S-1

REGISTRATION NO. 333-            

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

AVATECH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	7372	52-2023997
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

(410) 581-8080

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

Christopher Olander

Executive Vice President And General Counsel

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

(410) 753-1587

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

COPY TO:

Hillel Tendler

Neuberger, Quinn, Gielen, Rubin & Gibber, P.A.

One South Street, 27^th Floor

Baltimore, Maryland 21202

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  x

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price per Common Share (1)	Proposed Maximum Aggregate Offering Price (1)	Amount of Registration Fee
Common Stock, $0.01 par value per share	694,445	$1.95	$1,354,168	$144.90

(1) Based on the average of the bid and asked prices of $1.95 per share of registrant’s common stock reported on the OTC Bulletin Board on June 6, 2006, within five days of the filing of this registration statement, in accordance with Rule 457(c).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where such offer is not authorized.

PROSPECTUS

AVATECH SOLUTIONS, INC.

694,445 SHARES OF COMMON STOCK

This Prospectus relates to the resale of an aggregate of 694,445 shares of the Common Stock of Avatech Solutions, Inc. (“we” or the “Company”) owned by shareholders having registration rights with respect to resales of shares acquired by them in connection with our acquisition of all of the capital stock or LLC membership interests in Sterling Systems & Consulting, Inc. and certain affiliated entities.

The selling stockholders identified beginning on page 7 are offering the shares of our Common Stock covered in this Prospectus. The shares of our Common Stock that may be resold by the selling stockholders constitute approximately 5.6% of our issued and outstanding Common Stock on June 1, 2006 after giving effect to the conversion of all of the outstanding shares of Preferred Stock and the exercise of outstanding warrants to purchase shares of our Common Stock.

The selling stockholders may sell shares of our Common Stock from time to time in the principal market on which the stock is traded at the prevailing market price, in negotiated transactions, or otherwise. The selling stockholders may be deemed to be underwriters of the shares of our Common Stock that they are offering. Please see the “Selling Stockholders” section beginning on page 7 in this Prospectus for a complete description of all of the selling stockholders.

The selling stockholders will receive all of the amounts received upon any sale by them of shares of our Common Stock, less any brokerage commissions or other expenses incurred by them. The selling stockholders will receive all sale proceeds and we will not receive any proceeds from the sale of shares of our Common Stock by the selling stockholders.

You should read this Prospectus and any supplement carefully before you invest.

Our Common Stock is traded on the Over-the-Counter Bulletin Board (OTC Bulletin Board) under the symbol “AVSO.OB”. The last sale price on June 6, 2006 was $1.95 per share.

Investing in our securities involves risks. See “ Risk Factors” beginning on page 3 to read about factors you should consider before buying shares of our Common Stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Date of this Prospectus is June     , 2006

TABLE OF CONTENTS [PAGE NUMBERS TO CHANGE]

Where You Can Find More Information	1
Incorporation Of Documents By Reference	1
Prospectus Summary	2
Risk Factors	3
Selling Stockholders	7
Business	8
Plan Of Distribution	8
Description Of Securities	9
Disclosure Of Commission Position On Indemnification For Securities Act Liabilities	11
Legal Matters	11
Experts	11

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WHERE YOU CAN FIND MORE INFORMATION

We file annual reports, quarterly reports, periodic reports and proxy statements with the U.S. Securities and Exchange Commission. You may read and copy any document that we file at the SEC’s public reference facilities at 100 F Street N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings are also available to you free of charge at the SEC’s web site at http://www.sec.gov. Information about us may be obtained from our website www.avatechsolutions.com. Copies of our SEC filings are available free of charge on the website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investors” menu item, then click on the “SEC Filings” link.

This Prospectus is a part of the registration statement that we filed on Form S-1 with the SEC. The registration statement contains more information about us and our Common Stock than this Prospectus, including exhibits and schedules. You should refer to the registration statement for additional information about us and our Common Stock being offered in this Prospectus. Statements that we make in this Prospectus relating to any documents filed as an exhibit to the registration statement or any document incorporated by reference into the registration statement may not be complete and you should review the referenced document itself for a complete understanding of its terms.

INCORPORATION OF DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with them. This means that we can disclose information to you by referring you to those documents. The documents that have been incorporated by reference are an important part of the Prospectus, and you should review that information in order to understand the nature of any investment by you in our Common Stock. Information contained in this Prospectus automatically updates and supersedes previously filed information. We are incorporating by reference the documents listed below:

• Our Annual Report on Form 10-K for the fiscal year ended June 30, 2005; and

• Our Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30 and December 31, 2005, and March 31, 2006; and

• Our Current Reports on Form 8-K filed on May 16 and June 1, 2006; and

• Our Proxy Statement for our Annual Meeting of Stockholders held on November 10, 2005; and

• All of our filings pursuant to Sections 13(a) or 15(d) under the Securities Exchange Act of 1934, as amended, since the date of the filing of our Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

We will provide to each person, including any beneficial owner, to whom this prospectus is delivered, a copy of any or all of the reports or documents that have been incorporated by reference into this prospectus. If you would like a copy of any of these documents, at no cost, please write or call us at:

Avatech Solutions, Inc.

10715 Red Run Boulevard, Suite 101

Owings Mills, Maryland 21117

Attn: Christopher Olander, Corporate Secretary

(410) 753-1587

You should only rely upon the information included in or incorporated by reference into this Prospectus or in any Prospectus supplement that is delivered to you. We have not authorized anyone to provide you with additional or different information. You should not assume that the information included in or incorporated by reference into this Prospectus or any Prospectus supplement is accurate as of any date later than the date on the front of the Prospectus or Prospectus supplement.

We have not authorized any person to provide you with information different from that contained or incorporated by reference in this Prospectus. The selling shareholders are offering to sell, and seeking offers to buy, shares of our Common Stock only in jurisdictions where offers and sales are permitted. The information contained in this Prospectus is accurate only as of the date of this Prospectus, regardless of the time of delivery of this Prospectus or of any sale of our Common Stock.

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PROSPECTUS SUMMARY

This summary highlights selected information from this Prospectus and may not contain all of the information that is important to you. To understand the terms of the securities we are offering, you should carefully read this document with any attached Prospectus supplement. You should also read the documents to which we have referred you in “Where You Can Find More Information” on page 1 for additional information about us and our financial statements.

Our Business

A copy of our Annual Report on Form 10-K for the fiscal year ended June 30, 2005 accompanies this Prospectus and contains information about us, including audited financial statements for our fiscal year ended June 30, 2005. Please refer to the Annual Report for additional information.

Risk Factors

Purchasers of our Common Stock should consider carefully, in addition to the other information contain in or incorporated by reference into this Prospectus or any supplement, the risk factors set forth in the Risk Factors section beginning on page 3.

Use of Proceeds

We will not receive any proceeds from the sale of our Common Stock under this Prospectus by the selling stockholders identified under “Selling Stockholders.”

Plan of Distribution

The selling stockholders will sell shares covered by this Prospectus in open-market transactions effectuated on the OTC Bulletin Board or in privately negotiated transactions.

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RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE DETERMINING WHETHER OR NOT TO INVEST IN SHARES OF OUR COMMON STOCK.

RISK FACTORS RELATING TO OUR BUSINESS GENERALLY

We have a history of significant losses and may never achieve profitability.

In the last five fiscal years of operation, we have reported a net profit only in the fiscal years ended June 30, 2001 and 2005. Although we were profitable for the fiscal year ended June 30, 2005, and believe we will continue to be profitable on a quarterly and annual basis, we may not be able to sustain or increase profitability on a quarterly or an annual basis in the future.

We have a limited operating history, which makes it difficult to evaluate our business and prospects.

We began operations in 1997, with the merger of four founding companies. Since that time, we have acquired 13 additional companies or their assets. Management believes it has successfully integrated these businesses and their disparate operations, employees and management structures and personnel. The limited history and continuing evolution of our operations makes it difficult to evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses, and difficulties frequently encountered by companies in their early stages of development. If we fail to address these risks and uncertainties, we may be unable to grow our business, increase our revenue, or continue to be profitable.

Our reliance on the sale of a single software vendor’s products could decrease our revenues and our profitability.

We derive over 90% of our net revenues from the sale and integration of Autodesk products and from providing upgrades and related services for those products. As such, if sales of Autodesk products and upgrades decrease, our revenues will decrease, which will adversely affect our profitability.

If our relationship with Autodesk is not renewed each year, our revenues would significantly decrease and such decrease would jeopardize our viability.

Our continued growth and future success are largely dependent upon maintaining our relationship with Autodesk. While our current relationship with Autodesk is good, there can be no assurance that this relationship will continue. Under the terms of the Autodesk Channel Partner Agreement, this relationship must be renewed each year. Because over 90% of our revenues are attributable to the resale of Autodesk products and related services, Autodesk’s failure to renew its relationship with us would significantly decrease our sales, revenues and overall financial condition, and would jeopardize our viability.

Our products may contain undetected errors that could harm our sales and revenue and result in increased operating expenses and liabilities.

Our business depends on complex computer software, both internally developed and licensed from third parties. Complex software often contains defects, particularly when first introduced or when new versions are released. Although we conduct extensive testing, we may not discover software defects that affect new or current products and services or enhancements until after they are deployed. In the past, we have discovered software errors in some new products and enhancements after their introduction, and we may find errors in current or future new products or releases after commencement of commercial use. If we market products and services that contain errors or that do not function properly, we may experience negative publicity, loss of or delay in market acceptance, or claims against us by customers, any of which could harm our current and future sales or result in expenses and liabilities that could reduce our operating results and adversely affect our financial condition and the market for our common stock.

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We may inadvertently infringe on third party proprietary rights, which could result in costly litigation, reduced sales and revenue and a decline in the price of our stock.

We may be subject to claims alleging that we have infringed third party proprietary rights. Litigating such claims, whether meritorious or not, is costly. The expenditure of such costs, and the accompanying diversion of management time to such litigation, may cause a decrease in attention to sales and product development and a corresponding decrease in revenue. These claims might require us to enter into royalty or license agreements with terms unfavorable to us. If we were found to have infringed upon the proprietary rights of third parties, we could be required to pay damages, cease sales of the infringing products, or redesign or discontinue such products, any of which could materially reduce our sales and revenue and cause a decline in the market price for our common stock.

If we are unable to raise additional capital on favorable terms, our ability to fund growth and otherwise operate our business will be significantly limited.

We may need to raise additional capital to develop and enhance our services and products, fund expansion, respond to competitive pressures, or acquire complementary businesses or technologies. We may not be able to raise additional financing on favorable terms, if at all. Our agreements with our lenders restrict the types of capital we can raise without the consent of our lenders. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and the securities issued may have rights, preferences, or privileges senior to those of our common stock. If we cannot raise adequate funds on acceptable terms, our ability to fund growth, take advantage of business opportunities, develop or enhance services or products, or otherwise respond to competitive pressures will be significantly limited. Insufficient funds may require us to scale-back or eliminate some or all of our plans for growth.

The terms of our indebtedness imposes significant restrictions on our ability to raise capital.

Without the consent of our senior lender, our existing outstanding indebtedness restricts our ability to, among other things:

• incur additional debt;

• repay other debt;

• pay dividends;

• make certain investments, mergers or acquisitions;

Failure to meet any of these covenants could result in an event of default under our outstanding loan arrangements. If an event of default occurs, our lenders may take one or more of the following actions:

• increase our borrowing costs;

• restrict our ability to obtain additional borrowings;

• accelerate all amounts outstanding; or

• enforce their interests against collateral pledged.

If any lender accelerates our debt payments, our assets may not be sufficient to fully repay the debt.

In addition, we cannot declare dividends or incur additional debt without the written approval from our lenders, which could significantly restrict our ability to raise additional capital. Our ability to receive the necessary approvals is largely dependent upon our relationship with our lenders and our performance, and no assurances can be given that we will be able to obtain the necessary approvals in the future. Our inability to raise additional capital could lead to working capital deficits that could have a materially adverse effect on our operations in future periods.

We may not be able to successfully expand through strategic acquisitions, which could decrease our profitability.

A key element of our strategy is to pursue strategic acquisitions that either expand or complement our business, in order to increase revenues and earnings. We may not be able to identify additional attractive acquisition candidates on terms favorable to us or in a timely manner. We may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to us, if at all. Moreover, we may not be able to successfully integrate any acquired businesses into our business or to operate any acquired businesses profitably. Each of these factors may contribute to our inability to successfully expand through strategic acquisitions, which could ultimately result in increased costs without a corresponding increase in revenues, which would result in decreased profitability.

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Our inability to efficiently complete or integrate future strategic acquisitions may divert management resources away from business operations and cause greater expenses and decreased revenues and sales.

We may find it necessary or desirable to acquire additional complementary businesses, products or technologies. Integrating product acquisitions and completing any future acquisitions could cause significant diversions of management time and resources. Managing acquired businesses entails numerous operational and financial risks. These risks include difficulty in assimilating acquired operations, diversion of management’s attention, and the potential loss of key employees or customers of acquired operations. We may not be able to effectively integrate any such acquisitions, and our failure to do so could result in significant expenses and lost revenue.

Any acquisition we make could disrupt our business and harm our financial condition and operations.

In an effort to effectively compete in the design automation solutions and facilities management markets where increasing competition and industry consolidation prevail, we may acquire complementary businesses in the future. In the event of any future acquisitions, we could:

• issue additional stock that would dilute our current shareholders’ percentage ownership;

• incur debt and assume liabilities;

• incur amortization expenses related to intangible assets; or

• incur large and immediate write-offs of intangible assets, accounts receivable or other assets.

These events could result in significant expenses and decreased revenue, or could substantially affect the market price of our common stock.

RISK FACTORS RELATING TO OUR STOCK AND CAPITAL STRUCTURE

The high volatility of our stock price could materially and adversely affect the price of our stock.

The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our stock price may include:

• fluctuations in sales or operating results;

• announcements of technological innovations or new software standards by us or our competitors;

• published reports of securities analysts;

• developments in patent or other proprietary rights;

• changes in our relationships with development partners and other strategic alliance partners; and

• general market conditions, especially regarding the general performance of comparable technology stocks.

Many of these factors are beyond our control. These factors may materially adversely affect the market price of our common stock, regardless of our operating performance.

The conversion of our Series D Convertible Preferred Stock, the conversion of our Series E Convertible Preferred Stock, and the exercise of a substantial number of warrants would increase the amount of our common stock in the trading market, which could substantially affect the market price of our common stock.

Between November 19, 2003 and December 31, 2003, we sold units consisting of one share of Series D Convertible Preferred Stock, then convertible into two shares of common stock (an aggregate of 2,597,236 shares), and a warrant to purchase a single share of common stock for $0.45. The warrants expired in December, 2004. On July 29, 2005, we sold units consisting of one share of Series E Convertible Preferred Stock, which in the aggregate are convertible into 1,832,306 shares of common stock, and warrants to purchase an aggregate of 366,475 shares of common stock, in each case for $.65 per share. In the event of the exercise of a substantial number of warrants accompanying the Series E Convertible Preferred Stock, or the conversion of a substantial number of shares of Series D or Series E Convertible Preferred Stock, the resulting increase in the amount of our common stock in the trading market could substantially affect the market price of our common stock.

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The exercise of outstanding options will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

As of the date of this Prospectus, there are outstanding options to purchase an aggregate of 1,985,082 shares of our common stock at per share exercise prices ranging from $.12 to $63.33. The exercise of such outstanding options would dilute the percentage ownership of our existing stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

The Selling Stockholders may choose to sell shares at prices below the current trading price.

The Selling Stockholders are not restricted as to the prices at which they may sell their shares of our common stock. Sales of shares of our common stock below the then-current trading prices may adversely affect the market price of our common stock.

RISK FACTORS RELATING TO OUR ARTICLES OF INCORPORATION

Our certificate of incorporation and bylaws could delay or prevent the acquisition or sale of our company and prevent our shareholders from receiving any potential benefit from an offer to acquire us.

Our charter and bylaws, resulting from our merger with PlanetCAD, as well as the General Corporation Law of the State of Delaware, may deter, discourage, or make more difficult a change in control, even if such a change in control would benefit our shareholders. As a result, shareholders may be unable to receive any economic or other benefit contained in any proposal. In particular, the board of directors may issue preferred stock having such designations, rights, and preferences as they determine; only shareholders owning not less than two-thirds of the outstanding shares may call special meetings of shareholders; advance notice is required for presentation of new business and nominations of directors at meetings of shareholders; and our bylaws may be amended only by the board of directors or by the holders of two-thirds of the outstanding voting stock.

The liability of our directors is limited.

Our Articles of Incorporation limit the liability of directors to the maximum extent permitted by Delaware law.

It is unlikely that we will issue dividends on our common stock in the foreseeable future.

We have never declared or paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. The payment of dividends in the future will be at the discretion of our board of directors.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

We have made forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) in this document and in documents that are incorporated by reference in this document that are subject to risks and uncertainties. We caution you to be aware of the speculative nature of forward-looking statements. Forward-looking statements include the information concerning possible or assumed future results of our operations. Also, statements including words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” or similar expressions are forward-looking statements. These statements reflect our good faith belief based on current expectations, estimates and projections about (among other things) the industry and the markets in which we operate, but they are not guarantees of future performance. Purchasers of shares offered hereby should note that many factors, some of which are discussed elsewhere in this document and in the documents incorporated by reference in this document, could affect our future financial results and could cause actual results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document. Important factors that could cause actual results to differ materially from the expectations reflected in the forward-looking statements in this Prospectus include, among others, the factors set forth under the caption “Risk Factors,” general economic, business and market conditions, changes in laws, and increased competitive pressure. We can give no assurances that the actual results we anticipate will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

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RECENT DEVELOPMENTS

On May 30, 2006, we completed the acquisition of Sterling Systems & Consulting, Inc., Sterling Ohio Management, Inc., Sterling-Ohio LLC, and Sterling-Indiana LLC (collectively, “Sterling”). In connection with this acquisition, we paid to the shareholders and members of Sterling aggregate consideration of $8 million, consisting of $6.5 million in cash, and the issuance to such shareholders and members of an aggregate of 694,445 shares of our Common Stock. These shares were issued in reliance upon the exemption from registration provided by Regulation D under the Securities Act of 1933, as amended.

Also on May 30, 2006, we and Avatech Solutions Subsidiary, Inc., our operating subsidiary, entered into a $6.5 million term loan with Mercantile – Safe Deposit and Trust Company to finance the cash portion of the purchase price for Sterling. The loan provides for monthly interest payments at the prime rate plus 2.0% per annum, with full principal repayment in ninety days and is secured by all of our assets and the assets of our subsidiary. We are negotiating and expect to close within 15 days an equity investment the proceeds of which will be used, in part, to repay this loan.

SELLING STOCKHOLDERS

This Prospectus relates to the resale of an aggregate of 694,445 shares of the Common Stock of Avatech Solutions, Inc. (“we” or the “Company”), held by certain stockholders to whom we granted registration rights in connection with our acquisition of all of the capital stock and LLC membership interests in Sterling. In accordance with our contractual obligations to most of these stockholders, we filed a Registration Statement on Form S-1, of which this Prospectus constitutes a part, in order to permit the Selling Stockholders to resell to the public the shares of our Common Stock issued to them.

The following table, to our knowledge, sets forth information as of April 30, 2006 regarding the beneficial ownership of shares of our Common Stock held by each Selling Stockholder and the number of shares being offered hereby by each Selling Stockholder. Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to shares, as well as any shares as to which the selling stockholder has the right to acquire beneficial ownership within sixty (60) days after April 30, 2006. Unless otherwise indicated below, each selling stockholder has sole voting and investment power with respect to its shares of common stock. The inclusion of any shares in this table does not constitute an admission of beneficial ownership by the Selling Stockholder. We will not receive any of the proceeds from the sale of our common stock by the Selling Stockholders. None of these Selling Stockholders are, or are affiliates of, a broker-dealer registered under the Securities Exchange Act of 1934.

	Shares Beneficially Owned Prior to Offering				Shares Beneficially Owned Following Offering
Name	Shares	%		Shares Offered	Shares	%
Bruce White(1)	413,807	3.3	%	413,806	-0-	0	%
Shelly White(1)	247,647	1.98	%	247,647	-0-	0	%
Marcy Nungesser	4,124	*		4,124	-0-	0	%
Kevin Breslin	4,124	*		4,124	-0-	0	%
Kenneth Williams	4,124	*		4,124	-0-	0	%
David Press	4,124	*		4,124	-0-	0	%
Steve Wydulga	16,494	*		16,494	-0-	0	%
TOTAL	694,445			694,445

(1) Bruce White and Shelly White are husband and wife.

* Less than 1%.

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BUSINESS

Our Annual Report on Form 10-K for the fiscal year ended June 30, 2005, and our Quarterly Reports on Form 10-Q for the fiscal quarters ended September 30, and December 31, 2005, and March 31, 2006, and subsequent Current Reports on Form 8-K, incorporated by reference into this Prospectus, contain information about us, including audited financial statements for our fiscal year ended June 30, 2005 and unaudited financial statements for our fiscal quarters ended September 30, and December 31, 2005 and March 31, 2006. Please refer to these reports for additional information.

PLAN OF DISTRIBUTION

The Selling Stockholders and their successors by the laws of descent and distribution may, from time to time, sell any or all of the shares covered by this prospectus. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner, and size of each sale.

The Selling Stockholders may sell shares of common stock directly to purchasers from time to time. Alternatively, they may from time to time offer the common stock to or through broker–dealers or agents, who may receive compensation in the form of concessions or commissions from the Selling Stockholders or the purchasers of such common stock for whom they may act as agents.

Such sales may be made on any stock exchange, quotation system, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• an exchange distribution in accordance with the rules of the applicable exchange;

• settlement of short sales entered into after the date of this prospectus;

• broker-dealers may agree with a Selling Stockholder to sell a specified number of such shares at a stipulated price per share;

• through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

• a combination of any such methods of sale; or

• any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by any Selling Stockholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts relating to his sales of shares of our common stock to exceed what is customary in the types of transactions involved.

In connection with the sale of our common stock or interests therein, a Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. A Selling Stockholder may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.

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Upon us being notified in writing by a Selling Stockholder that any material arrangement has been entered into with a broker-dealer for the sale of common stock through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker or dealer, a supplement to this prospectus will be filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of the participating broker-dealer(s), (ii) the number of shares involved, (iii) the price at which the shares of Common Stock were sold, (iv) the commissions paid or discounts or concessions allowed to such broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not conduct any investigation to verify the information set out or incorporated by reference in this prospectus, and (vi) other facts material to the transaction. In addition, upon us being notified in writing by the personal representative of a Selling Stockholder that distributions from the Selling Stockholder’s estate have been made and a beneficiary intends to sell more than 500 shares covered by this prospectus, a supplement to this prospectus will be filed if then required in accordance with applicable securities laws.

A Selling Stockholder and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, that can be attributed to the sale of the shares will be paid by the Selling Stockholder and/or the purchasers. The Selling Stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute the common stock. There is no underwriter or coordinating broker acting in connection with the proposed sale of our common stock by the Selling Stockholders. Because the Selling Stockholders may be deemed to be an “underwriter” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act. We have informed the Selling Stockholders of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares.

We have agreed to keep this prospectus effective until all shares offered hereby have been sold.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution. In addition, a Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholder or any other person.

DESCRIPTION OF SECURITIES

As of the date of Prospectus, we have the authority to issue an aggregate of 100,000,000 shares of capital stock, consisting of 80,000,000 shares of our Common Stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par value $0.01 per share, issuable from time to time by our board of directors in one or more classes or series. As of June 1, 2006, there were 12,509,607shares of our Common Stock outstanding, 1,297,537 shares of our Series D Convertible Preferred Stock outstanding, and 1,191 shares of our Series E Convertible Preferred Stock outstanding.

Common Stock

Shares of our Common Stock are currently quoted on the OTC Bulletin Board under the symbol “AVSO.OB”. Holders of our Common Stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted can elect all of the directors then being elected. The holders of our Common Stock are entitled to receive dividends when, as and if declared by the Board of directors out of funds legally available. In the event of our liquidation, dissolution, or winding up, holders of our Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over our Common Stock. Holders of

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shares of our Common Stock, as such, have no redemption, preemptive or other subscription rights, and there are no conversion provisions applicable to our Common Stock. All of the outstanding shares of our Common Stock are fully paid and nonassessable.

Preferred Stock

Our Board of Directors is authorized, without further action by the shareholders, to issue series of preferred stock from time to time, and to designate the rights, preferences, limitations and restrictions of and upon shares of each series including dividend, voting, redemption and conversion rights. The Board of Directors also may designate par value, preferences in liquidation, and the number of shares constituting any series. We believe that the availability of preferred stock issuable in series will provide increased flexibility for structuring possible future financings and acquisitions, if any, and in meeting other corporate needs. The rights and privileges of holders of preferred stock could adversely affect the voting power of holders of common stock, and the authority of our Board of Directors to issue preferred stock without further shareholder approval could have the effect of delaying, deferring, or preventing a change in control of the Company Our board of directors currently has one class of preferred stock designated under our Charter; the Series D Convertible Preferred Stock. In addition, the board of directors has the authority to designate additional classes or series of preferred stock in the future with rights that may adversely affect the rights of the holders of our common stock or its market price.

Certain Provisions Relating to a Change of Control

Provisions Related To The Election Of Directors And Stockholder Action. Our certificate of incorporation requires the affirmative vote of two-thirds of the shareholders to remove a director from the board of directors without cause. The certificate of incorporation also provides that our remaining directors may fill any and all board vacancies, unless the remaining directors approve a stockholder vote to fill a vacancy. Our bylaws prohibit less than two-thirds of our shareholders from calling a special meeting, whether for the purpose of replacing directors or for any other purpose. Therefore, a third party interested in taking control of Avatech quickly will not be able to do so unless the third party acquires two-thirds or more of our voting securities at the time of the acquisition. In addition, our certificate of incorporation and bylaws prohibit shareholders from taking action by written consent in lieu of a meeting.

Certain Statutory Provisions. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, this provision prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

• prior to such date, the corporation’s board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

• upon consummation of the transaction that resulted in such person becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding, shares owned by certain directors or certain employee stock plans; and

• on or after the date the stockholder became an interested stockholder, the business combination is approved by the corporation’s board of directors and authorized by the affirmative vote, and not by written consent, of at least two-thirds of the outstanding voting stock of the corporation excluding that owned by the interested stockholder.

A “business combination” includes a merger, asset sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person, other than the corporation and any direct or indirect wholly-owned subsidiary of the corporation, who together with the affiliates and associates, owns or, as an affiliate or associate, within three years prior, did own 15% or more of the corporation’s outstanding voting stock.

Section 203 expressly exempts from the requirements described above any business combination by a corporation with an interested stockholder who becomes an interested stockholder in a transaction approved by the corporation’s board of directors.

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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable.

LEGAL MATTERS

Certain legal matters will be passed upon for us by Christopher Olander, Esq., our Executive Vice President and General Counsel.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended June 30, 2005, as set forth in their reports, which are incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements and schedule are incorporated by reference in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution

The following table sets forth the fees and expenses, other than any underwriting discounts and commissions incurred by us in connection with the issue and distribution of our Common Stock being registered. Items marked with asterisks (*) are estimated fees as of the date of this filing.

Item	Cost
Accounting Fees	$	5,000	*
Legal Fees	$	2,500	*
Registration Fees	$	180
Blue Sky Fees	$	1,500	*

Item 14. Indemnification of Directors and Officers

The Company’s By-laws provide that the Company shall, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto.

Section 145 of the General Corporation Law of the State of Delaware permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reason to believe their conduct was unlawful. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

Article Seventh of the Company’s Certificate of Incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages resulting from breaches of their fiduciary duty as directors except (a) for any breach of the duty of loyalty to us or our stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, which makes directors liable for unlawful dividends or unlawful stock repurchases or redemptions, or (d) for transactions from which directors derive improper personal benefit.

The Company also maintains director and officer insurance coverage.

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Item 15. Recent Sales of Unregistered Securities

In December, 2003, the Company sold 1,297,537 shares of its Series D 10% Convertible Preferred Stock and warrants, which subsequently expired, to purchase shares of the Company’s common stock, in an offering made in reliance upon the exemption from registration provided by Regulation D under the Securities Act of 1933 (the “Act”). In July, 2005, the Company sold 1,191 shares of its Series E 10% Convertible Preferred Stock, and warrants to purchase 366,47 shares of the Company’s common stock, in an offering made in reliance upon the exemption from registration provided by Regulation D under the Act.

On April 1, 2004, in consideration for a loan to the Company in the amount of approximately $1million, the Company issued to W. James Hindman, Chairman of the Company’s Board of Directors, a warrant to purchase 51,828 shares of common stock on or before March 31, 2009, at a price of $.45 per share. On October 28, 2004, in consideration of his guaranty of the Company’s supplemental $700,000 line of credit with its senior lender, the Company issued to Mr. Hindman warrants to purchase 100,000 shares on or before December 6, 2007, at a price of $.35 per share, and on October 21, 2005, in consideration for extending this guaranty until October 21, 2007, the Company issued to Mr. Hindman another warrant to purchase 100,000 shares on or before October 21, 2008, at a price of $1.02 per share. In each of these warrant issuances to Mr. Hindman, the Company relied upon the exemption from registration provided by Section 4(2) of the Act.

On August 3, 2005, the Registrant closed on the sale of 1,191 shares of the Registrant’s Series E Convertible Preferred Stock (the “Series E Preferred Stock”) and 366,475 Common Stock Purchase Warrants (“Warrants”) to a group of 35 accredited investors, for a purchase price of $1,000 per share of Series E Preferred Stock (the “Original Series E Issuance Price”) or $1,191,000 in the aggregate (the “Offering”). The Registrant intends to use the proceeds of the Offering for working capital purposes.

Each share of Series E Preferred Stock issued in the Offering is convertible into shares of the Registrant’s Common Stock, par value $.01 per share (“Common Stock”), at any time after December 1, 2005, at a price per share of Common Stock determined by dividing (a) the Original Series E Issuance Price plus any accumulated but unpaid dividends thereon, by (b) $0.65.

Each Warrant entitles the holder thereof to purchase one share of Common Stock, at any time until August 3, 2008, at an exercise price of $0.65 per share.

The conversion price for the shares of Series E Preferred Stock and the exercise price for the Warrants are adjustable upon the occurrence of certain events.

These securities were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On November 10, 2005, our Board of Directors approved the letter agreement entered into on October 21, 2005 by the Company and W. James Hindman, its chairman of the Board of Directors, whereby Mr. Hindman extended his guarantee (the “Guarantee”) of the $700,000 line of credit maintained by Avatech Solutions Subsidiary, Inc., a controlled subsidiary of the Company, with K Bank. In consideration of the extension of the Guarantee, the Company paid Mr. Hindman a credit enhancement fee of $28,000 and, granted to the Hindman Family Dynasty Trust a warrant to purchase up to 100,000 shares of the Company’s common stock, at any time through October 21, 2008, at an exercise price of $1.02 per share. This warrant was issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

On May 30, 2006, we issued an aggregate of 694,445 shares of our Common Stock to the selling shareholders identified in the Prospectus included herein under “Selling Shareholders,” in a transaction exempt from registration pursuant to Regulation D under the Act. These shares were issued as part of the consideration for the purchase of all of the capital stock or membership interests in Sterling Systems & Consulting, Inc. and two related limited liability companies.

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Item 16. Exhibits required to be filed by Item 601 of Regulation S-K

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger a
3.1	Restated Certificate of Incorporation b
3.2	First Amendment to Restated Certificate of Incorporation b
3.3	Reverse Split Amendment to Restated Certificate of Incorporation a
3.4	Amendment of PlanetCAD’s Certificate of Incorporation to change the name of PlanetCAD, Inc. to Avatech Solutions, Inc. a
3.5	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock c
3.6	Certificate of Designation, Preferences and Rights of Series B Convertible Preferred Stock d
3.7	Certificate of Designation, Preferences and Rights of Series C Convertible Preferred Stock e
3.8	Certificate of Amendment to Certificate of Designation of Series C Convertible Preferred Stock f
3.9	Certificate of Designation, Preferences and Rights of Series D Convertible Preferred Stock f
3.10	Certificate of Elimination of Series A Junior Participating Preferred Stock f
3.11	Certificate of Elimination of Series C Convertible Preferred Stock f
3.12	Certificate of Amendment to Certificate of Designation of Series D Convertible Preferred Stock f
3.13	Certificate of Amendment to Amended and Restated Certificate of Incorporation k
3.14	By-Laws b
5	Opinion of Christopher Olander, Esq.*
10.01	Autodesk Authorized Channel Partner Agreement by and among Avatech Solutions, Inc. and Autodesk, Inc. effective as of February 1, 2003 e
10.02	Autodesk Authorized Channel Partner Agreement by and among Avatech Solutions, Inc. and Autodesk, Inc. effective as of February 1, 2004 f
10.03	Loan Agreement by and between Avatech Solutions Subsidiary, Inc. and a Strategic Partner dated July 22, 2003, as amended (portions of this exhibit have been omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment) g
10.04	Security Agreement by and between Avatech Solutions Subsidiary, Inc. and a Strategic Partner dated July 22, 2003 (portions of this exhibit have been omitted and filed separately with the U.S. Securities and Exchange Commission pursuant to a request for confidential treatment) g
10.05	Demand Promissory Note by and between Avatech Solutions Subsidiary, Inc. and Key Bank and Trust in the amount of $2,000,000 dated September 11, 2003 g
10.06	Loan and Security Agreement by and between Avatech Solutions Subsidiary, Inc. and Key Bank and Trust dated September 11, 2003 g
10.07	Lease by and between Merritt-DM1, LLC and Avatech Solutions, Inc. effective June 1, 2004 k
10.08	Form of Promissory Note, principal amount $500,000.00, issued by Avatech Solutions, Inc. in favor of W. James Hindman dated May 28, 2003 g
10.09	Warrants to purchase up to 32,400 shares of common stock issued by Avatech to W. James Hindman dated May 28, 2003 g
10.10	Affidavit and Discharge of Indebtedness by W. James Hindman g
10.11	Form of 10% Subordinated Note with attached Warrant issued by Avatech Solutions, Inc. to certain note holders in connection with Avatech Solutions Subsidiary, Inc.’s 1998 $2,600,000 Subordinated Debt Offering, dated January 1, 2004f
10.12	Form of 12 % Subordinated Note issued by Avatech Solutions, Inc. to certain note holders in connection with Avatech Solutions Subsidiary, Inc.’s 1998 $2,600,000 Subordinated Debt Offering dated January 1, 2004 f
10.13	Form of Purchase Agreement for Series D Convertible Preferred Stock f
10.14	2002 Stock Option Plan a

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10.15	Restricted Stock Award Plan e
10.16	Avatech Solutions, Inc. Employee Stock Purchase Plan i
10.17	Employment Agreement by and between Eric L. Pratt and Avatech Solutions, Inc. effective April 15, 2003 h
10.18	Employment Agreement by and between Scott N. Fischer and Avatech Solutions, Inc. dated as of March 17, 2003 g
10.19	Separation Agreement between Scott Fischer and Avatech Solutions, Inc. dated as of March 10, 2004 j
10.20	Employment Agreement by and between Donald R. “Scotty” Walsh and Avatech Solutions, Inc. dated July 1, 2003 g
10.21	Employment Agreement by and between Beth O. MacLaughlin and Avatech Solutions Subsidiary, Inc. dated as of August 7, 2003 k
10.22	Employment Agreement by and between W. Scott Harris and Avatech Solutions Subsidiary, Inc. dated as of June 1, 2004 k
10.23	Employment Agreement by and between Christopher D. Olander and Avatech Solutions Subsidiary, Inc. dated June 18, 2004 k
10.24	Form of Promissory Note, principal amount $902,168.80, issued by Avatech Solutions, Inc. in favor of W. James Hindman dated April 1, 2004 j
10.25	Warrants to purchase up to 51,828 shares of common stock issued by Avatech to W. James Hindman dated April 1, 2004 k
10.26	Employment Agreement by and between Eric L. Pratt and Avatech Solutions Subsidiary, Inc. dated June 1, 2004. k
10.27	Asset Purchase Agreement by and among Avatech Solutions, Inc., Comtrex Corp., Richard L. Aquino, and Stanton L. Hilburn dated April 8, 2005 l
10.28	Autodesk Authorized Channel Partner Agreement with Avatech Solutions, Inc., dated February 1, 2005 l
10.29	Change in Terms Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated November 22, 2004 m
10.30	Amendment to Loan and Security Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated December 15, 2004 m
10.31	Amendment to Subordination Agreement between Avatech Solutions Subsidiary, Inc., K Bank, and Dassault Systemes, dated December 15, 2004 m
10.32	Letter Agreement between Avatech Solutions, Inc. and W. James Hindman, with stock purchase warrant, dated December 6, 2004 m
10.33	Employment Agreement between Avatech Solutions Subsidiary, Inc. and Catherine Dodson, dated November 15, 2004 m
10.34	Software Transfer Agreement between Avatech Solutions, Inc. and Autodesk, Inc. dated January 26, 2005 m
10.35	Amended and Restated Demand Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank, dated November 24, 2004 m
10.36	Modification Agreement between Avatech Solutions Subsidiary, Inc., K Bank, Avatech Solutions, Inc. and Technical Learningware Company, dated November 24, 2004 n
10.37	Second Amended and Restated Demand Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank dated October 22, 2004 n
10.38	Second Modification Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 22, 2004 n
10.39	Business Loan Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 28, 2004 n
10.40	$700,000 Promissory Note from Avatech Solutions Subsidiary, Inc. to K Bank, dated October 28, 2004 n

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10.41	Commercial Security Agreement between Avatech Solutions Subsidiary, Inc. and K Bank, dated October 28, 2004 n
10.42	Commercial Guaranty from Avatech Solutions, Inc. to K Bank, dated October 28, 2004 n
10.43	Commercial Guaranty from W. James Hindman to K Bank, dated October 28, 2004 n
10.44	Asset Purchase Agreement by and among Avatech Solutions Subsidiary, Inc., Comtrex Corporation, Stanton L. Hilburn, and Richard L. Aquino, dated April 8, 2005. p
10.45	Form of Promissory Note, principal amount of $902,168.80, issued by Avatech Solutions, Inc. in favor of W. James Hindman, dated July 1, 2005. q
10.46	Warrants to purchase up to 38,88 shares of common stock issued by Avatech Solutions, Inc. to W. James Hindman, dated July 1, 2005. q
10.47	Amendment to Avatech Solutions, Inc. Restricted Stock Award Plan, dated August 23, 2005 q
10.48	Promissory Note of Avatech Solutions Subsidiary, Inc. to K Bank, in principal amount of $700,000, dated October 22, 2005 with Guaranty of Avatech Solutions, Inc. and W. James Hindman. r
10.49	Warrant to purchase up to 100,000 shares of common stock issued by Avatech to W. James Hindman, dated October 22, 2005. r
10.50	Promissory Note issued by Avatech Solutions Subsidiary, Inc. to Mercantile Bank & Trust Co. dated January 27, 2006. r
10.51	Loan and Security Agreement by and between Avatech Solutions Subsidiary, Inc and Mercantile Bank & Trust Co., dated January 27, 2006. r
10.52	Guaranty Agreement by and between W. James Hindman and Mercantile Bank & Trust Co., dated January 27, 2006. r
10.53	Channel Partner Agreement, dated February 1, 2006, by and between Avatech Solutions Subsidiary, Inc. and Autodesk, Inc. r
10.54	Stock Purchase Agreement, dated May 30, 2006, by and among Avatech Solutions, Inc., Sterling Systems & Consulting, Inc., Bruce White, and Shelly White.*
10.55	Membership Interest Purchase Agreement, dated May 30, 2006, by and between Avatech Solutions, Inc., Sterling – Indiana LLC, and Bruce White.*
10.56	Membership Interest Purchase Agreement, dated May 30, 2006, by and among Avatech Solutions, Inc., Sterling – Ohio LLC, Bruce White, Steve Wludyga, Kevin Breslin, Ken Williams, Marcy Nungesser, and Dave Press.*
10.57	Modification Agreement dated May 30, 2006 by and among Avatech Solutions, Inc., Avatech Solutions Subsidiary, Inc. Technical Learningware Company, Inc. and Mercantile Safe-Deposit and Trust Company. *
10.58	Promissory Note dated May 30, 2006 made by Avatech Solutions, Inc. and Avatech Solutions Subsidiary, Inc. to Mercantile Safe-Deposit and Trust Company.*
14.1	Code of Business Conduct and Ethics o
21.1	Subsidiaries of the Registrant i
23.1	Consent of Ernst & Young LLP *
24.1	Power of Attorney o

* Filed herewith

a. Incorporated by reference to our Registration Statement on form S-4 filed on May 30, 2002, File No. 333-89386.

b. Incorporated by reference to our Registration Statement on form SB-2 filed on November 21, 2000, File No. 333-50426.

c. Incorporated by reference to our Registration Statement on form 8-A filed on March 11, 2002, File No. 001-31265.

d. Incorporated by reference to our Current Report on form 8-K, filed on May 28, 2002, File No. 001-31265.

e. Incorporated by reference to our Amended Registration Statement on form S-1, filed on April 11, 2003, File No. 333-104035.

f. Incorporated by reference to our Quarterly Report on form 10-Q, filed on February 13, 2004, File No. 001-31265.

g. Incorporated by reference to our Annual Report on form 10-K, filed on October 3, 2003, File No. 001-31265.

10.58 Promissory Note dated May 30, 2006 made by Avatech Solutions, Inc. and Avatech Solutions Subsidiary, Inc. to Mercantile Safe-Deposit and Trust Company.

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h. Incorporated by reference to our Amended Registration Statement on form S-1, filed on June 4, 2003, File No. 333-104035.

i. Incorporated by reference to our Definitive Proxy Statement on form 14A, filed on May 7, 2004, File No. 001-31265.

j. Incorporated by reference to our Quarterly Report on form 10-Q, filed on May 17, 2004, File No. 001-31265.

k. Incorporated by reference to our Registration Statement on form S-1, filed on July 19, 2004, File No. 333-114230.

l. Incorporated by reference to our Quarterly Report on form 10-Q, filed on May 13, 2005, File No. 001-31265.

m. Incorporated by reference to our Quarterly Report on form 10-Q, filed on February 15, 2005, File No. 001-31265

n. Incorporated by reference to our Quarterly Report on form 10-Q, filed on November 15, 2004, File No. 001-31265

o. Incorporated by reference to our Annual Report on form 10-K, filed on September 28, 2004, File No. 001-31265.

p. Incorporated by reference to our Quarterly Report on Form 10-Q, filed on May 13, 2005, File No. 001-31265.

q. Incorporated by reference to our Annual Report on Form 10-K, filed on November 14, 2005, File No. 001-31265.

r. Incorporated by reference to our Quarterly Report on Form 10-Q, filed on November 14, 2005, File No 001-31265.

Item 17. Undertakings

    The undersigned registrant hereby undertakes:

1. To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to any plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

2. That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

3. To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

4. That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i) If the registrant is relying on Rule 430B:

(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to

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which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

(ii) If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

5. That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Owings Mills, State of Maryland on June 6, 2006.

AVATECH SOLUTIONS, INC.
By:	/s/ Donald R. (Scotty) Walsh
	Donald R. (Scotty) Walsh
	Chief Executive Officer

The officers and directors of Avatech Solutions, Inc. whose signatures appear below, hereby constitute and appoint Donald R. Walsh and Christopher Olander as their true and lawful attorneys-in-fact and agents, with full power of substitution, with power to act alone, to sign and execute on behalf of the undersigned any amendment or amendments to this registration statement on Form S-1, and each of the undersigned does hereby ratify and confirm all that said attorneys-in-fact and agents, or their substitutes, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated:

Name	Title	Date
/s/ Donald R. (Scotty) Walsh Donald R. (Scotty) Walsh	Chief Executive Officer and Director	June 6, 2006
/s/ Lawrence Rychlak Lawrence Rychlak	Vice President, Chief Financial Officer, and Principal Accounting Officer	June 6, 2006
/s/ W. James Hindman* W. James Hindman	Director and Chairman of the Board	June 6, 2006
/s/ George Cox* George Cox	Director	June 6, 2006
/s/ Garnett Y. Clark* Garnett Y. Clark	Director	June 6, 2006
/s/ Eugene Fischer* Eugene Fischer	Director	June 6, 2006
/s/ Robert Post* Robert Post	Director	June 6, 2006

* By Christopher Olander, attorney-in-fact

//Christopher Olander

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EX-5

Exhibit 5

Christopher Olander, Esq.

10715 Red Run Blvd, Suite 101

Owings Mills, Maryland 21117

June 6, 2006

Board of Directors

Avatech Solutions, Inc.

10715 Red Run Blvd., Suite 101

Owings Mills, MD 21117

Gentlemen:

I have acted as counsel to Avatech Solutions, Inc., a Delaware corporation (the “Company”) in connection with the preparation and filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”), of a registration statement on Form S-1 (the “Registration Statement”) relating to the offer of up to 694,445 shares of common stock, $.01 par value per share (the “Shares”), by the selling shareholders named in the Registration Statement.

I have examined copies of the (i) Certificate of Incorporation of the Company, as amended (the “Charter”), (ii) the Bylaws of the Company, as amended, and (iii) resolutions of the Board of Directors of the Company relating to the matters referred to therein. I have also examined the Registration Statement and exhibits thereto (collectively, with the documents described in the preceding sentence, the “Documents”).

In expressing the opinions set forth below, I have assumed, and as far as is known to me there are no facts inconsistent therewith, that all Documents are authentic, all documents submitted to me as certified or photostatic copies conform to the original documents, all signatures on all Documents are genuine, all public records reviewed or relied upon by me are true and complete, and all statements and information contained in the Documents are true and complete.

I express no opinion upon any matter other than that explicitly addressed below, and my opinion herein contained shall not be interpreted to be an implied opinion upon any other matter.

Based upon the foregoing, it is my opinion that the Shares are duly and validly issued, fully paid, and nonassessable.

I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of my name. In giving this opinion, I do not admit that I am within the category of persons whose consent is required by Section 7 of the Securities Act.

Sincerely,

/s/ Christopher Olander

Christopher Olander, Esq.

EX-10.54

Exhibit 10.54

STOCK PURCHASE AGREEMENT

dated as of May 30, 2006

by and among

Bruce White and Shelly White,

“Sellers”

and

Sterling Systems & Consulting, Inc.

and

Sterling Ohio Management, Inc.

(collectively, the “Company”)

and

Avatech Solutions, Inc.,

“Purchaser”

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of this 30th day of May, 2006 by and among Bruce White and Shelly White (individually a “Seller” and collectively the “Seller”), Sterling Systems & Consulting, Inc. and Sterling Ohio Management, Inc. (individually, a “Company” and together, the “Company”), and Avatech Solutions, Inc., a Delaware corporation (“Purchaser”).

EXPLANATORY STATEMENT

A. Seller collectively owns 100% of the issued and outstanding stock of the Company, and

B. Purchaser desires to acquire all of Seller’s stock in the Company pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, agreements, representations and warranties, the Explanatory Statement which is hereby incorporated herein by reference, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, the Company and Purchaser hereby agree as follows:

ARTICLE ONE

DEFINITIONS

As used in this Agreement, the following terms shall have the meaning set forth after each such term.

1.1 “1934 Act” means the Securities and Exchange Act of 1934, as amended.

1.2 “1933 Act” means the Securities Act of 1933, as amended.

1.3 “Agreement” is defined above.

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1.4 “Avatech” is defined above.

1.5 “Avatech Common Stock” means shares of the common stock, par value $.01 per share, of Avatech.

1.6 “Balance Sheet” means the balance sheet of the Company dated as of December 31, 2005, which, in part, was used by Purchaser to calculate the value of the Company.

1.7 “Balance Sheet at Closing” means the unaudited balance sheet of the Company as of May 30, 2006.

1.8 “Closing” means the closing of the Purchase, to be held at a place, in a manner and, on a date mutually agreeable, but in no event later than fifteen (15) days following the date on which all conditions to the closing of the Purchase, as set forth herein, have been satisfied.

1.9 “Closing Date” means the date of the Closing.

1.10 “Code” means the Internal Revenue Code of 1986, as amended.

1.11 “Controlling Person” means each person, if any, who controls Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.

1.12 “Effective Date” means the date the Purchase becomes effective which shall be the Closing Date.

1.13 “Documents” means this agreement, the LLC Purchase Agreements, the Schedules referred to herein, and the Employment Agreements.

1.14 “Employment Agreements” means the employment agreements to be entered into between Purchaser and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga.

1.15 “Environmental Laws” means all Federal, state and local laws relating to pollution, protection of the environment, and waste disposal.

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1.16 “ERISA” means the Employees Retirement Income Security Act of 1974.

1.17 “Escrow Account” is defined in Section 2.3 herein.

1.18 “Financial Statements” means the following financial statements of the Company: the Balance Sheet as of December 31, 2005, the Balance Sheet at Closing, and the related unaudited consolidated statements of income and cash flow, including the notes, if any, thereto.

1.19 “Insiders” means the officers, directors, partners, employees, representatives or agents of the Company.

1.20 “Intangible Property” means licenses or other rights held or owned by the Company to use all software, patents, trademarks, trade names, trade secrets, copyrights, inventions, formulae, methods and processes.

1.21 “Lien” means any security interest, mortgage, pledge, claim, lien, or encumbrance on any of the assets of the Company.

1.22 “LLC Companies” means Sterling Systems-Indiana, LLC and Sterling Systems–Ohio, LLC.

1.23 “LLC Purchase Agreements” means the membership interest purchase agreements, dated as of even date herewith, between Purchaser and the members of Sterling Systems—Indiana, LLC, and Sterling Systems -Ohio, LLC.

1.24 “Material Adverse Effect” means any event reasonably expected to (i) result in a material adverse effect on the properties, business, results of operations, condition (financial or otherwise), or affairs of the Company, or (ii) in any manner, draw into question the validity of any of the Documents.

1.25 “Plan” or “Plans” means any plan or arrangements of the Company which constitutes an “employee benefit plan,” as defined in Section 3 (3) of ERISA.

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1.26 “Shares” means all of the capital stock of the Company, all of which is owned by the Seller.

1.27 “Shareholder” or “Shareholders” mean the holders of any shares of the capital stock or equity interests of the Company.

1.28 “State Acts” means any applicable state securities laws or Blue Sky laws.

1.29 “Stock Consideration” is defined herein in Section 2.2.

ARTICLE II

PURCHASE OF THE SHARES

SECTION 2.1. Purchase and Sale of the Shares. At the Closing, the Seller will sell, convey, transfer and deliver to the Purchaser, and the Purchaser will purchase and receive from the Seller all stock of the Company owned by the Seller as of the Closing, which stock shall represent all of the issued and outstanding capital stock of the Company as of Closing.

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SECTION 2.2. Purchase Price.

2.2.1 The purchase price to be paid by Purchaser to Seller for the Shares (the “Purchase Price”) shall consist of 495,295 shares of Avatech Common Stock (the Stock Consideration) and four million six hundred thirty-five thousand nine hundred fifty nine dollars and 81 cents ($4,635,959.81) in cash (the “Cash Consideration”) which Cash Consideration, subject to the Escrow Amount (hereinafter defined), and subject to the adjustment provided for in Section 2.2.2, shall be wired to the account of the Seller upon Seller’s instructions, on the Closing Date, and which Stock Consideration shall be issued to the account of the Seller on the Closing Date. Purchaser and/or the Company shall not, for federal or state tax purposes, allocate the purchase price hereunder to personal property in an amount that exceeds the tax basis of such personal property.

2.2.2 The Cash Consideration shall be increased or decreased, as the case may be, as follows: Seller and Company shall prepare the Balance Sheet at Closing. The sum of accounts receivable and inventory of the Company and the limited liability companies that are parties to the LLC Purchase Agreements shall be totaled (such number, the “assets”) and the sum of the accounts payable, accrued compensation, and other current liabilities shall be totaled (such number, the “liabilities”). If the difference between the assets and liabilities on the Balance Sheet at Closing (the “Closing Number”) exceeds by more than $50,000 the difference between such sums as shown on the Balance Sheet and the LLC Balance Sheets (the “Original Number”), then (i) if the Closing Number is smaller than the Original Number, the Cash Consideration shall be reduced by the difference between the Closing Number and Original Number, and (ii) if the Closing Number is larger than the Original Number, the Cash Consideration shall be increased by the difference between the Closing Number and the Original Number. The Cash Consideration shall in any event be reduced by $48,000 as a result of a “stocking order” placed by Seller with Autodesk, Inc. prior to the date of the Balance Sheet at Closing.

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SECTION 2.3 Escrow.

2.3.1 Purchaser and Seller agree that $400,000 allocated among this and the two LLC Purchase Agreements of the Cash Consideration shall, on the Closing Date, be deposited in an interest-bearing escrow account (the “Escrow Account”) with The Huntington National Bank, a national banking corporation (the “Escrow Agent”), pursuant to an escrow agreement reasonably satisfactory to Purchaser and Seller, for the purpose of securing Seller’s and the Company’s representations and warranties made to the Purchaser in Article III hereof. The Escrow Agent shall maintain the Escrow Account for a period of nine months. During such period, if, as a direct result of a material misrepresentation or breach of warranty by Seller made to the Purchaser in Article III hereof, Purchaser becomes liable for and pays any monetary damages, awards, or settlements of claims, then the Escrow Agent shall, after satisfaction of the provision of paragraph 2.2.3 hereof, pay from the Escrow Account, to the Purchaser, the amount of any such damages, awards, or settlements (“Escrow Payment”). On the first day of the tenth month following the Closing Date, the Escrow Agent shall pay to the Seller the amount then on deposit in the Escrow Account, including any earnings thereon. Any dispute between the parties regarding the validity or amount of any damages, awards, or settlements of claims shall be submitted to a panel of arbitrators, one selected by Purchaser, one selected by Seller, and a third to be selected by the two arbitrators selected by Purchaser and Seller, the findings of a majority of which arbitrators shall be binding upon the parties.

2.3.2 In order for Purchaser to assert its right to an Escrow Payment, Purchaser shall have given Seller a written notice of any third party claim or demand which may result in liability to Purchaser pursuant to paragraph 2.2.2. hereof (“Escrow Notice”) subject to Seller’s right to defend in good faith third party claims as hereinafter provided. If after such Escrow Notice Seller has not within thirty (30) days thereof resolved such claim and payment of such claim is made by Purchaser, such sums paid shall qualify as an Escrow Payment and shall be paid by the Escrow Agent to Purchaser.

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2.3.3 If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 2.3.2 above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Escrow Notice of the Seller’s decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser and Company shall make available to the Seller or its agents all records and other materials in the Purchaser’s or Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser and Company shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

SECTION 2.4 Distribution of Cash. Seller, Company, and Purchaser agree that Company shall distribute to Seller or to employees, on or prior to the Closing Date, all cash of

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the Company, on deposit in the Company’s depositary accounts as of December 31, 2005, and all cash of the Company, on deposit in the Company’s depositary accounts, received by the Company from January 1, 2006 to, but not including, the Closing Date. It is the intention of the parties that the Company shall distribute to its stockholders, the Seller, all of its cash on hand up to, but not including, the Closing Date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1.1 Representations and Warranties of the Company and the Seller. The Seller and the Company jointly and severally represent and warrant to the Purchaser that, except as set forth in the Schedules and/or a letter dated as of the Closing Date executed by the Company and Seller and containing information required by this Agreement and specifying the exceptions to the representations and warranties of the Company and the Seller under this Agreement (the “Disclosure Letter”):

3.1.2 Organization. The Company has been duly organized, is validly existing as a corporation in good standing under the laws of its state of incorporation, and each state in which, by the nature of its business or the ownership of property, it is required to be qualified to do business, and has the requisite corporate power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.1.3 Power and Authority. The Company has all requisite corporate power and authority to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby, and each Seller has all requisite power and authority, to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby.

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3.1.4 Capital Stock. All of the issued and outstanding shares of capital stock of the Company have been duly and validly authorized and issued, and all such shares of capital stock are fully paid and nonassessable, and are owned by Seller free and clear of any Lien. No such capital stock was issued in violation of any preemptive or similar rights.

3.1.5 Rights of Others. The Company has no direct or indirect subsidiaries, and there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale, or Liens related to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of, or other ownership interest in, the Company.

3.1.6 Validity of Agreement. This Agreement has been duly and validly authorized, executed, and delivered by the Company and the Seller and constitutes a valid and legally binding agreement of the Company and the Seller, enforceable against it and them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws relating to or affecting creditor’s rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and, as to rights of indemnification, by principles of public policy or federal or state securities laws relating thereto.

3.1.7 Financial Statements. The Seller has delivered to the Purchaser, at or prior to the Closing Date, copies of the following financial statements of the Company: (a) a balance sheet of the Company for each of its three preceding fiscal years, (b) the Balance Sheet, and (c) any additional Financial Statements associated therewith. Such Financial Statements and notes thereto fairly present the financial condition and results of operations of the Company as at the dates thereof and for the periods therein referred to, subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which, if presented, would not differ materially from

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those included in the Financial Statements); the Financial Statements reflect the consistent application of accounting principles throughout the periods involved, except as disclosed in the notes to such Financial Statements.

3.1.8 Liabilities. Except as set forth in Schedule 3.1.8, or (i) in the Financial Statements, or (ii) liabilities for federal and state income taxes which may hereinafter be disclosed on tax audits, the Company had no obligations or liabilities, contingent or otherwise. Schedule 3.1.8 also sets forth any (a) amounts owed to Insiders and (b) accounts payable that have been outstanding for more than sixty (60) days.

3.1.9 No Conflict. Except as set forth in Schedule 3.1.9, the execution, delivery, and performance of this Agreement and the Documents by the Company and the Seller and the consummation of the transactions contemplated hereby will not violate, conflict with, or result in a breach or violation of the charter or By-Laws (or similar organizational and governance documents) of the Company or any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to the charter or By-Laws (or similar organizational and governance documents) of the Company, any bond, note, debenture, or other evidence of indebtedness or any indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which it is bound, or to which any properties of the Company are or may be subject, or contravene any order of any court or governmental agency or body having jurisdiction over the Company or any of its properties, or violate or conflict with any statute, rule or regulation, or administrative or court decree applicable to the Company or any of its properties, except for any such violations, conflicts, breaches, or defaults which, singularly or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

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3.1.10 Tax Matters.

(a) Except as set forth in Schedule 3.1.10, all federal, state, local and foreign returns, (including, without limitation, estimated tax returns, withholding tax returns with respect to employees, and FICA and FUTA returns) required to be filed by or on behalf of the Company have been timely filed or requests for extensions have been timely filed, granted and have not expired and all returns filed are complete and accurate. All taxes shown on filed returns have been paid. As of the date hereof, and as of the Effective Date, there is and shall be no audit examination, deficiency or refund litigation or matter in controversy with respect to any taxes that might result in a determination adverse to the Company, except as reserved against in the Financial Statements or disclosed in Schedule 3.1.10. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation have been paid.

(b) Except as disclosed in Schedule 3.1.10, the Company has not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect.

(c) To the extent any federal, state, local or foreign taxes are due from the Company for the period or periods beginning on the date of commencement of its most recent fiscal year, or thereafter through and including the Effective Date, adequate provision on an estimated basis has been or will be made for the payment of such taxes by establishment of appropriate tax liability accounts on the Balance Sheet at Closing, except as shown on Schedule 3.1.10.

(d) Deferred taxes of the Company have been provided for, except as shown on Schedule 3.1.10.

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3.1.11 Properties. Except as set forth in Schedule 3.1.11, the Company has good and marketable title, free and clear of all Liens, encumbrances, charges, defaults or equities of whatever character, to all of its properties and assets, tangible or intangible, whether real, personal or mixed, reflected in its Financial Statements as being owned by it at the date of the most recent balance sheet or acquired by it thereafter. All buildings, and all fixtures, equipment and other property and assets which, in the opinion of the Company’s management are material to its business, held under leases or subleases by the Company are held under valid instruments enforceable in accordance with their terms (except as disclosed in Schedule 3.1.11 and except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought). The policies of fire, theft, liability and other insurance maintained with respect to the assets or business of the Company provide commercially reasonable, for businesses of its type, coverage against any loss reasonably foreseeable in the conduct of the Company’s business.

3.1.12 Compliance with Laws. Except as set forth in Schedule 3.1.12, the Company:

(a) is in compliance with all laws, regulations, reporting and licensing requirements and orders applicable to its business or any of its employees (because of such employee’s activities on behalf of it), the breach or violation of which could have a Material Adverse Effect on its business; and

(b) has received no notification (not disclosed on Schedule 3.1.12), from any agency or department of federal, state or local government or regulatory authorities or the staff thereof asserting that it is not in compliance with any of the statutes, regulations, rules or ordinances which such governmental authority or regulatory authority enforces, or threatening to revoke any license, franchise, permit or governmental authorization, and is subject to no agreement with any regulatory authority with respect to its assets or business.

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3.1.13 Employee Benefit Plan. Except as set forth in Schedule 3.1.13, with respect to any Plan:

(a) Except for liabilities to the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which have been fully paid, and except for liabilities arising under the Code, if any, all of which have been fully paid, the Company has no liability to the Pension Benefit Guaranty Corporation or to the Internal Revenue Service with respect to any pension plan qualified under Section 401 of the Code.

(b) All Plans comply in all material respects with ERISA and, where applicable for tax-qualified or tax-favored treatment, with the Code. As of the date of the Company’s most recent Financial Statements, there exists no material liability under any Plan that is not reflected on the Company’s Financial Statements as of such date, or in the notes thereto (other than such normally unrecorded liabilities under the Plans for sick leave, holiday, education, bonus, vacation, incentive compensation and anniversary awards, provided that such liabilities are not in any event material). The amounts accrued for any sick leave, vacation or holidays are set forth on Schedule 3.1.13. Neither the Plans nor any trustee or administrator thereof has engaged in any “prohibited transactions” within the meaning of Section 406 of ERISA or, where applicable, Section 4975 of the Code for which no exemption is applicable, nor have there been any “reportable events” within the meaning of Section 4043 of ERISA for which the 30-day notice therefor has not been waived.

(c) No litigation is pending against any Plan or Plan fiduciary seeking the payment of benefits or alleging a breach of trust or fiduciary duty by any plan fiduciary.

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(d) The Company is not party to any multi-employer pension plan as defined in Section 414(f) of the Code and Section 3(37) of ERISA.

3.1.14 Commitments and Contracts. Except as set forth in Schedule 3.1.14, the Company is not party or subject to any of the following (whether written or oral, express or implied):

(a) any employment contract or understanding, including any understandings or obligations with respect to severance or termination pay liabilities or fringe benefits, with any present or former officer, director, employee or consultant (other than those which are terminable at will by the Company without the necessity of making payments to such person following termination of employment);

(b) any plan, contract or understanding providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing or similar understandings with respect to any present or former officer, director, employee or consultant not fully satisfied on or before the Closing Date;

(c) any contract or agreement with any labor union;

(d) any contract not made in the ordinary course of business containing covenants limiting the freedom of the Company to compete in any line of business or with any person or involving any restriction regarding the area in which, or method by which, the Company will carry on its business (other than as may be required by law or applicable authorities);

(e) any lease with annual rental payments aggregating $12,000 or more.

3.1.15 Labor. No work stoppage involving the Company is pending or, to the best of the Company’s knowledge, threatened. The Company is not involved in, or threatened with or

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affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which could materially and adversely affect the business of the Company. The Company’s employees are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees.

3.1.16 Material Contracts. Except as set forth in Schedule 3.1.16, and except as is otherwise provided in this Agreement, neither the Company nor any of its assets, business or operations is, as of the date hereof, a party to, or bound, or affected by, or receives benefits under, (i) any material agreement, arrangement or commitment not cancelable by the Company without penalty, or (ii) any material agreement, arrangement or commitment relating to the employment, election or retention in office of any director or officer or employee.

3.1.17 Material Contract Defaults. Except as set forth in Schedule 3.1.17, the Company is not in default in any material respect under any material contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party or by which its assets, business or operations may be bound or affected or under which it or its assets, business or operations receive benefits, and there has not occurred any event which, with the lapse of time or the giving of notice or both, would constitute a default.

3.1.18 Legal Proceedings. Except as set forth in Schedule 3.1.18, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Company threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome), including eminent domain proceedings, against or relating to the Company, or against any property, asset, interest or right of the Company. Neither the Company nor the Seller is a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

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3.1.19 Absence of Certain Changes or Events. Except as set forth in Schedule 3.1.19, since the date of the Financial Statements, the Company has not: (i) incurred any material liability, except in the ordinary course of its business or, except as permitted pursuant to this Agreement; (ii) suffered any material adverse change in its business, operations, assets or condition (financial or otherwise); or (iii) failed to operate its business in the ordinary course except as permitted by this Agreement.

3.1.20 Accounts Receivable. All notes and accounts receivable of the Company shown on the Financial Statements or thereafter acquired have been collected or are current and collectible subject to returns and allowances in the ordinary course of business (in the case of each note in accordance with its terms, and in the case of each account within 30 days after billing) at the aggregate recorded amounts thereof on the books of the Company’s and are subject to no counterclaims or set-offs. Schedule 3.1.20, sets forth all accounts receivable that (i) are payable from Insiders or (ii) have not been paid for sixty (60) days or more, provided, however, that any violation of this representation in respect of any receivable not collected within nine months from the date of invoicing thereof shall be deducted from the Escrow Account on the nine month anniversary of the Closing Date and paid to Purchaser, and if subsequently paid, the amount paid shall be remitted to the Seller.

3.1.21 Proprietary Rights. The Company owns or possesses adequate licenses or other rights to use all Intangible Property currently used by it in the conduct of its business. No royalties, honoraria or fees are now due and payable by the Company to any person by reason of the ownership or use of its Intangible Property except as shown on Schedule 3.1.21. All items of its Intangible Property are adequate and sufficient to permit the Company to conduct its business as

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now operated. Except as shown on Schedule 3.1.21, there are no licenses, sublicenses or agreements relating to use of the Intangible Property now in effect. No claim is pending or threatened or has been made within the past five years, to the effect that operation by the Company of its business or the manufacture or sale of its products, software or any formula, method, process, part or material they employ, infringes or conflicts in any way upon any rights owned or claimed by others.

3.1.22 Environmental Matters.

(a) The operations of the business of the Company conform with all applicable Federal, state and local laws, ordinances and regulations (including those relating to zoning and environmental protection), and all operations of the Company and its business that are subject to the Occupational Safety and Health Act of 1970, as amended, comply with employee working conditions as prescribed by such act.

(b) The Company has no underground storage tanks, either empty or containing any liquid, or gas, including but without limitation, solvents, fuel, waste oil, natural gas, or propane, on any premises used in its business.

(c) The Company has obtained all permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by the Company for the operation of its business under the Environmental Laws. The Company is in compliance in all respects with (i) all terms and conditions of all required permits, licenses and authorizations; and (ii) all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any law, regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder. There are no past or present events,

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conditions, circumstances, activities, practices, incidents, actions or plans which may interfere with or prevent continued compliance in all respects, or which may give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, waste, or hazardous or toxic material with respect to the Company or its business, properties or plants.

(d) There are no actions, suits or proceedings, or demands, claims, notices or investigations (including, without limitation, notices, demand letters or requests for information from any environmental agency) instituted or pending, or threatened relating to actual or asserted liability of the Company or any of its operations or buildings under any Environmental Law.

3.1.23 No Broker. Neither the Company nor the Seller has incurred any liability for finder’s, agent’s or brokerage fees, commissions or compensation in connection with this Agreement or the transactions contemplated hereby.

3.1.24 Best Efforts. On or prior to the Closing, the Company and Seller will, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

3.1.25 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by the Company or the Seller and the

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consummation of the contemplated transactions, except (i) such as have been obtained and made, and (ii) as to which the failure to be obtained or made would not, either individually or in the aggregate, have a Material Adverse Effect.

3.2 Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company and Seller that:

3.2.1 The Purchaser has been duly organized, is validly existing as a corporation in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.2.3 On the Effective Date, Purchaser will have an authorized capitalization of 80,000,000 shares of common stock, and 20,000,000 shares of Preferred Stock. 3.2.4 The shares of Avatech Common Stock to be delivered to the Seller in connection with the Purchase will be validly issued, fully paid, and nonassessable.

3.2.5 The execution and delivery of this Agreement by the Purchaser has been duly authorized by proper corporate action and, on the Effective Date, the Purchaser will have all necessary corporate power and authority to consummate the transactions contemplated hereby.

3.2.6 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by Purchaser and the consummation of the contemplated transactions, except such as have been obtained and made.

3.2.7 Best Efforts. On or prior to the Closing, Purchaser shall, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

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3.2.8 Legal Proceedings. Except as set forth in Schedule 3.2.8, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Purchaser threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against or relating to Purchaser, or against any property, asset, interest or right of Purchaser. The Purchaser is not a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

3.2.9 Compliance with Securities Laws. Purchaser is in full compliance with the 1933 Act, the 1934 Act and all applicable State Acts and knows of no act which would with the passage of time cause it to be in non-compliance with the 1933 Act, the 1934 Act or any applicable State Acts.

3.2.10 Acquired or Reacquired Stock. Neither Purchaser nor any subsidiary or affiliated company has acquired or reacquired stock of Purchaser.

3.2.11 GAAP. The financial statements of Purchaser have at all times been prepared in accordance with generally accepted accounting principles.

3.2.12 Sarb Ox. Purchaser and its subsidiaries are in full compliance with all applicable provisions of the Sarbanes-Oxley Act of 2002 (Sarb Ox).

3.3 Additional Representations and Warranties of the Seller. The Sellers hereby agree with Purchaser that:

3.3.1 No Securities Registration. Purchaser currently files, periodic reports with the Securities and Exchange Commission pursuant to the provisions of the 1934 Act. The Seller also acknowledges and agrees that Purchaser has agreed only to register the Stock Consideration as provided in Section 4.2 hereof in accordance with the provisions of the 1933 Act. Until such time

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as the registration of the Stock Consideration is completed, the Avatech Common Stock which each Seller will receive pursuant to the Purchase may be required to be held for a period of not less than one year following the Effective Date, unless registered under the 1933 Act or the State Acts, or unless an exemption from such registration is available, in which case a Seller may still be limited in the number of shares that may be sold. The Sellers agree to comply with any and all Federal and state securities laws in connection with any resale of shares of the Avatech Common Stock acquired pursuant to this Agreement.

3.3.2 Shares Held for Investment. The Sellers represent that they are acquiring the shares of Avatech Common Stock for investment, and not with a view to redistribution, and that the Sellers are not participating, directly or indirectly, in any such undertaking or in the underwriting of any such undertaking. The Sellers represent that they have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment in Purchaser and of making an informed investment decision, and that they understand the risks of, and other investment considerations relating to, the acquisition of the Avatech Common Stock pursuant to the terms and conditions of the Purchase.

3.3.3 Shareholder Investment Intent. The Sellers acknowledge and agree that Purchaser has not registered the Avatech Common Stock that the Sellers shall receive hereunder, under the 1933 Act or the State Acts, and that each certificate representing shares of Avatech Common Stock issued to the Sellers shall be stamped or otherwise imprinted with, or contain, a legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE, AND MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, WITH OR WITHOUT CONSIDERATION UNLESS (I) REGISTERED FOR RESALE OR (II) IN CIRCUMSTANCES IN WHICH THE ISSUER HEREOF HAS RECEIVED THE WRITTEN OPINION OF ITS COUNSEL THAT SUCH COUNSEL IS OF THE OPINION THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING THE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE.

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Sellers shall further acknowledge that Purchaser’s issuance of Avatech Common Stock is made in reliance upon an exemption from registration under the 1933 Act, which exemption is in part premised upon representations made by each Seller in the Investment Letter, and each Seller shall review and truthfully and accurately complete and execute an Investment Letter and deliver same to Purchaser at or before the Closing.

3.3.4 Tax Consequences. The Sellers understand, acknowledge and agree that the consideration received by them in the Purchase shall be subject to taxation by federal and state taxing authorities. The Sellers have, at their sole expense and to the extent they deemed necessary or appropriate, consulted with own tax advisors to determine the tax consequences associated with the Purchase.

ARTICLE IV

COVENANTS

4.1 Conduct of Business. Except as otherwise contemplated herein, between the date hereof and the Closing Date, or the time when this Agreement terminates as provided herein, the Company agrees, and Seller agrees to cause the Company to not:

4.1.1 Make any change in its authorized capital stock or equity ownership interests.

4.1.2 Issue any shares of its capital stock or other equity interests, securities convertible into its capital stock or other equity interests, or any debt securities.

4.1.3 Issue or grant any options, warrants, or other rights to purchase shares of its capital stock or other equity interests.

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4.1.4 Declare or pay any dividends or other distributions on any shares of its capital stock or membership interests except as provided for in this Agreement.

4.1.5 Purchase or otherwise acquire or agree to acquire for a consideration any share of its capital stock (other than in a fiduciary capacity).

4.1.6 Enter into or amend any employment, pension, retirement, stock option, profit sharing, deferred compensation, consultant, bonus, group insurance, or similar plan or agreement in respect of any of its directors, officers, or other employees, or increase the current level of contributions to any such plan now in effect; provided Seller may terminate any phantom stock plans or employee bonus plan prior to Closing and hire at will employees in the ordinary course of business.

4.1.7 Take any action materially and adversely affecting this Agreement or the transactions contemplated hereby or the Company’s financial condition (present or prospective), businesses, properties, or operations.

4.1.8 Acquire, consolidate or merge with any other company, corporation, or association, or acquire, other than in the ordinary course of business, any assets of any other company, corporation, or association.

4.1.9 Mortgage, pledge, or subject to a lien or any other encumbrance, any of their assets, dispose of any of its assets, incur or cancel any debts or claims, or increase the current level of compensation or benefits payable to its officers, employees or directors except in the ordinary course of its business as heretofore conducted, or take any other action not in the ordinary course of its business as heretofore conducted, or incur any material obligation, or enter into any material contract except as provided for in this Agreement.

4.1.10 Amend its Charter or By-Laws.

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4.1.11 Take any action to solicit, initiate, encourage, or authorize any person, including directors, officers and other employees, to solicit from any third party any inquiries or proposals relating to the disposition of its business or assets, or the acquisition of its common stock, or the merger of it with or sale of any of its stock to, any person other than the Purchaser, and they shall promptly notify Purchaser orally of all the relevant details relating to all inquiries and proposals which they may receive relating to any of such matters.

4.2 Covenant of Purchaser to Register the Stock Received by Seller. Purchaser shall file with the Securities and Exchange Commission, a registration statement (the “Registration Statement”) on the appropriate registration statement form, or an amendment to an existing registration statement, to effect a registration of the Avatech Common Stock to be received by Sellers within thirty (30) days of the Closing Date, and to use its reasonable best efforts to cause such Registration Statement to become effective under the 1933 Act. The Registration Statement (and each amendment or supplement thereto and each request for acceleration of effectiveness thereof) shall be provided to the Sellers when filed.

4.3 Resignation of Officers and Directors at the Closing. Sellers shall resign as officers and directors of the Company and thereafter Seller shall have no significant policy making function with the Company or Purchaser, or any company acquired by Purchaser pursuant to the LLC Purchase Agreements.

4.4 Section 1377(a)(2) Election. At the time of Closing the Company and Sellers shall execute an Election Agreement and an Election to Apply Specific Accounting Rules Pursuant to Section 1377(a)(2) that are in form mutually acceptable to Seller, Company and Purchaser which shall cause the Company’s taxable year to consist of two separate taxable years, the first of which ends on the day proceeding the Closing Date.

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4.5 Survival of Representation and Warranties. The representation and warranties given by Purchaser, Seller and Company shall survive the Closing for a period of nine months, after which they shall cease and a breach thereof shall not be actionable.

ARTICLE V

CONDITIONS TO PURCHASE

5.1 Closing Conditions. All obligations of the Purchaser and Seller to consummate the Purchase are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, except in the event the parties hereto shall all waive one or more of such conditions in writing:

5.2 Accuracy of Representations, Warranties, and Covenants. The representations, warranties, and covenants of the Purchaser and Seller, contained in this Agreement or on any schedule, list, exhibit, certificate or document delivered by the Company, the Seller, or Avatech pursuant to the provisions hereof shall be true in all material respects on the date hereof and as of the Closing Date.

5.3 Performance and Compliance. The Company, the Seller or Avatech shall have performed and complied in all material respects with all the agreements, covenants, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

5.4 No Material Changes. There shall not have occurred any material adverse change, since the date of this Agreement and up to and as of the Closing Date, in the financial condition of the Company.

5.5 Autodesk Consent and Dealer Agreement. Autodesk, Inc., a Delaware corporation, shall provide written consent to the assignment of the existing Autodesk Channel Partner Agreement with the Company to the Purchaser.

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5.6 Employment Agreements. Employment Agreements between Purchaser, and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga containing terms and conditions, including but not limited to compensation schedules, satisfactory to the Purchaser and Seller shall be fully executed by the parties thereto.

5.7 Board of Director and Shareholder Approval. The Boards of Directors of the Company and Purchaser shall approve this Agreement. Additionally, the stockholders of the Company shall have ratified, confirmed and approved this Agreement and the terms and conditions herein contained by the affirmative vote required for such approval under the Company’s Charter and by-laws and under applicable laws.

5.8 Certificates and Opinions. The Seller and the Company shall provide to Purchaser and Purchaser shall provide to Seller and the Company (i) good standing certificates from their applicable State authorities; (ii) copies of resolutions of their respective Boards of Directors, authorizing the execution, delivery and performance of this Agreement and the consummation of the transaction contemplated hereby, and (iii) an opinion of its counsel, in form reasonably satisfactory to Purchaser and the Company.

5.9 Schedules. The Seller and the Company shall have delivered to Avatech the Schedules as contemplated hereby.

5.10 Financing. The Purchaser shall have closed on a financing transaction or transactions that produce sufficient funds to enable it to pay to Seller the Cash Consideration.

5.11 Leases. Purchaser, Company, and each lessor of real property occupied by the Company shall have entered into assignments of existing leases between Company and such lessors.

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ARTICLE VI

CLOSING DELIVERIES OF SELLER

SECTION 6.1. At Closing, Seller shall deliver to Purchaser the following:

(a) Certificates (or affidavits certifying that the certificates have been lost, if applicable) evidencing the Shares to be transferred pursuant to this Agreement, which certificates shall be properly endorsed for transfer or accompanied by duly executed stock powers, in either case executed in blank or in favor of Purchaser or as Purchaser may have directed prior to the Closing, and shall have any requisite transfer tax stamps attached thereto;

(b) Good standing certificates, dated no more that five (5) days prior to the Closing Date, from the appropriate authorities in the jurisdiction of incorporation of the Company and in each jurisdiction in which the Company does business, showing the Company to be in good standing in the applicable jurisdiction;

(c) All consents (including such permits or authorizations as may be required by any regulatory authority) necessary or desirable to effect the transactions contemplated hereby, executed by the appropriate parties in each case in a form satisfactory to Purchaser; and

(d) Such other documents and agreements as reasonably requested by Purchaser.

ARTICLE VII

COVENANTS OF THE PARTIES

SECTION 7.1. Further Assurances; Access to Properties and Information. Each of the parties hereto agrees to execute and deliver any and all further agreements, documents or instruments necessary or convenient to effectuate this Agreement and the transactions referred to herein or contemplated hereby or reasonably requested by the other party to perfect or evidence his, hers or its rights hereunder. Each party will promptly notify the other party of any

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information delivered to or obtained by such party which would prevent the consummation of the transactions contemplated by this Agreement, or would indicate a breach of the representations or warranties of any of the parties to this Agreement or as to which any party intends to seek indemnity under any of the terms of this Agreement.

SECTION 7.2. Expenses. Except as otherwise provided herein, each party agrees to pay its own expenses incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same and the preparations made for carrying the same into effect. Seller may cause the Company to pay expenses incurred in connection with this Agreement provided they are paid from cash of the Company prior to Closing.

SECTION 7.3. Tax Returns for 2006. Purchaser shall assist Seller in the preparation of the Company’s 2006 Federal and State income tax returns for the fiscal year ending the day before the Closing Date; such tax returns shall be prepared within 90 days from and after the Closing Date and shall be prepared in accordance with prior practice. The cost of preparing such tax returns shall be borne by Seller. Purchaser shall provide to Seller full and complete access to all books and records required by Purchaser to prepare such returns, and will, upon review and approval thereof, execute such returns.

ARTICLE VIII

INDEMNIFICATION

SECTION 8.1. Indemnification.

(a) Seller agrees to indemnify Purchaser, its successors and assigns, directors, officers, employees, and the successors in interest of each of them and their respective affiliates (“Indemnified Parties”) against, to hold such Indemnified Parties harmless from and against, and to reimburse such Indemnified Parties for any liability, damage, loss, costs or expenses (including attorney’s fees and costs of investigation incurred in defending against and/or settling

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such damage, loss, costs, expenses or claims therefor and any amounts paid in settlement thereof) (collectively “Losses”) imposed on or incurred by such Indemnified Parties caused by any material misrepresentation, breach of warranty, or failure to perform or material violation of any agreement or covenant on the part of Seller under this Agreement.

(b) In order for Purchaser to assert its right to indemnification, Purchaser shall give the Seller written notice (the “Purchaser Notice”) of any third party claim or demand which the Purchaser has determined has given or could give rise to a right of indemnification under this Agreement. Subject to the Seller’s right to defend in good faith third party claims as hereinafter provided, the Seller shall satisfy its obligations under this Agreement within thirty (30) days after the receipt of the applicable Purchaser Notice.

(c) If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 8.1 (a) above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to the Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Purchaser Notice of the Seller’s decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser shall make available to the Seller or its agents all records and other materials in the Purchaser’s or

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Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

(d) This Article IX shall survive the Closing for a period of nine (9) months from the date of Closing, provided, however, that with respect to any liability incurred by Purchaser for state sales taxes due, owing, and unpaid prior to the Closing Date, the period shall be three (3) years.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. Any notice hereunder shall be in writing and shall be given by personal delivery, by commercial overnight delivery service or by certified mail, postage prepaid, return receipt requested, or by facsimile, at the following address:

If to Seller:	Bruce White and Shelly White
	351 Cove View
	Waterford, MI 48327
With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313
If to Purchaser:	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117

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With a copy to:	Christopher Olander, Esq.
	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117
If to Company:	Sterling Systems & Consulting, Inc.
	1433 E Twelve Mile Rd
	Madison Heights, MI 48071
	Sterling Ohio Management, Inc.
	1433 E Twelve Mile Rd
	Madison Heights, MI 48071
With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313

Any party may, by like notice at any time and from time to time, designate a different address to which such notice shall be sent. Such notice shall be deemed sufficiently given (a) if personally served, upon such service, (b) if sent by commercial overnight delivery service, upon the next business day following such sending, (c) if mailed, forty-eight (48) hours following the first attempt of the postal service to deliver same or (d) if sent by facsimile, upon receipt of confirmation of transmission.

SECTION 9.2. Successors; Assignment. This Agreement shall be binding upon and shall inure to the benefit of Seller and his respective, executors and administrators, and of Purchaser and its respective successors and assigns. This Agreement and the rights and obligations hereunder shall not be assignable without the prior written consent of the other parties hereto.

SECTION 9.3. Entire Agreement. This Agreement, together with the disclosures, notices and letters referred to herein and the exhibits hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection herewith.

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SECTION 9.4. Amendments/Waivers. Any amendment hereof must be in writing. Any provision hereof may be waived in writing by the party entitled to the benefit of such provision. No waiver of the breach of any provision shall be deemed or construed to be a waiver of other or subsequent breaches. Nothing herein is intended to confer any rights or remedies upon any person not a party hereto, except as expressly provided to the contrary herein.

SECTION 9.5. Gender; Number. Except where the context otherwise requires, words used in the masculine gender include the feminine and neuter; the singular number includes the plural, and the plural the singular; and the word “person” includes a corporation or other entity or association as well as a natural person.

SECTION 9.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

SECTION 9.7. Choice of Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware without the application of any choice of law provision if the same would require any law other than the laws of the State of Delaware.

SECTION 9.8. No Third Party Beneficiaries. No person not a party hereto shall have any rights hereunder, it being the intent of the parties that there shall be no third party beneficiaries.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

	“SELLERS”
Bruce White
Shelly White
“COMPANY”
STERLING SYSTEMS & CONSULTING, INC., a Michigan corporation
By:
	Bruce White
Its:	President
STERLING OHIO MANAGEMENT, INC., a Michigan corporation
By:
	Bruce White
Its:	President
“PURCHASER”
AVATECH SOLUTIONS, INC., a Delaware Corporation
By:
Its:

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EX-10.55

Exhibit 10.55

MEMBERSHIP INTEREST PURCHASE AGREEMENT

dated as of May 30, 2006

by and among

Bruce White

“Seller”

and

Sterling Systems – Indiana L.L.C.

(the “Company”)

and

Avatech Solutions, Inc.,

“Purchaser”

MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of this 30th day of May, 2006 by and among Bruce White, (“Seller”), Sterling Systems — Indiana, L.L.C. Inc., a Michigan limited liability company (the “Company”), and Avatech Solutions, Inc., a Delaware corporation (“Purchaser”).

EXPLANATORY STATEMENT

A. Seller in the aggregate owns 100% of the issued and outstanding membership interests in the Company, and

B. Purchaser desires to acquire all of Seller’s membership interest in the Company pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, agreements, representations and warranties, the Explanatory Statement which is hereby incorporated herein by reference, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, the Company and Purchaser hereby agree as follows:

ARTICLE ONE

DEFINITIONS

As used in this Agreement, the following terms shall have the meaning set forth after each such term.

1.1 “1934 Act” means the Securities and Exchange Act of 1934, as amended.

1.2 “1933 Act” means the Securities Act of 1933, as amended.

1.8 “Agreement” is defined above.

1.9 “Avatech” is defined above.

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1.10 “Avatech Common Stock” means shares of the common stock, par value $.01 per share, of Avatech.

1.11 “Balance Sheet” means the balance sheet of the Company dated as of December 31, 2005, which, in part, was used by Purchaser to calculate the value of the Company.

1.12 “Balance Sheet at Closing” means the unaudited balance sheet of the Company as of May 30, 2006.

1.8 “Closing” means the closing of the Purchase, to be held at a place, in a manner and, on a date mutually agreeable, but in no event later than fifteen (15) days following the date on which all conditions to the closing of the Purchase, as set forth herein, have been satisfied.

1.9 “Closing Date” means the date of the Closing.

1.10 “Code” means the Internal Revenue Code of 1986, as amended.

1.11 “Controlling Person” means each person, if any, who controls Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.

1.12 “Effective Date” means the date the Purchase becomes effective which shall be the Closing Date.

1.13 “Documents” means the LLC Purchase Agreements, the Stock Purchase Agreement, the Schedules referred to herein, and the Employment Agreements.

1.14 “Employment Agreements” means the employment agreements to be entered into between Purchaser and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga.

1.15 “Environmental Laws” means all Federal, state and local laws relating to pollution, protection of the environment, and waste disposal.

1.16 “ERISA” means the Employees Retirement Income Security Act of 1974.

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1.17 “Escrow Account” is defined in Section 2.3 herein.

1.18 “Financial Statements” means the following financial statements of the Company: the Balance Sheet as of December 31, 2005, the Balance Sheet at Closing, and the related unaudited consolidated statements of income and cash flow, including the notes, if any, thereto.

1.19 “Insiders” means the officers, directors, partners, employees, representatives or agents of the Company.

1.20 “Intangible Property” means licenses or other rights held or owned by the Company to use all software, patents, trademarks, trade names, trade secrets, copyrights, inventions, formulae, methods and processes.

1.21 “Lien” means any security interest, mortgage, pledge, claim, lien, or encumbrance on any of the assets of the Company.

1.22 “LLC Companies” means the Company and Sterling Systems–Ohio, LLC.

1.23 “LLC Purchase Agreements” means this membership interest purchase agreement, and the membership interest purchase Agreement dated as of even date herewith, between Purchaser and the members of Sterling Systems – Ohio L.L.C.

1.24 “Material Adverse Effect” means any event reasonably expected to (i) result in a material adverse effect on the properties, business, results of operations, condition (financial or otherwise), or affairs of the Company, or (ii) in any manner, draw into question the validity of any of the Documents.

1.25 “Membership Interests” means all of the membership interests of the Company, all of which are owned by the Seller.

1.26 “Plan” or “Plans” means any plan or arrangements of the Company which constitutes an “employee benefit plan,” as defined in Section 3 (3) of ERISA.

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1.27 “Shareholder” or “Shareholders” mean the holders of any shares of the capital membership interest or equity interests of the Company.

1.28 “State Acts” means any applicable state securities laws or Blue Sky laws.

1.29 “Stock Purchase Agreement” means the stock purchase agreement dated as of even date herewith by and among Purchaser, Sterling Systems & Consulting, Inc., Sterling Ohio Management, Inc., and Bruce and Shelly White.

1.30 “Membership Interest Consideration” is defined herein in Section 2.2.

ARTICLE II

PURCHASE OF THE MEMBERSHIP INTERESTS

SECTION 2.1. Purchase and Sale of the Membership Interests. At the Closing, the Seller will sell, convey, transfer and deliver to the Purchaser, and the Purchaser will purchase and receive from the Seller all Membership Interest in the Company owned by the Seller as of the Closing, which Membership Interests shall represent all of the issued and outstanding membership interests in the Company as of Closing.

SECTION 2.2. Purchase Price.

2.2.1 The purchase price to be paid by Purchaser to Seller for the Membership Interests (the “Purchase Price”) shall consist of 116,677 shares of Avatech Common Stock (the “Stock Consideration”) and one million ninety-two thousand twenty-one dollars and 25 cents ($1,092,021.25) in cash (the “Cash Consideration”) which Cash Consideration, subject to the Escrow Amount (hereinafter defined), and subject to the adjustment provided for in Section 2.2.2, shall be wired to the account of the Seller upon Seller’s instructions, on the Closing Date, and which Stock Consideration shall be issued to the account of the Seller on the Closing Date. Purchaser and/or the Company shall not, for federal or state tax purposes, allocate the purchase price hereunder to personal property in an amount that exceeds the tax basis of such personal property.

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2.2.2 The Cash Consideration shall be increased or decreased, as the case may be, as follows: Seller and Company shall prepare the Balance Sheet at Closing. The sum of accounts receivable and inventory of the Company and the limited liability companies that are parties to the LLC Purchase Agreements shall be totaled (such number, the “assets”) and the sum of the accounts payable, accrued compensation, and other current liabilities shall be totaled (such number, the “liabilities”). If the difference between the assets and liabilities on the Balance Sheet at Closing (the “Closing Number”) exceeds by more than $50,000 (in the aggregate among the LLC Companies and Sterling Systems & Consulting, Inc.), and the difference between such sums as shown on the Balance Sheet and the LLC Balance Sheets (the “Original Number”), then (i) if the Closing Number is smaller than the Original Number, the Cash Consideration shall be reduced by the difference between the Closing Number and Original Number, and (ii) if the Closing Number is larger than the Original Number, the Cash Consideration shall be increased by the difference between the Closing Number and the Original Number. The Cash Consideration shall in any event be reduced by $48,000 as a result of a “stocking order” placed by Seller with Autodesk, Inc. prior to the date of the Balance Sheet at Closing.

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SECTION 2.3 Escrow.

2.3.1 Purchaser and Seller agree that $400,000, allocated among the two LLC Purchase Agreements and the Stock Purchase Agreement, of the Cash Consideration shall, on the Closing Date, be deposited in an interest-bearing escrow account (the “Escrow Account”) with The Huntington National Bank, a national banking corporation (the “Escrow Agent”), pursuant to an escrow agreement reasonably satisfactory to Purchaser and Seller, for the purpose of securing Seller’s and the Company’s representations and warranties made to the Purchaser in Article III hereof. The Escrow Agent shall maintain the Escrow Account for a period of nine months. During such period, if, as a direct result of a material misrepresentation or breach of warranty by Seller made to the Purchaser in Article III hereof, Purchaser becomes liable for and pays any monetary damages, awards, or settlements of claims, then the Escrow Agent shall, after satisfaction of the provision of paragraph 2.2.3 hereof, pay from the Escrow Account, to the Purchaser, the amount of any such damages, awards, or settlements (“Escrow Payment”). On the first day of the tenth month following the Closing Date, the Escrow Agent shall pay to the Seller the amount then on deposit in the Escrow Account, including any earnings thereon. Any dispute between the parties regarding the validity or amount of any damages, awards, or settlements of claims shall be submitted to a panel of arbitrators, one selected by Purchaser, one selected by Seller, and a third to be selected by the two arbitrators selected by Purchaser and Seller, the findings of a majority of which arbitrators shall be binding upon the parties.

2.3.2 In order for Purchaser to assert its right to an Escrow Payment, Purchaser shall have given Seller a written notice of any third party claim or demand which may result in liability to Purchaser pursuant to paragraph 2.2.2. hereof (“Escrow Notice”) subject to Seller’s right to defend in good faith third party claims as hereinafter provided. If after such Escrow Notice Seller has not within thirty (30) days thereof resolved such claim and payment of such claim is made by Purchaser, such sums paid shall qualify as an Escrow Payment and shall be paid by the Escrow Agent to Purchaser.

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2.3.3 If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 2.3.2 above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Escrow Notice of the Seller’s decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser and Company shall make available to the Seller or its agents all records and other materials in the Purchaser’s or Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser and Company shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

SECTION 2.4 Distribution of Cash. Seller, Company, and Purchaser agree that Company shall distribute to Seller or to employees, on or prior to the Closing Date, all cash of

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the Company, on deposit in the Company’s depositary accounts as of December 31, 2005, and all cash of the Company, on deposit in the Company’s depositary accounts, received by the Company from January 1, 2006 to, but not including, the Closing Date. It is the intention of the parties that the Company shall distribute to its membership interest holders, the Seller, all of its cash on hand up to, but not including, the Closing Date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1.1 Representations and Warranties of the Company and the Seller. The Seller and the Company jointly and severally represent and warrant to the Purchaser that, except as set forth in the Schedules and/or a letter dated as of the Closing Date executed by the Company and Seller and containing information required by this Agreement and specifying the exceptions to the representations and warranties of the Company and the Seller under this Agreement (the “Disclosure Letter”):

3.1.2 Organization. The Company has been duly organized, is validly existing as a limited liability company in good standing under the laws of its state of organization, and each state in which, by the nature of its business or the ownership of property, it is required to be qualified to do business, and has the requisite power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.1.3 Power and Authority. The Company has all requisite power and authority to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby, and each Seller has all requisite power and authority, to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby.

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3.1.4 Membership Interests. All of the membership interests in the Company are duly and validly authorized, and all such membership interests are fully paid and nonassessable, and are owned by Seller free and clear of any Lien. No such membership interest was issued in violation of any preemptive or similar rights.

3.1.5 Rights of Others. The Company has no direct or indirect subsidiaries, and there are no outstanding subscriptions, rights, options, calls, convertible securities, commitments of sale, or Liens related to or entitling any person to purchase or otherwise to acquire any ownership interest in, the Company.

3.1.6 Validity of Agreement. This Agreement has been duly and validly authorized, executed, and delivered by the Company and the Seller and constitutes a valid and legally binding agreement of the Company and the Seller, enforceable against it and them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws relating to or affecting creditor’s rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and, as to rights of indemnification, by principles of public policy or federal or state securities laws relating thereto.

3.1.7 Financial Statements. The Seller has delivered to the Purchaser, at or prior to the Closing Date, copies of the following financial statements of the Company: (a) a balance sheet of the Company for each of its three preceding fiscal years, (b) the Balance Sheet, and (c) any additional Financial Statements associated therewith. Such Financial Statements and notes thereto fairly present the financial condition and results of operations of the Company as at the dates thereof and for the periods therein referred to, subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which, if presented, would not differ materially from

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those included in the Financial Statements); the Financial Statements reflect the consistent application of accounting principles throughout the periods involved, except as disclosed in the notes to such Financial Statements.

3.1.8 Liabilities. Except as set forth in Schedule 3.1.8, or (i) in the Financial Statements, or (ii) liabilities for federal and state income taxes which may hereinafter be disclosed on tax audits, the Company had no obligations or liabilities, contingent or otherwise. Schedule 3.1.8 also sets forth any (a) amounts owed to Insiders and (b) accounts payable that have been outstanding for more than sixty (60) days.

3.1.9 No Conflict. Except as set forth in Schedule 3.1.9, the execution, delivery, and performance of this Agreement and the Documents by the Company and the Seller and the consummation of the transactions contemplated hereby will not violate, conflict with, or result in a breach or violation of the organizational documents or operating agreement (or similar organizational and governance documents) of the Company or any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to the organizational documents or operating agreement (or similar organizational and governance documents) of the Company, any bond, note, debenture, or other evidence of indebtedness or any indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which it is bound, or to which any properties of the Company are or may be subject, or contravene any order of any court or governmental agency or body having jurisdiction over the Company or any of its properties, or violate or conflict with any statute, rule or regulation, or administrative or court decree applicable to the Company or any of its properties, except for any such violations, conflicts, breaches, or defaults which, singularly or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

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3.1.10 Tax Matters.

(a) Except as set forth in Schedule 3.1.10, all federal, state, local and foreign returns, (including, without limitation, estimated tax returns, withholding tax returns with respect to employees, and FICA and FUTA returns) required to be filed by or on behalf of the Company have been timely filed or requests for extensions have been timely filed, granted and have not expired and all returns filed are complete and accurate. All taxes shown on filed returns have been paid. As of the date hereof, and as of the Effective Date, there is and shall be no audit examination, deficiency or refund litigation or matter in controversy with respect to any taxes that might result in a determination adverse to the Company, except as reserved against in the Financial Statements or disclosed in Schedule 3.1.10. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation have been paid.

(b) Except as disclosed in Schedule 3.1.10, the Company has not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect.

(c) To the extent any federal, state, local or foreign taxes are due from the Company for the period or periods beginning on the date of commencement of its most recent fiscal year, or thereafter through and including the Effective Date, adequate provision on an estimated basis has been or will be made for the payment of such taxes by establishment of appropriate tax liability accounts on the Balance Sheet at Closing, except as shown on Schedule 3.1.10.

(d) Deferred taxes of the Company have been provided fo, except as shown on Schedule 3.1.10.

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3.1.11 Properties. Except as set forth in Schedule 3.1.11, the Company has good and marketable title, free and clear of all Liens, encumbrances, charges, defaults or equities of whatever character, to all of its properties and assets, tangible or intangible, whether real, personal or mixed, reflected in its Financial Statements as being owned by it at the date of the most recent balance sheet or acquired by it thereafter. All buildings, and all fixtures, equipment and other property and assets which, in the opinion of the Company’s management are material to its business, held under leases or subleases by the Company are held under valid instruments enforceable in accordance with their terms (except as disclosed in Schedule 3.1.11 and except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought). The policies of fire, theft, liability and other insurance maintained with respect to the assets or business of the Company provide commercially reasonable, for businesses of its type, coverage against any loss reasonably foreseeable in the conduct of the Company’s business.

3.1.12 Compliance with Laws. Except as set forth in Schedule 3.1.12, the Company:

(a) is in compliance with all laws, regulations, reporting and licensing requirements and orders applicable to its business or any of its employees (because of such employee’s activities on behalf of it), the breach or violation of which could have a Material Adverse Effect on its business; and

(b) has received no notification (not disclosed on Schedule 3.1.12), from any agency or department of federal, state or local government or regulatory authorities or the staff thereof asserting that it is not in compliance with any of the statutes, regulations, rules or ordinances which such governmental authority or regulatory authority enforces, or threatening to revoke any license, franchise, permit or governmental authorization, and is subject to no agreement with any regulatory authority with respect to its assets or business.

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3.1.13 Employee Benefit Plan. Except as set forth in Schedule 3.1.13, with respect to any Plan:

(a) Except for liabilities to the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which have been fully paid, and except for liabilities arising under the Code, if any, all of which have been fully paid, the Company has no liability to the Pension Benefit Guaranty Corporation or to the Internal Revenue Service with respect to any pension plan qualified under Section 401 of the Code.

(b) All Plans comply in all material respects with ERISA and, where applicable for tax-qualified or tax-favored treatment, with the Code. As of the date of the Company’s most recent Financial Statements, there exists no material liability under any Plan that is not reflected on the Company’s Financial Statements as of such date, or in the notes thereto (other than such normally unrecorded liabilities under the Plans for sick leave, holiday, education, bonus, vacation, incentive compensation and anniversary awards, provided that such liabilities are not in any event material). The amounts accrued for any sick leave, vacation or holidays are set forth on Schedule 3.1.13. Neither the Plans nor any trustee or administrator thereof has engaged in any “prohibited transactions” within the meaning of Section 406 of ERISA or, where applicable, Section 4975 of the Code for which no exemption is applicable, nor have there been any “reportable events” within the meaning of Section 4043 of ERISA for which the 30-day notice therefor has not been waived.

(c) No litigation is pending against any Plan or Plan fiduciary seeking the payment of benefits or alleging a breach of trust or fiduciary duty by any plan fiduciary.

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(d) The Company is not party to any multi-employer pension plan as defined in Section 414(f) of the Code and Section 3(37) of ERISA.

3.1.14 Commitments and Contracts. Except as set forth in Schedule 3.1.14, the Company is not party or subject to any of the following (whether written or oral, express or implied):

(a) any employment contract or understanding, including any understandings or obligations with respect to severance or termination pay liabilities or fringe benefits, with any present or former officer, director, employee or consultant (other than those which are terminable at will by the Company without the necessity of making payments to such person following termination of employment);

(b) any plan, contract or understanding providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing or similar understandings with respect to any present or former member, employee or consultant not fully satisfied on or before the Closing Date;

(c) any contract or agreement with any labor union;

(d) any contract not made in the ordinary course of business containing covenants limiting the freedom of the Company to compete in any line of business or with any person or involving any restriction regarding the area in which, or method by which, the Company will carry on its business (other than as may be required by law or applicable authorities);

(e) any lease with annual rental payments aggregating $12,000 or more.

3.1.15 Labor. No work stoppage involving the Company is pending or, to the best of the Company’s knowledge, threatened. The Company is not involved in, or threatened with or

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affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which could materially and adversely affect the business of the Company. The Company’s employees are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees.

3.1.16 Material Contracts. Except as set forth in Schedule 3.1.16, and except as is otherwise provided in this Agreement, neither the Company nor any of its assets, business or operations is, as of the date hereof, a party to, or bound, or affected by, or receives benefits under, (i) any material agreement, arrangement or commitment not cancelable by the Company without penalty, or (ii) any material agreement, arrangement or commitment relating to the employment, election or retention in office of any director or officer or employee.

3.1.17 Material Contract Defaults. Except as set forth in Schedule 3.1.17, the Company is not in default in any material respect under any material contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party or by which its assets, business or operations may be bound or affected or under which it or its assets, business or operations receive benefits, and there has not occurred any event which, with the lapse of time or the giving of notice, or both, would constitute a default.

3.1.18 Legal Proceedings. Except as set forth in Schedule 3.1.18, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Company threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome), including eminent domain proceedings, against or relating to the Company, or against any property, asset, interest or right of the Company. Neither the Company nor the Seller is a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

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3.1.19 Absence of Certain Changes or Events. Except as set forth in Schedule 3.1.19, since the date of the Financial Statements, the Company has not: (i) incurred any material liability, except in the ordinary course of its business or, except as permitted pursuant to this Agreement; (ii) suffered any material adverse change in its business, operations, assets or condition (financial or otherwise); or (iii) failed to operate its business in the ordinary course except as permitted by this Agreement.

3.1.20 Accounts Receivable. All notes and accounts receivable of the Company shown on the Financial Statements or thereafter acquired have been collected or are current and collectible subject to returns and allowances in the ordinary course of business (in the case of each note in accordance with its terms, and in the case of each account within 30 days after billing) at the aggregate recorded amounts thereof on the books of the Company and are subject to no counterclaims or set-offs. Schedule 3.1.20 sets forth all accounts receivable that (i) are payable from Insiders or (ii) have not been paid for sixty (60) days or more, provided, however, that any violation of this representation in respect of any receivable not collected within nine months from the date of invoicing thereof shall be deducted from the Escrow Account on the six month anniversary of the Closing Date and paid to Purchaser.

3.1.21 Proprietary Rights. The Company owns or possesses adequate licenses or other rights to use all Intangible Property currently used by it in the conduct of its business. No royalties, honoraria or fees are now due and payable by the Company to any person by reason of the ownership or use of its Intangible Property except as shown on Schedule 3.1.21. All items of its Intangible Property are adequate and sufficient to permit the Company to conduct its business as now operated. Except as shown on Schedule 3.1.21, there are no licenses, sublicenses or

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agreements relating to use of the Intangible Property now in effect. No claim is pending or threatened or has been made within the past five years, to the effect that operation by the Company of its business or the manufacture or sale of its products, software or any formula, method, process, part or material they employ, infringes or conflicts in any way upon any rights owned or claimed by others.

3.1.22 Environmental Matters.

(a) The operations of the business of the Company conform with all applicable Federal, state and local laws, ordinances and regulations (including those relating to zoning and environmental protection), and all operations of the Company and its business that are subject to the Occupational Safety and Health Act of 1970, as amended, comply with employee working conditions as prescribed by such act.

(b) The Company has no underground storage tanks, either empty or containing any liquid, or gas, including but without limitation, solvents, fuel, waste oil, natural gas, or propane, on any premises used in its business.

(c) The Company has obtained all permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by the Company for the operation of its business under the Environmental Laws. The Company is in compliance in all respects with (i) all terms and conditions of all required permits, licenses and authorizations; and (ii) all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any law, regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder. There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere

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with or prevent continued compliance in all respects, or which may give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, waste, or hazardous or toxic material with respect to the Company or its business, properties or plants.

(d) There are no actions, suits or proceedings, or demands, claims, notices or investigations (including, without limitation, notices, demand letters or requests for information from any environmental agency) instituted or pending, or threatened relating to actual or asserted liability of the Company or any of its operations or buildings under any Environmental Law.

3.1.23 No Broker. Neither the Company nor the Seller has incurred any liability for finder’s, agent’s or brokerage fees, commissions or compensation in connection with this Agreement or the transactions contemplated hereby.

3.1.24 Best Efforts. On or prior to the Closing, the Company and Seller will, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

3.1.25 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by the Company or the Seller and the consummation of the contemplated transactions, except (i) such as have been obtained and made, and (ii) as to which the failure to be obtained or made would not, either individually or in the aggregate, have a Material Adverse Effect.

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3.2 Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company and Seller that:

3.2.1 The Purchaser has been duly organized, is validly existing as a corporation in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.2.3 On the Effective Date, Purchaser will have an authorized capitalization of 80,000,000 shares of common stock, and 20,000,000 shares of Preferred Stock. 3.2.4 The shares of Avatech Common Stock to be delivered to the Seller in connection with the Purchase will be validly issued, fully paid, and nonassessable.

3.2.5 The execution and delivery of this Agreement by the Purchaser has been duly authorized by proper corporate action and, on the Effective Date, the Purchaser will have all necessary corporate power and authority to consummate the transactions contemplated hereby.

3.2.6 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by Purchaser and the consummation of the contemplated transactions, except such as have been obtained and made.

3.2.7 Best Efforts. On or prior to the Closing, Purchaser shall, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

3.2.8 Legal Proceedings. Except as set forth in Schedule 3.2.8, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Purchaser

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threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against or relating to Purchaser, or against any property, asset, interest or right of Purchaser. The Purchaser is not a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

3.2.9 Compliance with Securities Laws. Purchaser is in full compliance with the 1933 Act, the 1934 Act and all applicable State Acts and knows of no act which would with the passage of time cause it to be in non-compliance with the 1933 Act, the 1934 Act or any applicable State Acts.

3.2.10 Acquired or Reacquired Stock. Neither Purchaser nor any subsidiary or affiliated company has acquired or reacquired any capital stock of Purchaser.

3.2.12 GAAP. The financial statements of Purchaser have at all times been prepared in accordance with generally accepted accounting principles.

3.2.13 Sarb Ox. Purchaser and its subsidiaries are in full compliance with all applicable provisions of the Sarbanes-Oxley Act of 2002 (Sarb Ox).

3.3 Additional Representations and Warranties of the Seller. The Sellers hereby agree with Purchaser that:

3.3.1 No Securities Registration. Purchaser currently files, periodic reports with the Securities and Exchange Commission pursuant to the provisions of the 1934 Act. The Seller also acknowledges and agrees that Purchaser has agreed only to register the Membership Interest Consideration as provided in Section 4.2 hereof in accordance with the provisions of the 1933 Act. Until such time as the registration of the Membership Interest Consideration is completed, the Avatech Common Stock which each Seller will receive pursuant to the Purchase may be required to

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be held for a period of not less than one year following the Effective Date, unless registered under the 1933 Act or the State Acts, or unless an exemption from such registration is available, in which case a Seller may still be limited in the number of shares that may be sold. The Sellers agree to comply with any and all Federal and state securities laws in connection with any resale of shares of the Avatech Common Stock acquired pursuant to this Agreement.

3.3.2 Shares Held for Investment. The Sellers represent that they are acquiring the shares of Avatech Common Stock for investment, and not with a view to redistribution, and that the Sellers are not participating, directly or indirectly, in any such undertaking or in the underwriting of any such undertaking. The Sellers represent that they have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment in Purchaser and of making an informed investment decision, and that they understand the risks of, and other investment considerations relating to, the acquisition of the Avatech Common Stock pursuant to the terms and conditions of the Purchase.

3.3.3 Shareholder Investment Intent. The Sellers acknowledge and agree that Purchaser has not registered the Avatech Common Stock that the Sellers shall receive hereunder, under the 1933 Act or the State Acts, and that each certificate representing shares of Avatech Common Stock issued to the Sellers shall be stamped or otherwise imprinted with, or contain, a legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE, AND MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, WITH OR WITHOUT CONSIDERATION UNLESS (I) REGISTERED FOR RESALE OR (II) IN CIRCUMSTANCES IN WHICH THE ISSUER HEREOF HAS RECEIVED THE WRITTEN OPINION OF ITS COUNSEL THAT SUCH COUNSEL IS OF THE OPINION THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING THE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE.

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Sellers shall further acknowledge that Purchaser’s issuance of Avatech Common Stock is made in reliance upon an exemption from registration under the 1933 Act, which exemption is in part premised upon representations made by each Seller herein.

3.3.4 Tax Consequences. The Sellers understand, acknowledge and agree that the consideration received by them in the Purchase shall be subject to taxation by federal and state taxing authorities. The Sellers have, at their sole expense and to the extent they deemed necessary or appropriate, consulted with own tax advisors to determine the tax consequences associated with the Purchase.

ARTICLE IV

COVENANTS

4.1 Conduct of Business. Except as otherwise contemplated herein, between the date hereof and the Closing Date, or the time when this Agreement terminates as provided herein, the Company agrees, and Seller agrees to cause the Company to not:

4.1.1 Make any change in its authorized equity ownership interests.

4.1.2 Issue any membership interests or other equity interests, securities convertible into its membership interests or other equity interests, or any debt securities.

4.1.3 Issue or grant any options, warrants, or other rights to purchase membership interests or other equity interests.

4.1.4 Declare or pay any dividends or other distributions on any membership interests except as provided for in this Agreement.

4.1.5 Purchase or otherwise acquire or agree to acquire for a consideration any membership interests (other than in a fiduciary capacity).

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4.1.6 Enter into or amend any employment, pension, retirement, membership interest option, profit sharing, deferred compensation, consultant, bonus, group insurance, or similar plan or agreement in respect of any of its members or other employees, or increase the current level of contributions to any such plan now in effect; provided Seller may terminate any employee bonus plan prior to Closing and hire at will employees in the ordinary course of business.

4.1.7 Take any action materially and adversely affecting this Agreement or the transactions contemplated hereby or the Company’s financial condition (present or prospective), businesses, properties, or operations.

4.1.8 Acquire, consolidate or merge with any other company, corporation, or association, or acquire, other than in the ordinary course of business, any assets of any other company, corporation, or association.

4.1.9 Mortgage, pledge, or subject to a lien or any other encumbrance, any of their assets, dispose of any of its assets, incur or cancel any debts or claims, or increase the current level of compensation or benefits payable to its members or employees except in the ordinary course of its business as heretofore conducted, or take any other action not in the ordinary course of its business as heretofore conducted, or incur any material obligation, or enter into any material contract except as provided for in this Agreement.

4.1.10 Amend its organizational documents or operating agreement.

4.1.11 Take any action to solicit, initiate, encourage, or authorize any person, including members and other employees, to solicit from any third party any inquiries or proposals relating to the disposition of its business or assets, or the acquisition of its membership interests, or the merger of it with or sale of any of its membership interests to, any person other than the Purchaser, and they shall promptly notify Purchaser orally of all the relevant details relating to all inquiries and proposals which they may receive relating to any of such matters.

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4.2 Covenant of Purchaser to Register the Avatech Common Stock Received by Seller. Purchaser shall file with the Securities and Exchange Commission, a registration statement (the “Registration Statement”) on the appropriate registration statement form, or an amendment to an existing registration statement, to effect a registration of the Avatech Common Stock to be received by Sellers within thirty (30) days of the Closing Date, and to use its reasonable best efforts to cause such Registration Statement to become effective under the 1933 Act. The Registration Statement (and each amendment or supplement thereto and each request for acceleration of effectiveness thereof) shall be provided to the Sellers when filed.

4.3 Resignation of Manager at the Closing. Seller shall resign as manager of the Company and thereafter Seller shall have no significant policy making function with the Company or Purchaser or any company acquired by Purchaser pursuant to the Stock Purchase Agreement or LLC Purchase Agreements.

4.4 Survival of Representation and Warranties. The representation and warranties given by Purchaser, Seller and Company shall survive the Closing for a period of nine months, after which they shall cease and a breach thereof shall not be actionable.

ARTICLE V

CONDITIONS TO PURCHASE

5.1 Closing Conditions. All obligations of the Purchaser and Seller to consummate the Purchase are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, except in the event the parties hereto shall all waive one or more of such conditions in writing:

5.2 Accuracy of Representations, Warranties, and Covenants. The representations, warranties, and covenants of the Purchaser and Seller, contained in this Agreement or on any

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schedule, list, exhibit, certificate or document delivered by the Company, the Seller, or Avatech pursuant to the provisions hereof shall be true in all material respects on the date hereof and as of the Closing Date.

5.3 Performance and Compliance. The Company, the Seller or Avatech shall have performed and complied in all material respects with all the agreements, covenants, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

5.4 No Material Changes. There shall not have occurred any material adverse change, since the date of this Agreement and up to and as of the Closing Date, in the financial condition of the Company.

5.5 Autodesk Consent and Dealer Agreement. Autodesk, Inc., a Delaware corporation, shall provide written consent to the assignment of the existing Autodesk Channel Partner Agreement with the Company to the Purchaser.

5.6 Employment Agreements. Employment Agreements between Purchaser, and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga containing terms and conditions, including but not limited to compensation schedules, satisfactory to the Purchaser and Seller shall be fully executed by the parties thereto.

5.7 Board of Director and Shareholder Approval. The Members of Company and the Board of Directors of Purchaser shall approve this Agreement.

5.8 Certificates and Opinions. The Seller and the Company shall provide to Purchaser and Purchaser shall provide to Seller and the Company (i) good standing certificates from their applicable State authorities; (ii) copies of resolutions of their respective Boards of Directors or memebers, authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and (iii) an opinion of its counsel, in form reasonably satisfactory to Purchaser and the Company.

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5.9 Schedules. The Seller and the Company shall have delivered to Avatech the Schedules as contemplated hereby.

5.10 Financing. The Purchaser shall have closed on a financing transaction or transactions that produce sufficient funds to enable it to pay to Seller the Cash Consideration.

5.11 Leases. Purchaser, Company, and each lessor of real property occupied by the Company shall have entered into assignments of existing leases between Company and such lessors.

ARTICLE VI

CLOSING DELIVERIES OF SELLER

SECTION 6.1. At Closing, Seller shall deliver to Purchaser the following:

(a) Certificates (or affidavits certifying that the certificates have been lost, if applicable) evidencing the membership interests to be transferred pursuant to this Agreement, which certificates shall be properly endorsed for transfer or accompanied by duly executed stock powers, in either case executed in blank or in favor of Purchaser or as Purchaser may have directed prior to the Closing, and shall have any requisite transfer tax stamps attached thereto;

(b) Good standing certificates, dated no more that five (5) days prior to the Closing Date, from the appropriate authorities in the jurisdiction of organization of the Company and in each jurisdiction in which the Company does business, showing the Company to be in good standing in the applicable jurisdiction;

(c) All consents (including such permits or authorizations as may be required by any regulatory authority) necessary or desirable to effect the transactions contemplated hereby, executed by the appropriate parties in each case in a form satisfactory to Purchaser; and

(d) Such other documents and agreements as reasonably requested by Purchaser.

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ARTICLE VII

COVENANTS OF THE PARTIES

SECTION 7.1. Further Assurances; Access to Properties and Information. Each of the parties hereto agrees to execute and deliver any and all further agreements, documents or instruments necessary or convenient to effectuate this Agreement and the transactions referred to herein or contemplated hereby or reasonably requested by the other party to perfect or evidence his, hers or its rights hereunder. Each party will promptly notify the other party of any information delivered to or obtained by such party which would prevent the consummation of the transactions contemplated by this Agreement, or would indicate a breach of the representations or warranties of any of the parties to this Agreement or as to which any party intends to seek indemnity under any of the terms of this Agreement.

SECTION 7.2. Expenses. Except as otherwise provided herein, each party agrees to pay its own expenses incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same and the preparations made for carrying the same into effect. Seller may cause the Company to pay expenses incurred in connection with this Agreement provided they are paid from cash of the Company prior to Closing.

SECTION 7.3. Tax Returns for 2006. Purchaser shall assist Seller in the preparation of the Company’s 2006 Federal and State income tax returns for the fiscal year ending the day before the Closing Date; such tax returns shall be prepared within 90 days from and after the Closing Date and shall be prepared in accordance with prior practice. The cost of preparing such tax returns shall be borne by Seller.

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ARTICLE VIII

INDEMNIFICATION

SECTION 8.1. Indemnification.

(a) Seller agrees to indemnify Purchaser, its successors and assigns, directors, officers, employees, and the successors in interest of each of them and their respective affiliates (“Indemnified Parties”) against, to hold such Indemnified Parties harmless from and against, and to reimburse such Indemnified Parties for any liability, damage, loss, costs or expenses (including attorney’s fees and costs of investigation incurred in defending against and/or settling such damage, loss, costs, expenses or claims therefor and any amounts paid in settlement thereof) (collectively “Losses”) imposed on or incurred by such Indemnified Parties caused by any material misrepresentation, breach of warranty, or failure to perform or material violation of any agreement or covenant on the part of Seller under this Agreement.

(b) In order for Purchaser to assert its right to indemnification, Purchaser shall give the Seller written notice (the “Purchaser Notice”) of any third party claim or demand which the Purchaser has determined has given or could give rise to a right of indemnification under this Agreement. Subject to the Seller’s right to defend in good faith third party claims as hereinafter provided, the Seller shall satisfy its obligations under this Agreement within thirty (30) days after the receipt of the applicable Purchaser Notice.

(c) If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 8.1 (a) above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to the Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Purchaser Notice of the Seller’s

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decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser shall make available to the Seller or its agents all records and other materials in the Purchaser’s or Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment with respect to which indemnification is being sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

(d) This Article IX shall survive the Closing for a period of nine (9) months from the date of Closing, provided, however, that with respect to any liability incurred by Purchaser for state sales taxes due, owing, and unpaid prior to the Closing Date, the period shall be three (3) years.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. Any notice hereunder shall be in writing and shall be given by personal delivery, by commercial overnight delivery service or by certified mail, postage prepaid, return receipt requested, or by facsimile, at the following address:

If to Seller:	c/o Bruce White
	351 Cove View
	Waterford, MI 48327

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With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313
If to Purchaser:	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117
With a copy to:	Christopher Olander, Esq.
	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117
If to Company:	Sterling Systems & Consulting, Inc.
	1433 E. Twelve Mile Road
	Madison Heights, MI 48071
With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313

Any party may, by like notice at any time and from time to time, designate a different address to which such notice shall be sent. Such notice shall be deemed sufficiently given (a) if personally served, upon such service, (b) if sent by commercial overnight delivery service, upon the next business day following such sending, (c) if mailed, forty-eight (48) hours following the first attempt of the postal service to deliver same or (d) if sent by facsimile, upon receipt of confirmation of transmission.

SECTION 9.2. Successors; Assignment. This Agreement shall be binding upon and shall inure to the benefit of Seller and their respective executors and administrators, and of Purchaser and its respective successors and assigns. This Agreement and the rights and obligations hereunder shall not be assignable without the prior written consent of the other parties hereto.

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SECTION 9.3. Entire Agreement. This Agreement, together with the disclosures, notices and letters referred to herein and the exhibits hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection herewith.

SECTION 9.4. Amendments/Waivers. Any amendment hereof must be in writing. Any provision hereof may be waived in writing by the party entitled to the benefit of such provision. No waiver of the breach of any provision shall be deemed or construed to be a waiver of other or subsequent breaches. Nothing herein is intended to confer any rights or remedies upon any person not a party hereto, except as expressly provided to the contrary herein.

SECTION 9.5. Gender; Number. Except where the context otherwise requires, words used in the masculine gender include the feminine and neuter; the singular number includes the plural, and the plural the singular; and the word “person” includes a corporation or other entity or association as well as a natural person.

SECTION 9.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

SECTION 9.7. Choice of Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware without the application of any choice of law provision if the same would require any law other than the laws of the State of Delaware.

SECTION 9.8. No Third Party Beneficiaries. No person not a party hereto shall have any rights hereunder, it being the intent of the parties that there shall be no third party beneficiaries.

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[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

“SELLER”
Bruce White
“COMPANY”
STERLING SYSTEMS – INDIANA L.L.C,
a Michigan limited liability company
By:
	Bruce White
Its:	Managing Member
“PURCHASER”
AVATECH SOLUTIONS, INC.,
a Delaware Corporation
By:
Its:

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EX-10.56

Exhibit 10.56

MEMBERSHIP INTEREST PURCHASE AGREEMENT

dated as of May 30, 2006

by and among

Bruce White, Marcy Nungesser, Kevin Breslin, Kenneth Williams, David Press, and

Steve Wydulga

“Sellers”

and

Sterling Systems – Ohio L.L.C.

(the “Company”)

and

Avatech Solutions, Inc.,

“Purchaser”

MEMBERSHIP INTEREST PURCHASE AGREEMENT

THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of this 30th day of May, 2006 by and among Bruce White, Marcy Nungesser, Kevin Breslin, Kenneth Williams, David Press, and Steve Wydulga (individually a “Seller” and collectively the “Seller”), Sterling Systems — Ohio, L.L.C. Inc., a Michigan limited liability company (the “Company”), and Avatech Solutions, Inc., a Delaware corporation (“Purchaser”).

EXPLANATORY STATEMENT

A. Seller collectively owns 100% of the issued and outstanding membership interests in the Company, and

B. Purchaser desires to acquire all of Seller’s membership interest in the Company pursuant to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants, agreements, representations and warranties, the Explanatory Statement which is hereby incorporated herein by reference, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, the Company and Purchaser hereby agree as follows:

ARTICLE ONE

DEFINITIONS

As used in this Agreement, the following terms shall have the meaning set forth after each such term.

1.1 “1934 Act” means the Securities and Exchange Act of 1934, as amended.

1.2 “1933 Act” means the Securities Act of 1933, as amended.

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1.13 “Agreement” is defined above.

1.14 “Avatech” is defined above.

1.15 “Avatech Common Stock” means shares of the common stock, par value $.01 per share, of Avatech.

1.16 “Balance Sheet” means the balance sheet of the Company dated as of December 31, 2005, which, in part, was used by Purchaser to calculate the value of the Company.

1.17 “Balance Sheet at Closing” means the unaudited balance sheet of the Company as of May 30, 2006.

1.8 “Closing” means the closing of the Purchase, to be held at a place, in a manner and, on a date mutually agreeable, but in no event later than fifteen (15) days following the date on which all conditions to the closing of the Purchase, as set forth herein, have been satisfied.

1.9 “Closing Date” means the date of the Closing.

1.10 “Code” means the Internal Revenue Code of 1986, as amended.

1.11 “Controlling Person” means each person, if any, who controls Purchaser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act.

1.12 “Effective Date” means the date the Purchase becomes effective which shall be the Closing Date.

1.13 “Documents” means the LLC Purchase Agreements, the Stock Purchase Agreement, the Schedules referred to herein, and the Employment Agreements.

1.14 “Employment Agreements” means the employment agreements to be entered into between Purchaser and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga.

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1.15 “Environmental Laws” means all Federal, state and local laws relating to pollution, protection of the environment, and waste disposal.

1.16 “ERISA” means the Employees Retirement Income Security Act of 1974.

1.17 “Escrow Account” is defined in Section 2.3 herein.

1.18 “Financial Statements” means the following financial statements of the Company: the Balance Sheet as of December 31, 2005, the Balance Sheet at Closing, and the related unaudited consolidated statements of income and cash flow, including the notes, if any, thereto.

1.19 “Insiders” means the officers, directors, partners, employees, representatives or agents of the Company.

1.20 “Intangible Property” means licenses or other rights held or owned by the Company to use all software, patents, trademarks, trade names, trade secrets, copyrights, inventions, formulae, methods and processes.

1.21 “Lien” means any security interest, mortgage, pledge, claim, lien, or encumbrance on any of the assets of the Company.

1.22 “LLC Companies” means Sterling Systems-Indiana, LLC and Sterling Systems–Ohio, LLC.

1.23 “LLC Purchase Agreements” means this membership interest purchase agreement, and the membership interest purchase Agreement dated as of even date herewith, between Purchaser and the members of Sterling Systems - Indiana.

1.24 “Material Adverse Effect” means any event reasonably expected to (i) result in a material adverse effect on the properties, business, results of operations, condition (financial or otherwise), or affairs of the Company, or (ii) in any manner, draw into question the validity of any of the Documents.

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1.25 “Membership Interests” means all of the membership interests of the Company, all of which are owned by the Seller.

1.26 “Plan” or “Plans” means any plan or arrangements of the Company which constitutes an “employee benefit plan,” as defined in Section 3 (3) of ERISA.

1.27 “Shareholder” or “Shareholders” mean the holders of any shares of the capital membership interest or equity interests of the Company.

1.28 “State Acts” means any applicable state securities laws or Blue Sky laws.

1.29 “Stock Purchase Agreement” means the stock purchase agreement dated as of even date herewith by and among Purchaser, Sterling Systems & Consulting, Inc., Sterling Ohio Management, Inc., and Bruce and Shelly White.

1.30 “Membership Interest Consideration” is defined herein in Section 2.2.

ARTICLE II

PURCHASE OF THE MEMBERSHIP INTERESTS

SECTION 2.1. Purchase and Sale of the Membership Interests. At the Closing, the Seller will sell, convey, transfer and deliver to the Purchaser, and the Purchaser will purchase and receive from the Seller all Membership Interest in the Company owned by the Seller as of the Closing, which Membership Interests shall represent all of the issued and outstanding membership interests in the Company as of Closing.

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SECTION 2.2. Purchase Price.

2.2.1 The purchase price to be paid by Purchaser to Seller for the Shares (the “Purchase Price”) shall consist of 82,473 shares of Avatech Common Stock (the “Stock Consideration”) and seven hundred seventy-one thousand nine hundred forty-eight dollars and 95 cents($771,948.95) in cash (the “Cash Consideration”) which Cash Consideration, subject to the Escrow Amount (hereinafter defined), and subject to the adjustment provided for in Section 2.2.2, shall be wired to the account of the Seller upon Seller’s instructions, on the Closing Date, and which Stock Consideration shall be issued to the account of the Seller on the Closing Date. Purchaser and/or the Company shall not, for federal or state tax purposes, allocate the purchase price hereunder to personal property in an amount that exceeds the tax basis of such personal property.

2.2.2 The Cash Consideration shall be increased or decreased, as the case may be, as follows: Seller and Company shall prepare the Balance Sheet at Closing. The sum of accounts receivable and inventory of the Company and the limited liability companies that are parties to the LLC Purchase Agreements shall be totaled (such number, the “assets”) and the sum of the accounts payable, accrued compensation, and other current liabilities shall be totaled (such number, the “liabilities”). If the difference between the assets and liabilities on the Balance Sheet at Closing (the “Closing Number”) exceeds by more than $50,000, in the aggregate among the Company, Sterling Systems & Consulting, Inc. Sterling Ohio Management, Inc. and the LLC Companies, the difference between such sums as shown on the Balance Sheet and the LLC Balance Sheets (the “Original Number”), then (i) if the Closing Number is smaller than the Original Number, the Cash Consideration shall be reduced by the difference between the Closing Number and Original Number, and (ii) if the Closing Number is larger than the Original Number, the Cash Consideration shall be increased by the difference between the Closing Number and the Original Number. The Cash Consideration shall in any event be reduced by $48,000 as a result of a “stocking order” placed by Seller with Autodesk, Inc. prior to the date of the Balance Sheet at Closing.

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SECTION 2.3 Escrow.

2.3.1 Purchaser and Seller agree that $400,000, allocated among the two LLC Purchase Agreements and the Stock Purchase Agreement, of the Cash Consideration shall, on the Closing Date, be deposited in an interest-bearing escrow account (the “Escrow Account”) with The Huntington National Bank, a national banking corporation (the “Escrow Agent”), pursuant to an escrow agreement reasonably satisfactory to Purchaser and Seller, for the purpose of securing Seller’s and the Company’s representations and warranties made to the Purchaser in Article III hereof. The Escrow Agent shall maintain the Escrow Account for a period of nine months. During such period, if, as a direct result of a material misrepresentation or breach of warranty by Seller made to the Purchaser in Article III hereof, Purchaser becomes liable for and pays any monetary damages, awards, or settlements of claims, then the Escrow Agent shall, after satisfaction of the provision of paragraph 2.2.3 hereof, pay from the Escrow Account, to the Purchaser, the amount of any such damages, awards, or settlements (“Escrow Payment”). On the first day of the tenth month following the Closing Date, the Escrow Agent shall pay to the Seller the amount then on deposit in the Escrow Account, including any earnings thereon. Any dispute between the parties regarding the validity or amount of any damages, awards, or settlements of claims shall be submitted to a panel of arbitrators, one selected by Purchaser, one selected by Seller, and a third to be selected by the two arbitrators selected by Purchaser and Seller, the findings of a majority of which arbitrators shall be binding upon the parties.

2.3.2 In order for Purchaser to assert its right to an Escrow Payment, Purchaser shall have given Seller a written notice of any third party claim or demand which may result in liability to Purchaser pursuant to paragraph 2.2.2. hereof (“Escrow Notice”) subject to Seller’s

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right to defend in good faith third party claims as hereinafter provided. If after such Escrow Notice Seller has not within thirty (30) days thereof resolved such claim and payment of such claim is made by Purchaser, such sums paid shall qualify as an Escrow Payment and shall be paid by the Escrow Agent to Purchaser.

2.3.3 If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 2.3.2 above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Escrow Notice of the Seller’s decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser and Company shall make available to the Seller or its agents all records and other materials in the Purchaser’s or Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser and Company shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

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SECTION 2.4 Distribution of Cash. Seller, Company, and Purchaser agree that Company shall distribute to Seller or to employees, on or prior to the Closing Date, all cash of the Company, on deposit in the Company’s depositary accounts as of December 31, 2005, and all cash of the Company, on deposit in the Company’s depositary accounts, received by the Company from January 1, 2006 to, but not including, the Closing Date. It is the intention of the parties that the Company shall distribute to its membership interest holders, the Seller, all of its cash on hand up to, but not including, the Closing Date.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

3.1.1 Representations and Warranties of the Company and the Seller. The Seller and the Company jointly and severally represent and warrant to the Purchaser that, except as set forth in the Schedules and/or a letter dated as of the Closing Date executed by the Company and Seller and containing information required by this Agreement and specifying the exceptions to the representations and warranties of the Company and the Seller under this Agreement (the “Disclosure Letter”):

3.1.2 Organization. The Company has been duly organized, is validly existing as a limited liability company in good standing under the laws of its state of organization, and each state in which, by the nature of its business or the ownership of property, it is required to be qualified to do business, and has the requisite power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.1.3 Power and Authority. The Company has all requisite power and authority to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby, and each Seller has all requisite power and authority, to execute, deliver, and perform its obligations under this Agreement and the Documents and to consummate all transactions contemplated hereby.

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3.1.4 Membership Interests. All of the issued and membership interests in the Company have been duly and validly authorized and issued, and all such membership interests are fully paid and nonassessable, and are owned by Seller free and clear of any Lien. No such membership interest was issued in violation of any preemptive or similar rights.

3.1.5 Rights of Others. The Company has no direct or indirect subsidiaries, and there are no outstanding subscriptions, rights, options, calls, convertible securities, commitments of sale, or Liens related to or entitling any person to purchase or otherwise to acquire any ownership interest in, the Company.

3.1.6 Validity of Agreement. This Agreement has been duly and validly authorized, executed, and delivered by the Company and the Seller and constitutes a valid and legally binding agreement of the Company and the Seller, enforceable against it and them in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws relating to or affecting creditor’s rights generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) and, as to rights of indemnification, by principles of public policy or federal or state securities laws relating thereto.

3.1.7 Financial Statements. The Seller has delivered to the Purchaser, at or prior to the Closing Date, copies of the following financial statements of the Company: (a) a balance sheet of the Company for each of its three preceding fiscal years, (b) the Balance Sheet, and (c) any additional Financial Statements associated therewith. Such Financial Statements and notes thereto fairly present the financial condition and results of operations of the Company as at the dates thereof and for the periods therein referred to, subject, in the case of interim financial statements, to normal

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recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (which, if presented, would not differ materially from those included in the Financial Statements); the Financial Statements reflect the consistent application of accounting principles throughout the periods involved, except as disclosed in the notes to such Financial Statements.

3.1.8 Liabilities. Except as set forth in Schedule 3.1.8, or (i) in the Financial Statements, or (ii) liabilities for federal and state income taxes which may hereinafter be disclosed on tax audits, the Company had no obligations or liabilities, contingent or otherwise. Schedule 3.1.8 also sets forth any (a) amounts owed to Insiders and (b) accounts payable that have been outstanding for more than sixty (60) days.

3.1.9 No Conflict. Except as set forth in Schedule 3.1.9, the execution, delivery, and performance of this Agreement and the Documents by the Company and the Seller and the consummation of the transactions contemplated hereby will not violate, conflict with, or result in a breach or violation of the organizational documents or operating agreement (or similar organizational and governance documents) of the Company or any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to the organizational documents or operating agreement (or similar organizational and governance documents) of the Company, any bond, note, debenture, or other evidence of indebtedness or any indenture, mortgage, deed of trust, or other agreement or instrument to which the Company is a party or by which it is bound, or to which any properties of the Company are or may be subject, or contravene any order of any court or governmental agency or body having jurisdiction over the Company or any of its properties, or violate or conflict with any statute, rule or regulation, or administrative or court decree applicable to the Company or any of its properties, except for any such violations, conflicts, breaches, or defaults which, singularly or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

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3.1.10 Tax Matters.

(a) Except as set forth in Schedule 3.1.10, all federal, state, local and foreign returns, (including, without limitation, estimated tax returns, withholding tax returns with respect to employees, and FICA and FUTA returns) required to be filed by or on behalf of the Company have been timely filed or requests for extensions have been timely filed, granted and have not expired and all returns filed are complete and accurate. All taxes shown on filed returns have been paid. As of the date hereof, and as of the Effective Date, there is and shall be no audit examination, deficiency or refund litigation or matter in controversy with respect to any taxes that might result in a determination adverse to the Company, except as reserved against in the Financial Statements or disclosed in Schedule 3.1.10. All taxes, interest, additions and penalties due with respect to completed and settled examinations or concluded litigation have been paid.

(b) Except as disclosed in Schedule 3.1.10, the Company has not executed an extension or waiver of any statute of limitations on the assessment or collection of any tax due that is currently in effect.

(c) To the extent any federal, state, local or foreign taxes are due from the Company for the period or periods beginning on the date of commencement of its most recent fiscal year, or thereafter through and including the Effective Date, adequate provision on an estimated basis has been or will be made for the payment of such taxes by establishment of appropriate tax liability accounts on the Balance Sheet at Closing, except as shown on Schedule 3.1.10.

(d) Deferred taxes of the Company have been provided for, except as shown on Schedule 3.1.10.

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3.1.11 Properties. Except as set forth in Schedule 3.1.11, the Company has good and marketable title, free and clear of all Liens, encumbrances, charges, defaults or equities of whatever character, to all of its properties and assets, tangible or intangible, whether real, personal or mixed, reflected in its Financial Statements as being owned by it at the date of the most recent balance sheet or acquired by it thereafter. All buildings, and all fixtures, equipment and other property and assets which, in the opinion of the Company’s management are material to its business, held under leases or subleases by the Company are held under valid instruments enforceable in accordance with their terms (except as disclosed in Schedule 3.1.11 and except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought). The policies of fire, theft, liability and other insurance maintained with respect to the assets or business of the Company provide commercially reasonable, for businesses of its type, coverage against any loss reasonably foreseeable in the conduct of the Company’s business.

3.1.12 Compliance with Laws. Except as set forth in Schedule 3.1.12, the Company:

(a) is in compliance with all laws, regulations, reporting and licensing requirements and orders applicable to its business or any of its employees (because of such employee’s activities on behalf of it), the breach or violation of which could have a Material Adverse Effect on its business; and

(b) has received no notification (not disclosed on Schedule 3.1.12), from any agency or department of federal, state or local government or regulatory authorities or the staff thereof asserting that it is not in compliance with any of the statutes, regulations, rules or ordinances which such governmental authority or regulatory authority enforces, or threatening to revoke any license, franchise, permit or governmental authorization, and is subject to no agreement with any regulatory authority with respect to its assets or business.

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3.1.13 Employee Benefit Plan. Except as set forth in Schedule 3.1.13, with respect to any Plan:

(a) Except for liabilities to the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which have been fully paid, and except for liabilities arising under the Code, if any, all of which have been fully paid, the Company has no liability to the Pension Benefit Guaranty Corporation or to the Internal Revenue Service with respect to any pension plan qualified under Section 401 of the Code.

(b) All Plans comply in all material respects with ERISA and, where applicable for tax-qualified or tax-favored treatment, with the Code. As of the date of the Company’s most recent Financial Statements, there exists no material liability under any Plan that is not reflected on the Company’s Financial Statements as of such date, or in the notes thereto (other than such normally unrecorded liabilities under the Plans for sick leave, holiday, education, bonus, vacation, incentive compensation and anniversary awards, provided that such liabilities are not in any event material). The amounts accrued for any sick leave, vacation or holidays are set forth on Schedule 3.1.13. Neither the Plans nor any trustee or administrator thereof has engaged in any “prohibited transactions” within the meaning of Section 406 of ERISA or, where applicable, Section 4975 of the Code for which no exemption is applicable, nor have there been any “reportable events” within the meaning of Section 4043 of ERISA for which the 30-day notice therefor has not been waived.

(c) No litigation is pending against any Plan or Plan fiduciary seeking the payment of benefits or alleging a breach of trust or fiduciary duty by any plan fiduciary.

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(d) The Company is not party to any multi-employer pension plan as defined in Section 414(f) of the Code and Section 3(37) of ERISA.

3.1.14 Commitments and Contracts. Except as set forth in Schedule 3.1.14, the Company is not party or subject to any of the following (whether written or oral, express or implied):

(a) any employment contract or understanding, including any understandings or obligations with respect to severance or termination pay liabilities or fringe benefits, with any present or former officer, director, employee or consultant (other than those which are terminable at will by the Company without the necessity of making payments to such person following termination of employment);

(b) any plan, contract or understanding providing for bonuses, pensions, options, deferred compensation, retirement payments, profit sharing or similar understandings with respect to any present or former member, employee or consultant not fully satisfied on or before the Closing Date;

(c) any contract or agreement with any labor union;

(d) any contract not made in the ordinary course of business containing covenants limiting the freedom of the Company to compete in any line of business or with any person or involving any restriction regarding the area in which, or method by which, the Company will carry on its business (other than as may be required by law or applicable authorities);

(e) any lease with annual rental payments aggregating $12,000 or more.

3.1.15 Labor. No work stoppage involving the Company is pending or, to the best of the Company’s knowledge, threatened. The Company is not involved in, or threatened with or

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affected by, any labor dispute, arbitration, lawsuit or administrative proceeding which could materially and adversely affect the business of the Company. The Company’s employees are not represented by any labor union nor are any collective bargaining agreements otherwise in effect with respect to such employees.

3.1.16 Material Contracts. Except as set forth in Schedule 3.1.16, and except as is otherwise provided in this Agreement, neither the Company nor any of its assets, business or operations is, as of the date hereof, a party to, or bound, or affected by, or receives benefits under, (i) any material agreement, arrangement or commitment not cancelable by the Company without penalty, or (ii) any material agreement, arrangement or commitment relating to the employment, election or retention in office of any director or officer or employee.

3.1.17 Material Contract Defaults. Except as set forth in Schedule 3.1.17, the Company is not in default in any material respect under any material contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party or by which its assets, business or operations may be bound or affected or under which it or its assets, business or operations receive benefits, and there has not occurred any event which, with the lapse of time or the giving of notice, or both, would constitute a default.

3.1.18 Legal Proceedings. Except as set forth in Schedule 3.1.18, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Company threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome), including eminent domain proceedings, against or relating to the Company, or against any property, asset, interest or right of the Company. Neither the Company nor the Seller is a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

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3.1.19 Absence of Certain Changes or Events. Except as set forth in Schedule 3.1.19, since the date of the Financial Statements, the Company has not: (i) incurred any material liability, except in the ordinary course of its business or, except as permitted pursuant to this Agreement; (ii) suffered any material adverse change in its business, operations, assets or condition (financial or otherwise); or (iii) failed to operate its business in the ordinary course except as permitted by this Agreement.

3.1.20 Accounts Receivable. All notes and accounts receivable of the Company shown on the Financial Statements or thereafter acquired have been collected or are current and collectible subject to returns and allowances in the ordinary course of business (in the case of each note in accordance with its terms, and in the case of each account within 30 days after billing) at the aggregate recorded amounts thereof on the books of the Company’s and are subject to no counterclaims or set-offs. Schedule 3.1.20, sets forth all accounts receivable that (i) are payable from Insiders or (ii) have not been paid for sixty (60) days or more, provided, however, that any violation of this representation in respect of any receivable not collected within nine months from the date of invoicing thereof shall be deducted from the Escrow Account on the six month anniversary of the Closing Date and paid to Purchaser.

3.1.21 Proprietary Rights. The Company owns or possesses adequate licenses or other rights to use all Intangible Property currently used by it in the conduct of its business. No royalties, honoraria or fees are now due and payable by the Company to any person by reason of the ownership or use of its Intangible Property except as shown on Schedule 3.1.21. All items of its Intangible Property are adequate and sufficient to permit the Company to conduct its business as now operated. Except as shown on Schedule 3.1.21, there are no licenses, sublicenses or

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agreements relating to use of the Intangible Property now in effect. No claim is pending or threatened or has been made within the past five years, to the effect that operation by the Company of its business or the manufacture or sale of its products, software or any formula, method, process, part or material they employ, infringes or conflicts in any way upon any rights owned or claimed by others.

3.1.22 Environmental Matters.

(a) The operations of the business of the Company conform with all applicable Federal, state and local laws, ordinances and regulations (including those relating to zoning and environmental protection), and all operations of the Company and its business that are subject to the Occupational Safety and Health Act of 1970, as amended, comply with employee working conditions as prescribed by such act.

(b) The Company has no underground storage tanks, either empty or containing any liquid, or gas, including but without limitation, solvents, fuel, waste oil, natural gas, or propane, on any premises used in its business.

(c) The Company has obtained all permits, licenses and other authorizations and filed all notices which are required to be obtained or filed by the Company for the operation of its business under the Environmental Laws. The Company is in compliance in all respects with (i) all terms and conditions of all required permits, licenses and authorizations; and (ii) all other applicable limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in the Environmental Laws or contained in any law, regulation, code, plan, order, decree, judgment, notice or demand letter issued, entered, promulgated or approved thereunder. There are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans which may interfere

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with or prevent continued compliance in all respects, or which may give rise to any common law or statutory liability, or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling, or the emission, discharge, release or threatened release into the environment, of any pollutant, contaminant, waste, or hazardous or toxic material with respect to the Company or its business, properties or plants.

(d) There are no actions, suits or proceedings, or demands, claims, notices or investigations (including, without limitation, notices, demand letters or requests for information from any environmental agency) instituted or pending, or threatened relating to actual or asserted liability of the Company or any of its operations or buildings under any Environmental Law.

3.1.23 No Broker. Neither the Company nor the Seller has incurred any liability for finder’s, agent’s or brokerage fees, commissions or compensation in connection with this Agreement or the transactions contemplated hereby.

3.1.24 Best Efforts. On or prior to the Closing, the Company and Seller will, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

3.1.25 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by the Company or the Seller and the consummation of the contemplated transactions, except (i) such as have been obtained and made, and (ii) as to which the failure to be obtained or made would not, either individually or in the aggregate, have a Material Adverse Effect.

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3.2 Representations and Warranties of the Purchaser. The Purchaser represents and warrants to the Company and Seller that:

3.2.1 The Purchaser has been duly organized, is validly existing as a corporation in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own, lease, and operate its properties, and to carry on its business as it is currently being conducted.

3.2.3 On the Effective Date, Purchaser will have an authorized capitalization of 80,000,000 shares of common stock, and 20,000,000 shares of Preferred Stock.

3.2.4 The shares of Avatech Common Membership interest to be delivered to the Seller in connection with the Purchase will be validly issued, fully paid, and nonassessable.

3.2.5 The execution and delivery of this Agreement by the Purchaser has been duly authorized by proper corporate action and, on the Effective Date, the Purchaser will have all necessary corporate power and authority to consummate the transactions contemplated hereby.

3.2.6 No Consents. No consent, waiver, approval, authorization, or order of, or filing, registration, qualification, license, or permit of or with any court or governmental agency, body, or administrative agency or other person is required for the execution, delivery, and performance of this Agreement or any of the Documents by Purchaser and the consummation of the contemplated transactions, except such as have been obtained and made.

3.2.7 Best Efforts. On or prior to the Closing, Purchaser shall, to the extent permitted by applicable laws, rules and regulations, take such actions and execute and deliver all such agreements, documents, certificates or amendments to this Agreement as may be necessary or desirable to effectuate the provisions and intent of this Agreement.

3.2.8 Legal Proceedings. Except as set forth in Schedule 3.2.8, there are no actions, suits or proceedings instituted or pending, or to the best knowledge of the Purchaser

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threatened (or unasserted but considered probable of assertion and which if asserted would have at least a reasonable probability of an unfavorable outcome) against or relating to Purchaser, or against any property, asset, interest or right of Purchaser. The Purchaser is not a party to any agreement or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, stay, decree, rule, regulation, code or ordinance that threatens or might impede the consummation of the transactions contemplated by this Agreement.

3.2.9 Compliance with Securities Laws. Purchaser is in full compliance with the 1933 Act, the 1934 Act and all applicable State Acts and knows of no act which would with the passage of time cause it to be in non-compliance with the 1933 Act, the 1934 Act or any applicable State Acts.

3.2.10 Acquired or Reacquired Stock. Neither Purchaser nor any subsidiary or affiliated company has acquired or reacquired any capital stock of Purchaser.

3.2.12 GAAP. The financial statements of Purchaser have at all times been prepared in accordance with generally accepted accounting principles.

3.2.13 Sarb Ox. Purchaser and its subsidiaries are in full compliance with all applicable provisions of the Sarbanes-Oxley Act of 2002 (Sarb Ox).

3.3 Additional Representations and Warranties of the Seller. The Sellers hereby agree with Purchaser that:

3.3.1 No Securities Registration. Purchaser currently files, periodic reports with the Securities and Exchange Commission pursuant to the provisions of the 1934 Act. The Seller also acknowledges and agrees that Purchaser has agreed only to register the Membership Interest Consideration as provided in Section 4.2 hereof in accordance with the provisions of the 1933 Act. Until such time as the registration of the Membership Interest Consideration is completed, the Avatech Common Stock which each Seller will receive pursuant to the Purchase may be required to

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be held for a period of not less than one year following the Effective Date, unless registered under the 1933 Act or the State Acts, or unless an exemption from such registration is available, in which case a Seller may still be limited in the number of shares that may be sold. The Sellers agree to comply with any and all Federal and state securities laws in connection with any resale of shares of the Avatech Common Stock acquired pursuant to this Agreement.

3.3.2 Shares Held for Investment. The Sellers represent that they are acquiring the shares of Avatech Common Stock for investment, and not with a view to redistribution, and that the Sellers are not participating, directly or indirectly, in any such undertaking or in the underwriting of any such undertaking. The Sellers represent that they have such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of an investment in Purchaser and of making an informed investment decision, and that they understand the risks of, and other investment considerations relating to, the acquisition of the Avatech Common Stock pursuant to the terms and conditions of the Purchase.

3.3.3 Shareholder Investment Intent. The Sellers acknowledge and agree that Purchaser has not registered the Avatech Common Stock that the Sellers shall receive hereunder, under the 1933 Act or the State Acts, and that each certificate representing shares of Avatech Common Stock issued to the Sellers shall be stamped or otherwise imprinted with, or contain, a legend in substantially the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE, AND MAY NOT BE SOLD, ASSIGNED, OR TRANSFERRED, WITH OR WITHOUT CONSIDERATION UNLESS (I) REGISTERED FOR RESALE OR (II) IN CIRCUMSTANCES IN WHICH THE ISSUER HEREOF HAS RECEIVED THE WRITTEN OPINION OF ITS COUNSEL THAT SUCH COUNSEL IS OF THE OPINION THAT SUCH SALE, ASSIGNMENT OR TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING THE REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTE.

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Sellers shall further acknowledge that Purchaser’s issuance of Avatech Common Stock is made in reliance upon an exemption from registration under the 1933 Act, which exemption is in part premised upon representations made by each Seller herein.

3.3.4 Tax Consequences. The Sellers understand, acknowledge and agree that the consideration received by them in the Purchase shall be subject to taxation by federal and state taxing authorities. The Sellers have, at their sole expense and to the extent they deemed necessary or appropriate, consulted with own tax advisors to determine the tax consequences associated with the Purchase.

ARTICLE IV

COVENANTS

4.1 Conduct of Business. Except as otherwise contemplated herein, between the date hereof and the Closing Date, or the time when this Agreement terminates as provided herein, the Company agrees, and Seller agrees to cause the Company to not:

4.1.1 Make any change in its authorized equity ownership interests.

4.1.2 Issue any membership interests or other equity interests, securities convertible into its membership interests or other equity interests, or any debt securities.

4.1.3 Issue or grant any options, warrants, or other rights to purchase membership interests or other equity interests.

4.1.4 Declare or pay any dividends or other distributions on any membership interests except as provided for in this Agreement.

4.1.5 Purchase or otherwise acquire or agree to acquire for a consideration any membership interests (other than in a fiduciary capacity).

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4.1.6 Enter into or amend any employment, pension, retirement, membership interest option, profit sharing, deferred compensation, consultant, bonus, group insurance, or similar plan or agreement in respect of any of its members or other employees, or increase the current level of contributions to any such plan now in effect; provided Seller may terminate any employee bonus plan prior to Closing and hire at will employees in the ordinary course of business.

4.1.7 Take any action materially and adversely affecting this Agreement or the transactions contemplated hereby or the Company’s financial condition (present or prospective), businesses, properties, or operations.

4.1.8 Acquire, consolidate or merge with any other company, corporation, or association, or acquire, other than in the ordinary course of business, any assets of any other company, corporation, or association.

4.1.9 Mortgage, pledge, or subject to a lien or any other encumbrance, any of their assets, dispose of any of its assets, incur or cancel any debts or claims, or increase the current level of compensation or benefits payable to its members or employees except in the ordinary course of its business as heretofore conducted, or take any other action not in the ordinary course of its business as heretofore conducted, or incur any material obligation, or enter into any material contract except as provided for in this Agreement.

4.1.10 Amend its organizational documents or operating agreement.

4.1.11 Take any action to solicit, initiate, encourage, or authorize any person, including members and other employees, to solicit from any third party any inquiries or proposals relating to the disposition of its business or assets, or the acquisition of its membership interests, or the merger of it with or sale of any of its membership interests to, any person other than the Purchaser, and they shall promptly notify Purchaser orally of all the relevant details relating to all inquiries and proposals which they may receive relating to any of such matters.

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4.2 Covenant of Purchaser to Register the Avatech Common Stock Received by Seller. Purchaser shall file with the Securities and Exchange Commission, a registration statement (the “Registration Statement”) on the appropriate registration statement form, or an amendment to an existing registration statement, to effect a registration of the Avatech Common Stock to be received by Sellers within thirty (30) days of the Closing Date, and to use its reasonable best efforts to cause such Registration Statement to become effective under the 1933 Act. The Registration Statement (and each amendment or supplement thereto and each request for acceleration of effectiveness thereof) shall be provided to the Sellers when filed.

4.3 Resignation of Manager at Closing. Seller shall resign as Manager of the Company and thereafter Seller shall have no significant policy making function with the Company or Purchaser or any company acquired by Purchaser pursuant to the Stock Purchase Agreement or LLC Purchase Agreements.

4.4 Survival of Representation and Warranties. The representation and warranties given by Purchaser, Seller and Company shall survive the Closing for a period of nine months, after which they shall cease and a breach thereof shall not be actionable.

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ARTICLE V

CONDITIONS TO PURCHASE

5.1 Closing Conditions. All obligations of the Purchaser and Seller to consummate the Purchase are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, except in the event the parties hereto shall all waive one or more of such conditions in writing:

5.2 Accuracy of Representations, Warranties, and Covenants. The representations, warranties, and covenants of the Purchaser and Seller, contained in this Agreement or on any schedule, list, exhibit, certificate or document delivered by the Company, the Seller, or Avatech pursuant to the provisions hereof shall be true in all material respects on the date hereof and as of the Closing Date.

5.3 Performance and Compliance. The Company, the Seller or Avatech shall have performed and complied in all material respects with all the agreements, covenants, and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date.

5.4 No Material Changes. There shall not have occurred any material adverse change, since the date of this Agreement and up to and as of the Closing Date, in the financial condition of the Company.

5.5 Autodesk Consent and Dealer Agreement. Autodesk, Inc., a Delaware corporation, shall provide written consent to the assignment of the existing Autodesk Channel Partner Agreement with the Company to the Purchaser.

5.6 Employment Agreements. Employment Agreements between Purchaser, and Bruce White, David Press, Kenneth Williams, Kevin Breslin, Marcy Nungesser, Mark Bonham, and Steve Wludyga containing terms and conditions, including but not limited to compensation schedules, satisfactory to the Purchaser and Seller shall be fully executed by the parties thereto.

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5.7 Board of Director and Shareholder Approval. The Members of Company and the Board of Directors of Purchaser shall approve this Agreement.

5.8 Certificates and Opinions. The Seller and the Company shall provide to Purchaser and Purchaser shall provide to Seller and the Company (i) good standing certificates from their applicable State authorities; (ii) copies of resolutions of their respective Boards of Directors or memebers, authorizing the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, and (iii) an opinion of its counsel, in form reasonably satisfactory to Purchaser and the Company.

5.9 Schedules. The Seller and the Company shall have delivered to Avatech the Schedules as contemplated hereby.

5.10 Financing. The Purchaser shall have closed on a financing transaction or transactions that produce sufficient funds to enable it to pay to Seller the Cash Consideration.

5.11 Leases. Purchaser, Company, and each lessor of real property occupied by the Company shall have entered into assignments of existing leases between Company and such lessors.

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ARTICLE VI

CLOSING DELIVERIES OF SELLER

SECTION 6.1. At Closing, Seller shall deliver to Purchaser the following:

(a) Certificates (or affidavits certifying that the certificates have been lost, if applicable) evidencing the membership interests to be transferred pursuant to this Agreement, which certificates shall be properly endorsed for transfer or accompanied by duly executed stock powers, in either case executed in blank or in favor of Purchaser or as Purchaser may have directed prior to the Closing, and shall have any requisite transfer tax stamps attached thereto;

(b) Good standing certificates, dated no more that five (5) days prior to the Closing Date, from the appropriate authorities in the jurisdiction of organization of the Company and in each jurisdiction in which the Company does business, showing the Company to be in good standing in the applicable jurisdiction;

(c) All consents (including such permits or authorizations as may be required by any regulatory authority) necessary or desirable to effect the transactions contemplated hereby, executed by the appropriate parties in each case in a form satisfactory to Purchaser; and

(d) Such other documents and agreements as reasonably requested by Purchaser.

ARTICLE VI

COVENANTS OF THE PARTIES

SECTION 7.1. Further Assurances; Access to Properties and Information. Each of the parties hereto agrees to execute and deliver any and all further agreements, documents or instruments necessary or convenient to effectuate this Agreement and the transactions referred to herein or contemplated hereby or reasonably requested by the other party to perfect or evidence his, hers or its rights hereunder. Each party will promptly notify the other party of any information delivered to or obtained by such party which would prevent the consummation of the transactions contemplated by this Agreement, or would indicate a breach of the representations or warranties of any of the parties to this Agreement or as to which any party intends to seek indemnity under any of the terms of this Agreement.

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SECTION 7.2. Expenses. Except as otherwise provided herein, each party agrees to pay its own expenses incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same and the preparations made for carrying the same into effect. Seller may cause the Company to pay expenses incurred in connection with this Agreement provided they are paid from cash of the Company prior to Closing.

SECTION 7.3. Tax Returns for 2006. Purchaser shall assist Seller in the preparation of the Company’s 2006 Federal and State income tax returns for the fiscal year ending the day before the Closing Date; such tax returns shall be prepared within 90 days from and after the Closing Date and shall be prepared in accordance with prior practice. The cost of preparing such tax returns shall be borne by Seller.

ARTICLE VIII

INDEMNIFICATION

SECTION 8.1. Indemnification.

(a) Seller agrees to indemnify Purchaser, its successors and assigns, directors, officers, employees, and the successors in interest of each of them and their respective affiliates (“Indemnified Parties”) against, to hold such Indemnified Parties harmless from and against, and to reimburse such Indemnified Parties for any liability, damage, loss, costs or expenses (including attorney’s fees and costs of investigation incurred in defending against and/or settling such damage, loss, costs, expenses or claims therefor and any amounts paid in settlement thereof) (collectively “Losses”) imposed on or incurred by such Indemnified Parties caused by any material misrepresentation, breach of warranty, or failure to perform or material violation of any agreement or covenant on the part of Seller under this Agreement.

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(b) In order for Purchaser to assert its right to indemnification, Purchaser shall give the Seller written notice (the “Purchaser Notice”) of any third party claim or demand which the Purchaser has determined has given or could give rise to a right of indemnification under this Agreement. Subject to the Seller’s right to defend in good faith third party claims as hereinafter provided, the Seller shall satisfy its obligations under this Agreement within thirty (30) days after the receipt of the applicable Purchaser Notice.

(c) If the Purchaser notifies the Seller of any claim or demand pursuant to paragraph 8.1 (a) above, and if such claim or demand relates to a claim or demand asserted by a third party against the Purchaser which is a claim or demand for which the Seller must indemnify or hold harmless the Purchaser under this Agreement, the Seller shall either (i) promptly pay or settle such claim or demand or (ii) employ counsel acceptable to the Purchaser, at the Seller’s expense, to defend any such claim or demand asserted against the Purchaser, so long as the Purchaser is not jeopardized with respect to such defense. The Purchaser shall have the right to cooperate in the defense of any such claim or demand. The Seller shall notify the Purchaser in writing, within twenty (20) days after the date of the applicable Purchaser Notice of the Seller’s decision to either pay such claim or demand or defend in good faith any such third party claim or demand. So long as the Seller is defending in good faith any such claim or demand asserted by a third party against the Purchaser, and the Purchaser is not jeopardized by such defense, the Purchaser shall not settle or compromise such claim or demand. The Purchaser shall make available to the Seller or its agents all records and other materials in the Purchaser’s or Company’s possession reasonably required by it for its use in contesting any third party claim or demand. Whether or not the Seller elects to defend any such claim or demand, the Purchaser shall have no obligation to do so. The Seller may not, without the prior written consent of the Purchaser, settle or compromise any claim or consent to the entry of any judgment with respect

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to which indemnification is being sought hereunder unless such settlement, compromise or consent includes an unconditional release of the Purchaser from any and all liability arising out of such claim.

(d) This Article IX shall survive the Closing for a period of nine (9) months from the date of Closing, provided, however, that with respect to any liability incurred by Purchaser for state sales taxes due, owing, and unpaid prior to the Closing Date, the period shall be three (3) years.

ARTICLE IX

MISCELLANEOUS

SECTION 9.1. Any notice hereunder shall be in writing and shall be given by personal delivery, by commercial overnight delivery service or by certified mail, postage prepaid, return receipt requested, or by facsimile, at the following address:

If to Seller:	c/o Bruce White
	351 Cove View
	Clarkston, MI 48327
With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313
If to Purchaser:	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117
With a copy to:	Christopher Olander, Esq.
	Avatech Solutions, Inc.
	10715 Red Run Blvd.
	Suite 101
	Owings Mills, MD 21117
If to Company:	Sterling Systems & Consulting, Inc.
	1433 E. Twelve Mile Road
	Madison Heights, MI 48071
With a Copy to:	John A. Nitz, Esq.
	O’Reilly Rancilio P.C.
	12900 Hall Road, Suite 350
	Sterling Heights, MI 48313

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Any party may, by like notice at any time and from time to time, designate a different address to which such notice shall be sent. Such notice shall be deemed sufficiently given (a) if personally served, upon such service, (b) if sent by commercial overnight delivery service, upon the next business day following such sending, (c) if mailed, forty-eight (48) hours following the first attempt of the postal service to deliver same or (d) if sent by facsimile, upon receipt of confirmation of transmission.

SECTION 9.2. Successors; Assignment. This Agreement shall be binding upon and shall inure to the benefit of Seller and their respective executors and administrators, and of Purchaser and its respective successors and assigns. This Agreement and the rights and obligations hereunder shall not be assignable without the prior written consent of the other parties hereto.

SECTION 9.3. Entire Agreement. This Agreement, together with the disclosures, notices and letters referred to herein and the exhibits hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection herewith.

SECTION 9.4. Amendments/Waivers. Any amendment hereof must be in writing. Any provision hereof may be waived in writing by the party entitled to the benefit of such provision. No waiver of the breach of any provision shall be deemed or construed to be a waiver of other or subsequent breaches. Nothing herein is intended to confer any rights or remedies upon any person not a party hereto, except as expressly provided to the contrary herein.

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SECTION 9.5. Gender; Number. Except where the context otherwise requires, words used in the masculine gender include the feminine and neuter; the singular number includes the plural, and the plural the singular; and the word “person” includes a corporation or other entity or association as well as a natural person.

SECTION 9.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument.

SECTION 9.7. Choice of Law. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Delaware without the application of any choice of law provision if the same would require any law other than the laws of the State of Delaware.

SECTION 9.8. No Third Party Beneficiaries. No person not a party hereto shall have any rights hereunder, it being the intent of the parties that there shall be no third party beneficiaries.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above.

“SELLERS”
Bruce White
Marcy Nungesser
Kevin Breslin
Kenneth Williams
David Press
Steve Wydulga
“COMPANY”
STERLING SYSTEMS –OHIO, L.L.C,
a Michigan limited liability company
By:
Bruce White
Its:	Managing Member
“PURCHASER”
AVATECH SOLUTIONS, INC.,
a Delaware Corporation
By:
Its:

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EX-10.57

Exhibit 10.57

MODIFICATION AGREEMENT

THIS MODIFICATION AGREEMENT (“AGREEMENT”) is made as of May 30, 2006, by and among AVATECH SOLUTIONS, INC., a Delaware corporation, and AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware corporation, jointly and severally (collectively, the “BORROWERS”), TECHNICAL LEARNINGWARE COMPANY, INC., a Delaware corporation (“TLC”), and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY (“LENDER”). The BORROWERS and TLC are collectively referred to herein as the “OBLIGORS”.

RECITALS

In accordance with the terms and conditions set forth in a Loan and Security Agreement dated as of January 27, 2006 between the BORROWERS and the LENDER (“LOAN AGREEMENT”), the LENDER has extended to the BORROWERS a revolving line of credit in the maximum principal amount outstanding at any one time of Five Million Dollars ($5,000,000.00) (the “LOAN”). Pursuant to the LOAN AGREEMENT, the BORROWERS’ obligations to the LENDER are secured by all of the BORROWERS’ tangible and intangible assets.

Pursuant to a Guaranty Agreement dated as of January 27, 2006 from TLC to the LENDER (“TLC GUARANTY AGREEMENT”), TLC absolutely, unconditionally, and jointly and severally guaranteed the payment and performance of the BORROWERS’ obligations to the LENDER. Pursuant to a Security Agreements of even date with the TLC GUARANTY AGREEMENT (“TLC SECURITY AGREEMENT”), the obligations of TLC to the LENDER are secured by all of TLC’s tangible and intangible assets. Pursuant to Guaranty Agreement of even date therewith from W. JAMES HINDMAN (“HINDMAN”) to the LENDER, HINDMAN guaranteed the BORROWERS’ obligations up to a specified amount set forth in such Guaranty Agreement.

The BORROWERS have requested that the LENDER extend to the BORROWERS a short term bridge loan, and that the LENDER consent to the acquisition by AVATECH SOLUTIONS, INC. of all of the outstanding stock and limited liability company membership interests of STERLING SYSTEMS & CONSULTING, INC., a Michigan corporation, STERLING SYSTEMS – INDIANA, L.L.C., A Michigan limited liability company, STERLING SYSTEMS – OHIO, L.L.C., a Michigan limited liability company, and STERLING OHIO MANAGEMENT, INC., a Michigan corporation (collectively, the “STERLING ENTITIES”). The LENDER has agreed to the BORROWERS’ request, but only upon the terms and conditions set forth herein. As used herein, the term “LOAN DOCUMENTS” shall mean the LOAN AGREEMENT, the TLC GUARANTY AGREEMENT, the TLC SECURITY AGREEMENT, and all other documents and agreements evidencing or securing the LOAN. Unless otherwise defined herein, any terms appearing in all capital letters in this AGREEMENT shall have the respective meanings ascribed to such terms in the LOAN AGREEMENT.

NOW, THEREFORE, in consideration of the foregoing premises, the terms and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Representations And Warranties Of Obligors. To induce the LENDER to enter into this AGREEMENT and to provide the OBLIGORS with the accommodations described herein, the OBLIGORS make the representations and warranties set forth below and acknowledge the LENDER’S justifiable right to rely upon these representations and warranties.

a. No Litigation. There is no action, suit, investigation, or proceeding pending against any of the OBLIGORS or any other assets of any of the OBLIGORS, except for those proceedings previously disclosed to the LENDER in writing.

b. Organization; Good Standing; Authorization. Each of the OBLIGORS: (a) has the power to enter into this AGREEMENT and all other documents, and agreements required to be executed pursuant to this AGREEMENT, and has the power to perform all of its obligations hereunder and thereunder; (b) has duly authorized the entry into and performance of this AGREEMENT and all other documents and agreements required to be executed by such OBLIGOR; and (c) is in good standing in the state of its incorporation or organization, as applicable, and is in good standing and qualified as a foreign corporation or limited liability company, as applicable, in all other states in which such qualification is required.

c. Valid, Binding And Enforceable. This AGREEMENT and all of the other documents and agreements executed pursuant to this AGREEMENT are the valid and binding obligations of the OBLIGORS and are fully enforceable against each of the OBLIGORS in accordance with their terms.

2. Amendments To Loan Agreement. The LOAN AGREEMENT is hereby modified and amended as follows:

a. Amendments to Definitions. The definitions of “LOAN DOCUMENTS” “OBLIGATIONS” contained in Article 1 of the LOAN AGREEMENT are hereby modified as follows:

i. The definition of “LOAN DOCUMENTS” contained in Section 1.66 shall also include, without limitation, this AGREEMENT and the Promissory Note of even date herewith from the BORROWERS as co-makers thereof which is payable to the order of LENDER in the stated principal amount of ($6,500,000.00).

ii. The definition of “OBLIGATIONS” contained in Section 1.75 is modified by replacing the words “the LOAN” in the second line thereof with the words “the LOAN and the BRIDGE LOAN”.

b. Additional Definitions. The following additional definitions are hereby added to Article 1 of the LOAN AGREEMENT:

Section 1.87. Bridge Loan. The term “BRIDGE LOAN” means the Six Million Five Hundred Thousand Dollar ($6,500,000.00) term loan facility extended by the LENDER to the BORROWERS in accordance with the terms set forth in this AGREEMENT, as evidenced by the BRIDGE LOAN NOTE.

Section 1.88. Bridge Loan Note. The term “BRIDGE LOAN NOTE” means the Promissory Note of even date herewith from the BORROWERS as co-makers thereof which is payable to the order of LENDER in the stated principal amount of ($6,500,000.00).

c. Reserve Against Revolving Loan. Section 2.1 of the LOAN AGREEMENT is hereby modified by adding at the end of such provision the following:

Notwithstanding anything to the contrary, until such time as all sums due and owing under the BRIDGE LOAN have been paid in full, the maximum principal amount advanced under the LOAN shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00).

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d. Bridge Loan. The following additional provision is hereby added to Article 2 of the LOAN AGREEMENT:

Section 2.15. Bridge Loan. Subject to the terms and conditions stated herein, the LENDER agrees to advance to the BORROWERS as proceeds of the BRIDGE LOAN the principal sum of Six Million Five Hundred Thousand Dollars ($6,500,000.00).

Section 2.15.2. Interest And Repayment. All principal sums advanced and outstanding under the BRIDGE LOAN shall bear interest at the rate or rates set forth in the BRIDGE LOAN NOTE. The BRIDGE LOAN shall be repaid in accordance with the stated terms and conditions of the BRIDGE LOAN NOTE, which terms and conditions are incorporated herein by reference.

Section 2.15.3. Commitment Fee. In consideration for the LENDER’S agreement to extend the BRIDGE LOAN to the BORROWERS, the BORROWERS shall pay to the LENDER a non-refundable and unconditional commitment fee equal to Sixty-Five Thousand Dollars ($65,000.00), which shall be due and payable, and have been earned by the LENDER, upon the date of advance of the BRIDGE LOAN. The commitment fee shall not be applied to or considered to be a payment of any of the LENDER’S expenses incurred in connection with the BRIDGE LOAN, all of which shall be paid by the BORROWERS.

Section 2.15.4. Purpose. The proceeds of the BRIDGE LOAN shall be used by the BORROWERS solely for the acquisition by AVATECH of all of the outstanding stock of Sterling Systems & Consulting, Inc., a Michigan corporation, Sterling Systems – Indiana, L.L.C., A Michigan limited liability company, Sterling Systems – Ohio, L.L.C., a Michigan limited liability company, and Sterling Ohio Management, Inc., a Michigan corporation.

3. No Novation; No Refinance; No Adverse Effect On Liens. The parties hereto do not intend that a novation of the LOAN or any of the LOAN DOCUMENTS shall be created or effected because of the modification of the LOAN AGREEMENT, as described herein. The parties hereto do not intend that the execution of this AGREEMENT, and the amendments and modifications to be made to the LOAN AGREEMENT, as described herein, shall: (a) constitute a refinance of the LOAN; or (b) affect or impair the validity, enforceability, or priority of any of the liens or security interests imposed by or granted in the LOAN DOCUMENTS.

4. Equity Investment. The BORROWERS have represented to the LENDER that the bridge loan financing to be extended to the BORROWERS pursuant to the terms of this AGREEMENT is to be repaid to the LENDER upon the receipt by the BORROWERS of an equity investment from a private equity fund. The BORROWERS shall keep the LENDER fully informed regarding the proposed equity investment, which shall be made to the BORROWERS only by LLR Partners, Tail Wind Advisory and Management, or an alternative private equity fund acceptable to the LENDER. The BORROWERS shall provide to the LENDER copies of all term sheets, commitment letters, and other correspondence relating to the proposed equity investment, promptly upon receipt thereof by the BORROWERS from each such private equity fund.

5. Other Terms; Confirmation Of Obligations. Other than the foregoing, all other terms and conditions of the LOAN DOCUMENTS shall remain in full force and effect and are incorporated herein by reference. The OBLIGORS acknowledge, ratify and confirm their respective obligations under the LOAN DOCUMENTS and further acknowledge and confirm that the OBLIGORS are and shall remain absolutely and unconditionally obligated to pay the LENDER all present and future indebtedness that is owed to the LENDER under the LOAN DOCUMENTS, as modified hereby, in the manner provided therein,

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notwithstanding the LENDER’S execution of this AGREEMENT and any documents to be executed pursuant to this AGREEMENT, and notwithstanding the various agreements the LENDER has set forth herein and therein.

6. Confirmation of Subsidiary Guarantor. TLC consents to the modification and amendment of the LOAN AGREEMENT pursuant to the terms of this AGREEMENT, including without limitation the extension of additional financing to the BORROWERS. TLC hereby acknowledges, ratifies and confirms that all of its obligations under the TLC GUARANTY AGREEMENT and TLC SECURITY AGREEMENT shall continue in full force and effect, notwithstanding the execution of this AGREEMENT and any documents to be executed pursuant to this AGREEMENT, and notwithstanding the various agreements of the LENDER as set forth herein and therein. TLC hereby confirms and acknowledges that it is jointly and severally liable, in accordance with the terms of the TLC GUARANTY AGREEMENT, for the payment and performance of the BORROWERS’ obligations under the LOAN DOCUMENTS.

7. Consent to Acquisition of Sterling. Pursuant to Section 6.8 of the LOAN AGREEMENT, the LENDER consents to the acquisition by AVATECH of all of the outstanding stock and limited liability company membership interests, as applicable, of each of the STERLING ENTITIES, substantially in accordance with the terms set forth in the following documents: (a) that certain Stock Purchase Agreement dated as of May 30, 2006, by and among Bruce White and Shelly White, as sellers, and AVATECH, as purchaser, with respect to all of the outstanding stock of Sterling Systems & Consulting, Inc. and Sterling Ohio Management, Inc.; (b) that certain Membership Interest Purchase Agreement dated as of May 30, 2006, by and among Bruce White, as seller, and AVATECH, as purchaser with respect to all of the outstanding limited liability company membership interests of Sterling Systems – Indiana L.L.C.; and (c) that certain Membership Interest Purchase Agreement dated as of May 30, 2006, by and among Bruce White, Marcy Nungesser, Kevin Breslin, Kenneth Williams, David Press and Steve Wydulga, as sellers, and AVATECH, as purchaser, with respect to all of the outstanding limited liability company membership interests of Sterling Systems – Ohio L.L.C. BORROWERS shall furnish to the LENDER copies of all documents executed in connection with the acquisition of the STERLING ENTITIES, the terms of which shall be acceptable to LENDER.

8. Security. Except as expressly modified herein, the OBLIGORS’ obligations under the LOAN DOCUMENTS, as modified hereby, shall continue to be secured by all of the liens, assignments, and security interests provided in the LOAN DOCUMENTS.

9. Miscellaneous.

a. Incorporation; Limited Modification. The terms and conditions of the LOAN DOCUMENTS are incorporated herein by reference and made a part hereof as if fully set forth herein. Except as specifically modified by or pursuant to this AGREEMENT, all terms and conditions of the LOAN DOCUMENTS remain unchanged, in full force and effect, and are hereby ratified and confirmed in all respects. In the event of any inconsistencies between the terms and conditions of this AGREEMENT and any of the terms and conditions of the other LOAN DOCUMENTS (except as to the specific modifications contained herein), the LENDER shall determine, in its sole discretion, which of the terms and conditions shall control.

b. Integration. This AGREEMENT, the LOAN DOCUMENTS (as modified), and any other documents executed pursuant to or in connection with this AGREEMENT constitute the entire agreement between the LENDER and the OBLIGORS with respect to the subject matter hereof, and any term or condition not expressed therein does not constitute a part of the agreement of the LENDER and the OBLIGORS with respect to such subject matter.

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c. Severability. If any provision or part of any provision of this AGREEMENT shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this AGREEMENT and this AGREEMENT shall be construed as if such invalid, illegal or unenforceable provision or part thereof had never been contained herein, but only to the extent of its invalidity, illegality, or unenforceability.

d. Number, Gender, And Captions. As used herein, the singular shall include the plural and the plural may refer to only the singular. The use of any gender shall be applicable to all genders. The captions contained herein are for purposes of convenience only and are not a part of this AGREEMENT.

e. Further Assurances. As part of this AGREEMENT, and in consideration for the agreements of the LENDER as set forth therein, each OBLIGOR agrees to execute and deliver to the LENDER such other and further documents as may, from time to time, in the sole opinion of the LENDER and the LENDER’S counsel, be necessary or appropriate to carry out the terms and conditions of this AGREEMENT and the LOAN DOCUMENTS. If any OBLIGOR fails to execute any such documents within ten (10) days of being requested to do so by the LENDER, such OBLIGOR hereby appoints the LENDER or any officer of the LENDER as the attorney in fact for such OBLIGOR for purposes of executing such documents in the name, place and stead of such OBLIGOR, which power of attorney shall be considered as coupled with an interest and irrevocable.

f. Waivers. No failure or delay by the LENDER in the exercise or enforcement of any of its rights under any LOAN DOCUMENT shall be a waiver of such right or remedy, nor shall a single or partial exercise or enforcement thereof preclude any other or further exercise or enforcement thereof or the exercise or enforcement of any other right or remedy. The LENDER may at any time or from time to time waive all or any rights under this AGREEMENT or any of the LOAN DOCUMENTS, but any such waiver must be specific and in writing and no such waiver shall constitute, unless specifically so expressed by the LENDER in writing, a future waiver of performance or exact performance by any OBLIGOR. No notice to or demand upon any OBLIGOR in any instance shall entitle such OBLIGOR (or any other OBLIGOR) to any other or further notice or demand in the same, similar or other circumstance.

g. Choice Of Law. The laws of the State of Maryland (excluding, however, conflict of law principles) shall govern and be applied to determine all issues relating to this AGREEMENT and the rights and obligations of the parties hereto, including the validity, construction, interpretation, and enforceability of this AGREEMENT and its various provisions and the consequences and legal effect of all transactions and events which resulted in the execution of this AGREEMENT or which occurred or were to occur as a direct or indirect result of this AGREEMENT having been executed.

h. Consent To Jurisdiction; Agreement As To Venue. Each OBLIGOR irrevocably consents to the non-exclusive jurisdiction of the courts of the State of Maryland and of the United States District Court For The District Of Maryland, if a basis for federal jurisdiction exists. Each OBLIGOR agrees that venue shall be proper in any circuit court of the State of Maryland selected by the LENDER or in the United States District Court For The District Of Maryland if a basis for federal jurisdiction exists and waive any right to object to the maintenance of a suit in any of the state or federal courts of the State of Maryland on the basis of improper venue or of inconvenience of forum.

i. Binding Effect; No Oral Modification. This AGREEMENT shall be binding upon and shall inure to the benefit of the parties and their respective personal representatives, successors and assigns. This AGREEMENT may not be altered, modified or amended unless such alteration, modification or amendment is in writing and executed by the LENDER.

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j. Time. Time is of the essence with respect to all of the obligations of the OBLIGORS under this AGREEMENT and the LOAN DOCUMENTS.

k. Costs Of Transaction. All costs of the transactions contemplated by this AGREEMENT, including without limitation all of attorneys’ fees and expenses incurred by the LENDER, shall be paid by the BORROWER, regardless of whether such costs are incurred before or after the execution and delivery of this AGREEMENT.

10. Release; Waiver. As part of the agreements set forth herein, and in consideration of the same, each OBLIGOR hereby releases the LENDER and all of the LENDER’S past, present and future directors, officers, employees, agents and attorneys from any and all claims, causes of action, suits and damages (including claims for attorneys’ fees) which any of the OBLIGORS, jointly or severally or otherwise, ever had or now have against the LENDER or any of the LENDER’S past, present and future directors, officers, employees, agents or attorneys. Without limiting the generality of the foregoing, each OBLIGOR acknowledges and agrees that there exists no offset or defense to the obligations of any OBLIGOR as stated in the LOAN DOCUMENTS.

11. Waiver Of Jury Trial. The parties hereto agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by any party to this AGREEMENT, or any of their successors or assigns, on or with respect to this AGREEMENT or any LOAN DOCUMENT or which in any way relates, directly or indirectly, to the obligations of the OBLIGORS to the LENDER under this AGREEMENT or any LOAN DOCUMENT, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. THE PARTIES EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH ACTION OR PROCEEDINGS. The parties acknowledge and agree that this provision is a specific and material aspect of the agreement between the parties and that the parties would not enter into this AGREEMENT if this provision were not contained herein.

IN WITNESS WHEREOF, the parties have executed this AGREEMENT as of the date first above written with the specific intention of creating a document under seal.

WITNESS/ATTEST:	BORROWERS:
	AVATECH SOLUTIONS, INC.,
	A Delaware Corporation
	By:	/s/ Lawrence Rychlak	(SEAL)
		Lawrence Rychlak,
		Vice President and Chief Financial Officer
	AVATECH SOLUTIONS SUBSIDIARY, INC.,
	A Delaware Corporation
	By:	/s/ Lawrence Rychlak	(SEAL)
		Lawrence Rychlak,
		Vice President and Chief Financial Officer

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TLC:
TECHNICAL LEARNINGWARE COMPANY, INC.,
A Delaware Corporation
By:	/s/ Lawrence Rychlak	(SEAL)
	Lawrence Rychlak,
	Vice President and Chief Financial Officer
LENDER:
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY
By:		(SEAL)
	Stephen D. Palmer, Vice President

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EX-10.58

Exhibit 10.58

Baltimore, Maryland $6,500,000.00

May 30, 2006

PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned AVATECH SOLUTIONS, INC., a Delaware corporation, and AVATECH SOLUTIONS SUBSIDIARY, INC., a Delaware corporation, jointly and severally (collectively, “BORROWERS”), jointly and severally promise to pay to the order of MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY (the “LENDER”), 2 Hopkins Plaza, 21^ST Floor, Baltimore, Maryland 21201, or at such other places as the holder of this Promissory Note may from time to time designate, the principal sum of Six Million Five Hundred Thousand Dollars ($6,500,000.00), together with interest thereon at the rate or rates hereafter specified until paid in full and any and all other sums which may be owing to the holder of this Promissory Note by the BORROWERS pursuant to this Promissory Note. This Promissory Note evidences the “BRIDGE LOAN,” as such term is defined in the Loan And Security Agreement (“AGREEMENT”) dated January 27, 2006, as modified by the Modification Agreement of even date herewith, between the BORROWERS and the LENDER. The following terms shall apply to this Promissory Note.

1. Interest Rate. Interest shall accrue on the unpaid principal balance of this Promissory Note until paid in full at the annual fluctuating rate of interest which shall equal the rate obtained by adding two percent (2%) to the “PRIME RATE,” in effect from time to time. As used herein, term “PRIME RATE” means the rate of interest announced from time to time by the LENDER, in its sole discretion, as its prime lending rate of interest, it being understood that such announced rate bears no inference, implication, representation, or warranty that such announced rate is charged to any particular customer or customers of the LENDER. The LENDERS prime lending rate of interest is but one of several interest rate bases used by the LENDER. Changes in the applicable interest rate shall be made as of, and immediately upon, the occurrence of changes in the LENDERS prime rate.

2. Calculation Of Interest. Interest shall be calculated on the basis of a three hundred sixty (360) days per year factor applied to the actual days on which there exists an unpaid balance hereunder.

3. Repayment. A payment of accrued and unpaid interest only shall be made by the BORROWERS to the holder of this Promissory Note on the first calendar day of each month, beginning on July 1, 2006, until August 30, 2006, which date is the final and absolute maturity date of this Promissory Note, at which time all sums due hereunder, including principal, interest, charges and fees, shall be paid in full.

4. Late Payment Charge. If any payment due hereunder, including any final installment, is not received by the holder within fifteen (15) calendar days after its due date, the BORROWERS shall pay a late payment charge equal to five percent (5%) of the amount then due. The late payment charge shall be due whether or not the holder declares this Promissory Note in default or accelerates and demands immediate payment of the sums due hereunder. The existence of the right by the holder to receive a late payment charge shall not constitute a grace period or provide any right in the BORROWERS to make a payment other than on its due date.

5. Application Of Payments. All payments made hereunder shall be applied first to late payment charges or other sums owed to the holder, next to accrued interest, and then to principal, or in such other order or proportion as the holder, in the holders sole discretion, may elect from time to time.

6. Prepayment. The BORROWERS may prepay this Promissory Note in whole or in part at any time without premium or additional interest. All prepayments made upon the unpaid principal balance of this Promissory Note shall be applied to the unpaid principal balance in the inverse order of scheduled maturities.

7. Rights Upon Occurrence Of An Event Of Default. Upon the occurrence of an “EVENT OF DEFAULT,” as such term is defined in the AGREEMENT, the holder of this Promissory Note shall have the following rights in addition to such other rights and remedies as are authorized by the AGREEMENT or otherwise available to the holder under applicable laws:

7.2. Acceleration. The holder of this Promissory Note, in the holders sole discretion and without notice or demand, may accelerate and declare due and immediately owing the entire unpaid principal balance plus accrued interest and all other sums payable to the holder hereunder. Reference is made to the LOAN DOCUMENTS for further and additional rights on the part of the holder to declare the entire unpaid principal balance plus accrued interest and all other sums due hereunder immediately due and payable.

7.3. Default Interest Rate. The holder of this Promissory Note, in the holders sole discretion and without notice or demand, may raise the rate of interest accruing on the unpaid principal balance by four (4) percentage points above the rate of interest otherwise applicable, independent of whether the holder elects to accelerate the unpaid principal balance as a result of such default, unless prior to the imposition of the default rate of interest, the BORROWERS cure such event to the satisfaction of the holder hereof. If the default rate of interest is imposed by the holder, the default rate shall remain in effect, until the EVENT OF DEFAULT authorizing the increase in the interest rate is cured to the holders satisfaction and the holder in writing agrees to reinstate the regular interest rate. Any individual waiver of the holders right to impose the default rate of interest or to retain the default rate of interest after imposition thereof shall not be considered a waiver of this section or any future right of the holder to impose the default rate of interest pursuant to this Section.

7.4. Confession Of Judgment. Each of the BORROWERS authorizes any attorney admitted to practice before any court of record in the United States to appear on its behalf in any court in one or more proceedings, or before any clerk thereof or prothonotary or other court official, and to confess judgment against the BORROWERS in favor of the holder of this Promissory Note in the full amount due on this Promissory Note (including principal, accrued interest and any and all charges, fees and costs) plus attorneys fees equal to fifteen percent (15%) of the amount due, plus court costs, all without prior notice or opportunity of the BORROWERS for prior hearing. Each of the BORROWERS agrees and consents that venue and jurisdiction shall be proper in the Circuit Court of any County of the State of Maryland or of Baltimore City, Maryland, or in the United States District Court for the District of Maryland. Each of the BORROWERS waives the benefit of any and every statute, ordinance, or rule of court which may be lawfully waived conferring upon it any right or privilege of exemption, homestead rights, stay of execution, or supplementary proceedings, or other relief from the enforcement or immediate enforcement of a judgment or related proceedings on a judgment. The authority and power to appear for and enter judgment against the BORROWERS shall not be exhausted by one or more exercises thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto; such authority and power may be exercised on one or more occasions from time to time, in the same or different jurisdictions, as often as the holder shall deem necessary, convenient, or proper. In the event that the holder receives, as a result of execution on a judgment confessed hereunder, attorney’s fees which exceed the actual legal fees incurred by the holder in connection with the unpaid balance due to the holder pursuant to this Promissory Note, then, upon full and final payment of all other sums due and owing to the holder pursuant to this Promissory Note and payment of the actual attorneys’ fees incurred by the holder, the holder shall remit such excess amount of attorneys’ fees to the BORROWERS.

8. Interest Rate After Judgment. If judgment is entered against either of the BORROWERS on this Promissory Note, the amount of the judgment entered (which may include principal, interest, fees, and costs) shall bear interest at the higher of the maximum interest rate imposed upon judgments by applicable law or the above described default interest rate, to be determined on the date of the entry of the judgment.

9. Expenses Of Collection And Attorneys Fees. Should this Promissory Note be referred to an attorney for collection, whether or not judgment is confessed or suit is filed, the BORROWERS shall pay all of the holders costs, fees and expenses, including attorneys fees, resulting from such referral.

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10. Waiver Of Defenses. In the event any one or more holders of this Promissory Note transfer this Promissory Note for value, each of the BORROWERS agrees that, except as otherwise provided herein, all subsequent holders of this Promissory Note who take for value and without actual knowledge of a claim or defense of either of the BORROWERS against a prior holder shall not be subject to any claims or defenses which either of the BORROWERS may have against a prior holder, all of which are waived as to the subsequent holder, and that all such subsequent holders shall have all rights of a holder in due course with respect to the BORROWERS even though the subsequent holder may not qualify, under applicable law, absent this section, as a holder in due course. The BORROWERS shall retain all rights and claims which the BORROWERS may have against prior holders despite any such transfers and the waiver of defenses provided in this section as to subsequent holders. Notwithstanding the foregoing, nothing herein shall represent the waiver by the BORROWERS of any defense based upon any payment hereof made to any former holder hereof prior to the BORROWERS having been notified of the transfer of this Promissory Note to any subsequent holder.

11. Waiver Of Protest. Each of the BORROWERS, and all parties to this Promissory Note, whether maker, indorser, or guarantor, waive presentment, notice of dishonor and protest.

12. Extensions Of Maturity. All parties to this Promissory Note, whether maker, indorser, or guarantor, agree that the maturity of this Promissory Note, or any payment due hereunder, may be extended at any time or from time to time without releasing, discharging, or affecting the liability of such party.

13. Manner And Method Of Payment. All payments called for in this Promissory Note shall be made in lawful money of the United States of America. If made by check, draft, or other payment instrument, such check, draft, or other payment instrument shall represent immediately available funds. In the holders discretion, any payment made by a check, draft, or other payment instrument shall not be considered to have been made until such time as the funds represented thereby have been collected by the holder. Should any payment date fall on a non-banking day, the BORROWERS shall make the payment on the next succeeding banking day.

14. Notices. Any notice or demand required or permitted by or in connection with this Promissory Note shall be given in the manner specified in the AGREEMENT for the giving of notices under the AGREEMENT. Notwithstanding anything to the contrary, all notices and demands for payment from the holder actually received in writing by any of the BORROWERS shall be considered to be effective upon the receipt thereof by such BORROWER regardless of the procedure or method utilized to accomplish delivery thereof to the BORROWERS.

15. Assignability. This Promissory Note may be assigned by the LENDER or any holder to the extent permitted by the stated terms of the AGREEMENT.

16. Binding Nature. This Promissory Note shall inure to the benefit of and be enforceable by the LENDER and the LENDERS successors and assigns and any other person to whom the LENDER or any holder may grant an interest in the BORROWERS obligations hereunder, and shall be binding and enforceable against each of the BORROWERS and its respective successors and assigns.

17. Invalidity Of Any Part. If any provision or part of any provision of this Promissory Note shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Promissory Note and this Promissory Note shall be construed as if such invalid, illegal or unenforceable provision or part thereof had never been contained herein, but only to the extent of its invalidity, illegality, or unenforceability.

18. Choice Of Law. The laws of the State of Maryland (excluding, however, conflict of law principles) shall govern and be applied to determine all issues relating to this Promissory Note and the rights and obligations of the parties hereto, including the validity, construction, interpretation, and enforceability of this

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Promissory Note and its various provisions and the consequences and legal effect of all transactions and events which resulted in the issuance of this Promissory Note or which occurred or were to occur as a direct or indirect result of this Promissory Note having been executed.

19. Consent To Jurisdiction; Agreement As To Venue. Each of the BORROWERS irrevocably consents to the non-exclusive jurisdiction of the courts of the State of Maryland and of the United States District Court for the District of Maryland, if a basis for federal jurisdiction exists. Each of the BORROWERS agrees that venue shall be proper in any circuit court of the State of Maryland selected by the LENDER or in the United States District Court for the District of Maryland if a basis for federal jurisdiction exists and waives any right to object to the maintenance of a suit in any of the state or federal courts of the State of Maryland on the basis of improper venue or of inconvenience of forum.

20. Unconditional Obligations. The BORROWERS obligations under this Promissory Note shall be the joint and several, absolute and unconditional duty and obligation of the BORROWERS and shall be independent of any rights of set-off, recoupment or counterclaim which either of the BORROWERS might otherwise have against the holder of this Promissory Note. The BORROWERS, jointly and severally, shall pay absolutely the payments of principal, interest, fees and expenses required hereunder, free of any deductions and without abatement, diminution or set-off.

21. Seal And Effective Date. This Promissory Note is an instrument executed under seal and is to be considered effective and enforceable as of the date set forth on the first page hereof, independent of the date of actual execution and delivery.

22. Tense; Gender; Defined Terms; Section Headings. As used herein, the singular includes the plural and the plural includes the singular. A reference to any gender also applies to any other gender. Defined terms are entirely capitalized throughout. The section headings are for convenience only and are not part of this Promissory Note.

23. Actions Against Holder. Any action brought by either of the BORROWERS against the holder of this Promissory Note which is based, directly or indirectly, on this Promissory Note or any matter in or related to this Promissory Note, including but not limited to the making of the loan evidenced hereby or the administration or collection thereof, shall be brought only in the courts of the State of Maryland. Each of the BORROWERS agrees that any forum other than the State of Maryland is an inconvenient forum and that a suit brought by either of the BORROWERS against the holder of this Promissory Note in a court of any state other than the State of Maryland should be forthwith dismissed or transferred to a court located in the State of Maryland by that Court.

24. Waiver Of Jury Trial. Each of the BORROWERS (by execution of this Promissory Note) and the holder of this Promissory Note (by acceptance of this Promissory Note) agree that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by or against either of the BORROWERS or the holder of this Promissory Note, or any successor or assign of either of the BORROWERS or the holder of this Promissory Note, on or with respect to this Promissory Note or any of the other LOAN DOCUMENTS, or which in any way relates, directly or indirectly, to the obligations of either of the BORROWERS to the holder of this Promissory Note under this Promissory Note or any of the other LOAN DOCUMENTS, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. EACH OF THE BORROWERS AND THE HOLDER OF THIS PROMISSORY NOTE HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR PROCEEDING.

IN WITNESS WHEREOF, each of the BORROWERS has duly executed this Promissory Note under seal as of the date first above written.

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WITNESS/ATTEST:	BORROWERS:
	AVATECH SOLUTIONS, INC.,
	A Delaware Corporation
	By:	/s/ Lawrence Rychlak	(SEAL)
	Name:	Lawrence Rychlak
	Title:	CFO
	AVATECH SOLUTIONS SUBSIDIARY, INC.,
	A Delaware Corporation
	By:	Lawrence Rychlak	(SEAL)
	Name:	Lawrence Rychlak
	Title:	CFO

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EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our firm under the caption “Experts” in the Registration Statement (Form S-1) and related Prospectus of Avatech Solutions, Inc. for the registration of 694,445 shares of its common stock and to the incorporation by reference therein of our reports dated September 21, 2005, with respect to the consolidated financial statements and schedules of Avatech Solutions, Inc. included in its Annual Report (Form 10-K) for the year ended June 30, 2005, filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Baltimore, Maryland

June 6, 2006