##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2011

OR



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

Commission file number: 001-31265





Rand
Worldwide, Inc.

(Exact Name of Registrant as Specified in its Charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Delaware                                                       |  | 84-1035353                       
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (IRS Employer Identification No.)



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

(508)
663-1400

(Registrants telephone number, including area code)

Not Applicable

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





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

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

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



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

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

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









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##### Table of Contents

RAND WORLDWIDE, INC. AND SUBSIDIARIES

INDEX



|              |  |                                                                                                |  |      |  | 
|------------- |  | ---------------------------------------------------------------------------------------------- |  | ---- |  | 
|              |  |                                                                                                |  | Page | 
|              |  |                                                                                               
|PART I        |  | FINANCIAL INFORMATION                                                                          |  |      |  | 
|              |  |                                                                                               
|ITEM 1.       |  | Financial Statements                                                                           |  |      |  | 
|              |  |                                                                                               
|              |  | Consolidated Balance Sheets  March 31, 2011 and June 30, 2010 (Unaudited)                     |  |      |  | 
|              |  |                                                                                               
|              |  | Consolidated Statements of Operations  Three months ended March 31, 2011 and 2010 (Unaudited) |  |      |  | 
|              |  |                                                                                               
|              |  | Consolidated Statements of Operations  Nine months ended March 31, 2011 and 2010 (Unaudited)  |  |      |  | 
|              |  |                                                                                               
|              |  | Consolidated Statement of Stockholders Equity  Nine months ended March 31, 2011 (Unaudited)  |  |      |  | 
|              |  |                                                                                               
|              |  | Consolidated Statements of Cash Flows  Nine months ended March 31, 2011 and 2010 (Unaudited)  |  |      |  | 
|              |  |                                                                                               
|              |  | Notes to Consolidated Financial Statements (Unaudited)                                         |  |      |  | 
|              |  |                                                                                               
|ITEM 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  |      |  | 
|              |  |                                                                                               
|ITEM 4.       |  | Controls and Procedures                                                                        |  |      |  | 
|              |  |                                                                                               
|PART II       |  | OTHER INFORMATION                                                                              |  |      |  | 
|              |  |                                                                                               
|ITEM 6.       |  | Exhibits                                                                                       |  |      |  | 
|              |  |                                                                                               
|SIGNATURES    |  |                                                                                                |  |      |  | 
|              |  |                                                                                               
|EXHIBIT INDEX |  |                                                                                                |  |      |  | 



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets

(unaudited)



|                                                                                                                     |  |               |            |  |              |   |            | 
|-------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- |  | ------------ | - | ---------- | 
|                                                                                                                     |  | March 31,2011 |            |  | June 30,2010 |  
|                                                                                                                     |  |              
|Assets                                                                                                               |  |               |            |  |              |   |            | 
|Current assets:                                                                                                      |  |               |            |  |              |   |            | 
|Cash                                                                                                                 |  | $             | 2,294,000  |  |              | $ | 1,198,000  | 
|Accounts receivable, less allowance of $580,000 as of March 31, 2011 and $390,000 as of June 30, 2010                |  |               | 17,735,000 |  |              |   | 8,203,000  | 
|Other receivables                                                                                                    |  |               | 1,243,000  |  |              |   | 433,000    | 
|Inventory                                                                                                            |  |               | 175,000    |  |              |   | 152,000    | 
|Prepaid expenses and other current assets                                                                            |  |               | 941,000    |  |              |   | 1,030,000  | 
|                                                                                                                     |  |               |            |  |              |   |            | 
|Total current assets                                                                                                 |  |               | 22,388,000 |  |              |   | 11,016,000 | 
|                                                                                                                     |  |              
|Property and equipment:                                                                                              |  |               |            |  |              |   |            | 
|Computer software and equipment                                                                                      |  |               | 6,888,000  |  |              |   | 3,623,000  | 
|Office furniture and equipment                                                                                       |  |               | 1,835,000  |  |              |   | 430,000    | 
|Leasehold improvements                                                                                               |  |               | 709,000    |  |              |   | 380,000    | 
|                                                                                                                     |  |               |            |  |              |   |            | 
|                                                                                                                     |  |               | 9,432,000  |  |              |   | 4,433,000  | 
|Less accumulated depreciation and amortization                                                                       |  |               | 7,528,000  |  |              |   | 2,610,000  | 
|                                                                                                                     |  |               |            |  |              |   |            | 
|                                                                                                                     |  |               | 1,904,000  |  |              |   | 1,823,000  | 
|                                                                                                                     |  |              
|Customer list, net of accumulated amortization of $2,908,000 as of March 31, 2011 and $2,334,000 as of June 30,
2010 |  |               | 4,031,000  |  |              |   | 1,638,000  | 
|Goodwill                                                                                                             |  |               | 15,244,000 |  |              |   | 7,232,000  | 
|Trade name, net of accumulated amortization of $1,156,000 as of March 31, 2011                                       |  |               | 2,625,000  |  |              |   |           | 
|Other assets                                                                                                         |  |               | 407,000    |  |              |   | 406,000    | 
|                                                                                                                     |  |               |            |  |              |   |            | 
|                                                                                                                     |  |              
|Total assets                                                                                                         |  | $             | 46,599,000 |  |              | $ | 22,115,000 | 
|                                                                                                                     |  |               |            |  |              |   |            | 

See accompanying notes.



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Balance Sheets (continued)

(unaudited)



|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------ | - | ----------- | -
|                                                                                                                                                                                                                    |  | March 31,2011 |             |   | June 30,2010 |  
|                                                                                                                                                                                                                    |  |              
|Liabilities and Stockholders Equity                                                                                                                                                                                |  |               |             |   |              |   |             |  
|Current liabilities:                                                                                                                                                                                                |  |               |             |   |              |   |             |  
|Borrowings under line of credit                                                                                                                                                                                     |  | $             | 2,788,000   |   |              | $ | 3,325,000   |  
|Accounts payable and accrued expenses                                                                                                                                                                               |  |               | 14,326,000  |   |              |   | 9,017,000   |  
|Accrued compensation and related benefits                                                                                                                                                                           |  |               | 1,806,000   |   |              |   | 974,000     |  
|Deferred revenue                                                                                                                                                                                                    |  |               | 3,606,000   |   |              |   | 2,582,000   |  
|Income taxes payable                                                                                                                                                                                                |  |               | 57,000      |   |              |   | 34,000      |  
|Obligations under capital leases                                                                                                                                                                                    |  |               | 133,000     |   |              |   | 55,000      |  
|Related party term notes                                                                                                                                                                                            |  |               |            |   |              |   | 6,576,000   |  
|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  
|Total current liabilities                                                                                                                                                                                           |  |               | 22,716,000  |   |              |   | 22,563,000  |  
|                                                                                                                                                                                                                    |  |              
|Long term liabilities:                                                                                                                                                                                              |  |               |             |   |              |   |             |  
|Deferred tax liability                                                                                                                                                                                              |  |               | 1,865,000   |   |              |   |            |  
|Obligations under capital leases                                                                                                                                                                                    |  |               | 23,000      |   |              |   | 35,000      |  
|Related party term notes                                                                                                                                                                                            |  |               |            |   |              |   | 6,061,000   |  
|Other long term liabilities                                                                                                                                                                                         |  |               |            |   |              |   | 114,000     |  
|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  
|Total liabilities                                                                                                                                                                                                   |  |               | 24,604,000  |   |              |   | 28,773,000  |  
|                                                                                                                                                                                                                    |  |              
|Series A redeemable preferred stock, $0.001 par value; 31,858,922 shares authorized; 31,000,000 shares issued and outstanding;
liquidation preference of $38,086,000 at June 30, 2010 (note 10)                     |  |               |            |   |              |   | 38,086,000  |  
|                                                                                                                                                                                                                    |  |              
|Stockholders equity:                                                                                                                                                                                               |  |               |             |   |              |   |             |  
|Convertible Preferred Stock, $0.01 par value; 1,300,537 shares authorized, 1,298,728 shares issued; 1,090,150 shares outstanding
with an aggregate liquidation preference of $1,591,000 at March 31, 2011 (note 10) |  |               | 11,000      |   |              |   |            |  
|Common stock, $0.01 par value; 80,000,000 shares authorized; issued and outstanding shares 51,882,678 at March 31,
2011                                                                                             |  |               | 519,000     |   |              |   |            |  
|Common stock, $0.001 par value; 11,010,000 shares authorized; issued and outstanding shares 9,500,000 at June 30,
2010                                                                                              |  |               |            |   |              |   | 10,000      |  
|Additional paid-in capital                                                                                                                                                                                          |  |               | 64,869,000  |   |              |   |            |  
|Accumulated deficit                                                                                                                                                                                                 |  |               | (44,726,000 | ) |              |   | (45,528,000 | )
|Accumulated other comprehensive income                                                                                                                                                                              |  |               | 1,322,000   |   |              |   | 774,000     |  
|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  
|Total stockholders equity (deficit)                                                                                                                                                                                |  |               | 21,995,000  |   |              |   | (44,744,000 | )
|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  
|                                                                                                                                                                                                                    |  |              
|Total liabilities and stockholders equity (deficit)                                                                                                                                                                |  | $             | 46,599,000  |   |              | $ | 22,115,000  |  
|                                                                                                                                                                                                                    |  |               |             |   |              |   |             |  

See accompanying notes.



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)



|                                                         |  |                              |            |   |      |   |            |    
|-------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | ---
|                                                         |  | Three Months Ended March 31, |           
|                                                         |  | 2011                         |            |   | 2010 |  
|Revenues:                                                |  |                              |            |   |      |   |            |    
|Product sales                                            |  | $                            | 16,343,000 |   |      | $ | 6,620,000  |    
|Service revenue                                          |  |                              | 5,450,000  |   |      |   | 4,170,000  |    
|Commission revenue                                       |  |                              | 5,630,000  |   |      |   | 2,703,000  |    
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                              | 27,423,000 |   |      |   | 13,493,000 |    
|                                                         |  |                             
|Cost of revenue:                                         |  |                              |            |   |      |   |            |    
|Cost of product sales                                    |  |                              | 11,028,000 |   |      |   | 4,335,000  |    
|Cost of service revenue                                  |  |                              | 3,775,000  |   |      |   | 3,117,000  |    
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                              | 14,803,000 |   |      |   | 7,452,000  |    
|                                                         |  |                             
|Gross margin                                             |  |                              | 12,620,000 |   |      |   | 6,041,000  |    
|Other operating expenses:                                |  |                              |            |   |      |   |            |    
|Selling, general and administrative                      |  |                              | 9,902,000  |   |      |   | 5,715,000  |    
|Depreciation and amortization                            |  |                              | 468,000    |   |      |   | 276,000    |    
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                              | 10,370,000 |   |      |   | 5,991,000  |    
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                             
|Operating income                                         |  |                              | 2,250,000  |   |      |   | 50,000     |    
|Other expense, net                                       |  |                              | (150,000   | ) |      |   | (640,000   | )  
|                                                         |  |                              |            |   |      |   |            |    
|Income (loss) before income taxes                        |  |                              | 2,100,000  |   |      |   | (590,000   | )  
|Income tax expense                                       |  |                              | 30,000     |   |      |   | 30,000     |    
|                                                         |  |                              |            |   |      |   |            |    
|Net income (loss)                                        |  |                              | 2,070,000  |   |      |   | (620,000   | )  
|Preferred stock dividends                                |  |                              | (38,000    | ) |      |   | (720,000   | )  
|                                                         |  |                              |            |   |      |   |            |    
|Net income (loss) available to common stockholders       |  | $                            | 2,032,000  |   |      | $ | (1,340,000 | )  
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                             
|Income (loss) per common share, basic                    |  | $                            | 0.04       |   |      | $ | (0.04      | )  
|                                                         |  |                              |            |   |      |   |            |    
|Income (loss) per common share, diluted                  |  | $                            | 0.04       |   |      | $ | (0.04      | )  
|                                                         |  |                              |            |   |      |   |            |    
|                                                         |  |                             
|Shares used in computing income (loss) per common share: |  |                              |            |   |      |   |            |    
|Weighted average shares used in computation - basic      |  |                              | 51,882,678 |   |      |   | 34,232,672 | (1)
|Weighted average shares used in computation - diluted    |  |                              | 55,613,839 |   |      |   | 34,232,672 | (1)

See accompanying notes.



|(1) | The weighted average shares for the three months ended March 31, 2010 have been restated to reflect the shares issued as part of the
Merger.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Operations

(unaudited)



|                                                                              |  |                             |            |   |      |   |            |    
|----------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | ---
|                                                                              |  | Nine Months Ended March 31, |           
|                                                                              |  | 2011                        |            |   | 2010 |  
|Revenues:                                                                     |  |                             |            |   |      |   |            |    
|Product sales                                                                 |  | $                           | 36,509,000 |   |      | $ | 19,396,000 |    
|Service revenue                                                               |  |                             | 15,342,000 |   |      |   | 12,524,000 |    
|Commission revenue                                                            |  |                             | 14,062,000 |   |      |   | 6,616,000  |    
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                             | 65,913,000 |   |      |   | 38,536,000 |    
|                                                                              |  |                            
|Cost of revenue:                                                              |  |                             |            |   |      |   |            |    
|Cost of product sales                                                         |  |                             | 24,377,000 |   |      |   | 12,653,000 |    
|Cost of service revenue                                                       |  |                             | 10,779,000 |   |      |   | 9,528,000  |    
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                             | 35,156,000 |   |      |   | 22,181,000 |    
|                                                                              |  |                            
|Gross margin                                                                  |  |                             | 30,757,000 |   |      |   | 16,355,000 |    
|Other operating expenses:                                                     |  |                             |            |   |      |   |            |    
|Selling, general and administrative                                           |  |                             | 27,503,000 |   |      |   | 17,521,000 |    
|Depreciation and amortization                                                 |  |                             | 1,305,000  |   |      |   | 817,000    |    
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                             | 28,808,000 |   |      |   | 18,338,000 |    
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                            
|Operating income (loss)                                                       |  |                             | 1,949,000  |   |      |   | (1,983,000 | )  
|Other expense, net                                                            |  |                             | (651,000   | ) |      |   | (1,832,000 | )  
|                                                                              |  |                             |            |   |      |   |            |    
|Income (loss) from continuing operations before income taxes                  |  |                             | 1,298,000  |   |      |   | (3,815,000 | )  
|Income tax expense                                                            |  |                             | 126,000    |   |      |   | 35,000     |    
|                                                                              |  |                             |            |   |      |   |            |    
|Income (loss) from continuing operations                                      |  |                             | 1,172,000  |   |      |   | (3,850,000 | )  
|Loss from discontinued operations, net of tax                                 |  |                             |           |   |      |   | (380,000   | )  
|Gain on sale of discontinued operations, net of tax                           |  |                             |           |   |      |   | 3,274,000  |    
|                                                                              |  |                             |            |   |      |   |            |    
|Net income (loss)                                                             |  | $                           | 1,172,000  |   |      | $ | (956,000   | )  
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                            
|Net income (loss) from continuing operations                                  |  | $                           | 1,172,000  |   |      | $ | (3,850,000 | )  
|Preferred stock dividends                                                     |  |                             | (475,000   | ) |      |   | (1,200,000 | )  
|                                                                              |  |                             |            |   |      |   |            |    
|Net income (loss) from continuing operations available to common stockholders |  | $                           | 697,000    |   |      | $ | (5,050,000 | )  
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                            
|Income (loss) per common share from continuing operations, basic              |  | $                           | 0.01       |   |      | $ | (0.15      | )  
|Income (loss) per common share from discontinued operations, basic            |  |                             |           |   |      |   | 0.12       |    
|                                                                              |  |                             |            |   |      |   |            |    
|Income (loss) per common share, basic                                         |  | $                           | 0.01       |   |      | $ | (0.03      | )  
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                            
|Income (loss) per common share from continuing operations, diluted            |  | $                           | 0.01       |   |      | $ | (0.15      | )  
|Income per common share from discontinued operations, diluted                 |  |                             |           |   |      |   | 0.12       |    
|                                                                              |  |                             |            |   |      |   |            |    
|Income (loss) per common share, diluted                                       |  | $                           | 0.01       |   |      | $ | (0.03      | )  
|                                                                              |  |                             |            |   |      |   |            |    
|                                                                              |  |                            
|Shares used in computing income (loss) per common share:                      |  |                             |            |   |      |   |            |    
|Weighted average shares used in computation - basic                           |  |                             | 48,702,279 |   |      |   | 34,232,672 | (1)
|Weighted average shares used in computation - diluted                         |  |                             | 52,434,092 |   |      |   | 34,232,672 | (1)

See accompanying notes.



|(1) | The weighted average shares for the nine months ended March 31, 2010 have been restated to reflect the shares issued as part of the Merger
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statement of Stockholders Equity (Unaudited)



|                                                                               |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   |             |   |  |   |           |  |  |   |             |  
|------------------------------------------------------------------------------ |  | -------------------------- | --------- |  | ------------ | - | ------ | --------------- |  |  | ---------- | - |  | ------------------------ | ------- | - | ------------------ | - | ---------- | ----------------------------------- |  | - | ----------- | - |  | - | --------- |  |  | - | ----------- | -
|                                                                               |  | ConvertiblePreferred Stock |           |  | Common Stock |   |        |                 |  |  |            |   |  |                          |         |   |                    |  
|                                                                               |  | Number ofShares            |           |  | Par Value    |   |        | Number ofShares |  |  | Par Value  |   |  | AdditionalPaid-InCapital |         |   | AccumulatedDeficit |   |            | AccumulatedOtherComprehensiveIncome |  |   | Total       |  
|                                                                               |  |                            |           |  |              |   |        |                
|Balance at July 1, 2010                                                        |  |                            |          |  |              | $ |       |                 |  |  | 9,500,000  |   |  | $                        | 10,000  |   |                    | $ |           |                                     |  | $ | (45,528,000 | ) |  | $ | 774,000   |  |  | $ | (44,744,000 | )
|                                                                               |  |                            |           |  |              |   |        |                
|Accretion of dividends on Series A preferred stock                             |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   | (370,000    | ) |  |   |           |  |  |   | (370,000    | )
|Exchange of common stock, preferred stock and retirement of related-party debt |  |                            |           |  |              |   |        |                 |  |  | (9,499,990 | ) |  |                          | (10,000 | ) |                    |   | 51,266,000 |                                     |  |   |             |   |  |   |           |  |  |   | 51,256,000  |  
|Restatement of securities to reflect equity structure of Avatech               |  |                            |           |  |              |   |        |                 |  |  | 34,232,672 |   |  |                          | 342,000 |   |                    |   | (342,000   | )                                   |  |   |             |   |  |   |           |  |  |   |            |  
|Merger consideration  Avatech                                                 |  |                            | 1,090,150 |  |              |   | 11,000 |                 |  |  | 17,643,057 |   |  |                          | 177,000 |   |                    |   | 14,038,000 |                                     |  |   |             |   |  |   |           |  |  |   | 14,226,000  |  
|Vesting of stock options granted to employees                                  |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   | 9,000      |                                     |  |   |             |   |  |   |           |  |  |   | 9,000       |  
|Issuance of common stock under employee stock purchase plan                    |  |                            |           |  |              |   |        |                 |  |  | 6,939      |   |  |                          |         |   |                    |   | 3,000      |                                     |  |   |             |   |  |   |           |  |  |   | 3,000       |  
|Preferred stock dividends                                                      |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   | (105,000   | )                                   |  |   |             |   |  |   |           |  |  |   | (105,000    | )
|Foreign currency translation adjustment                                        |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   |             |   |  |   | 548,000   |  |  |   | 548,000     |  
|Net income for the nine months ended March 31, 2011                            |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   | 1,172,000   |   |  |   |           |  |  |   | 1,172,000   |  
|                                                                               |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   |             |   |  |   |           |  |  |   |             |  
|                                                                               |  |                            |           |  |              |   |        |                
|Balance at March 31, 2011                                                      |  |                            | 1,090,150 |  |              | $ | 11,000 |                 |  |  | 51,882,678 |   |  | $                        | 519,000 |   |                    | $ | 64,869,000 |                                     |  | $ | (44,726,000 | ) |  | $ | 1,322,000 |  |  | $ | 21,995,000  |  
|                                                                               |  |                            |           |  |              |   |        |                 |  |  |            |   |  |                          |         |   |                    |   |            |                                     |  |   |             |   |  |   |           |  |  |   |             |  

See accompanying notes.



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(unaudited)



|                                                                                     |  |                             |             |   |      |   |             |  
|------------------------------------------------------------------------------------ |  | --------------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                                     |  | Nine Months Ended March 31, |            
|                                                                                     |  | 2011                        |             |   | 2010 |  
|Cash flows from operating activities                                                 |  |                             |             |   |      |   |             |  
|Net income (loss) from continuing operations                                         |  | $                           | 1,172,000   |   |      | $ | (3,850,000  | )
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                             |             |   |      |   |             |  
|Provision for bad debts                                                              |  |                             | 160,000     |   |      |   |            |  
|Depreciation and amortization                                                        |  |                             | 1,450,000   |   |      |   | 1,074,000   |  
|Stock-based compensation                                                             |  |                             | 9,000       |   |      |   | 30,000      |  
|Deferred income taxes                                                                |  |                             | 34,000      |   |      |   |            |  
|Changes in operating assets and liabilities net of those acquired:                   |  |                             |             |   |      |   |             |  
|Accounts and other receivables                                                       |  |                             | (5,207,000  | ) |      |   | (144,000    | )
|Inventory                                                                            |  |                             | 110,000     |   |      |   | 407,000     |  
|Prepaid expenses and other current assets                                            |  |                             | 442,000     |   |      |   | (194,000    | )
|Other assets                                                                         |  |                             | 102,000     |   |      |   |            |  
|Accounts payable and accrued expenses                                                |  |                             | 920,000     |   |      |   | (1,533,000  | )
|Accrued compensation and related benefits                                            |  |                             | 436,000     |   |      |   |            |  
|Deferred revenue                                                                     |  |                             |            |   |      |   | 604,000     |  
|Income taxes payable                                                                 |  |                             | 23,000      |   |      |   | 209,000     |  
|Net effect of recapitalization of term notes                                         |  |                             | 115,000     |   |      |   |            |  
|Other long term liabilities                                                          |  |                             | (114,000    | ) |      |   |            |  
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in operating activities of continuing operations                       |  |                             | (348,000    | ) |      |   | (3,397,000  | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in operating activities of discontinued operations                     |  |                             |            |   |      |   | (816,000    | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in operating activities                                                |  |                             | (348,000    | ) |      |   | (4,213,000  | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Cash flows from investing activities                                                 |  |                             |             |   |      |   |             |  
|Cash acquired through reverse acquisition                                            |  |                             | 2,123,000   |   |      |   |            |  
|Purchases of property and equipment, net                                             |  |                             | (366,000    | ) |      |   | (328,000    | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash provided by (used in) investing activities of continuing operations         |  |                             | 1,757,000   |   |      |   | (328,000    | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash provided by investing activities of discontinued operations                 |  |                             |            |   |      |   | 3,908,000   |  
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash provided by investing activities                                            |  |                             | 1,757,000   |   |      |   | 3,580,000   |  
|                                                                                     |  |                             |             |   |      |   |             |  
|                                                                                     |  |                            
|Cash flows from financing activities                                                 |  |                             |             |   |      |   |             |  
|Proceeds from borrowings under line of credit                                        |  |                             | 62,641,000  |   |      |   | 23,160,000  |  
|Payment of borrowings under line of credit                                           |  |                             | (63,274,000 | ) |      |   | (20,545,000 | )
|Repayment of related party term notes                                                |  |                             |            |   |      |   | (5,590,000  | )
|Proceeds from issuance of common stock to employees                                  |  |                             | 3,000       |   |      |   |            |  
|Payment of preferred stock dividends                                                 |  |                             | (105,000    | ) |      |   |            |  
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in financing activities of continuing operations                       |  |                             | (735,000    | ) |      |   | (2,975,000  | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in financing activities of discontinued operations                     |  |                             |            |   |      |   | (543,000    | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net cash used in financing activities                                                |  |                             | (735,000    | ) |      |   | (3,518,000  | )
|Effect of exchange rate changes on cash from continuing operations                   |  |                             | 422,000     |   |      |   | 372,000     |  
|Effect of exchange rate changes on cash from discontinued operations                 |  |                             |            |   |      |   | (118,000    | )
|                                                                                     |  |                             |             |   |      |   |             |  
|Net change in cash and cash equivalents                                              |  |                             | 1,096,000   |   |      |   | (3,897,000  | )
|Cash - beginning of period                                                           |  |                             | 1,198,000   |   |      |   | 4,529,000   |  
|                                                                                     |  |                             |             |   |      |   |             |  
|Cash - end of period                                                                 |  | $                           | 2,294,000   |   |      | $ | 632,000     |  
|                                                                                     |  |                             |             |   |      |   |             |  



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##### Table of Contents

Rand Worldwide, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2011

1. Basis of Presentation

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

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

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

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

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

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

2. Reverse Merger Transaction

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



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##### Table of Contents

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

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

Recognized amounts of identifiable intangible assets acquired and liabilities assumed

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



|                                |  |   |            |  
|------------------------------- |  | - | ---------- | -
|Net tangible assets acquired    |  | $ | 2,449,000  |  
|Deferred income tax assets      |  |   | 392,000    |  
|Trade name                      |  |   | 2,649,000  |  
|Customer list                   |  |   | 3,010,000  |  
|Goodwill                        |  |   | 8,151,000  |  
|Deferred tax liability          |  |   | (2,425,000 | )
|                                |  |   |            |  
|Total consideration transferred |  | $ | 14,226,000 |  
|                                |  |   |            |  

Identifiable intangible assets

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



|                 |  |                    |      |   |                       |  |          | 
|---------------- |  | ------------------ | ---- | - | --------------------- |  | -------- | 
|Intangible asset |  | Discount rate used |      |   | Estimated useful life | 
|Trade name       |  |                    | 19.0 | % |                       |  | 15 years | 
|Customer list    |  |                    | 21.0 | % |                       |  | 15 years | 

Goodwill

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

Pro Forma  Financial Information

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



|                                   |  |   |            | 
|---------------------------------- |  | - | ---------- | 
|Total revenue                      |  | $ | 69,922,000 | 
|Net income                         |  |   | 806,000    | 
|Earnings per common share, basic   |  |   | 0.02       | 
|Earnings per common share, diluted |  |   | 0.01       | 



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##### Table of Contents

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

3. Recent
Accounting Pronouncements

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

4. Supplemental Disclosure of Cash Flow Information

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

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

5. Employee Stock Compensation Plans

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

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

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



|                                               |  |                              |            |   |                             |  |   |      |  |   |            |   |  |  |   | 
|---------------------------------------------- |  | ---------------------------- | ---------- | - | --------------------------- |  | - | ---- |  | - | ---------- | - |  |  | - | 
|                                               |  | Three months endedMarch 
31, |            |   | Nine months endedMarch 
31, | 
|                                               |  | 2011                         |            |   | 2010                        |  |   | 2011 |  |   | 2010       |  
|                                               |  |                              |            |  
|Average risk-free interest rate                |  |                              | 0.20       | % |                             |  |  |      |  |   | 0.20       | % |  |  |  | 
|Dividend yield                                 |  |                              | 0          | % |                             |  |  |      |  |   | 0          | % |  |  |  | 
|Expected term                                  |  |                              | 10.0 years |   |                             |  |  |      |  |   | 10.0 years |   |  |  |  | 
|Average expected volatility                    |  |                              | 1.08       |   |                             |  |  |      |  |   | 1.08       |   |  |  |  | 
|Weighted average fair value of granted options |  | $                            | 0.64       |   |                             |  |  |      |  | $ | 0.64       |   |  |  |  | 



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##### Table of Contents

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

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



|                                                                     |  |         |           |   |                                 |   |      |                         |  |   |        | 
|-------------------------------------------------------------------- |  | ------- | --------- | - | ------------------------------- | - | ---- | ----------------------- |  | - | ------ | 
|                                                                     |  | Options |           |   | Weighted-AverageExercise 
Price |   |      | AggregateIntrinsicValue | 
|                                                                     |  |         |          
|Outstanding at July 1, 2010                                          |  |         | 983,609   |   |                                 | $ | 0.30 |                         |  |   |        | 
|Conversion of Rand Worldwide options into RWWI Holdings, LLC options |  |         | (983,609  | ) |                                 |   | 0.30 |                         |  |   |        | 
|Avatech options assumed in Merger                                    |  |         | 1,605,177 |   |                                 |   | 0.93 |                         |  |   |        | 
|Granted                                                              |  |         | 16,200    |   |                                 |   | 0.70 |                         |  |   |        | 
|Forfeited                                                            |  |         | (93,010   | ) |                                 |   | 0.75 |                         |  |   |        | 
|Expired                                                              |  |         | (755      | ) |                                 |   | 7.07 |                         |  |   |        | 
|                                                                     |  |         |           |   |                                 |   |      |                         |  |   |        | 
|                                                                     |  |         |          
|Outstanding at March 31, 2011                                        |  |         | 1,527,612 |   |                                 | $ | 0.94 |                         |  | $ | 78,000 | 
|                                                                     |  |         |           |   |                                 |   |      |                         |  |   |        | 
|                                                                     |  |         |          
|Exercisable at March 31, 2011                                        |  |         | 1,516,812 |   |                                 | $ | 0.94 |                         |  | $ | 78,000 | 
|                                                                     |  |         |           |   |                                 |   |      |                         |  |   |        | 
|                                                                     |  |         |          
|Weighted-average remaining contractual life                          |  |         | 5.3 Years |   |                                 |   |      |                         |  |   |        | 
|                                                                     |  |         |           |   |                                 |   |      |                         |  |   |        | 

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



|                         |  |                    |           |  |                                                    |   |      |                                                               |  |  |                    |  |  |                                                    |           |  |                                                               |   |      |  |  |  |           | 
|------------------------ |  | ------------------ | --------- |  | -------------------------------------------------- | - | ---- | ------------------------------------------------------------- |  |  | ------------------ |  |  | -------------------------------------------------- | --------- |  | ------------------------------------------------------------- | - | ---- |  |  |  | --------- | 
|Range of Exercise Prices |  | OptionsOutstanding |           |  | WeightedAverageExercisePrices ofOptionsOutstanding |   |      | WeightedAverageRemainingContractual Lifeof OptionsOutstanding |  |  | OptionsExercisable |  |  | WeightedAverageExercisePrices ofOptionsExercisable |           |  | WeightedAverageRemainingContractual Lifeof OptionsExercisable |  
|$  0.17  0.34           |  |                    | 94,547    |  |                                                    | $ | 0.30 |                                                               |  |  | 2.7 years          |  |  |                                                    | 94,547    |  |                                                               | $ | 0.30 |  |  |  | 2.7 years | 
|0.35  0.75              |  |                    | 324,800   |  |                                                    |   | 0.59 |                                                               |  |  | 5.6 years          |  |  |                                                    | 314,000   |  |                                                               |   | 0.59 |  |  |  | 5.5 years | 
|0.76  0.91              |  |                    | 663,000   |  |                                                    |   | 0.86 |                                                               |  |  | 5.7 years          |  |  |                                                    | 663,000   |  |                                                               |   | 0.86 |  |  |  | 5.7 years | 
|1.05  3.81              |  |                    | 445,265   |  |                                                    |   | 1.45 |                                                               |  |  | 5.1 years          |  |  |                                                    | 445,265   |  |                                                               |   | 1.45 |  |  |  | 5.1 years | 
|                         |  |                    |           |  |                                                    |   |      |                                                               |  |  |                    |  |  |                                                    |           |  |                                                               |   |      |  |  |  |           | 
|                         |  |                    | 1,527,612 |  |                                                    |   |      |                                                               |  |  |                    |  |  |                                                    | 1,516,812 |  |                                                               |   |      |  |  |  |           | 
|                         |  |                    |           |  |                                                    |   |      |                                                               |  |  |                    |  |  |                                                    |           |  |                                                               |   |      |  |  |  |           | 

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

6. Borrowings Under
Line of Credit

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



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##### Table of Contents

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

7. Obligations Under Capital Leases

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

8. Income Taxes

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

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

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

9. Earnings Per Share

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



---

##### Table of Contents

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



|                                                                             |  |                              |            |   |      |   |            |    
|---------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | ---
|                                                                             |  | Three Months Ended March 31, |           
|                                                                             |  | 2011                         |            |   | 2010 |  
|                                                                             |  |                             
|Net income (loss)                                                            |  | $                            | 2,070,000  |   |      | $ | (620,000   | )  
|Payment and/or accretion of preferred stock dividends                        |  |                              | (38,000    | ) |      |   | (720,000   | )  
|                                                                             |  |                              |            |   |      |   |            |    
|                                                                             |  |                             
|Net income (loss) available to common stockholders                           |  | $                            | 2,032,000  |   |      | $ | (1,340,000 | )  
|                                                                             |  |                              |            |   |      |   |            |    
|                                                                             |  |                             
|Weighted average shares used in computing basic net income (loss) per share: |  |                              | 51,882,678 |   |      |   | 34,232,672 | (1)
|Assumed conversion of preferred stock                                        |  |                              | 3,621,783  |   |      |   |           |    
|Effect of outstanding stock options                                          |  |                              | 109,378    |   |      |   |           |    
|                                                                             |  |                              |            |   |      |   |            |    
|Weighted average shares used in computing basic net income (loss) per share: |  |                              | 55,613,839 |   |      |   | 34,232,672 | (1)
|                                                                             |  |                              |            |   |      |   |            |    
|                                                                             |  |                             
|Income (loss) per common share, basic                                        |  | $                            | 0.04       |   |      | $ | (0.04      | )  
|                                                                             |  |                              |            |   |      |   |            |    
|                                                                             |  |                             
|Income (loss) per common share, diluted                                      |  | $                            | 0.04       |   |      | $ | (0.04      | )  
|                                                                             |  |                              |            |   |      |   |            |    



|                                                                               |  |                             |            |   |      |   |            |    
|------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | ---
|                                                                               |  | Nine Months Ended March 31, |           
|                                                                               |  | 2011                        |            |   | 2010 |  
|Numerator for basic and diluted earnings per share:                            |  |                             |            |   |      |   |            |    
|Net income (loss) from continuing operations                                   |  | $                           | 1,172,000  |   |      | $ | (3,850,000 | )  
|Loss from discontinued operations, net of tax                                  |  |                             |           |   |      |   | (380,000   | )  
|Gain on disposition of discontinued operations, net of tax                     |  |                             |           |   |      |   | 3,274,000  |    
|                                                                               |  |                             |            |   |      |   |            |    
|Net income (loss)                                                              |  |                             | 1,172,000  |   |      |   | (956,000   | )  
|                                                                               |  |                             |            |   |      |   |            |    
|                                                                               |  |                            
|Net income (loss) from continuing operations                                   |  |                             | 1,172,000  |   |      |   | (3,850,000 | )  
|Payment and/or accretion of preferred stock dividends                          |  |                             | (475,000   | ) |      |   | (1,200,000 | )  
|                                                                               |  |                             |            |   |      |   |            |    
|Net income (loss) from continuing operations available to common stockholders  |  | $                           | 697,000    |   |      | $ | (5,050,000 | )  
|                                                                               |  |                             |            |   |      |   |            |    
|                                                                               |  |                            
|Weighted average shares used in computing basic net income (loss) per share:   |  |                             | 48,702,279 |   |      |   | 34,232,672 | (1)
|Weighted average shares used in computing diluted net income (loss) per share: |  |                             | 52,434,092 |   |      |   | 34,232,672 | (1)
|                                                                               |  |                            
|Income (loss) per common share from continuing operations, basic               |  | $                           | 0.01       |   |      | $ | (0.15      | )  
|Income per common share from discontinued operations, basic                    |  |                             |           |   |      |   | 0.12       |    
|                                                                               |  |                             |            |   |      |   |            |    
|Income (loss) per common share, basic                                          |  | $                           | 0.01       |   |      | $ | (0.03      | )  
|                                                                               |  |                             |            |   |      |   |            |    
|                                                                               |  |                            
|Income (loss) per common share from continuing operations, diluted             |  | $                           | 0.01       |   |      | $ | (0.15      | )  
|                                                                               |  |                            
|Income per common share from discontinued operations diluted                   |  |                             |           |   |      |   | 0.12       |    
|                                                                               |  |                             |            |   |      |   |            |    
|Income (loss) per common share, diluted                                        |  | $                           | 0.01       |   |      | $ | (0.03      | )  
|                                                                               |  |                             |            |   |      |   |            |    



|(1) | The weighted average shares for the three and nine months ended March 31, 2010 have been
restated to reflect the shares issued as part of the Merger.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

10. Preferred stock

Series A Redeemable Preferred Stock

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



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##### Table of Contents

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

Convertible Preferred Stock

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

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

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

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

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

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

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

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



---

##### Table of Contents

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

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

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

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

11. Liquidity and Capital Resources

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

12. Segment Information

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

Three Months Ended March 31, 2011



|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|------------------------ |  | ------------- | ---------- |  | ------------------ | - | --------- | --------- |  | - | ------- |  |  | - | ---------- | 
|                         |  | North America |            |  | Singapore/Malaysia |   |           | Australia |  |   | Total   | 
|Revenue-                 |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Product sales            |  | $             | 14,898,000 |  |                    | $ | 990,000   |           |  | $ | 455,000 |  |  | $ | 16,343,000 | 
|Service revenue          |  |               | 5,177,000  |  |                    |   | 113,000   |           |  |   | 160,000 |  |  |   | 5,450,000  | 
|Commission revenue       |  |               | 5,401,000  |  |                    |   | 85,000    |           |  |   | 144,000 |  |  |   | 5,630,000  | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Total revenue            |  |               | 25,476,000 |  |                    |   | 1,188,000 |           |  |   | 759,000 |  |  |   | 27,423,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Cost of revenue-         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Cost of product sales    |  |               | 9,899,000  |  |                    |   | 813,000   |           |  |   | 316,000 |  |  |   | 11,028,000 | 
|Cost of service revenue  |  |               | 3,580,000  |  |                    |   | 106,000   |           |  |   | 89,000  |  |  |   | 3,775,000  | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Total cost of revenue    |  |               | 13,479,000 |  |                    |   | 919,000   |           |  |   | 405,000 |  |  |   | 14,803,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Gross margin             |  |               | 11,997,000 |  |                    |   | 269,000   |           |  |   | 354,000 |  |  |   | 12,620,000 | 
|Total operating expenses |  |               | 9,835,000  |  |                    |   | 199,000   |           |  |   | 336,000 |  |  |   | 10,370,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 
|Income from operations   |  | $             | 2,162,000  |  |                    | $ | 70,000    |           |  | $ | 18,000  |  |  | $ | 2,250,000  | 
|                         |  |               |            |  |                    |   |           |           |  |   |         |  |  |   |            | 



---

##### Table of Contents

Three Months Ended March 31, 2010



|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|----------------------------- |  | ------------- | ---------- |  | ------------------ | - | ------- | --------- |  | - | ------- |  |  | - | ---------- | 
|                              |  | North America |            |  | Singapore/Malaysia |   |         | Australia |  |   | Total   | 
|Revenue-                      |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Product sales                 |  | $             | 5,691,000  |  |                    | $ | 519,000 |           |  | $ | 410,000 |  |  | $ | 6,620,000  | 
|Service revenue               |  |               | 3,960,000  |  |                    |   | 39,000  |           |  |   | 171,000 |  |  |   | 4,170,000  | 
|Commission revenue            |  |               | 2,543,000  |  |                    |   | 41,000  |           |  |   | 119,000 |  |  |   | 2,703,000  | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Total revenue                 |  |               | 12,194,000 |  |                    |   | 599,000 |           |  |   | 700,000 |  |  |   | 13,493,000 | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Cost of revenue-              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Cost of product sales         |  |               | 3,629,000  |  |                    |   | 411,000 |           |  |   | 295,000 |  |  |   | 4,335,000  | 
|Cost of service revenue       |  |               | 2,944,000  |  |                    |   | 59,000  |           |  |   | 114,000 |  |  |   | 3,117,000  | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Total cost of revenue         |  |               | 6,573,000  |  |                    |   | 470,000 |           |  |   | 409,000 |  |  |   | 7,452,000  | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Gross margin                  |  |               | 5,621,000  |  |                    |   | 129,000 |           |  |   | 291,000 |  |  |   | 6,041,000  | 
|Total operating expenses      |  |               | 5,602,000  |  |                    |   | 164,000 |           |  |   | 225,000 |  |  |   | 5,991,000  | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 
|Income (loss) from operations |  | $             | 19,000     |  |                    | $ | (35,000 | )         |  | $ | 66,000  |  |  | $ | 50,000     | 
|                              |  |               |            |  |                    |   |         |           |  |   |         |  |  |   |            | 

Nine Months Ended March 31, 2011



|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|------------------------ |  | ------------- | ---------- |  | ------------------ | - | --------- | --------- |  | - | --------- |  |  | - | ---------- | 
|                         |  | North America |            |  | Singapore/Malaysia |   |           | Australia |  |   | Total     | 
|Revenue-                 |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Product sales            |  | $             | 33,009,000 |  |                    | $ | 2,103,000 |           |  | $ | 1,397,000 |  |  | $ | 36,509,000 | 
|Service revenue          |  |               | 14,325,000 |  |                    |   | 395,000   |           |  |   | 622,000   |  |  |   | 15,342,000 | 
|Commission revenue       |  |               | 13,551,000 |  |                    |   | 151,000   |           |  |   | 360,000   |  |  |   | 14,062,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Total revenue            |  |               | 60,885,000 |  |                    |   | 2,649,000 |           |  |   | 2,379,000 |  |  |   | 65,913,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Cost of revenue-         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Cost of product sales    |  |               | 21,765,000 |  |                    |   | 1,639,000 |           |  |   | 973,000   |  |  |   | 24,377,000 | 
|Cost of service revenue  |  |               | 10,156,000 |  |                    |   | 308,000   |           |  |   | 315,000   |  |  |   | 10,779,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Total cost of revenue    |  |               | 31,921,000 |  |                    |   | 1,947,000 |           |  |   | 1,288,000 |  |  |   | 35,156,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Gross margin             |  |               | 28,964,000 |  |                    |   | 702,000   |           |  |   | 1,091,000 |  |  |   | 30,757,000 | 
|Total operating expenses |  |               | 27,301,000 |  |                    |   | 558,000   |           |  |   | 949,000   |  |  |   | 28,808,000 | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 
|Income from operations   |  | $             | 1,663,000  |  |                    | $ | 144,000   |           |  | $ | 142,000   |  |  | $ | 1,949,000  | 
|                         |  |               |            |  |                    |   |           |           |  |   |           |  |  |   |            | 



---

##### Table of Contents

Nine Months Ended March 31, 2010



|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|----------------------------- |  | ------------- | ---------- | - | ------------------ | - | --------- | --------- |  | - | --------- |  |  | - | ---------- | -
|                              |  | North America |            |   | Singapore/Malaysia |   |           | Australia |  |   | Total     | 
|Revenue-                      |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Product sales                 |  | $             | 16,534,000 |   |                    | $ | 1,900,000 |           |  |   | 962,000   |  |  | $ | 19,396,000 |  
|Service revenue               |  |               | 11,754,000 |   |                    |   | 249,000   |           |  |   | 521,000   |  |  |   | 12,524,000 |  
|Commission revenue            |  |               | 6,241,000  |   |                    |   | 86,000    |           |  |   | 289,000   |  |  |   | 6,616,000  |  
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Total revenue                 |  |               | 34,529,000 |   |                    |   | 2,235,000 |           |  |   | 1,772,000 |  |  |   | 38,536,000 |  
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Cost of revenue-              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Cost of product sales         |  |               | 10,467,000 |   |                    |   | 1,523,000 |           |  |   | 663,000   |  |  |   | 12,653,000 |  
|Cost of service revenue       |  |               | 8,994,000  |   |                    |   | 184,000   |           |  |   | 350,000   |  |  |   | 9,528,000  |  
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Total cost of revenue         |  |               | 19,461,000 |   |                    |   | 1,707,000 |           |  |   | 1,013,000 |  |  |   | 22,181,000 |  
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Gross margin                  |  |               | 15,068,000 |   |                    |   | 528,000   |           |  |   | 759,000   |  |  |   | 16,355,000 |  
|Total operating expenses      |  |               | 17,304,000 |   |                    |   | 435,000   |           |  |   | 599,000   |  |  |   | 18,338,000 |  
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  
|Income (loss) from operations |  | $             | (2,236,000 | ) |                    | $ | 93,000    |           |  | $ | 160,000   |  |  | $ | (1,983,000 | )
|                              |  |               |            |   |                    |   |           |           |  |   |           |  |  |   |            |  

13. Related Party Term Notes

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

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



---

##### Table of Contents

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

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

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

Overview

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

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

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



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



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



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



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##### Table of Contents

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

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



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



| |  |  | Autodesk data management software;
| | - |  | ----------------------------------



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



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



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



| |  |  | Autonomy data archiving solutions
| | - |  | ---------------------------------

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

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

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

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

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

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



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##### Table of Contents

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

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

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

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

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

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

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

Revenues



|                   |  |                              |            |  |      |   |            |         |  |  |       |  
|------------------ |  | ---------------------------- | ---------- |  | ---- | - | ---------- | ------- |  |  | ----- | -
|                   |  | Three Months Ended March 31, |           
|                   |  | 2011                         |            |  | 2010 |   |            | %change | 
|Revenues:          |  |                              |            |  |      |   |            |         |  |  |       |  
|Product sales      |  | $                            | 16,343,000 |  |      | $ | 6,620,000  |         |  |  | 146.9 | %
|Service revenue    |  |                              | 5,450,000  |  |      |   | 4,170,000  |         |  |  | 30.7  | %
|Commission revenue |  |                              | 5,630,000  |  |      |   | 2,703,000  |         |  |  | 108.3 | %
|                   |  |                              |            |  |      |   |            |         |  |  |       |  
|                   |  |                              |           
|Total revenues     |  | $                            | 27,423,000 |  |      | $ | 13,493,000 |         |  |  | 103.2 | %
|                   |  |                              |            |  |      |   |            |         |  |  |       |  

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

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



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##### Table of Contents

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

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

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

Cost of Revenues and Gross Margin



|                        |  |                              |            |  |      |   |           |         |  |  |       |  
|----------------------- |  | ---------------------------- | ---------- |  | ---- | - | --------- | ------- |  |  | ----- | -
|                        |  | Three Months Ended March 31, |           
|                        |  | 2011                         |            |  | 2010 |   |           | %change | 
|Cost of revenue:        |  |                              |            |  |      |   |           |         |  |  |       |  
|Cost of product sales   |  | $                            | 11,028,000 |  |      | $ | 4,335,000 |         |  |  | 154.4 | %
|Cost of service revenue |  |                              | 3,775,000  |  |      |   | 3,117,000 |         |  |  | 21.1  | %
|                        |  |                              |            |  |      |   |           |         |  |  |       |  
|Total cost of revenue   |  | $                            | 14,803,000 |  |      | $ | 7,452,000 |         |  |  | 98.6  | %
|                        |  |                              |            |  |      |   |           |         |  |  |       |  
|                        |  |                              |           
|Gross margin            |  | $                            | 12,620,000 |  |      | $ | 6,041,000 |         |  |  |       |  
|                        |  |                              |            |  |      |   |           |         |  |  |       |  

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

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

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

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



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##### Table of Contents

Other Operating Expenses



|                                    |  |                              |            |  |      |   |           |         |  |  |      |  
|----------------------------------- |  | ---------------------------- | ---------- |  | ---- | - | --------- | ------- |  |  | ---- | -
|                                    |  | Three Months Ended March 31, |           
|                                    |  | 2011                         |            |  | 2010 |   |           | %change | 
|Other operating expenses:           |  |                              |            |  |      |   |           |         |  |  |      |  
|Selling, general and administrative |  | $                            | 9,902,000  |  |      | $ | 5,715,000 |         |  |  | 73.3 | %
|Depreciation and amortization       |  |                              | 468,000    |  |      |   | 276,000   |         |  |  | 69.6 | %
|                                    |  |                              |            |  |      |   |           |         |  |  |      |  
|Total other operating expenses      |  | $                            | 10,370,000 |  |      | $ | 5,991,000 |         |  |  | 73.1 | %
|                                    |  |                              |            |  |      |   |           |         |  |  |      |  

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

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

Other (Expense) Income, net



|                   |  |                              |          |   |      |   |          |         |  |  |       |   
|------------------ |  | ---------------------------- | -------- | - | ---- | - | -------- | ------- |  |  | ----- | --
|                   |  | Three Months Ended March 31, |         
|                   |  | 2011                         |          |   | 2010 |   |          | %change | 
|                   |  |                              |         
|Other expense, net |  | $                            | (150,000 | ) |      | $ | (640,000 | )       |  |  | (76.6 | )%
|                   |  |                              |          |   |      |   |          |         |  |  |       |   

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

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

Income Tax Expense



|                   |  |                              |        |  |      |   |        |         |  |  |   |  
|------------------ |  | ---------------------------- | ------ |  | ---- | - | ------ | ------- |  |  | - | -
|                   |  | Three Months Ended March 31, |       
|                   |  | 2011                         |        |  | 2010 |   |        | %change | 
|Income tax expense |  | $                            | 30,000 |  |      | $ | 30,000 |         |  |  | 0 | %
|                   |  |                              |        |  |      |   |        |         |  |  |   |  

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

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



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##### Table of Contents

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

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

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

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

Revenues



|                   |  |                             |            |  |      |   |            |         |  |  |       |  
|------------------ |  | --------------------------- | ---------- |  | ---- | - | ---------- | ------- |  |  | ----- | -
|                   |  | Nine Months Ended March 31, |           
|                   |  | 2011                        |            |  | 2010 |   |            | %change | 
|Revenues:          |  |                             |            |  |      |   |            |         |  |  |       |  
|Product sales      |  | $                           | 36,509,000 |  |      | $ | 19,396,000 |         |  |  | 88.2  | %
|Service revenue    |  |                             | 15,342,000 |  |      |   | 12,524,000 |         |  |  | 22.5  | %
|Commission revenue |  |                             | 14,062,000 |  |      |   | 6,616,000  |         |  |  | 112.5 | %
|                   |  |                             |            |  |      |   |            |         |  |  |       |  
|                   |  |                             |           
|Total revenues     |  | $                           | 65,913,000 |  |      | $ | 38,536,000 |         |  |  | 71.0  | %
|                   |  |                             |            |  |      |   |            |         |  |  |       |  

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

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

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

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



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##### Table of Contents

Cost of Revenues and Gross Margin



|                        |  |                             |            |  |      |   |            |         |  |  |      |  
|----------------------- |  | --------------------------- | ---------- |  | ---- | - | ---------- | ------- |  |  | ---- | -
|                        |  | Nine Months Ended March 30, |           
|                        |  | 2011                        |            |  | 2010 |   |            | %change | 
|Cost of revenue:        |  |                             |            |  |      |   |            |         |  |  |      |  
|Cost of product sales   |  | $                           | 24,377,000 |  |      | $ | 12,653,000 |         |  |  | 92.7 | %
|Cost of service revenue |  |                             | 10,779,000 |  |      |   | 9,528,000  |         |  |  | 13.1 | %
|                        |  |                             |            |  |      |   |            |         |  |  |      |  
|Total cost of revenue   |  | $                           | 35,156,000 |  |      | $ | 22,181,000 |         |  |  | 58.5 | %
|                        |  |                             |            |  |      |   |            |         |  |  |      |  
|                        |  |                             |           
|Gross margin            |  | $                           | 30,757,000 |  |      | $ | 16,355,000 |         |  |  |      |  
|                        |  |                             |            |  |      |   |            |         |  |  |      |  

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

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

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

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

Other
Operating Expenses



|                                    |  |                             |            |  |      |   |            |         |  |  |      |  
|----------------------------------- |  | --------------------------- | ---------- |  | ---- | - | ---------- | ------- |  |  | ---- | -
|                                    |  | Nine Months Ended March 31, |           
|                                    |  | 2011                        |            |  | 2010 |   |            | %change | 
|Other operating expenses:           |  |                             |            |  |      |   |            |         |  |  |      |  
|Selling, general and administrative |  | $                           | 27,503,000 |  |      | $ | 17,521,000 |         |  |  | 56.9 | %
|Depreciation and amortization       |  |                             | 1,305,000  |  |      |   | 817,000    |         |  |  | 59.7 | %
|                                    |  |                             |            |  |      |   |            |         |  |  |      |  
|Total other operating expenses      |  | $                           | 28,808,000 |  |      | $ | 18,338,000 |         |  |  | 57.1 | %
|                                    |  |                             |            |  |      |   |            |         |  |  |      |  

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



---

##### Table of Contents

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

Other (Expense) Income, net



|                   |  |                             |          |   |      |   |            |         |  |  |       |   
|------------------ |  | --------------------------- | -------- | - | ---- | - | ---------- | ------- |  |  | ----- | --
|                   |  | Nine Months Ended March 31, |         
|                   |  | 2011                        |          |   | 2010 |   |            | %change | 
|Other expense, net |  | $                           | (651,000 | ) |      | $ | (1,832,000 | )       |  |  | (64.5 | %)
|                   |  |                             |          |   |      |   |            |         |  |  |       |   

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

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

Income Tax Expense



|                   |  |                             |         |  |      |   |        |         |  |  |       |  
|------------------ |  | --------------------------- | ------- |  | ---- | - | ------ | ------- |  |  | ----- | -
|                   |  | Nine Months Ended March 31, |        
|                   |  | 2011                        |         |  | 2010 |   |        | %change | 
|Income tax expense |  | $                           | 126,000 |  |      | $ | 35,000 |         |  |  | 260.0 | %
|                   |  |                             |         |  |      |   |        |         |  |  |       |  

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

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

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



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##### Table of Contents

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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



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##### Table of Contents

Operating Leases

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



|                               |  |   |           | 
|------------------------------ |  | - | --------- | 
|Twelve months ending March 31: |  |   |           | 
|2012                           |  | $ | 2,637,000 | 
|2013                           |  |   | 1,860,000 | 
|2014                           |  |   | 1,514,000 | 
|2015                           |  |   | 1,091,000 | 
|2016                           |  |   | 608,000   | 
|Thereafter                     |  |   | 764,000   | 
|                               |  |   |           | 
|                               | 
|Total minimum lease payments   |  | $ | 8,474,000 | 
|                               |  |   |           | 

Capital Leases

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



|                                               |  |   |         | 
|---------------------------------------------- |  | - | ------- | 
|Twelve months ending March 31:                 |  |   |         | 
|2012                                           |  | $ | 157,000 | 
|2013                                           |  |   | 2,000   | 
|2014                                           |  |   | 2,000   | 
|2015                                           |  |   | 1,000   | 
|                                               |  |   |         | 
|                                               | 
|Total minimum lease payments                   |  |   | 162,000 | 
|Less:                                          |  |   |         | 
|Taxes                                          |  |   | 2,000   | 
|Imputed interest                               |  |   | 4,000   | 
|                                               |  |   |         | 
|Present value of future minimum lease payments |  | $ | 156,000 | 
|                                               |  |   |         | 

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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



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##### Table of Contents

Changes in Internal Control over Financial Reporting

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

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

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

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

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



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##### Table of Contents

SIGNATURES

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



|                   |  |                                              |  |                     
|------------------ |  | -------------------------------------------- |  | --------------------
|                   |  | RAND WORLDWIDE, INC.                        
|                   |  |                                             
|Date: May 16, 2011 |  | By:                                          |  | /s/ Marc L. Dulude  
|                   |  | Marc L. Dulude                              
|                   |  | Chief Executive Officer                     
|                   |  | (Principal Executive Officer)               
|                   |  |                                             
|Date: May 16, 2011 |  | By:                                          |  | /s/ Lawrence Rychlak
|                   |  | Lawrence Rychlak                            
|                   |  | President and Chief Financial Officer       
|                   |  | (Principal Financial and Accounting Officer)



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##### Table of Contents

EXHIBIT INDEX



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



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

| | Filed herewith.
|- | ---------------

| | Furnished herewith.
|-- | -------------------