INDEX TO RAND WORLDWIDE INC. AND SUBSIDIARIES FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm			F-1
Consolidated Balance Sheets as of October 31, 2008 and 2009 and June 30, 2010			F-2
Consolidated Statements of Operations for the years ended October 31, 2008 and 2009 and the eight months ended June 30, 2010			F-3
Consolidated Statements of Redeemable Preferred Stock and Shareholders’ Deficit for the years ended October 31, 2008 and 2009 and eight months ended June 30, 2010			F-4
Consolidated Statements of Cash Flows for the years ended October 31, 2008 and 2009 and the eight months ended June 30, 2010			F-5
Notes to Consolidated Financial Statements			F-6

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Rand Worldwide, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, redeemable preferred stock and shareholders’ deficit, and cash flows present fairly, in all material respects, the financial position of Rand Worldwide, Inc. and its subsidiaries at June 30, 2010, October 31, 2009 and 2008 and the results of their operations and their cash flows for the eight months ended June 30, 2010 and the years ended October 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

November 15, 2010, except with respect to our opinion on the consolidated financial statements insofar as it relates to the segment information in Note 20, as to which the date is March 24, 2011.

Rand Worldwide, Inc.

										As of
(Amounts in thousands, except share data)		As of October 31,								June 30,
		2008				2009				2010
Assets
Current assets
Cash and cash equivalents		$	4,736			$	1,168			$	1,198
Accounts receivable, net of allowance for doubtful accounts of $363, $215 and $390, at October 31, 2008, 2009 and June 30, 2010, respectively			12,141				10,358				8,203
Accounts receivable from related parties (Note 10)			1,209				627				-
Other receivables			249				318				433
Inventory			658				106				152
Prepaid expenses and other current assets			1,295				1,129				1,030
Total current assets			20,288				13,706				11,016
Property and equipment, net (Note 6)			1,727				1,364				1,823
Acquired intangible assets (Note 4)			3,200				2,207				1,638
Goodwill (Note 5)			7,023				7,201				7,232
Other long-term assets			136				441				406
Total assets		$	32,374			$	24,919			$	22,115
Liabilities, Redeemable Preferred Stock and Shareholders’ Deficit
Current liabilities
Revolving line of credit (Note 11)		$	-			$	4,026			$	3,325
Accounts payable			6,578				5,828				6,307
Accrued liabilities (Note 7)			5,392				3,416				3,684
Income taxes payable (Note 9)			588				381				34
Customer advance payments			175				63				103
Deferred revenue			4,696				3,391				2,479
Due to related parties, current portion (Note 10)			7,046				3,540				6,576
Capital lease obligations, current portion			45				50				55
Total current liabilities			24,520				20,695				22,563
Due to related parties, net of debt discount of $215, $162 and $126, at October 31, 2008, 2009 and June 30, 2010, respectively (Note 10)			8,815				8,066				6,061
Capital lease obligations			70				74				35
Other long-term liabilities			233				160				114
Total liabilities			33,638				28,995				28,773
Commitments and contingencies (Note 12)
Series A redeemable preferred stock, $0.001 par value;
31,858,922 shares authorized; 31,000,000 shares issued and outstanding; liquidation preference of $33,480, $36,158 and $38,086, at October 31, 2008, 2009 and June 30, 2010, respectively			33,480				36,158				38,086
Shareholders’ deficit
Common stock, $0.001 par value; 11,010,000 shares authorized; 9,500,000 shares issued and outstanding at October 31, 2008, 2009 and June 30, 2010, respectively			10				10				10
Accumulated deficit			(34,880	)			(40,879	)			(45,528	)
Accumulated other comprehensive income			126				635				774
Total shareholders’ deficit			(34,744	)			(40,234	)			(44,744	)
Total liabilities, redeemable preferred stock and shareholders’ deficit		$	32,374			$	24,919			$	22,115

The accompanying notes are an integral part of these consolidated financial statements.

Rand Worldwide, Inc.

(Amounts in thousands, except per share data)

										Eight
										months
		Year ended								ended
		October 31,								June 30,
		2008				2009				2010
Revenue
Product sales		$	44,385			$	25,522			$	16,869
Service revenue			21,700				16,236				10,055
Commission revenue			13,083				11,505				5,786
Total revenue			79,168				53,263				32,710
Cost of revenue
Product sales			30,653				17,199				11,199
Service revenue			19,832				13,802				7,592
Total cost of revenue			50,485				31,001				18,791
Gross profit			28,683				22,262				13,919
Operating expenses
Selling, general and administrative			28,915				22,942				15,529
Depreciation and amortization			6,205				1,333				733
Restructuring charges (Note 8)			1,166				1,740				665
Impairment of acquired intangible assets (Note 4)			11,914				-				-
Impairment of goodwill (Note 5)			9,235				-				-
Total operating expenses			57,435				26,015				16,927
Loss from operations			(28,752	)			(3,753	)			(3,008	)
Other expenses (income)
Interest expense			1,409				2,049				1,260
Currency exchange losses (gains)			(227	)			(40	)			51
Other expense (income)			40				-				(1,600	)
Loss from continuing operations before income taxes			(29,974	)			(5,762	)			(2,719	)
Income tax expense (benefit)			95				(348	)			35
Loss from continuing operations			(30,069	)			(5,414	)			(2,754	)
Loss from discontinued operations, net of tax of $83, $0 and $0, respectively (Note 17)			(920	)			(860	)			-
Gain (loss) on sale or disposition of discontinued operations, net   of tax of $0, $380 and $0, respectively (Note 17)			(1,342	)			2,914				-
Net loss		$	(32,331	)		$	(3,360	)		$	(2,754	)
Net loss from continuing operations		$	(30,069	)		$	(5,414	)		$	(2,754	)
Accretion of dividends and issuance costs on Series A Preferred Stock			(2,667	)			(2,678	)			(1,928	)
Net loss from continuing operations available to common stock holders		$	(32,736	)		$	(8,092	)		$	(4,682	)
Basic and diluted net loss per common share from continuing operations		$	(3.52	)		$	(0.85	)		$	(0.49	)
Basic and diluted net income (loss) per common share from discontinued operations			(0.24	)			0.22				-
Basic and diluted net loss per common share		$	(3.76	)		$	(0.63	)		$	(0.49	)
Diluted net loss per common share from continuing operations		$	(3.52	)		$	(0.85	)		$	(0.49	)
Diluted net loss per common share from discontinued operations			(0.24	)			0.22				-
Diluted net loss per common share		$	(3.76	)		$	(0.63	)		$	(0.49	)
Weighted average shares used in computing losses per common share:
Basic			9,313				9,500				9,500
Diluted			9,313				9,500				9,500

The accompanying notes are an integral part of these consolidated financial statements.

     

Rand Worldwide, Inc.

(Amounts in thousands, except share data)
																							Accumulated
		Series A																					Other
		Redeemable Preferred																	Additional				Compre-								Total				Compre-
		Stock									Common Stock								Paid-in				hensive				Accumulated				Shareholders’				hensive
		Shares				Amount					Shares				Par value				Capital				Income				Deficit				Deficit				Loss
Balance at October 31, 2007			31,000,000			$	30,813					8,500,000			$	9			$	-			$	-			$	(9	)		$	-
Issuance of fully vested common stock to consultants and others												1,000,000				1				121												122
Share-based compensation for awards granted to employees																				6												6
Accretion of dividends and issuance costs on Series A preferred stock							2,667													(127	)							(2,540	)			(2,667	)
Comprehensive loss:
Net loss																												(32,331	)			(32,331	)		$	(32,331	)
Foreign currency translation adjustment																								126								126				126
Comprehensive loss																																			$	(32,205	)
Balance at October 31, 2008			31,000,000				33,480					9,500,000				10				-				126				(34,880	)			(34,744	)
Share-based compensation for awards granted to employees																				39												39
Accretion of dividends on Series A preferred stock							2,678													(39	)							(2,639	)			(2,678	)
Comprehensive loss:
Net loss																												(3,360	)			(3,360	)		$	(3,360	)
Foreign currency translation adjustment																								509								509				509
Comprehensive loss																																			$	(2,851	)
Balance at October 31, 2009			31,000,000				36,158					9,500,000				10				-				635				(40,879	)			(40,234	)
Share-based compensation for awards granted to employees																				33												33
Accretion of dividends on Series A preferred stock							1,928													(33	)							(1,895	)			(1,928	)
Comprehensive loss:
Net loss																												(2,754	)			(2,754	)		$	(2,754	)
Foreign currency translation adjustment																								139								139				139
Comprehensive loss																																			$	(2,615	)
Balance at June 30, 2010			31,000,000			$	38,086					9,500,000			$	10			$	-			$	774			$	(45,528	)		$	(44,744	)

The accompanying notes are an integral part of these consolidated financial statements.

Rand Worldwide, Inc.

										Eight months
		Years Ended October 31,								ended June 30,
(Amounts in thousands)		2008				2009				2010
Cash flows from operating activities
Net loss		$	(32,331	)		$	(3,360	)		$	(2,754	)
Loss from discontinued operations			(920	)			(860	)			-
Gain (loss) on sale or disposition of discontinued operations			(1,342	)			2,914				-
Loss from continuing operations			(30,069	)			(5,414	)			(2,754	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities
Amortization of acquired intangible assets			5,310				993				569
Depreciation of property and equipment			1,336				781				457
Impairment of acquired intangible assets and goodwill			21,149				-				-
Share-based compensation			128				39				33
Provision for doubtful accounts			92				14				238
Non-cash portion of restructuring charge			161				-				-
Loss on dispostion of equity-method investments			40				-				-
Gain on sale of investment			-				-				(1,600	)
Changes in operating assets and liabilities, net of acquisition and divestitures
Accounts receivable, including amounts due from related parties			826				1,648				2,475
Inventory			1,369				558				(88	)
Prepaid expenses, other receivables and other assets			26				(470	)			245
Accounts payable, accrued and other liabilities			(3,681	)			(3,892	)			558
Income taxes payable			20				(208	)			(348	)
Due to related parties			817				(104	)			1,020
Deferred revenue and customer advance payments			2,973				(743	)			(842	)
Net cash provided by (used in) operating activities of continuing operations			497				(6,798	)			(37	)
Net cash used in operating activities of discontinued operations			(686	)			(854	)			-
Net cash used in operating activities			(189	)			(7,652	)			(37	)
Loss from continuing operations before income taxes
Acquisition of Rand A Technology Corporation, net of cash acquired			(38,543	)			-				-
Purchases of property and equipment			(711	)			(498	)			(902	)
Proceeds from sale of investment			-				-				1,600
Net cash used in investing activities of continuing operations			(39,254	)			(498	)			698
Net cash provided by (used in) investing activities of discontinued operations			(184	)			2,902				-
Net cash provided by (used in) investing activities			(39,438	)			2,404				698
Cash flows from financing activities
Proceeds from issuance of preferred stock			31,000				-				-
Proceeds from issuance of common stock			1				-				-
Proceeds from revolving line of credit			-				16,967				31,549
Repayments on revolving line of credit			-				(12,941	)			(32,250	)
Proceeds from issuance of notes to related party			17,118				2,000				-
Repayment of notes to related party			(3,336	)			(4,653	)			-
Increase in (repayment of) obligations under capital leases			(10	)			24				(40	)
Net cash provided by (used in) financing activities of continuing operations			44,773				1,397				(741	)
Net cash provided by financing activities of discontinued operations			404				-				-
Net cash provided by (used in) financing activities			45,177				1,397				(741	)
Effect of exchange rate changes on cash from continuing operations			(1,028	)			267				110
Effect of exchange rate changes on cash from discontinued operations			214				16				-
Weighted average shares used in computing losses per common share:			4,988				(5,632	)			30
Net cash provided by (used in) used in discontinued operations			(252	)			2,064				-
Net increase (decrease) in cash and cash equivalents			4,736				(3,568	)			30
Cash and cash equivalents, beginning of period			-				4,736				1,168
Cash and cash equivalents, end of period		$	4,736			$	1,168			$	1,198
Supplemental disclosures of cash flow information
Interest paid		$	50			$	2,316			$	240
Income taxes paid		$	297			$	208			$	357
Non-cash investing and financing activities
Property and equipment acquired under capital leases		$	155			$	13			$	-
Accretion of dividends on redeemable preferred stock		$	2,480			$	2,678			$	1,928
Accretion of issuance cost on redeemable preferred stock		$	187			$	-			$	-

The accompanying notes are an integral part of these consolidated financial statements.

Rand Worldwide, Inc.

1.		Nature of Business and Basis of Presentation
		Nature of the Business
		Rand Worldwide, Inc. (collectively with its subsidiaries referred to as the “Company”) is a leading provider of design automation solutions to various manufacturing and engineering industries. The Company also specializes in providing value-added services, such as technical support, training, and consulting aimed at improving the design efficiencies of its customers. These solutions and services enable the Company’s customers to enhance their productivity, profitability and overall competitive position.
		The Company is organized into two divisions: the IMAGINiT division (“IMAGINiT”) and the Rand Professional Services division (“RPS”). The IMAGINiT division is the largest licensed value-added reseller of Autodesk, Inc. (“Autodesk”) products in North America, providing Autodesk solutions and value-added services to customers in the manufacturing, infrastructure, building, and media and entertainment industries. RPS is a reseller of product lifecycle management (“PLM”) products and a provider of services related to solutions sold by Dassault Systèmes S.A. (“Dassault”), Autonomy PLC. (“Autonomy”) and other software vendors. RPS also sells its own proprietary software products and related services, enhancing its total client solution offerings.
		Formation of Rand Worldwide, Inc.
		The Company, a corporation registered in the state of Delaware, was formed in August 2007 and was later capitalized on October 31, 2007 and November 1, 2007 with an aggregate investment of $44.5 million by certain limited partnerships of a domestic private investment firm (collectively the “Stockholder”) in exchange for preferred stock with a purchase price of $31.0 million less cost of issuance of $187,000 and notes with a $13.5 million principal amount (Notes 10 and 13). Immediately thereafter, the Company acquired all of the outstanding shares of Rand A Technology Corporation, a publicly traded Canadian corporation, for $44.5 million (Note 3). That business combination created a new basis of accounting for Rand A Technology, which has been reflected as of November 1, 2007 in these consolidated financial statements.
		Recapitalization and Merger
		On August 17, 2010, the Company was acquired by Avatech Solutions, Inc. (“Avatech”) in a reverse merger transaction (the “Merger”).
		Immediately prior to the Merger, the Company was recapitalized. The holders of the common stock, redeemable preferred stock and term notes of the Company exchanged their respective securities for a commensurate number of membership interests in RWWI Holdings LLC (“RWWI”), formerly a subsidiary of the Company. Simultaneously, the Company merged with a subsidiary of RWWI, with the Company being the surviving entity and RWWI being the sole stockholder of the Company. Immediately following, RWWI caused the Company to merge with a subsidiary of Avatech with the Company again being the surviving entity as a subsidiary of Avatech.
		In consideration for the Merger, RWWI received shares of Avatech common stock representing approximately 66.1% of the outstanding shares of Avatech common stock and Avatech’s stockholders retained approximately 33.9% of the outstanding shares of Avatech common stock. When calculated based on the number of shares of Avatech common stock outstanding on a fully diluted basis, the common stock issued to RWWI is equal to approximately 59.3% of the total common equivalent shares as of the date of the Merger. As RWWI acquired more than 50% of the outstanding shares of Avatech common stock, RWWI was deemed, for accounting and SEC reporting purposes to be the continuing reporting entity. As such, the historical financial results of the merged entity will reflect those of RWWI, which are, in substance, those of the Company.

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		As a result of all such transactions: the Company’s common stock, its redeemable preferred stock and its term notes are no longer outstanding. The Company has no remaining financial obligations pursuant to these items, including the cumulative dividends related to its formerly outstanding redeemable preferred stock and the unpaid interest related to its formerly outstanding term notes. The operations of the Company continue as a subsidiary of Avatech and RWWI is a controlling shareholder of Avatech but not part of the ongoing Avatech consolidated reporting entity.
		Basis of Presentation
		Effective with the Merger, the Company elected to change its fiscal year end from October 31 to June 30. References to 2008 and 2009 mean the twelve month periods ended October 31, 2008 and 2009, respectively. References to 2010 mean the eight-month period ended June 30, 2010.
		On February 12, 2008, the Company affected a 10,000-for-1 stock split of its shares of common stock. All references in these consolidated financial statements to shares of common stock have been retroactively adjusted to reflect this stock split.
		The accompanying financial statements have been prepared on a basis that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company’s long-term viability is dependent on its ability to generate sufficient product revenue, net income and cash flows from operations to support its business as well as its ability to obtain additional financing, if needed. The Company has a working capital deficit as of June 30, 2010 and, for its liquidity, relies on a bank revolving credit facility that expires on August 13, 2012 (Note 11). As of September 30, 2010, borrowings against the facility were $3.2 million, with permitted additional borrowings of $2.6 million. In conjunction with its merger with Avatech, the Company is negotiating a revised credit facility with the same bank. Management believes that the Company’s existing cash together with cash generated from future operations and borrowings available under the current or revised revolving credit facility will be sufficient to meet its working capital and capital expenditure requirements through at least June 30, 2011.
		Certain prior period balances have been reclassified to conform to the current period presentation.
2.		Summary of Significant Accounting Policies
		Principles of Consolidation
		The consolidated financial statements include the accounts of the Company and its subsidiaries, including those in Canada, Australia, Singapore and Malaysia. All significant intercompany accounts and transactions have been eliminated.
		Discontinued Operations
		During 2008 and 2009, the Company restructured certain of its operations, which included the sale or closure of several subsidiaries. The Company determined these disposed subsidiaries to be discontinued operations under the provisions of Accounting Standards Codification (“ASC”) No. 360-10, Accounting for the Impairment or Disposal of Long-lived Assets. In accordance with ASC No. 360-10, the Company has determined that its subsidiaries are the lowest level for which the results of operations and cash flows can be clearly distinguished. Any gain or loss resulting from disposal of a subsidiary, together with the results of its operations up to the date of disposal, is reported separately as a discontinued operation. The financial information of a discontinued operation is excluded from the respective captions in the consolidated financial statements and related notes and is reported separately.

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		Use of Estimates
		The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and judgments that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates these estimates and judgments, including those related to revenue recognition, the valuation of accounts receivable and inventory, the useful lives and realizability of intangible assets and goodwill, contingencies, the fair value of share-based compensation and income taxes. The Company bases these estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from the Company’s estimates.
		Revenue Recognition
		The Company generates revenue from three principal sources: (i) license fees for packaged software products; (ii) service fees from installation, training and consulting engagements, telephone support contracts, and maintenance and support contracts; and (iii) commission fees from the resale of Autodesk software support agreements and from the referral of customers to Autodesk.
		Product Sales
		For revenue derived from license fees for packaged software products, the Company follows ASC 985-605 Software-Revenue Recognition and ASC 605-10 Revenue Recognition. The Company recognizes revenue from the sale of software licenses and training materials upon shipment of the products, provided that evidence of the arrangement exists, the arrangement fee is fixed or determinable, and collection of the related receivable is probable and free of contingencies.
		Service Revenue
		Revenue from installation, training and consulting services is recognized upon completion of the requested service, which typically occurs within ninety days of receipt of an order. Revenue from telephone support contracts and maintenance and support contracts is recognized ratably over the contract period, which is typically twelve months. Maintenance and support services typically include only telephone and internet-based support, but in limited circumstances include software updates, when and if available, provided by the vendor of the software. Installation and consulting services provided by the Company are not considered essential to the functionality of any software products sold as those services do not alter the functionality or capabilities of the product and could be performed by customers or other vendors.

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		Commission Revenue
		Fees earned from the resale of Autodesk’s software support agreements are reported as commission revenue and presented net of their related costs. For these transactions, the Company considers Autodesk to be the primary obligor in the arrangement as Autodesk has the responsibility of providing the end-customer all the deliverables under the contract, including software upgrades and various support services. As a result, the Company assumes an agency relationship in these transactions, and recognizes the net fee associated with serving as an agent in revenue.
		Commissions revenue also includes referral fees paid by Autodesk for certain types of customer transactions, determined based on specified percentages of the amount billed by Autodesk to the referred customer. These referral fees are recorded as revenue in the period earned, based on reporting by Autodesk.
		Multiple-Element Arrangements
		The Company’s arrangements with its customers typically involve the sale of one or more products and services at the same time. The Company considers these to be multiple elements of a single arrangement. The Company uses the residual method to recognize revenues from such arrangements with one or more elements that are to be delivered at a future date, provided that evidence of the fair value of all undelivered elements exists. Under the residual method, the fair value of the undelivered elements, such as installation and software support services, is deferred at date of product shipment and the remaining portion of the total arrangement fee is recognized as revenue. The Company determines vendor-specific objective evidence (“VSOE”) of the fair value of undelivered services based on the prices that are charged when the same element is sold separately to customers. If the fair value of each undelivered element in a multiple-element arrangement cannot be determined based on VSOE, all revenue under the arrangement is deferred until those undelivered elements are later delivered or until such time as the only remaining undelivered element is software support, at which time total revenue is recognized ratably over the remaining software support period.
		Fixed or Determinable Fee
		Management assesses whether the total fee payable to the Company for the order is fixed or determinable and free of contingencies at the time of delivery. Management considers the payment terms of the transaction, including whether the terms are extended, and its collection experience in similar transactions that did not require concessions, among other factors. If the total consideration payable to the Company is not fixed or determinable, revenue is recognized only as payments become due from the customer, provided that all other revenue recognition criteria are met.
		Customer Acceptance Criteria
		If an arrangement includes customer acceptance criteria, the Company defers all revenue from the arrangement until acceptance is received or the acceptance period has lapsed, unless those acceptance criteria only require that the product perform in accordance with the software vendor’s standard published product specifications. If a customer’s obligation to pay the Company is contingent upon a future event, such as installation or acceptance, the Company defers all revenue from the arrangement until that event has occurred.

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		Deferred Revenue
		Deferred product revenue is comprised of amounts that have been invoiced to customers upon delivery of a product, but are not yet recognizable as revenue because one or more of the conditions required for revenue recognition have not yet been met. Deferred service revenue represents amounts invoiced to customers for telephone support contracts or maintenance and support contracts, which are recognized ratably as revenue over the term of the arrangements, or for installation or training services that have not yet been provided.
		Product Returns
		The Company’s arrangements with customers do not contain any rights of product return, other than those related to standard warranty provisions that permit replacement of defective goods. As of October 31, 2008 and 2009 and June 30, 2010, the Company had no reserve recorded for product returns because such returns have been insignificant.
		Shipping and Handling Fees
		The Company records as revenue any amounts billed to customers for shipping and handling costs and records as cost of revenue its actual shipping costs incurred.
		Cost of Revenue
		Cost of product revenue consists of the cost of purchasing products from software suppliers as well as any associated shipping and handling costs. Cost of service revenue includes the direct costs and personnel costs associated with the implementation of software solutions as well as training, support services, and consulting services provided to customers. These costs include employee compensation, travel, printed materials, and the costs of third-party contractors engaged by the Company.
		Earnings Per Common Share
		Basic earnings per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted earnings per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding and, when dilutive, all potential common equivalent shares outstanding including options and unvested restricted stock. The dilutive effect of options and unvested restricted stock to purchase common stock is determined under the treasury stock method using the average fair value of common stock for the period.
		Cash, Cash Equivalents and Investments
		The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, if any, which approximates their fair value. At October 31, 2008 and 2009 and June 30, 2010, the Company’s holdings of cash equivalents were not material. In addition, as of that date, the Company had no amounts classified as short-term or long-term investments.
		Concentrations of Credit Risk
		Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company provides credit to customers in the ordinary course of business. The Company performs ongoing evaluations of its customers for potential credit losses, and management believes its credit policies are prudent and reflect industry practices and business risk. The Company does not invest any of its excess cash. Accordingly, the Company believes that its financial instruments are not subject to any material credit or market risk.
		Fair Value of Financial Instruments
		The carrying values of the Company’s financial instruments, including cash equivalents, accounts receivable,

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		and accounts payable, approximate their fair values due to their short-term maturities. In addition, the carrying value of the Company’s related-party notes approximates their fair values because borrowing costs currently available to the Company approximate those reflected in the related-party debt.
		Inventory
		Inventory consists of packaged computer software and is stated at the lower of cost or market value. Cost is determined by the first-in, first-out method, and market value represents the lower of replacement cost or estimated net realizable value
		Property and Equipment
		Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related asset. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is credited or charged to operations. Repairs and maintenance costs are expensed as incurred.
		Business Combinations
		The Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed as well as to in-process research and development based upon their estimated fair values at the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially at acquisition date with respect to intangible assets, software support obligations assumed, estimated restructuring liabilities and pre-acquisition contingencies.
		Although the Company believes the assumptions and estimates that have been made in the past are reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates used in valuing certain of the intangible assets the Company has acquired or may acquire in the future include but are not limited to (i) future expected cash flows from software license sales, support agreements, consulting contracts, other customer contracts and acquired developed technology; (ii) expected costs to develop in-process research and development projects into commercially viable products and the estimated cash flows from the projects; (iii) the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to be used in the combined company’s product portfolio; and (iv) discount rates used to determine the present value of expected future cash flows. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.
		In connection with the purchase price allocations for the Company’s acquisitions, management estimates the fair market value of legal performance commitments to customers, which are classified as deferred revenue.
		For a given acquisition, the Company may identify certain pre-acquisition contingencies. If, during the purchase price allocation period, the Company is able to determine the fair value of a pre-acquisition contingency, this amount will be included in the purchase price allocation. If, as of the end of the purchase price allocation period, the Company is unable to determine the fair value of a pre-acquisition contingency, evaluation will be made whether to include an amount in the purchase price allocation based on whether it is probable that a liability had been incurred and whether an amount can be reasonably estimated. After the end of the purchase price allocation period, any adjustment to amounts recorded for a pre-acquisition contingency will be included in the Company’s operating results in the period in which the adjustment is determined.

Rand Worldwide, Inc.
Notes to Consolidated Financial Statements

		Goodwill and Other Intangible Assets
		The Company accounts for its goodwill and intangible assets in accordance with ASC No. 350-30, Goodwill and Other Intangible Assets (ASC No. 350-30). Goodwill is assessed for impairment at least annually as of October 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. Such events or conditions could include an economic downturn in the industries to which the Company provides products and services; increased competition; an increase in operating or other costs; or the pace of technological improvements. When the Company determines that the carrying value of goodwill may not be recoverable based upon one or more of these indicators of impairment, the Company initially assesses any impairment using fair value measurements based on projected discounted cash flow valuation models. If the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess.
		Intangible assets other than goodwill are amortized over their estimated useful economic lives and are carried at cost less accumulated amortization. In accordance with ASC No. 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the long-lived assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Factors that could lead to an impairment of acquired customer relationships include a worsening in customer attrition rates compared to historical attrition rates, or lower than initially anticipated cash flows associated with customer relationships. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. The cash flow estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.
		Research and Development and Software Development Costs
		Costs incurred in the research and development of the Company’s products are expensed as incurred, except for certain software development costs. Costs associated with the development of computer software to be licensed to customers are expensed prior to establishment of technological feasibility and are capitalized thereafter until the product is available for general release to customers. No software development costs have been capitalized to date since costs incurred between the establishment of technological feasibility and the available-for-sale date of the software have been immaterial.
		Accounting for Share-Based Compensation
		The Company applies ASC No. 718-10, Share-Based Payment, which requires companies to measure the cost of share-based awards to employees based on the grant-date fair value of the award using an option pricing model, and to recognize that cost over the period during which an employee is required to provide service in exchange for the award. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted to employees and recognizes the compensation cost of employee share-based awards in its statement of operations using the straight-line method over the vesting period of the award, net of estimated forfeitures.
		The use of the Black-Scholes option pricing model to estimate the fair value of share-based awards requires that the Company make certain assumptions and estimates for required inputs to the model, including (i) the fair value of the Company’s common stock at each grant date, (ii) the expected volatility of the Company’s common stock value based on industry comparisons, (iii) the expected life of the share-based award, (iv) the risk-free interest rate, and (v) the dividend yield, which were considered as follows:

		Imaginit				RPS
		reporting				reporting
		unit				unit				Total
Goodwill balance at October 31, 2007, gross		$	-			$	-			$	-
Acquisition of Rand A Technology			12,280				4,359				16,639
Impairment charge			(4,876	)			(4,359	)			(9,235	)
Currency translation effects			(381	)			-				(381	)
Goodwill balance at October 31, 2008, net		$	7,023			$	-			$	7,023
Goodwill balance at October 31, 2008, gross		$	12,280			$	4,359			$	16,639
Accumulated impairment			(4,876	)			(4,359	)			(9,235	)
Currency translation effects			(203	)			-				(203	)
Goodwill balance at October 31, 2009, net		$	7,201			$	-			$	7,201
Goodwill balance at October 31, 2009, gross		$	12,280			$	4,359			$	16,639
Accumulated impairment			(4,876	)			(4,359	)			(9,235	)
Currency translation effects			(172	)			-				(172	)
Goodwill balance at June 30, 2010, net		$	7,232			$	-			$	7,232

		Estimated
		Useful Life				As of October 31,								As of June 30,
		(Years)				2008				2009				2010
Computer and office equipment			3 to 5			$	2,610			$	2,964			$	3,623
Furniture and fixtures			10				269				344				425
Motor vehicles			3				5				5				5
Leasehold improvements			2 to 5				212				201				380
							3,096				3,514				4,433
Less accumulated depreciation and amortization							(1,369	)			(2,150	)			(2,610	)
						$	1,727			$	1,364			$	1,823

Depreciation and amortization expense for both continuing and discontinuing operations in 2008, 2009 and the eight-month period ended June 30, 2010 was $1.3 million, $781,000 and $457,000 respectively. For 2008, 2009 and the eight-month period ended June 30, 2010 the net book value of assets under capital lease obligations was $115,000, $66,000 and $90,000 respectively.

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