Avatech Solutions

Avatech Solutions Reports Strong Second Fiscal Quarter Results

Tuesday 16 February 2010

FOR IMMEDIATE RELEASE

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Company Strengthens Balance Sheet; Reports $1,060,000 Adjusted EBITDA

BALTIMORE – February 16, 2010 – Avatech Solutions, Inc. (OTCBB: AVSO), the nationwide technology experts for design, engineering, and facilities management, announced financial results for its second fiscal quarter and for the six months ended December 31, 2009.

“We are very pleased with our strong performance for the quarter, which was the second consecutive quarter of positive net income and a significant improvement in the bottom line when compared to last year. These results clearly demonstrate our ability to manage our business in spite of this challenging economic environment and we continue to be cautiously optimistic about the continuing recovery. As we have said in the past, our staffing and expense levels allow us to remain profitable on lower revenue levels and deliver sound financial results,” commented President and Chief Financial Officer Lawrence Rychlak. “With that said, we will continue to manage our costs and focus on maintaining a positive bottom line in the coming quarters.”

Avatech reported total revenues of $7.7 million for its fiscal second quarter, compared to $9.5 million in the prior-year quarter. The Company’s overall gross margin percentage increased to 59.2% for the three months ended December 31, 2009 compared to 43.6% the quarter ended December 31, 2008. Despite realizing lowered revenues from the prior year, the Company increased its operating income by $1.2 million to $861,000 for the three months ended December 31, 2009 when compared to the same period in the prior fiscal year. For the second quarter of fiscal 2010, the Company reported net income of $482,000, or $0.02 per fully diluted share, as compared with a net loss of $223,000, or $(0.03) per fully diluted share, for the quarter ended December 31, 2008. Adjusted EBITDA (as defined) was $1,060,000, compared to negative adjusted EBITDA of $67,000 in the prior year period.

For the six months ended December 31, 2009, Avatech reported total revenues of $15.5 million, compared to $20.3 million in the prior-year period. The Company’s overall gross margin percentage increased to 52.7% for the six months ended December 31, 2009 compared to 44.0% for the same period in the prior fiscal year. Operating income increased to $1.1 million for the six months ended December 31, 2009 as compared with an operating loss of $118,000 the same period in the prior fiscal year. For the six months ended December 31, 2009, the Company reported net income of $608,000, or $0.02 per fully diluted share, as compared with a net loss of $70,000, or $(0.02) per fully diluted share, for the quarter ended December 31, 2008. Adjusted EBITDA (as defined) for the six month period ended December 31, 2009 was $1,487,000, compared to adjusted EBITDA of $380,000 in the prior year period.

Avatech’s balance sheet continues to strengthen as evidenced by cash of $3.2 million, working capital in excess of $1.8 million, and only $98,000 of long-term liabilities. In addition, the Company has redeemed all but $500,000 of its Series F Preferred Stock and expects to redeem the remaining amount by March 31, 2010. In addition, Avatech continues to maintain a $5 million line of credit but it has not needed to use any of the financing capacity during fiscal 2010.

George Davis, Chief Executive Officer, added, “It is very encouraging to see our core business continuing its recovery as Avatech is uniquely positioned to leverage the strength of its operating results and financial position to remain a leader in its markets. This strength will allow us to focus more time and resources on identifying and executing on growth and diversification initiatives in the coming quarters with the objective of increasing shareholder value.”

Conference Call Information

Avatech Solutions will hold a conference call to discuss its fiscal 2010 second quarter results at 11 a.m. ET on February 16, 2010. The dial-in numbers for the conference call are (866) 356-4279 (domestic) or (617) 597-5394 (international), and enter the passcode (15575988). A replay of the call will also be available through February 23, 2010, and can be accessed by dialing (888) 286-8010 (domestic) or (617) 801-6888 (international), and dialing the passcode (70993622).

A live webcast of the conference call will be available to all investors in the Investor Relations section of the Company's website, www.avatech.com. For those who cannot listen to the live broadcast, an audio replay of the call will also be available on the Company’s site for a limited time.

Note Regarding Use of Non-GAAP Financial Measure

This news release contains the non-GAAP measure Adjusted EBITDA. Adjusted EBITDA represents earnings (or losses) before interest, income taxes, depreciation and amortization, and stock-based compensation expense.

Adjusted EBITDA is used by management, analysts, investors and other interested parties in evaluating our operating performance compared to that of other companies in our industry, as the calculation of EBITDA as adjusted eliminates the effect of financing, income taxes, stock-based compensation costs, the accounting effects of capital spending and certain other merger related expenses, which items may vary from different companies for reasons unrelated to overall operating performance.

Avatech believes this non-GAAP measure provides useful information to both management and investors by excluding certain expenses that may not be indicative of its core operating results. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measure included in this press release has been reconciled to the GAAP results in the accompanying table.

About Avatech Solutions

Avatech Solutions, Inc. (OTCBB: AVSO) is America’s leading professional services company for design and engineering technologies. Avatech advances the way organizations design, develop, and manage building, infrastructure, and manufacturing projects. Fortune 500 and Engineering News Record's Top 100 companies work with Avatech to gain a competitive advantage through technology consulting, implementation, training, and support services. One of the world’s largest integrators of Autodesk software, Avatech designs systems that accelerate innovation while improving quality and profitability. For more information please visit www.avatech.com.

Forward-looking Statement

This press release contains forward-looking statements about the expectations, beliefs, plans, intentions, and strategies of Avatech Solutions, Inc. There are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information. Statements that are not historical in nature, including those that include the words “goal,” “expect,” “anticipate,” “estimate,” “should,” “believe,” “intend,” and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which Avatech 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, and demand for our products and services; changes in our competitive position or competitive actions by other companies; the ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this document 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 our business or operations.

Company Contact Investor Relations Contact

Jean Schaeffer Todd Fromer / Garth Russell

Avatech Solutions, Inc. KCSA Strategic Communications

Phone +1 (410) 581-8080 Phone +1 (212) 896-1215 / 1250

Fax +1 (410) 753-1591

jean.schaeffer@avatech.com tfromer@kcsa.com / grussell@kcsa.com

(Tables Below)


Avatech Solutions, Inc.
Summary Consolidated Financial Data


	Six Months Ended December 31,
	2009	2008

Revenues-
Product sales	$7,762,000	$10,871,000
Service revenue	4,091,000	5,140,000
Commission revenue	3,658,000	4,273,000
Total revenues	15,511,000	20,284,000

Cost of revenues-
Cost of product sales	4,832,000	7,353,000
Cost of service revenue	2,504,000	4,015,000
Total cost of revenues	7,336,000	11,368,000

Gross margin	8,175,000	8,916,000
Operating income (loss)	1,099,000	(118,000)
Net income (loss)	608,000	(70,000)

Earnings (loss) per share:
Basic	$ 0.03	$ (0.02)
Diluted	$ 0.02	$ (0.02)

Weighted average common shares outstanding:
Basic	17,090,374	16,718,839
Diluted	19,323,782	16,718,839


	December 31,	June 30,
	2009	2009

Total assets	$18,358,000	$17,259,000

Total liabilities	$8,523,000	$6,498,000
Series F convertible preferred stock	454,000	1,864,000
Total stockholders' equity	9,381,000	8,897,000
Total liabilities and stockholders' equity	$18,358,000	$17,259,000


Avatech Solutions, Inc.
Reconciliation of non-GAAP financial measure

		Three Months Ended			Six Months Ended
	12/31/2009		12/31/2008	12/31/2009		12/31/2008

GAAP net income	$ 482,000		$ (223,000)	$ 608,000		$ (70,000)
Provision for income taxes	370,000		(99,000)	474,000		(3,000)
Income before income taxes	852,000		(322,000)	1,082,000		(73,000)

Stock-based compensation	49,000		55,000	80,000		108,000
Net interest (income) expense	9,000		5,000	18,000		(18,000)
Depreciation and amortization	150,000		195,000	307,000		363,000
Adjusted EBITDA	$ 1,060,000		$ (67,000)	$ 1,487,000		$ 380,000


Note 1 - Management uses adjusted EBITDA, a non-GAAP measure, to evaluate the Company's operating
performance and compare the Company's current results with those for prior periods, but cautions that
they should not be considered as a substitute for disclosures made in accordance with GAAP

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