000				(245,000	)
Cash flows from financing activities
Proceeds from borrowings under line of credit			—				17,997,000
Repayment of borrowings under line of credit			—				(17,997,000	)
Payments of obligations under capital leases			(73,000	)			(72,000	)
Proceeds from the issuance of common stock to employees			—				13,000
Payment of preferred stock dividends			(28,000	)			(28,000	)
Net cash used in financing activities			(101,000	)			(87,000	)
Effect of exchange rate changes on cash			(340,000	)			(15,000	)
Net change in cash			1,724,000				(124,000	)
Cash - beginning of period			9,557,000				1,214,000
Cash - end of period		$	11,281,000			$	1,090,000

See accompanying notes.

 

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Rand Worldwide, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

1. Organization and Basis of Presentation

Rand Worldwide, Inc. 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 businesses, government agencies and educational institutions worldwide.

References in these Notes to “Rand Worldwide”, “the Company”, “us”, “we”, “our” are references to Rand Worldwide, Inc. and, unless the context clearly contemplates otherwise, its consolidated subsidiaries.

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. IMAGINiT also specializes in computational fluid dynamics analysis consulting and thermal simulation services and sells its own proprietary software products and related services, enhancing its total client solution offerings. IMAGINiT operates in the United States and Canada.

The Enterprise Applications division is the non-Autodesk component of the business and offers various products and services including facilities management solutions and 3DExperience products from Dassault Systèmes which include CATIA, ENOVIA, SIMULIA, DELMIA, and DMU. Enterprise Applications also specializes in training solutions for Dassault Systèmes and PTC products including Pro/ENGINEER, CREO, and Windchill.

ASCENT is the courseware division of Rand Worldwide and is a leading developer of professional training materials and knowledge products for engineering software tools.

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 Rand Worldwide Inc.’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014. Operating results for the three months ended September 30, 2014 are not necessarily indicative of results for the full fiscal year or any future interim period.

The books of the Company are maintained in United States dollars and this is the Company’s functional reporting currency. Translations denominated in other than the United States dollar are translated as follows with the related transaction gains and losses being recorded in the Statement of Operations:

 

•

Monetary items are recorded at the rate of exchange prevailing at the balance sheet date;

 

•

Non-monetary items including equity are recorded at the historical rate of exchange; and

 

•

Revenues and expenses are recorded at the period average in which the transaction occurred.

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation.

 

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2. Supplemental Disclosure of Cash Flow Information

The Company paid interest of approximately $3,000 and $12,000 during the three months ended September 30, 2014 and 2013, respectively. The Company also paid federal and state income taxes of approximately $1.5 million and $7,000 during the three months ended September 30, 2014 and 2013, respectively. The majority of taxes paid during the three months ended September 30, 2014 were federal income taxes. No federal incomes taxes were paid during the three months ended September 30, 2013 because the Company utilized net operating losses to reduce its federal tax liability.

3. Employee Stock Compensation Plans

On November 7, 2012, the Company’s stockholders approved the Omnibus Equity Compensation Plan (the “Omnibus Plan”). The Compensation Committee of the Company’s Board of Directors administers the Omnibus Plan and, in that capacity, has the exclusive authority to grant various incentive awards under the Omnibus Plan in the form of stock options, stock awards, stock units, performance units, and other stock-based awards. Up to 2,000,000 shares of the Company’s common stock are available for issuance to participants under the Omnibus Plan. The Omnibus Plan is available to all employees of the Company and its subsidiaries, including employees who are officers or members of the Board, and all non-employee directors and consultants of the Company and its subsidiaries. Prior to the adoption of the Omnibus Plan, the Board of Directors granted options 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, under the Avatech Solutions, Inc. 2002 Stock Option Plan (the “2002 Option Plan”). The 2002 Option Plan, which expired in August 2012, provided for the granting of either incentive or non-qualified stock options to purchase an aggregate of up to 7,800,000 shares of common stock to eligible employees, officers, and directors of the Company and its subsidiaries.

On September 29, 2014, the Company’s Board of Directors approved a planned recapitalization of its balance sheet in order to provide liquidity to its shareholders and to maximize shareholder value. This planned recapitalization process was accomplished through a tender offer which was concluded on November 3, 2014 whereby the Company purchased 25,849,945 shares of its common stock from its shareholders for a price of $1.20 per share (see Note 13). In conjunction with the tender offer, the Company’s Board of Directors voted to accelerate the vesting of all unvested stock options effective September 29, 2014. Stock compensation expense for the quarter ended September 30, 2014 was $551,000 and includes $476,000 of expense due to the accelerated vesting of options. For the three months ended September 30, 2013, total stock compensation expense was $83,000.

A summary of stock option activity during the three months ended September 30, 2014 and related information is included in the table below:

 

		Options				Weighted- Average Exercise Price				Aggregate Intrinsic Value
Outstanding at July 1, 2014			3,311,745			$	0.83
Granted			—				—
Exercised			—				—
Forfeited			(15,000	)		$	0.76
Expired			—				—
Outstanding at September 30, 2014			3,296,745			$	0.83			$	231,284
Exercisable at September 30, 2014			3,296,745			$	0.83			$	231,284
Weighted-average remaining contractual life of shares outstanding			6.8 Years
Weighted-average remaining contractual life of shares exercisable			6.8 Years

 

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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 September 30, 2014 ranged from $0.50 to $1.71 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
$	0.50 – 0.75				1,454,385			$	0.69				6.2 years				1,454,385			$	0.69				6.2 years
	0.76 – 1.00				1,569,610				0.89				8.0 years				1,569,610				0.89				8.0 years
	1.01 – 1.71				272,750				1.22				3.6 years				272,750				1.22				3.6 years
					3,296,745												3,296,745

Assuming that no additional share-based payments are granted after September 30, 2014, no further compensation expense will be recognized in the consolidated statement of operations.

4. Borrowings Under Line of Credit

On February 29, 2012, the Company entered into an $8 million line of credit facility, including a $1,000,000 sublimit for the issuance of standby or trade letters of credit, with PNC Bank, National Association (“PNC”). The interest rate is the “Eurodollar Rate”, which is calculated by using the LIBO rate, plus a margin of 2.0%. The Company had no outstanding borrowings from PNC under its credit line of as of September 30, 2014 or June 30, 2014.

On November 4, 2014, the Company entered into two credit facilities with JP Morgan Chase Bank National Association (“Chase”) (see Note 13) which replaced the Company’s existing facilities with PNC and provided funding for the recapitalization.

5. Obligations Under Capital Leases

The Company has incurred various capital lease obligations for computer equipment purchased in prior years. This capital lease obligation totaled $24,000 and $335,000 as of September 30, 2014 and June 30, 2014, respectively.

6. 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.

The Company continues to maintain a valuation allowance on the entirety of its U.S. capital loss carryforwards, and a portion of its foreign, federal and state net operating loss carryforwards due to uncertainty about its ability to utilize such carryforwards.

The Company believes that its income tax filing positions taken or expected to be taken in its tax returns will more likely than not be sustained upon audit by the taxing authorities and does not anticipate any adjustments that will result in a material adverse impact on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded. The Company’s income tax returns for the past three years are subject to examination by tax authorities, and may change upon examination.

The Company records interest related to taxes in other expense and records penalties in operating expenses.

 

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7. Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) 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. There is no dilutive effect on earnings (loss) per share during loss periods. As of September 30, 2014, 5,392,529 shares of common stock were issuable upon the conversion or exercise of options, warrants and preferred stock. For the three months ended September 30, 2014 and 2013, there were 1,498,904 and 3,086,366 shares of common stock equivalents, respectively, excluded from the computation of diluted earnings (loss) per share because their effect would have been antidilutive.

The following summarizes the computations of basic and diluted earnings (loss) per common share for the three months ended September 30, 2014 and 2013:

 

		Three Months Ended September 30,
		2014				2013
Numerator for basic and diluted earnings per share:
Net income from continuing operations		$	605,000			$	108,000
Payment of preferred stock dividends			(28,000	)			(28,000	)
Net income from continuing operations available to common stockholders			577,000				80,000
Loss from discontinued operations, net of tax			(684,000	)			(384,000	)
Loss on disposition of discontinued operations, net of tax			(1,163,000	)			—
Net loss available to common stockholders		$	(1,270,000	)		$	(304,000	)
Weighted average shares used in computing basic net earnings per share:			54,491,296				54,004,743
Effect of dilutive securities			1,718,397				—
Weighted average shares used in computing diluted net earnings per share:			56,209,693				54,004,743
Earnings (loss) per common share attributable to common stockholders – basic
Income from continuing operations per common share		$	0.01			$	—
Loss from discontinued operations per common share			(0.03	)			(0.01	)
Earnings (loss) per common share attributable to common shareholders – basic		$	(0.02	)		$	(0.01	)
Earnings (loss) per common share attributable to common stockholders – diluted
Income from continuing operations per common share		$	0.01			$	—
Loss from discontinued operations per common share			(0.03	)			(0.01	)
Earnings (loss) per common share attributable to common shareholders – diluted		$	(0.02	)		$	(0.01	)

8. Preferred Stock

Convertible Preferred Stock

At September 30, 2014 and 2013, 384,495 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 certain business combinations that are approved by the Board of Directors and subsequently submitted and approved by a vote of the Company’s stockholders. 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.

 

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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 September 30, 2014, the conversion rate would yield approximately 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 $0.30 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 September 30, 2014 and 2013, 862 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 certain business combinations that are approved by the Board of Directors and subsequently submitted and approved by a vote of the Company’s stockholders. 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.

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.

 

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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 September 30, 2014 the conversion rate would yield approximately 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.

9. Discontinued Operations

As part of the Company’s strategy to focus on its core strengths, during the first quarter of fiscal year 2015, the Company sold its Rand Secure Data archiving business for $500,000. Thus, the results of operations and cash flows from the data archiving business have been classified as discontinued operations for all periods presented.

During the fourth quarter of 2013, the Company disposed of its operations in Australia, Singapore and Malaysia because those divisions did not align with the current strategic direction of the Company.

The following table summarizes the financial results of the entities which have been reclassified as discontinued operations for the periods presented:

 

		Three Months Ended September 30,
		2014				2013
Revenues		$	915,000			$	508,000
Loss from discontinued operations, net of tax			684,000				384,000
Loss on sale of discontinued operations, net of tax			1,163,000				—

10. Operating Leases

The Company leases certain office space and equipment under noncancellable operating lease agreements that expire in various years through 2021 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 September 30, 2014:

 

Twelve months ending September 30:
2015		$	2,400,000
2016			1,699,000
2017			1,290,000
2018			764,000
2019			490,000
Thereafter			147,000
Total minimum lease payments		$	6,790,000

11. Capital Leases

The Company has various computer equipment used in training facilities and by employees throughout its office locations. These capital lease obligations totaled $24,000 as of September 30, 2014. Payments for the leases are made either monthly or quarterly through September 2015 and depreciation expense on this

 

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equipment was approximately $16,000 as of September 30, 2014. Future minimum payments consisted of the following at September 30, 2014:

 

Twelve months ending September 30, 2015		$	25,000
Less:
Taxes			1,000
Imputed interest			—
Present value of future minimum lease payments		$	24,000

12. Segment Information

The Company’s chief operating decision maker, its chief executive officer, reviews operating results and analyses and makes resource allocation decisions between its three divisions: IMAGINiT, Enterprise Applications, and ASCENT. The Company does not separately accumulate and report asset information by segment, nor does it have any material inter-segment revenue.

The IMAGINiT division provides Autodesk solutions and value-added services to customers in the manufacturing, infrastructure, building, and media and entertainment industries.

The Enterprise Applications offers various products and services including facilities management solutions and 3DExperience products from Dassault Systèmes as well as training solutions for Dassault Systèmes and PTC products.

ASCENT is the courseware division of Rand Worldwide and is a leading developer of professional training materials and knowledge products for engineering software tools.

The following tables illustrate certain financial information about these segments in the corresponding fiscal periods:

Three Months Ended September 30, 2014

 

		IMAGINiT				Enterprise Applications				ASCENT				Total
Revenue-
Product sales		$	10,656,000			$	213,000			$	695,000			$	11,564,000
Service revenue			3,520,000				1,397,000				3,000				4,920,000
Commission revenue			4,279,000				19,000				—				4,298,000
Total revenue			18,455,000				1,629,000				698,000				20,782,000
Cost of revenue-
Cost of product sales			7,001,000				96,000				390,000				7,487,000
Cost of service revenue			2,556,000				846,000				—				3,402,000
Total cost of revenue			9,557,000				942,000				390,000				10,889,000
Gross margin			8,898,000				687,000				308,000				9,893,000
Total operating expenses			8,526,000				708,000				272,000				9,506,000
Operating income (loss)		$	372,000			$	(21,000	)		$	36,000			$	387,000

 

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Three Months Ended September 30, 2013

 

		IMAGINiT				Enterprise Applications				ASCENT				Total
Revenue-
Product sales		$	8,625,000			$	377,000			$	729,000			$	9,731,000
Service revenue			3,274,000				1,342,000				10,000				4,626,000
Commission revenue			3,643,000				36,000				—				3,679,000
Total revenue			15,542,000				1,755,000				739,000				18,036,000
Cost of revenue-
Cost of product sales			5,641,000				232,000				375,000				6,248,000
Cost of service revenue			2,509,000				825,000				6,000				3,340,000
Total cost of revenue			8,150,000				1,057,000				381,000				9,588,000
Gross margin			7,392,000				698,000				358,000				8,448,000
Total operating expenses			7,703,000				681,000				242,000				8,626,000
Operating income (loss)		$	(311,000	)		$	17,000			$	116,000			$	(178,000	)

13. Subsequent Events

Recapitalization

On September 29, 2014, the Company’s Board of Directors approved a planned recapitalization of its balance sheet in order to provide liquidity to its shareholders and to maximize shareholder value. This recapitalization process was accomplished through a tender offer which was concluded on November 3, 2014 whereby the Company purchased 25,849,945 shares of its common stock from its shareholders for a price of $1.20 per share. The repurchase was financed through a combination of new bank loans through Chase which replaced the Company’s current credit facilities with PNC, as well as the Company’s cash surplus.

The new debt from Chase is comprised of two credit facilities. The first is a five-year $10 million line of credit, secured by all assets of the Company with borrowing levels subject to borrowing base limits. The interest rate on the line of credit is the LIBO rate, plus a margin of 2.5%. The second facility is a five-year $21 million term loan with an interest rate equal to the LIBO rate, plus a margin of 3.15%. The principal of this loan will be amortized over five years with quarterly repayments of $787,500 for the first two years, $1,050,000 for the third year, and $1,312,500 for the fourth and fifth years. The new loans contain certain financial covenants including a maximum leverage ratio, a maximum fixed charge coverage ratio, and minimum adjusted earnings before interest, taxes, depreciation and amortization.

On November 7, 2014, following the completion of the Company’s Tender Offer, Messrs. Marc Dulude, Richard Charpie, Charles Yie and Manu Parpia, resigned from the Board of Directors as part of a planned transition that follows the Company’s recapitalization and a major investment by 3K Limited Partnership. In addition, Mr. Dulude resigned as Chief Executive Officer of Rand Worldwide, Inc. and Mr. Lawrence Rychlak was named as the Company’s President and Chief Executive Officer. Mr. Rychlak was previously the President and Chief Financial Officer and John Kuta, the Company’s current Vice President and Controller, was appointed to the office as Chief Financial Officer.

 

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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 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 successfully integrate acquired 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.

When used throughout this report, the terms “Rand Worldwide”, “the Company”, “we”, “us” and “our” refer to Rand Worldwide, Inc. and, unless the context clearly indicates otherwise, its consolidated subsidiaries.

Recent Developments

On September 29, 2014, the Company’s Board of Directors approved a planned recapitalization of its balance sheet in order to provide liquidity to its shareholders and to maximize shareholder value. This recapitalization process was accomplished through a tender offer which was concluded on November 3, 2014 whereby the Company purchased 25,849,945 shares of its common stock from its shareholders for a price of $1.20 per share. The repurchase was financed through a combination of new bank loans through Chase which replaced the Company’s current credit facilities with PNC, as well as the Company’s cash surplus.

The new debt from Chase is comprised of two credit facilities. The first is a five-year $10 million line of credit, secured by all assets of the Company with borrowing levels subject to borrowing base limits. The interest rate on the line of credit is the LIBO rate, plus a margin of 2.5%. The second facility is a five-year $21 million term loan with an interest rate equal to the LIBO rate, plus a margin of 3.15%. The principal of this loan will be amortized over five years with quarterly repayments of $787,500 for the first two years, $1,050,000 for the third year, and $1,312,500 for the fourth and fifth years. The new loans contain certain financial covenants including a maximum leverage ratio, a maximum fixed charge coverage ratio, and minimum adjusted earnings before interest, taxes, depreciation and amortization.

On November 7, 2014, following the completion of the Company’s Tender Offer, Messrs. Marc Dulude, Richard Charpie, Charles Yie and Manu Parpia, resigned from the Board of Directors as part of a planned transition that follows the Company’s recapitalization and a major investment by 3K Limited Partnership. In addition, Mr. Dulude resigned as Chief Executive Officer of Rand Worldwide, Inc. and Mr. Lawrence Rychlak was named as the Company’s President and Chief Executive Officer. Mr. Rychlak was previously the President and Chief Financial Officer and John Kuta, the Company’s current Vice President and Controller, was appointed to the office as Chief Financial Officer.

 

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Overview

Rand Worldwide, Inc. is a leader in design, engineering, and facilities management technology solutions with expertise in computer aided design (“CAD”) software, computational fluid dynamics (“CFD”), data management, and process optimization for the manufacturing, engineering, and building design industries. The Company specializes in software resale, technology consulting, implementation, integration, training, CFD analysis consulting and thermal simulation services and technical support solutions that enable clients to more effectively design, develop, and manage projects, products, and facilities. Rand Worldwide has over 25 years of industry experience and expertise, an extensive list of training and implementation services and longstanding relationships with design technology leaders including Autodesk, Archibus, Dassault Systèmes and Leica Geosystems. The Company’s clients include businesses, government agencies, and educational institutions.

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 market;

 

•

Profitably grow its consulting and services business by leveraging its experts in design engineering; and

 

•

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

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.

As part of the Company’s strategy to focus on its core strengths, the Company divested its Rand Secure Data archiving business. Thus, the results of operations from the archiving business have been classified as discontinued operations for all periods presented.

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; and

 

•

ASCENT internally developed courseware for a variety of engineering applications

Service Revenue- The Company provides services in the form of project-focused software implementations, training, consulting services, software development, software customization, supplemental design staffing, drawing digitization, symbol library development, custom courseware development and technical support to its customers. The Company employs a technical staff of over 100 personnel associated with these types of services.

Commission Revenue- The Company offers Autodesk’s subscription programs, which entitle subscribers to receive software upgrades, web support and eLearning lessons directly from Autodesk. Because Rand Worldwide does not participate in the delivery of these subscription products or the web support and eLearning lesson benefits, 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, Rand Worldwide records the net proceeds that it receives from Autodesk for subscription sales in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 605.

 

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The Company also generates commission revenue from the resale of Autodesk software to various customers, a number of which Autodesk considers major and government accounts. Autodesk designates 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 and government 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 a percentage of the 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 a volume-based rebate from its primary supplier, Autodesk, paid monthly based on the level of new product and subscription purchases as measured against quarterly targets developed by Autodesk . These rebates serve to reduce the cost of product sales. The Company accrues its rebates the month the underlying sales are posted, in accordance with ASC 605-50, Customer Payments and Incentives. 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, travel, literature, 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 Expenses- Selling, general and administrative expenses 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 expenses.

Depreciation and Amortization Expenses- 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. Rand Worldwide leases all of its facilities and depreciates leasehold improvements over the lesser of the lease term or the estimated useful life of the asset. Total amortization expense for the three months ended September 30, 2014 was $194,000 and total depreciation expense for the same period was $220,000.

Interest Expense- For the three months ended September 30, 2014, interest expense consisted of interest on capital lease obligations, and earn-out consideration paid in connection with prior business acquisitions.

Three Months Ended September 30, 2014 Compared to the Three Months Ended September 30, 2013

The following tables set forth a comparison of the Company’s results of operations for the three-month periods ended September 30, 2014 and September 30, 2013. 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.

Revenues

 

		Three Months Ended September 30,
		2014				2013				% change
Revenues:
Product sales		$	11,564,000			$	9,731,000				18.8	%
Service revenue			4,920,000				4,626,000				6.4	%
Commission revenue			4,298,000				3,679,000				16.8	%
Total revenues		$	20,782,000			$	18,036,000				15.2	%

 

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Revenues. Total revenues for the three months ended September 30, 2014 increased by $2,746,000, or 15.2%, when compared to the same period of the prior year.

Product sales increased $1,833,000, or 18.8%, for the three months ended September 30, 2014 when compared to the same period of the prior year. The increased product revenues were the result of an increased focus by the Company on new product sales and promotions implemented by the Company’s primary vendor, Autodesk, which consisted mainly of discounts on software upgrades, during the quarter ended September 30, 2014, while there were no significant vendor promotions during the same quarter of the prior fiscal year.

Service revenues increased $294,000, or 6.4%, mainly as the result of performing two large consulting projects for key customers during the quarter.

Commission revenues increased $619,000, or 16.8%, for the three months ended September 30, 2014 over the same period of the prior year. The increased commission revenues were mainly due to increased government business through a number of large deals with government agencies. The government sales team has recently taken a more consultative sales strategy which has cultivated strategic business relationships and has been a key driver of revenue growth.

Cost of Revenues and Gross Margin

 

		Three Months Ended September 30,
		2014				2013				% change
Cost of revenue:
Cost of product sales		$	7,487,000			$	6,248,000				19.8	%
Cost of service revenue			3,402,000				3,340,000				1.9	%
Total cost of revenue		$	10,889,000			$	9,588,000				13.6	%
Gross margin		$	9,893,000			$	8,448,000

Cost of revenue. The total cost of revenue increased $1,301,000, or 13.6%, for the three months ended September 30, 2014 when compared to the same period of the prior fiscal year.

Cost of product sales increased 19.8% while product revenue increased 18.8%. Costs of product sales increased at a higher rate than product revenue due to having a larger proportion of software upgrades, which sell at lower margins than new software licenses.

Cost of service revenue increased 1.9%, while service revenues increased 6.4%. Cost of service revenue as a percentage of service revenue decreased from 72.2% to 69.1% as the result of increased productivity of the services teams.

Gross margin. The Company’s overall gross margin percentage increased slightly from 46.8% to 47.6% mainly due to the increased proportion of commission revenues.

 

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Other Operating Expenses

 

		Three Months Ended September 30,
		2014				2013				% change
Other operating expenses:
Selling, general and administrative		$	9,092,000			$	8,190,000				11.0	%
Depreciation and amortization			414,000				436,000				(5.0	)%
Total other operating expenses		$	9,506,000			$	8,626,000				10.2	%

Selling, General and Administrative Expense. Selling, general and administrative expenses increased 11.0% for the three months ended September 30, 2014 over the same period of the prior fiscal year. The increased expenses were the result of transactions costs totaling $937,000 related to the tender offer. Selling, general and administrative expense as a percentage of total revenues decreased from 45.4% for the three months ended September 30, 2013 to 43.7% for the three months ended September 30, 2014.

Depreciation and Amortization. Depreciation and amortization expenses decreased $22,000, or 5.0%, for the three months ended September 30, 2014 over the same period of the prior fiscal year due to having a net decrease in depreciable assets as such assets became fully depreciated at a faster rate than they were replaced with new assets.

Other Expense, net

 

		Three Months Ended September 30,
		2014				2013				% Change
Other expense, net		$	(229,000	)		$	(7,000	)			3,171.4	%

Other Expense, net. The Company incurred $229,000 in other expense, net, during the three months ended September 30, 2014 versus $7,000 during the same period of the prior fiscal year. The increased expense was the result of having greater foreign currency exchange losses as a result of changes in the exchange rate between the US and Canadian dollar.

Income Tax Benefit

 

		Three Months Ended September 30,
		2014				2013				% Change
Income tax benefit		$	447,000			$	293,000				52.6	%

Income Tax Benefit. The Company recorded an income tax benefit of $447,000 during the three months ended September 30, 2014, as compared with a $293,000 benefit during the same period of the prior fiscal year. The increased income tax benefit was due to the recognition of a larger taxable loss as a result of the accounting effects of the discontinued operations.

At September 30, 2014, the Company had U.S. federal net operating loss carryforwards available to reduce future taxable income of approximately $28.4 million; however, $23.3 million of these carryforwards were not recognized because they are subject to annual limitations under Internal Revenue Code Section 382 and are expected to expire before being utilized. In addition, at September 30, 2014, the Company had foreign net operating loss carryforwards of approximately $14.8 million available to reduce future taxable income; however approximately $4.0 million is expected to expire by December 31, 2014 and the remainder will expire between 2028 and 2031.

As of September 30, 2014, the Company maintained a valuation allowance of $11.0 million due to the expected expiration of net operating losses carryforward prior to utilization, capital losses and a portion of state net operating loss carryforwards. The valuation allowances are evaluated quarterly to determine the appropriate allowance amount.

 

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Discontinued Operations

 

		Three Months Ended September 30,
		2014				2013
Loss from discontinued operations, net of tax		$	684,000			$	384,000
Loss on sale of discontinued operations, net of tax			1,163,000				—

Discontinued Operations. As part of the Company’s strategy to focus on its core strengths, the Company divested its Rand Secure Data archiving business. Thus, the results of operations and cash flows from the data archiving business have been classified as discontinued operations for all periods presented. The disposal resulted in a loss of $1,163,000 for the three months ended September 30, 2014, which has been included in discontinued operations in the Consolidated Statements of Operations.

Liquidity and Capital Resources

Historically, the Company has financed its operations and met its capital expenditure requirements primarily through cash flows provided by operations and borrowings under short-term debt arrangements.

On February 29, 2012, the Company entered into an $8 million line of credit facility, including a $1,000,000 sublimit for the issuance of standby or trade letters of credit, with PNC Bank, National Association. The interest rate is the “Eurodollar Rate”, which is calculated by using the LIBO rate, plus a margin of 2.0%. The Company had no outstanding borrowings from the bank under its credit line of as of September 30, 2014 or June 30, 2014. The line expires on November 30, 2014.

As discussed in Note 13, on November 3, 2014 the Company completed a tender offer and repurchased 25,849,945 shares of the Company’s common stock from existing shareholders. This buyback was financed through a $21,000,000 term loan, a line of credit with borrowings up to $10,000,000 as well as the Company’s existing cash surplus. The line of credit is secured by all assets of the Company with borrowing levels subject to borrowing base limits and bears interest at the LIBO rate, plus a margin of 2.5%. The term loan bears interest rate at the LIBO rate, plus a margin of 3.15%. The principal of the loan will be amortized over five years with quarterly repayments of $787,500 for the first two years, $1,050,000 for the third year, and $1,312,500 for the fourth and fifth years. The new loans contain certain financial covenants including a maximum leverage ratio, a maximum fixed charge coverage ratio, and minimum adjusted earnings before interest, taxes, depreciation and amortization.

The Company’s operating assets and liabilities consist primarily of accounts receivable, cash, 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 96% of its product from one principal supplier that provides it with credit to finance those purchases.

For the three months ended September 30, 2014, net cash provided by operating activities was $1,760,000, compared with net cash provided by operating activities of $223,000 during the three months ended September 30, 2013. The increase in cash provided by operating activities was due mainly to the cash provided from its profitable operations, increased collections in accounts receivable and a decrease in prepaid expenses along with a small net difference in various balance sheet accounts.

For the three months ended September 30, 2014, net cash provided by investing activities was $405,000, compared with net cash used in investing activities of $245,000 during the three months ended September 30, 2013. The difference was mainly due to cash proceeds of $500,000 received from the sale of the Rand Secure Data Division during the first quarter of this fiscal year.

Net cash used in financing activities was $101,000 for the three months ended September 30, 2014 compared to $87,000 for the same period of the prior fiscal year. The difference resulted mainly from proceeds received from the issuance of common stock to employees during the first quarter of the prior fiscal year.

The Company had a working capital surplus of $12,790,000 as of September 30, 2014.

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, 2013. 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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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 its principal executive officer (“CEO”) and its principal financial and accounting 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 September 30, 2014 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, in fact, effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were 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 controls 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: November 14, 2014				By:		/s/ Lawrence Rychlak
				Lawrence Rychlak
				President and Chief Executive Officer
				(Principal Executive Officer)
Date: November 14, 2014				By:		/s/ John Kuta
				John Kuta
				Vice President and Chief Financial Officer
				(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit		Description
31.1		Rule 15d-14(a) Certification of Principal Executive Officer†
31.2		Rule 15d-14(a) Certification of Principal Financial and Accounting Officer†
32.1		Section 1350 Certifications††
101.INS		XBRL Instance Document. †
101.SCH		XBRL Taxonomy Extension Schema Document. †
101.CAL		XBRL Taxonomy Calculation Linkbase Document. †
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document. †
101.LAB		XBRL Taxonomy Label Linkbase Document. †
101.PRE		XBRL Taxonomy Presentation Linkbase Document. †

 

†	Filed herewith.

††	Furnished herewith.

 

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Exhibit 31.1

Certifications of the Principal Executive Officer

Pursuant to Securities Exchange Act Rules 13a-1 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Lawrence Rychlak, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Rand Worldwide, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2014				/s/ Lawrence Rychlak
				Lawrence Rychlak
				President and Chief Executive Officer
				(Principal Executive Officer)

Exhibit 31.2

Certifications of the Principal Financial and Accounting Officer

Pursuant to Securities Exchange Act Rules 13a-1 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John Kuta, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Rand Worldwide, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 14, 2014				/s/ John Kuta
				John Kuta
				Vice President and Chief Financial Officer
				(Principal Accounting Officer)

Exhibit 32.1

Certifications of Periodic Report by the Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Rand Worldwide, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission and to which this Certification is an exhibit (the “Report”), the undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company for the periods reflected therein.

 

Date: November 14, 2014				/s/ Lawrence Rychlak
				Lawrence Rychlak
				President and Chief Executive Officer
				(Principal Executive Officer)
				/s/ John Kuta
				John Kuta
				Vice President and Chief Financial Officer
				(Principal Financial and Accounting Officer)