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RAND WORLDWIDE INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. This report contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of "forward-looking statements." Statements that are not historical in nature, including those that include the words "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which Rand Worldwide, Inc. operates, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, the cost of funds, and demand for the Company's products and services; changes in the Company's competitive position or competitive actions by other companies; the Company's ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; ability to successfully integrate acquired businesses; and other circumstances beyond the Company's control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized or, if substantially realized, will have the expected consequences on the Company's business or operations. Except as required by applicable laws, the Company does not intend to publish updates or revisions of any forward-looking statements to reflect new information, future events or otherwise. When used throughout this report, the terms "Rand Worldwide", "the Company", "we", "us" and "our" refer to Rand Worldwide, Inc. and, unless the context clearly indicates otherwise, its consolidated subsidiaries. Overview Rand Worldwide is a leader in design, engineering, data archiving solutions, and facilities management technology solutions with expertise in computer aided design ("CAD") software, computational fluid dynamics ("CFD"), data management, facilities management, and process optimization for the manufacturing, engineering, and building design industries. The Company specializes in software resale, technology consulting, implementation, integration, training, data archiving, CFD analysis consulting and thermal simulation services and technical support solutions that enable clients to more effectively design, develop, and manage projects, products, and facilities. The Company has operations in offices in the United States, Canada, Australia, and Singapore. Rand Worldwide has over 25 years of industry experience and expertise, an extensive list of training and implementation services and longstanding relationships with design technology leaders including Autodesk, Archibus and Autonomy. The Company's clients include businesses, government agencies, and educational institutions. The Company's business strategy is built on three core principles designed to leverage its existing strengths with expected market opportunities: • Maintain and profitably grow its strong position in the Autodesk software market; • Profitably grow its consulting and services business by leveraging its experts in design engineering; and • Acquire or license and integrate diverse, yet complementary, software and services businesses to extend its product offerings to its large customer base and expand its market potential. This strategy was designed to match the Company's product and service offerings more precisely with the needs of its customers, while providing avenues of growth and diversification. Product Sales-Product sales consist primarily of the resale of packaged design software, including: • 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; 20 -------------------------------------------------------------------------------- Table of Contents • Autodesk data management software; • Archibus facilities management software for space planning, strategic planning, and lease/property administration; • Leica 3D laser scanning equipment for the Architectural, Engineering and Construction sector; • ASCENT internally developed courseware for a variety of engineering applications; and • Autonomy data archiving solutions. Service Revenue- The Company provides services in the form of project-focused software implementations, training, consulting services, software development, software customization, data migration, supplemental design staffing, drawing digitization, symbol library development, custom courseware development, technical support and hosted data archiving solutions to its customers. The Company employs a technical staff of over 100 personnel associated with these types of services. The Company also offers support and implementation services to complement the data archive solutions provided and sold through its Rand Secure Archive Division. Commission Revenue- The Company offers Autodesk's subscription programs, which entitle subscribers to receive software upgrades, web support and eLearning lessons directly from Autodesk. Because Rand Worldwide does not participate in the delivery of these subscription products or the web support and eLearning lesson benefits, the Company records the gross profit from the sale of Autodesk software subscriptions as commission revenue. In addition, the Company sells technology upgrades to existing Autodesk customers through the Autodesk Subscription program where the customers receive the latest releases of Autodesk software, incremental product enhancements, and personalized web support direct from Autodesk. Based on its analysis of the Autodesk Subscription program, Rand Worldwide records the net proceeds that it receives from Autodesk for subscription sales in accordance with the provisions of FASB Accounting Standards Codification ("ASC") 605 (previously EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent). The Company also generates commission revenue from the resale of Autodesk software to various customers, a number of which Autodesk considers major and government accounts. Autodesk designates customers as major accounts based on specific criteria, primarily sales volume, and typically gives these customers volume discounts. The Company is responsible for managing and reselling Autodesk products to a number of these major and government account customers; however, software products are shipped directly from Autodesk to the customers. The Company receives commissions upon shipment of the products from Autodesk to the customer based on a percentage of the sales price. Cost of Product Sales- The cost of product sales consists of the cost of purchasing products from software suppliers or hardware manufacturers as well as the associated shipping and handling costs. The Company earns a volume incentive rebate from its primary supplier, Autodesk, paid monthly as a percentage of qualifying purchases. The rebate percentage is established based on quarterly purchasing volume. These rebates serve to reduce the cost of product sales. The Company accrues its rebates the month the underlying sales are posted, in accordance with ASC 605-50, Customer Payments and Incentives. The Company has generally been able to focus its sales efforts in a manner to achieve margins on its product sales that are within a relatively narrow range period to period. Cost of Service Revenue- Cost of service revenue includes the direct costs associated with the implementation of software and hardware solutions as well as training, support services, and professional services. These costs consist primarily of compensation, travel, curriculum, and the costs of third-party contractors engaged by the Company. The cost of service revenue does not include an allocation of overhead costs. Selling, General and Administrative Expense- Selling, general and administrative expenses consist primarily of compensation and other expenses associated with the Company's sales force, management, 21 -------------------------------------------------------------------------------- Table of Contents finance, human resources, and information systems. Advertising and public relations expenses and expenses for facilities, such as rent and utilities, are also included in selling, general and administrative expenses. Depreciation and Amortization Expense- Depreciation expense represents the period costs associated with our investment in property and equipment, consisting principally of computer equipment, software, furniture and fixtures, and leasehold improvements. Amortization expense represents the period costs of the acquired customer list and trade name intangible assets. The Company computes depreciation and amortization expenses using the straight-line method. The Company leases all of its facilities and depreciates leasehold improvements over the lesser of the lease term or the estimated useful life of the asset. Interest Expense- Interest expense consists of interest on capital lease obligations and borrowings from lines of credit. Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012 The following tables set forth a comparison of the Company's results of operations for the three-month period ended March 31, 2013 to the three-month period ended March 31, 2012. The amounts are derived from selected items reflected in the Company's unaudited Consolidated Statements of Operations included elsewhere in this report. The three-month financial results are not necessarily indicative of future results. Revenues Three Months Ended March 31, % 2013 2012 change Revenues: Product sales $ 13,353,000 $ 11,324,000 17.9 % Service revenue 6,255,000 5,206,000 20.1 % Commission revenue 6,537,000 5,821,000 12.3 % Total revenues $ 26,145,000 $ 22,351,000 17.0 % Revenues. Total revenues for the three months ended March 31, 2013 increased by $3,794,000, or 17.0%, when compared to the same period in the prior fiscal year. Product sales increased $2,029,000, or 17.9%, for the three months ended March 31, 2013 when compared to the same period in the prior fiscal year. Product revenues were driven primarily by strong growth in the architectural market, while revenues in the manufacturing market weakened. Sales of the Company's proprietary products, including Revit Clarity, Scan to BIM and ASCENT courseware, grew significantly over the prior year. Service revenues increased $1,049,000, or 20.1%, for the three months ended March 31, 2013 when compared with the same period in the prior fiscal year. The increased service revenues included an increase of $545,000 in software development projects, $313,000 in increased service revenues from Rand Secure Archive services, and $183,000 from its CFD consulting business which the Company acquired in August 2012. Commission revenues increased $716,000, or 12.3%, for the three months ended March 31, 2013 when compared with the same period in the prior fiscal year, the result of increased commission revenues from government sales combined with an increased margin rate earned on Autodesk subscription sales, which are reported net of cost. 22 -------------------------------------------------------------------------------- Table of Contents Cost of Revenues and Gross Margin Three Months Ended March 31, % 2013 2012 change Cost of revenue: Cost of product sales $ 8,531,000 $ 7,596,000 12.3 % Cost of service revenue 3,996,000 3,444,000 16.0 % Total cost of revenue $ 12,527,000 $ 11,040,000 13.5 % Gross margin $ 13,618,000 $ 11,311,000 Cost of revenue. The total cost of revenue increased $1,487,000, or 13.5%, for the three months ended March 31, 2013 when compared to the same period in the prior fiscal year. Cost of product sales increased 12.3% during the three months ended March 31, 2013 when compared with the same period in the prior fiscal year, while product revenues increased 17.9%. Cost of product sales increased to a lesser extent than product revenues primarily due to increased sales rebates from the Company's principal supplier, Autodesk. These rebates are recorded as a reduction of cost of product sales. Beginning February 1, 2012, Autodesk ended most of its target-based rebates and began a new volume-based rebate which has resulted in larger rebates for the Company. In addition, sales of the Company's proprietary products such as Revit Clarity and licenses for ASCENT courseware titles increased significantly over last year, resulting in decreased product cost relative to product revenue as the development costs for such proprietary products were expensed in prior quarters when they were incurred. Cost of service revenue increased 16.0% for the three months ended March 31, 2013 when compared to the same period in the prior fiscal year, due to the fact that the Company hired additional technical staff, mainly those related to the Company's recent acquisitions of Informative Design Partners ("IDP") in July 2012 and Inlet Technology, LLC ("Inlet") in February 2012 as well as the expansion of the Rand Secure Archive division. Cost of service revenue as a percentage of related revenue decreased to 63.9% during the three months ended March 31, 2013 from 66.2% during the same period in the prior fiscal year as the Company's overall services productivity increased. Gross margin. The Company's overall gross margin percentage of 52.1% for the three months ended March 31, 2013 was higher than the 50.6% gross margin for the same period in the prior fiscal year due primarily to increased vendor rebates in the current quarter combined with higher gross margins in the Company's services division. Other Operating Expenses Three Months Ended March 31, % 2013 2012 change Other operating expenses: Selling, general and administrative $ 10,221,000 $ 9,091,000 12.4 % Depreciation and amortization 490,000 432,000 13.4 % Total other operating expenses $ 10,711,000 $ 9,523,000 12.5 % Selling, General and Administrative Expense. Selling, general and administrative expenses increased $1,130,000, or 12.4%, for the three months ended March 31, 2013 when compared to the same period in the prior fiscal year. Selling, general and administrative expense as a percent of total revenues was 39.1% for the three months ended March 31, 2013, a decrease from 40.7% for the same period in the prior fiscal year. The increase in these expenses was primarily the result of employees related to the Company's recent acquisitions as well as additional hiring in the Rand Secure Archive division. The increased revenues also resulted in increased sales commissions and performance-based bonuses. Depreciation and Amortization. Depreciation and amortization expenses increased $58,000, or 13.4%, for the three months ended March 31, 2013 when compared to the same period in the prior fiscal year. The increase was due primarily to the additional depreciation expense associated with hardware and software acquired for the Company's data archiving division. 23 -------------------------------------------------------------------------------- Table of Contents Other Expense, Net Three Months Ended March 31, % 2013 2012 change Other expense, net $ (242,000 ) $ (79,000 ) 206.3 % Other Expense, Net. The Company incurred $242,000 in other expense, net, during the three months ended March 31, 2013, compared to $79,000 during the same period in the prior fiscal year. The majority of the increase was due to foreign currency exchange losses of $104,000 during the current fiscal quarter compared to foreign currency exchange gains of $16,000 recorded in the same period in the prior fiscal year. Income Tax Expense Three Months Ended March 31, % 2013 2012 change Income tax expense $ 890,000 $ 70,000 1,171.4 % Income Tax Expense. The Company recorded $890,000 of income tax expense during the three months ended March 31, 2013, compared to $70,000 in income tax expense recorded for the same period in the prior fiscal year. The Company's effective tax rate was 33.4% during the three months ended March 31, 2013, compared to 4.1% during the same period in the prior fiscal year. In the prior fiscal year, the Company had a valuation allowance against its net operating loss carryforwards and was able to offset most of its income tax expense against its net operating loss carryforwards. During the quarter ended June 30, 2012, the Company recognized as an asset its U.S. net operating loss carryforwards that it expects will be realizable and, as a result, the Company's income tax expense is no longer offset against large unrecognized U.S. net operating loss carryforwards. Consequently, income tax expense is significantly higher. As of March 31, 2013, the Company had U.S. federal net operating loss carryforwards available to reduce future taxable income of approximately $38.0 million; however, $25.3 million of these carryforwards were not recognized because they are subject to annual limitations under Internal Revenue Code Section 382 and are expected to expire before being utilized. These carryforwards expire between 2013 and 2029. In addition, as of March 31, 2013, the Company had foreign net operating loss carryforwards of approximately $19.6 million available to reduce future taxable income, and net deferred tax assets of $6.8 million. The carryforwards expire between 2013 and 2029 for some jurisdictions and may be carried forward indefinitely for other jurisdictions. The Company maintains a valuation allowance on the entire amount of its foreign deferred tax assets due to insufficient history of profitable operations. The Company's Canadian subsidiary, Rand A Technology Corporation, is currently being audited by the Canada Revenue Agency for tax years 2005 through 2009. Management believes that it has properly recorded the tax expense for the periods under review and expects no material adjustments to the respective returns or to its financial statements. 24 -------------------------------------------------------------------------------- Table of Contents Nine Months Ended March 31, 2013 Compared to the Nine Months Ended March 31, 2012 The following tables set forth a comparison of the Company's results of operations for the nine-month period ended March 31, 2013 to the nine-month period ended March 31, 2012. 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. Revenues Nine Months Ended March 31, % 2013 2012 change Revenues: Product sales $ 35,408,000 $ 37,370,000 (5.3 )% Service revenue 17,134,000 15,265,000 12.2 % Commission revenue 16,786,000 14,132,000 18.8 % Total revenues $ 69,328,000 $ 66,767,000 3.8 % Revenues. Total revenues for the nine months ended March 31, 2013 increased by $2,561,000, or 3.8%, when compared to the same period in the prior fiscal year. Product sales decreased $1,962,000, or 5.3%, for the nine months ended March 31, 2013 when compared to the same period in the prior fiscal year. During the prior fiscal year, product sales included a single $700,000 sale in the Company's Australian operations, while during the current fiscal year the Company's product sales were lower for the first two quarters, but have improved during the third quarter. Service revenues increased $1,869,000, or 12.2%, for the nine months ended March 31, 2013 when compared with the same period in the prior fiscal year. The increased service revenue included $703,000 in increased software development projects, $521,000 from its CFD consulting business, and $622,000 in increased data archiving services. Commission revenues increased $2,654,000, or 18.8%, for the nine months ended March 31, 2013 when compared with the same period in the prior fiscal year. Commission revenues increased due to increased commission on government sales, increased volume of Autodesk subscriptions and improved margin rates on Autodesk subscriptions. Cost of Revenues and Gross Margin Nine Months Ended March 31, % 2013 2012 change Cost of revenue: Cost of product sales $ 22,721,000 $ 25,599,000 (11.2 )% Cost of service revenue 11,506,000 9,776,000 17.7 % Total cost of revenue $ 34,227,000 $ 35,375,000 (3.2 )% Gross margin $ 35,101,000 $ 31,392,000 Cost of revenue. The total cost of revenue decreased $1,148,000, or 3.2%, for the nine months ended March 31, 2013 when compared to the same period in the prior fiscal year. Cost of product sales decreased 11.2% during the nine months ended March 31, 2013 when compared with the same period in the prior fiscal year, while product revenue decreased 5.3%. Cost of product sales decreased to a larger extent than did product revenues primarily due to increased sales rebates from the Company's principal supplier, Autodesk. Beginning February 1, 2012, Autodesk ended most of its target-based rebates and began a new volume-based rebate which resulted in larger rebates for the Company. Furthermore, sales of proprietary products such as Revit Clarity and licenses for ASCENT courseware titles increased significantly over the prior year, resulting in decreased product cost relative to product revenue as the development costs for such proprietary products were expensed in prior quarters when they were incurred. 25 -------------------------------------------------------------------------------- Table of Contents Cost of service revenue increased 17.7% for the nine months ended March 31, 2013 when compared to the same period in the prior fiscal year, while service revenues increased 12.2%, as the Company hired additional technical staff, mainly those related to the Company's recent acquisitions as well as the expansion of the Rand Secure Archive division. Cost of service revenue as a percentage of related revenue increased to 67.2% during the nine months ended March 31, 2012 from 64.0% during the same period in the prior fiscal year for the reasons explained above. Gross margin. The Company's overall gross margin percentage of 50.6% for the nine months ended March 31, 2013 was higher than the 47.0% gross margin for the same period in the prior fiscal year due to increased vendor rebates in the current quarter combined with a positive sales mix and higher service revenues. Other Operating Expenses Nine Months Ended March 31, % 2013 2012 change Other operating expenses: Selling, general and administrative $ 28,669,000 $ 26,439,000 8.4 % Depreciation and amortization 1,445,000 1,227,000 17.8 % Total other operating expenses $ 30,114,000 $ 27,666,000 8.8 % Selling, General and Administrative Expense. Selling, general and administrative expenses increased $2,230,000, or 8.4%, for the nine months ended March 31, 2013 when compared to the same period in the prior fiscal year. Selling, general and administrative expense as a percent of total revenues was 41.4% for the nine months ended March 31, 2013, an increase from 39.6% for the same period in the prior fiscal year. The increase in these expenses was primarily the result of new employees including those related to the Company's recent acquisitions as well as the expansion of the Rand Secure Archive. Depreciation and Amortization. Depreciation and amortization expenses increased $218,000, or 17.8%, for the nine months ended March 31, 2013 when compared to the same period in the prior fiscal year. The increase was due primarily to the additional depreciation expense associated with hardware and software acquired for its data archiving division. Other Expense, Net Nine Months Ended March 31, % 2013 2012 change Other expense, net $ (347,000 ) $ (417,000 ) (16.8 )% Other Expense, Net. The Company incurred $347,000 in other expense, net, during the nine months ended March 31, 2013, compared to $417,000 during the same period in the prior fiscal year. The majority of the decrease was due to decreased interest expense as a result of lower average borrowing levels and lower interest rates as well as lower foreign currency exchange losses. Income Tax Expense Nine Months Ended March 31, % 2013 2012 change Income tax expense $ 1,793,000 $ 229,000 683.0 % Income Tax Expense. The Company recorded $1,793,000 of income tax expense during the nine months ended March 31, 2013, compared to $229,000 in income tax expense recorded for the same period in the prior fiscal year. The Company's effective tax rate was 38.6% during the nine months ended March 31, 2013, compared to 6.9% during the same period in the prior fiscal year. 26 -------------------------------------------------------------------------------- Table of Contents In the prior fiscal year, the Company had a valuation allowance against its net operating loss carryforwards and was able to offset most of its income tax expense against its net operating loss carryforwards. During the quarter ended June 30, 2012, the Company recognized as an asset its U.S. net operating loss carryforwards that it expects will be realizable and, as a result, the Company's income tax expense is no longer offset against large unrecognized U.S. net operating loss carryforwards. Consequently, income tax expense is significantly higher. As of March 31, 2013, the Company had U.S. federal net operating loss carryforwards available to reduce future taxable income of approximately $38.0 million; however, $25.3 million of these carryforwards were not recognized because they are subject to annual limitations under Internal Revenue Code Section 382 and are expected to expire before being utilized. These carryforwards expire between 2013 and 2029. In addition, as of March 31, 2013, the Company had foreign net operating loss carryforwards of approximately $19.6 million available to reduce future taxable income, and net deferred tax assets of $6.8 million. The carryforwards expire between 2013 and 2029 for some jurisdictions and may be carried forward indefinitely for other jurisdictions. The Company maintains a valuation allowance on the entire amount of its foreign deferred tax assets due to insufficient history of profitable operations. As discussed above, the Company's Canadian subsidiary, Rand A Technology Corporation, is currently being audited by the Canada Revenue Agency for tax years 2005 through 2009. Management believes that it has properly recorded the tax expense for the periods under review and expects no material adjustments to the respective returns or to its financial statements. Liquidity and Capital Resources Historically, the Company has financed its operations and met its capital expenditure requirements primarily through cash flows provided by operations and borrowings under short-term lines of credit. On February 29, 2012, the Company entered into an $8 million line of credit facility, including a $1,000,000 sublimit for the issuance of standby or trade letters of credit, with PNC Bank, National Association. The interest rate is the "Eurodollar Rate", which is calculated by using the LIBOR rate, plus a margin of 2.0%. The interest rate as of March 31, 2013 was 2.2%. The Company had outstanding borrowings from the bank under its credit line of approximately $2.4 million as of March 31, 2013 and $3.1 million outstanding as of June 30, 2012. The line expires on November 30, 2014. The Company's operating assets and liabilities consist primarily of accounts receivable, cash, borrowings under line of credit, accounts payable, and deferred revenue. Changes in these balances are affected principally by the timing of sales, collections and vendor payments. The Company purchases approximately 97% of its product from one principal supplier and its distributors that provide it with credit to finance those purchases. For the nine months ended March 31, 2013, net cash provided by operating activities was $2,550,000, compared to $3,411,000 for the nine months ended March 31, 2012. The decrease between periods was due mainly to increased accounts receivable due to increased revenue, partially offset by changes in accounts payable, accrued compensation and deferred income taxes. The Company's ongoing investing activities consist principally of investments in computer and office equipment. In July 2012, the Company acquired IDP for $600,000 in cash, $400,000 in common stock and potential future earnout payments. Purchases of equipment for the nine months ended March 31, 2013 increased to $829,000 from $679,000 when compared to the nine months ended March 31, 2012, mainly as the result of purchases of software and hardware for the Rand Secure Archive business and normal periodic replacement of computer equipment. For the nine months ended March 31, 2013, net cash used in financing activities was $1,021,000 compared to net cash used in financing activities of $2,404,000 during the nine months ended March 31, 2012. The difference resulted mainly from a larger net pay down of the line of credit during nine months ended March 31, 2012. The Company had a working capital surplus of $7,481,000 as of March 31, 2013 as compared with $3,573,000 as of June 30, 2012. 27 -------------------------------------------------------------------------------- Table of Contents Because the Company is one of the largest resellers of Autodesk software and because Autodesk has continued to state its intention to continue to strengthen its relationships with its resellers, the Company expects to continue to be a leading seller of Autodesk software. The Company is a party to a Value Added Reseller Agreement with Autodesk effective February 1, 2013. The agreement provides for an initial term of twelve months that, subject to certain requirements and termination rights of the parties, automatically renews on an annual basis for two additional twelve-month periods. The agreement designates the Company as an authorized reseller of Autodesk software and prescribes the authorized sales territories, authorized products and services, rebate and incentive program details and marketing support. 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, 2013: Twelve months ending March 31: 2014 $ 2,423,000 2015 2,034,000 2016 1,526,000 2017 946,000 2018 525,000 Thereafter 349,000 Total minimum lease payments $ 7,803,000 Capital Leases The Company has various components of computer equipment that are used in its training facilities and by employees throughout its office locations, much of which is leased. These capital lease obligations totaled $689,000 as of March 31, 2013 with approximately $294,000 representing the short-term balance of the lease and shown as Obligations under capital leases in the accompanying balance sheets. Payments for the leases are made either monthly or quarterly through September 2016 and depreciation expense on this equipment was approximately $187,000 as of March 31, 2013. Future minimum payments consisted of the following at March 31, 2013: Twelve months ending March 31: 2014 $ 339,000 2015 256,000 2016 136,000 2017 56,000 Total minimum lease payments 787,000 Less: Taxes 39,000 Imputed interest 59,000 Present value of future minimum lease payments $ 689,000 |