UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2012
OR
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number: 001-31265
Rand
Worldwide, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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84-1035353
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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161 Worcester Road, Suite 401, Framingham, MA
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01701
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(Address of Principal Executive Offices)
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(Zip Code)
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(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
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):
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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¨
(Do not check if a smaller reporting company)
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Smaller reporting company
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x
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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 9, 2012, there were 53,990,589 shares of common stock, par value $.01 per share, outstanding.
RAND WORLDWIDE, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Rand Worldwide, Inc. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
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September 30,
2012
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June 30,
2012
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Assets
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Current assets:
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Cash
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$
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2,292,000
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$
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1,680,000
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Accounts receivable, less allowance of $359,000 as of September 30, 2012 and $405,000 as of June 30,
2012
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12,489,000
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18,099,000
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Income tax receivable
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649,000
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281,000
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Other receivables
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769,000
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994,000
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Inventory
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156,000
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107,000
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Prepaid expenses and other current assets
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2,013,000
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2,084,000
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Deferred tax assets
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114,000
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78,000
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Total current assets
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18,482,000
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23,323,000
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Property and equipment:
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Computer software and equipment
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8,873,000
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8,231,000
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Office furniture and equipment
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2,038,000
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1,974,000
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Leasehold improvements
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724,000
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699,000
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11,635,000
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10,904,000
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Less accumulated depreciation and amortization
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(8,460,000
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)
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(8,193,000
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)
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3,175,000
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2,711,000
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Customer list, net of accumulated amortization of $6,202,000 as of September 30, 2012 and $6,105,000 as of June 30,
2012
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4,032,000
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3,290,000
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Goodwill
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17,837,000
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15,954,000
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Trade name, net of accumulated amortization of $1,020,000 as of September 30, 2012 and $945,000 as of June 30,
2012
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2,911,000
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2,986,000
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Deferred income taxes
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2,174,000
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2,576,000
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Other assets
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339,000
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370,000
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Total assets
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$
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48,950,000
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$
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51,210,000
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See accompanying notes.
4
Rand Worldwide, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
(unaudited)
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September 30,
2012
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June 30,
2012
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Liabilities and Stockholders’ Equity
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Current liabilities:
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Borrowings under line of credit
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$
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2,435,000
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$
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3,140,000
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Accounts payable and accrued expenses
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7,074,000
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9,850,000
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Accrued compensation and related benefits
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1,395,000
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1,804,000
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Deferred revenue
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4,090,000
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4,666,000
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Obligations under capital leases
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292,000
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290,000
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Total current liabilities
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15,286,000
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19,750,000
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Long-term liabilities:
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Obligations under capital leases
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541,000
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614,000
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Other long term liabilities
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1,071,000
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—
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Total liabilities
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16,898,000
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20,364,000
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Stockholders’ equity:
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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, 2012 and June 30, 2012 (note 10)
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4,000
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4,000
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Common stock, $0.01 par value; 80,000,000 shares authorized; issued and outstanding shares of 53,990,589 and 53,493,077 at
September 30, 2012 and June 30, 2012, respectively
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540,000
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535,000
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Additional paid-in capital
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65,377,000
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64,947,000
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Accumulated deficit
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(35,124,000
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)
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(35,700,000
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)
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Accumulated other comprehensive income
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1,255,000
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1,060,000
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Total stockholders’ equity
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32,052,000
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30,846,000
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Total liabilities and stockholders’ equity
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$
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48,950,000
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$
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51,210,000
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See accompanying notes.
5
Rand Worldwide, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
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Three Months Ended
September 30,
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2012
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2011
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Revenues:
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Product sales
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$
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11,515,000
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$
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13,277,000
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Service revenue
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5,374,000
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4,802,000
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Commission revenue
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4,712,000
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3,865,000
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21,601,000
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21,944,000
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Cost of revenue:
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Cost of product sales
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7,331,000
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9,302,000
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Cost of service revenue
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3,695,000
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3,132,000
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11,026,000
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12,434,000
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Gross margin
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10,575,000
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9,510,000
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Other operating expenses:
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Selling, general and administrative
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9,198,000
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8,518,000
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Depreciation and amortization
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433,000
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396,000
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9,631,000
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8,914,000
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Operating income
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944,000
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596,000
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Other expense, net
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(20,000
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(142,000
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Income before income taxes
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924,000
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454,000
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Income tax expense
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348,000
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52,000
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Net income
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$
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576,000
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$
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402,000
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Preferred stock dividends
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(28,000
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)
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(39,000
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)
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Net income available to common stockholders
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$
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548,000
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$
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363,000
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Income per common share, basic
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$
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0.01
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$
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0.01
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Income per common share, diluted
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$
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0.01
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$
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0.01
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Shares used in computing income per common share:
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Weighted average shares used in computation - basic
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53,821,435
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51,921,676
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Weighted average shares used in computation - diluted
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54,890,749
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52,138,108
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See accompanying notes.
6
Rand Worldwide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
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Three Months Ended
September 30,
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2012
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2011
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Cash flows from operating activities
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Net income
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$
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576,000
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$
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402,000
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Adjustments to reconcile net income to net cash provided by (used in) operating activities:
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Loss on sale of property and equipment
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—
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9,000
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Bad debt expense (recoveries)
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33,000
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(85,000
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)
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Depreciation and amortization
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433,000
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396,000
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Stock-based compensation
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63,000
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41,000
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Deferred income taxes
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366,000
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(2,000
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)
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Changes in operating assets and liabilities net of those acquired:
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Accounts receivable and other receivables
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5,802,000
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4,925,000
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Income tax receivable
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(368,000
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)
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27,000
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Inventory
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(49,000
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)
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44,000
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Prepaid expenses and other current assets
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71,000
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(46,000
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)
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Other assets
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31,000
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7,000
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Accounts payable and accrued expenses
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(3,414,000
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)
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(3,585,000
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Accrued compensation and related benefits
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(409,000
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)
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(1,043,000
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)
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Deferred revenue
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(576,000
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)
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9,000
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Net cash provided by operating activities
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2,559,000
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1,099,000
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Cash flows from investing activities
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Purchase of Informative Design Partners, Inc. (Note 4)
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(600,000
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)
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—
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Purchases of property and equipment
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(704,000
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)
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(131,000
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)
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Net cash used in by investing activities
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(1,304,000
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)
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(131,000
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)
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Cash flows from financing activities
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Proceeds from borrowings under line of credit
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17,581,000
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32,205,000
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Repayment of borrowings under line of credit
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(18,286,000
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)
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(32,978,000
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)
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Payments of obligations under capital leases
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(71,000
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)
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|
—
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Proceeds from the issuance of common stock to employees
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—
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36,000
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Payment of preferred stock dividends
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(28,000
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)
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(39,000
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)
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Net cash used in financing activities
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(804,000
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)
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(776,000
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)
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Effect of exchange rate changes on cash
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|
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161,000
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(287,000
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)
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|
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|
|
|
|
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Net change in cash
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|
612,000
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|
|
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(95,000
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)
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Cash - beginning of period
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|
1,680,000
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|
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2,631,000
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Cash - end of period
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$
|
2,292,000
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|
|
$
|
2,536,000
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|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
7
Rand Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
|
1.
|
Organization and 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.
References in these Notes to “Rand Worldwide”, “the Company”, “us”, “we”, “our” are references to Rand
Worldwide, Inc. and, unless the context clearly contemplated 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 from locations across North America, Australia, Singapore and Malaysia.
The Enterprise Applications division is the non-Autodesk component of the business and offers various products and services including data archiving solutions, facilities management solutions, as well as
training for Dassault Systèmes and PTC (Parametric Technology Corporation) products including CATIA, ENOVIA and Pro/ENGINEER.
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 are disclosed within Note 11.
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, 2012. Operating results for the three months ended September 30, 2012 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 as 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.
|
8
|
2.
|
Recent Accounting Pronouncements
|
In July
2012, the Financial Accounting Standards Board issued Accounting Standards Update 2012-02 (“ASU 2012-02”),
Intangibles – Goodwill and Other, Testing Indefinite-Lived Intangible Assets for Impairment
. The amendments in the
Update are intended to reduce cost and complexity by providing an entity the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset, other than goodwill, is impaired to determine whether it should
perform a qualitative impairment test. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The amendments of ASU 2012-02 are not expected to have a material impact
on the Company’s consolidated financial statements.
|
3.
|
Supplemental Disclosure of Cash Flow Information
|
The Company paid interest of approximately $24,000 and $61,000 during the three months ended September 30, 2012 and 2011, respectively. The Company also paid federal and state income taxes of
approximately $0 and $100,000 during the three months ended September 30, 2012 and 2011, respectively.
In connection with the
acquisition of Informative Design Partners on July 31, 2012, the Company issued 497,512 shares of its common stock for $400,000.
Acquisition of
Informative Design Partners
On July 31, 2012, the Company acquired certain assets of Informative Design Partners (“IDP”)
for an initial payment of $1 million, comprised of $600,000 in cash and $400,000 in common stock, plus contingent consideration of $2.0 million to be paid over three years based on the earnings achieved from the acquired business.
|
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 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. Stock
options generally expire after 10 years. Options generally vest ratably over three or four years, depending on the specific grant award. For the three months ended September 30, 2012, total stock compensation expense charged against income for
this Plan was $63,000.
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 three months ended September 30, 2012 and related information is included in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
Outstanding at July 1, 2012
|
|
|
3,481,900
|
|
|
$
|
0.76
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2012
|
|
|
3,481,900
|
|
|
$
|
0.76
|
|
|
$
|
411,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2012
|
|
|
1,206,100
|
|
|
$
|
0.81
|
|
|
$
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining contractual life
|
|
|
3.4 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 September 30, 2012 ranged from $0.30 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
|
|
$ 0.30 – 0.50
|
|
|
170,120
|
|
|
$
|
0.42
|
|
|
2.0 years
|
|
|
170,120
|
|
|
$
|
0.42
|
|
|
2.0 years
|
|
0.60 – 0.71
|
|
|
1,883,920
|
|
|
|
0.70
|
|
|
8.5 years
|
|
|
529,480
|
|
|
|
0.69
|
|
|
8.0 years
|
|
0.76 – 0.90
|
|
|
1,189,360
|
|
|
|
0.81
|
|
|
8.5 years
|
|
|
268,000
|
|
|
|
0.86
|
|
|
4.4 years
|
|
1.05 – 1.71
|
|
|
238,500
|
|
|
|
1.29
|
|
|
3.4 years
|
|
|
238,500
|
|
|
|
1.29
|
|
|
3.4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,481,900
|
|
|
|
|
|
|
|
|
|
1,206,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assuming that no additional share-based payments are granted after September 30, 2012, $723,000 of compensation
expense will be recognized in the consolidated statement of operations over a weighted-average period of 3.0 years.
|
6.
|
Borrowings Under Line of Credit
|
On
February 29, 2012, certain subsidiaries of 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 LIBOR rate, plus a margin of 2.0%. The interest rate as of September 30, 2012 was 2.2%. The Company had outstanding borrowings from the bank under its credit line of
approximately $2.4 million as of September 30, 2012 and had $3.1 million outstanding as of June 30, 2012. The line expires on February 28, 2014.
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 $833,000 and $904,000 as of September 30, 2012 and June 30, 2012, respectively.
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.
During the fourth quarter of fiscal year 2012, the Company recognized the realizable portion of the Company’s U.S. net operating loss carryforwards
as a deferred tax asset. The Company previously had created a valuation allowance against the entire amount of net operating loss carryforwards, recognizing no deferred tax asset because it did not have a sufficient history of profitable operations
to support the recognition of the asset. Since the Company established a sufficient history of consecutive profitable quarters, and projects continuing profits, the valuation allowance against the U.S. net operating loss carryforwards was reduced in
the fourth quarter of fiscal year 2012 by $4.3 million to recognize the portion
10
of the net operating loss carryforwards projected to be utilized prior to expiration. The Company continues to maintain a valuation allowance on the entirety of its U.S. capital loss
carryforwards 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.
|
9.
|
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,
2012, 5,577,684 shares of common stock were issuable upon the conversion or exercise of options, warrants and preferred stock. For the three months ended September 30, 2012 and 2011, there were 2,724,011 and 4,174,448 shares of common stock
equivalents, respectively, excluded from the computation of diluted earnings per share because their effect would have been antidilutive.
The
following summarizes the computations of basic and diluted earnings per common share for the three months ended September 30, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
576,000
|
|
|
$
|
402,000
|
|
|
Payment and/or accretion of preferred stock dividends
|
|
|
(28,000
|
)
|
|
|
(39,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders
|
|
$
|
548,000
|
|
|
$
|
363,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing basic net income per share:
|
|
|
53,821,435
|
|
|
|
51,921,676
|
|
|
Effect of dilutive securities
|
|
|
1,069,314
|
|
|
|
216,432
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted net income per share:
|
|
|
54,890,749
|
|
|
|
52,138,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share, basic
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share, diluted
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Preferred
Stock
At September 30, 2012, 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
11
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 September 30, 2012, 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 September 30, 2012, 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.
12
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, 2012 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. Segment Information
The Company’s 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
September 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
Singapore/
Malaysia
|
|
|
Australia
|
|
|
Total
|
|
|
Revenue-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
10,050,000
|
|
|
$
|
1,003,000
|
|
|
$
|
462,000
|
|
|
$
|
11,515,000
|
|
|
|
|
|
|
|
|
Service revenue
|
|
|
4,960,000
|
|
|
|
118,000
|
|
|
|
296,000
|
|
|
|
5,374,000
|
|
|
|
|
|
|
|
|
Commission revenue
|
|
|
4,342,000
|
|
|
|
54,000
|
|
|
|
316,000
|
|
|
|
4,712,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
19,352,000
|
|
|
|
1,175,000
|
|
|
|
1,074,000
|
|
|
|
21,601,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
6,194,000
|
|
|
|
817,000
|
|
|
|
320,000
|
|
|
|
7,331,000
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
3,445,000
|
|
|
|
79,000
|
|
|
|
171,000
|
|
|
|
3,695,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
9,639,000
|
|
|
|
896,000
|
|
|
|
491,000
|
|
|
|
11,026,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
9,713,000
|
|
|
|
279,000
|
|
|
|
583,000
|
|
|
|
10,575,000
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,810,000
|
|
|
|
313,000
|
|
|
|
508,000
|
|
|
|
9,631,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
|
|
903,000
|
|
|
|
(34,000
|
)
|
|
|
75,000
|
|
|
|
944,000
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(29,000
|
)
|
|
|
2,000
|
|
|
|
7,000
|
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
874,000
|
|
|
$
|
(32,000
|
)
|
|
$
|
82,000
|
|
|
$
|
924,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Three Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
|
|
|
Singapore/
Malaysia
|
|
|
Australia
|
|
|
Total
|
|
|
Revenue-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
11,297,000
|
|
|
$
|
781,000
|
|
|
$
|
1,199,000
|
|
|
$
|
13,277,000
|
|
|
|
|
|
|
|
|
Service revenue
|
|
|
4,348,000
|
|
|
|
194,000
|
|
|
|
260,000
|
|
|
|
4,802,000
|
|
|
|
|
|
|
|
|
Commission revenue
|
|
|
3,635,000
|
|
|
|
21,000
|
|
|
|
209,000
|
|
|
|
3,865,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
19,280,000
|
|
|
|
996,000
|
|
|
|
1,668,000
|
|
|
|
21,944,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
7,870,000
|
|
|
|
566,000
|
|
|
|
866,000
|
|
|
|
9,302,000
|
|
|
|
|
|
|
|
|
Cost of service revenue
|
|
|
2,879,000
|
|
|
|
122,000
|
|
|
|
131,000
|
|
|
|
3,132,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
|
10,749,000
|
|
|
|
688,000
|
|
|
|
997,000
|
|
|
|
12,434,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
8,531,000
|
|
|
|
308,000
|
|
|
|
671,000
|
|
|
|
9,510,000
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,224,000
|
|
|
|
242,000
|
|
|
|
448,000
|
|
|
|
8,914,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
307,000
|
|
|
|
66,000
|
|
|
|
223,000
|
|
|
|
596,000
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(131,000
|
)
|
|
|
(15,000
|
)
|
|
|
4,000
|
|
|
|
(142,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
176,000
|
|
|
$
|
51,000
|
|
|
$
|
227,000
|
|
|
$
|
454,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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.
Overview
Rand Worldwide is a leader in design, engineering, data archiving solutions, and facilities management technology
solutions with expertise in computer aided design (“CAD”) software, computational fluid dynamics (“CFD”), data management, facilities management, and process optimization for the manufacturing, engineering, and building design
industries. The Company specializes in software resale, technology consulting, implementation, integration, training, data archiving, 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. The Company is globally diversified with offices in the United States, Canada, Australia, Malaysia and Singapore. 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 and Autonomy. 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.
Product Sales-
Product sales consist primarily of the resale of packaged design software, including:
15
|
|
•
|
|
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 project-focused software implementations, training, consulting services, software development, software customization, data migration,
supplemental design staffing, drawing digitization, symbol library development, custom courseware development, technical support and hosted data archiving solutions to its customers. The Company employs a technical staff of over 100 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, 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 FASB Accounting Standards Codification (“ASC”) 605 (previously EITF
99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent)
.
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 incentive rebate from its primary supplier, Autodesk, paid monthly as a percentage of qualifying purchases. The rebate percentage is established based on quarterly purchasing volume. 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 Expense-
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
16
expenses for facilities, such as rent and utilities, are also included in selling, general and administrative expenses.
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.
Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011
The following tables set forth a comparison of the Company’s results of operations for the three-month periods ended
September 30, 2012 and September 30, 2011. 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,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
%
change
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
11,515,000
|
|
|
$
|
13,277,000
|
|
|
|
(13.3
|
)%
|
|
Service revenue
|
|
|
5,374,000
|
|
|
|
4,802,000
|
|
|
|
11.9
|
%
|
|
Commission revenue
|
|
|
4,712,000
|
|
|
|
3,865,000
|
|
|
|
21.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
21,601,000
|
|
|
$
|
21,944,000
|
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
. Total revenues for the three months ended September 30, 2012 decreased by $343,000,
or 1.6%, when compared to the same period in the prior fiscal year.
Product sales decreased $1,762,000, or 13.3% for the
three months ended September 30, 2012 when compared to the same period in the prior fiscal year. During the prior fiscal year, product sales included a single sale of $700,000 from the Company’s Australian operations. The Company was still
experiencing the effects of a shortfall in experienced sales professionals which resulted in decreased product sales during the current fiscal quarter.
Service revenues increased $572,000, or 11.9%, for the three months ended September 30, 2012 when compared with the same period in the prior fiscal year. The increase in service revenues included
$170,000 of revenues from the acquired CFD business, $117,000 in increased data archiving services, and $285,000 in increased training and consulting services. The Company has made progress in developing its Rand Secure Archive business and has also
expanded its sales team who are dedicated to selling our training offerings.
Commission revenues increased $847,000, or
21.9%, for the three months ended September 30, 2012 when compared with the same period in the prior fiscal year. The increased commission revenues were primarily due to a few key customers renewing their multi-year subscription contracts for
another three years during the current fiscal quarter.
17
Cost of Revenues and Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
%
change
|
|
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
$
|
7,331,000
|
|
|
$
|
9,302,000
|
|
|
|
(21.2
|
)%
|
|
Cost of service revenue
|
|
|
3,695,000
|
|
|
|
3,132,000
|
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenue
|
|
$
|
11,026,000
|
|
|
$
|
12,434,000
|
|
|
|
(11.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
$
|
10,575,000
|
|
|
$
|
9,510,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
. The total cost of revenue decreased $1,408,000, or 11.3%, for the three months
ended September 30, 2012 when compared to the same period in the prior fiscal year.
Cost of product sales decreased
21.2% during the three months ended September 30, 2012 when compared with the same period in the prior fiscal year, while product revenue decreased 13.3%. Cost of product sales decreased to a larger extent than did product revenues primarily
due to increased sales rebates from the Company’s principal supplier, Autodesk, which are applied to the cost of product sales. For its new fiscal year beginning February 1, 2012, Autodesk ended most of its target-based rebates and began a
new volume-based rebate which resulted in a larger rebate earned for the months following this change. Furthermore, sales of proprietary products such as Revit Clarity and licenses for ASCENT courseware titles increased nearly threefold over last
year, resulting in decreased product cost relative to product revenue as the development costs for such proprietary products was expensed when incurred.
Cost of service revenue increased 18.0% for the three months ended September 30, 2012 when compared to the same period in the prior fiscal year, while service revenues increased 11.9%. The Company
hired additional technical staff since the prior fiscal year resulting in increased cost of service revenue. Cost of service revenue as a percentage of related revenue increased to 68.8% during the three months ended September 30, 2011 from
65.2% during the same period in the prior fiscal year for the reasons explained above.
Gross margin
. The
Company’s overall gross margin percentage of 49.0% for the three months ended September 30, 2012 was higher than the 43.3% gross margin in the same period in the prior fiscal year due primarily to the decreased product costs.
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
%
change
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
9,198,000
|
|
|
$
|
8,518,000
|
|
|
|
8.0
|
%
|
|
Depreciation and amortization
|
|
|
433,000
|
|
|
|
396,000
|
|
|
|
9.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
$
|
9,631,000
|
|
|
$
|
8,914,000
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and Administrative Expense
. Selling, general and administrative expenses
increased 8.0% for the three months ended September 30, 2012 when compared to the same period in the prior fiscal year. Selling, general and administrative expense as a percent of total revenues was 42.6% for the three months ended
September 30, 2012, an increase from 38.8% for the same period in the prior fiscal year. The increase in these expenses was primarily the result of new employees including those related to our recent acquisitions of IDP and Inlet as well as our
expansion of the Rand Secure Archive team and our team dedicated to selling our training offerings.
Depreciation and
Amortization
. Depreciation and amortization expenses increased $37,000, or 9.3%, for the three months ended September 30, 2012 when compared to the same period in the prior fiscal year.
18
The increase was due primarily to the additional depreciation expense associated with hardware and software acquired for its data archiving division.
Other (Expense) Income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
%
change
|
|
|
Other expense, net
|
|
$
|
(20,000
|
)
|
|
$
|
(142,000
|
)
|
|
|
(85.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Expense) Income, net
. The Company incurred $20,000 in other expense, net, during the three
months ended September 30, 2012, compared to $142,000 during the same period in the prior fiscal year. The decrease is primarily due to having foreign exchange gains during the current fiscal year while having foreign exchange losses during the
prior fiscal year. Interest expense, when netted with foreign exchange gains and losses, resulted in net expense in both periods presented.
Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2012
|
|
|
2011
|
|
|
%
Change
|
|
|
Income tax expense
|
|
$
|
348,000
|
|
|
$
|
52,000
|
|
|
|
569.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax Expense
. The Company recorded $348,000 of income tax expense during the three
months ended September 30, 2012, compared to $52,000 in income tax expense recorded for the same period in the prior fiscal year. The Company’s effective tax rate was 38% during the three months ended September 30, 2012, compared
to 11% during the same period in the prior fiscal year.
In the prior year, the Company had a valuation allowance against its
net operating loss carryforwards, and was able to offset most of its income tax expense against its net operating loss carryforwards. During the quarter ended June 30, 2012, the Company recognized as an asset its US net operating loss
carryforwards that it expects will be realizable, and as a result, the Company’s income tax expense is no longer offset against large unrecognized US net operating loss carryforwards. Consequently income tax expense is significantly higher.
As of September 30, 2012, the Company had U.S. federal net operating loss carryforwards available to reduce future
taxable income of approximately $38.0 million, however, $25.3 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. These carryforwards expire between 2013 and 2029. In addition, as of September 30, 2012, the Company had foreign net operating loss carryforwards of approximately $19.6 million available to reduce future taxable income, and net
deferred tax assets of $6.8 million. The carryforwards expire between 2012 and 2029 for some jurisdictions and, for other jurisdictions, the losses may be carried forward indefinitely. The Company maintains a valuation allowance on the entire amount
of its foreign deferred tax assets due to insufficient history of profitable operations.
The Company’s Canadian
subsidiary, 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.
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
19
Association. The interest rate is the “Eurodollar Rate”, which is calculated by using the LIBOR rate, plus a margin of 2.0%. The interest rate as of September 30, 2012 was 2.2%.
The Company had outstanding borrowings from the bank under its credit line of approximately $2.4 million as of September 30, 2012 and had $3.1 million outstanding as of June 30, 2012. The line expires on February 28, 2014.
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.
For the three months ended September 30, 2012, net cash provided by operating
activities was $2,559,000, compared with net cash provided by operating activities of $1,099,000 during the three months ended September 30, 2011. The increase in cash provided by operating activities from the three months ended
September 30, 2012 when compared to the three months ended September 30, 2011 was due mainly to increased collections of accounts receivable, decreased payouts of accrued compensation and increased profitability of the Company, with some
offsetting changes such as increased deferred revenues resulting from the expanded Rand Secure Archive services.
The
Company’s investing activities consist principally of investments in computer and office equipment. In July 2012, the Company acquired Informative Design Partners for $600,000 in cash, $400,000 in stock and potential future earnout payments.
Compared to the same period in the prior fiscal year, cash purchases of equipment for the three months ended September 30, 2012 increased to $702,000 from $131,000 mainly as the result of purchases of software and hardware for the Rand Secure
Archive business and, to a lesser degree, normal periodic replacement of computer equipment.
For the three months ended
September 30, 2012, net cash used in financing activities was $804,000 compared to $776,000 for the three months ended September 30, 2011.
The Company had a working capital surplus of 3,196,000 as of September 30, 2012.
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.
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 September 30, 2012:
|
|
|
|
|
|
|
Twelve months ending September 30:
|
|
|
|
|
|
2013
|
|
$
|
2,562,000
|
|
|
2014
|
|
|
2,144,000
|
|
|
2015
|
|
|
1,776,000
|
|
|
2016
|
|
|
1,077,000
|
|
|
2017
|
|
|
650,000
|
|
|
Thereafter
|
|
|
502,000
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
8,711,000
|
|
|
|
|
|
|
|
Capital Leases
20
The Company has various computer equipment used in training facilities and by employees
throughout its office locations. These capital lease obligations totaled $833,000 as of September 30, 2012 with approximately $292,000 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 September 2016 and depreciation expense on this equipment was approximately $62,000 as of September 30, 2012. Future minimum payments consisted of
the following at September 30, 2012:
|
|
|
|
|
|
|
Twelve months ending September 30:
|
|
|
|
|
|
2013
|
|
$
|
346,000
|
|
|
2014
|
|
|
331,000
|
|
|
2015
|
|
|
161,000
|
|
|
2016
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
963,000
|
|
|
Less:
|
|
|
|
|
|
Taxes
|
|
|
47,000
|
|
|
Imputed interest
|
|
|
83,000
|
|
|
|
|
|
|
|
|
Present value of future minimum lease payments
|
|
$
|
833,000
|
|
|
|
|
|
|
|
|
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 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, 2012 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
21
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
On July 31, 2012, the Company issued 497,512 shares of its common stock to Informative Design Partners as part of the purchase price of certain assets acquired from them. The aggregate consideration
received by the Company for these shares was $400,000, or $.804 per share. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.
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.
22
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, 2012
|
|
|
|
By:
|
|
/s/ Marc L. Dulude
|
|
|
|
|
|
Marc L. Dulude
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
Date: November 14, 2012
|
|
|
|
By:
|
|
/s/ Lawrence Rychlak
|
|
|
|
|
|
Lawrence Rychlak
|
|
|
|
|
|
President and Chief Financial Officer
|
|
|
|
|
|
(Principal Financial and Accounting Officer)
|
23
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.
††
|
24
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