8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report: December 18, 2006

AVATECH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-31265	84-1035353
(State of Incorporation)	(Commission File No.)	(IRS Employer Identification Number)

10715 Red Run Boulevard, Suite 101, Owings Mills, Maryland 21117

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (410) 581-8080

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

INFORMATION TO BE INCLUDED IN THE REPORT

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

(c) Appointment of Officer. On December 18, 2006, Avatech Solutions, Inc. (the “Company”) issued a press release announcing that its Board of Directors appointed George M. Davis, a current member of the Board of Directors, as the Company’s Executive Vice Chairman and Director of Strategic Initiatives on December 15, 2006.

In connection with the appointment, the Company and Mr. Davis entered into an employment agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference. The employment agreement calls for (i) an annual salary of $150,000, subject to discretionary annual adjustment, (ii) benefits under the Company’s various employee benefit programs and perquisites offered to its executive officers and employees generally (including medical, vision, prescription drug, dental, disability, employee and group life, accidental death and travel accident, and section 401(k) plans and programs and the Company’s Employee Stock Purchase Plan ), (iii) the grant of option under the Company’s 2002 Stock Option Plan to purchase 100,000 shares of the Company’s common stock, (iii) a grant, on December 1, 2007, of 15,000 shares of restricted stock under the Company’s Restricted Stock Award Plan, and the potential to earn additional restricted shares having a value of up to $50,000 as a bonus, the amount and timing of which are at the sole discretion of the Executive Committee of the Board of Directors. Generally, 25% of the stock option will vest immediately, 25% will vest on December 1, 2007, and the remainder will vest at the rate of 1/36 per month beginning January 1, 2008. The option is, however, subject to the following accelerated vesting schedule (a copy of the schedule is attached as Exhibit A to the employment agreement): options to purchase 37,500 shares (or a pro rata portion thereof) will vest immediately based on the satisfaction of the earnings per share targets for senior executive officers under the Fiscal Year 2007 incentive compensation program discussed below under paragraph (e) of this Item 5.02 and the remaining options will vest immediately at such time as the Company achieves $5,000,000 in additional non-organic revenue growth.

The employment agreement provides that, for a period of six months following the termination of Mr. Davis’ employment, he will not, without prior written consent of the Company, (i) compete with the Company within 50 miles of any location where the Company, its affiliates or subsidiaries, maintains a place of business, (ii) employ or retain any person who was employed or retained by the Company, any successor to the Company’s business, or any of their affiliates or subsidiaries during the period of Mr. Davis’ employment, or (iii) solicit any customers or clients of the Company, its affiliates, or subsidiaries. The employment agreement contains customary confidentiality and other terms and conditions.

The employment agreement has a one-year term and will be automatically renewed for additional one-year terms unless either party gives the other party 30 days’ notice of an intent not to renew the agreement. Either party may terminate the employment agreement at any time for any reason whatsoever, except that the restricted stock grant mentioned above will be forfeited if Mr. Davis voluntarily terminates his employment prior to December 1, 2007.

A copy of the press release relating to the foregoing is furnished herewith as Exhibit 99.1.

(e) Compensatory Plans.

Salary Increases

On September 29, 2006, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved the following salary increases, to be effective as of September 1, 2007: Donald R (“Scotty”) Walsh, $25,000; Scott Harris, $10,000, and Larry Rychlak, $25,000.

Establishment of FY2007 Incentive Compensation Plan Targets

On September 29, 2006, the Compensation Committee established Fiscal Year 2007 incentive compensation targets for Messrs. Walsh, Harris, and Rychlak. The incentive compensation targets contemplate the payment of additional compensation to each of these officers that is a function of the officer’s salary, the Company’s earnings per share, and Company revenue. The specific targets are attached hereto as Exhibit 10.2 and are incorporated herein by reference.

Item 7.01 Regulation FD Disclosure

The Company is scheduled to make presentations to an investor conference on December 18, 2006. The presentation slides to be used are attached to this Current Report on Form 8-K as Exhibit 99.2 and are incorporated herein solely for purposes of this Item 7.01.

In accordance with General Instruction B.2 of Form 8-K, the information set forth in this Item 7.01, including Exhibit 99.2, is furnished pursuant to Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit 10.1	Employment Agreement between Avatech Solutions, Inc and George Davis effective as of December 1, 2006 (filed herewith)
Exhibit 10.2	FY 2007 Management Incentive Compensation Plan Targets (filed herewith)
Exhibit 99.1	Press release dated December 18, 2006 (furnished herewith)
Exhibit 99.2	Investor presentation slides (furnished herewith)

SIGNATURES

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

	AVATECH SOLUTIONS, INC.
Date: December 18, 2006	By:	/s/ Lawrence Rychlak
		Lawrence Rychlak Executive Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit	Description
10.1	Employment Agreement between Avatech Solutions, Inc. and George Davis effective as of December 1, 2006 (filed herewith)
10.2	FY 2007 Management Incentive Compensation Plan Targets
99.1	Press release dated December 18, 2006 (furnished herewith)
99.2	Investor presentation slides (furnished herewith)

EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of the first day of December, 2006 (the “Effective Date”), by and between AVATECH SOLUTIONS, INC., a Delaware corporation (the “Company”), and George Davis (“Executive”).

WHEREAS, the Company desires to employ Executive as its Executive Vice Chairman and Director of Strategic Initiatives, and Executive desires to be so employed.

NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive agree as follows:

Section 1. Employment. The Company agrees to employ Executive, and Executive agrees to be employed, as the Executive Vice Chairman and Director of Strategic Initiatives of the Company on the terms and subject to the conditions of this Agreement.

Section 2. Term. The term of Executive’s employment under this Agreement (the “Term”) will commence on the Effective Date and will continue for one (1) year (the “Initial Term”). The Term will be extended automatically in successive one-year periods unless either party gives notice of nonextension to the other not less than thirty (30) days before the end of the then-current Term. Notwithstanding the foregoing, Executive’s employment is subject to termination during the Term as provided in Section 5 of this Agreement.

Section 3. Duties. Executive will report to, and Executive’s specific responsibilities and authority will be established by, the Board of Directors or, acting on its behalf, the Executive Committee, of the Company. Executive will diligently and conscientiously devote substantially all of his business time and attention and best efforts in discharging his duties to the Company, representing not less than 75% of his business time, provided that (i) Company and Executive acknowledge that Executive holds positions with other companies that will require that he devote a portion of his business time and attention to such other business ventures, and (ii) Executive shall be free to engage in community involvements and participate in charitable activities, provided that such activities do not interfere with Executive’s obligation to devote substantially all of his time and best efforts to carrying out his duties hereunder.

Section 4. Compensation and Benefits.

4.1. Base Compensation. During the Initial Term, the Company will pay Executive a base salary (the “Base Salary”) at an annual rate of $150,000. During each succeeding year during the Term, Executive’s Base Salary may be increased by an amount determined by the Company’s Board of Directors after receiving the recommendations of its Compensation Committee, based upon the Executive’s performance during the prior year.

4.2. Incentive Compensation.

4.2.1. The Company will issue 100,000 options to Executive pursuant to the Company’s standard Form of Option, which will have a vesting and accelerated vesting schedule as set forth on Exhibit A, attached hereto and incorporated herein by reference. In addition, the Company shall issue to Executive, pursuant to its Restricted Stock Award Plan, 15,000 shares of the Company’s common stock on the first anniversary of the date of this Agreement, without regard to termination of this Agreement under Section 5. The Company may, at its sole and absolute discretion, and shall upon the approval of its Executive Committee, issue, under such Restricted Stock Award Plan, additional shares of its common stock having a value of up to $50,000.

4.3. Benefit Plans and Fringe Benefits.

4.3.1. During the Term, Executive will be entitled to participate in any and all employee benefit programs (including but not limited to medical, vision, prescription drug, dental, disability, employee and group life, accidental death and travel accident, and section 401(k) plans and programs) offered by the Company to its executives or to its employees generally, and Executive may receive such other benefits as the Company may determine from time to time.

4.3.2. Executive will be entitled to perquisites comparable to those that the Company from time to time extends to its senior executive staff.

4.3.3. The Company will reimburse Executive for business, travel, lodging, meals, and other reasonable business expenses incurred by him in the performance of services hereunder subject to submission of documentation in accordance with the Company’s business expense reimbursement policies from time to time applicable to its senior executives.

4.3.4. Executive shall be eligible to participate in the Company’s Employee Stock Purchase Plan, notwithstanding that Executive’s employment shall not be 100% full-time employment.

4.4. Payments; Withholding of Taxes, etc. The Company will make payments of Base Salary in accordance with the Company’s general payroll practices from time to time in effect. All payments to Executive pursuant to this Agreement will be reduced by taxes and other amounts that the Company is required by law or authorized by Executive to withhold.

4.5. Options. The Company shall grant options to purchase shares of the Company’s common stock pursuant to an option agreement dated the date of execution hereof as set forth on the signature page of this Agreement, and may grant additional options in the future at the discretion of the Board of Directors (or its Compensation Committee). Such option agreement will be in the standard form of option agreement used by the Company, but shall contain the vesting and accelerated vesting provisions set forth on Exhibit A attached hereto and incorporated herein by reference.

Section 5. Termination. The Company may, at its election and upon written notice to the Executive, terminate the Executive’s employment for any reason or no reason, with or without cause, as hereinafter provided, in which case the Company shall pay to Executive all Base Salary and benefits, as described herein, through the date of such termination, and shall issue the 15,000 shares referred to in Section 4.2 hereof at the time provided for therein.

Executive may, at his election and upon written notice to the Company, voluntarily terminate his employment with the Company at any time. If Executive voluntarily terminates his employment with the Company, the Company shall pay to Executive all Base Salary and benefits, as described herein, through the date of such voluntary termination of employment, and shall have no further obligation to Executive, including the obligation to issue 15,000 shares to Executive under Section 4.2 hereof.

Section 6 Certain Restrictions.

6.1 Confidentiality. Executive acknowledges that he will acquire confidential information relating to the Company, its subsidiaries and affiliates, including but not limited to business plans, sales and marketing plans, financial information, acquisition prospects, and “customer” and “supplier” lists (as such terms may relate to the business or the systems and other trade secrets or know-how of the Company, its subsidiaries and affiliates) as they may exist from time to time (collectively, “Confidential Information”), which are valuable, special, and unique assets of the Company’s business, access to or knowledge of which is essential to the performance of Executive’s duties hereunder. Accordingly, Executive will not disclose at any time (during his employment under this Agreement or thereafter) any such Confidential Information other than in connection with and reasonably required for the performance of his duties under this Agreement, unless required to do so pursuant to law, subpoena, court order, or other legal process. These restrictions will not apply to, and Confidential Information will not be deemed to include, information that is then in the public domain (other than as a result of action by the Executive).

6.2 Competitive Activity. Due to the unique position of Executive in his role with the Company, Executive agrees that if his employment with the Company ceases for any reason, Executive will not, for a period of six (6) months after the effective date of his termination of employment, without prior written consent of the Company:

6.2.1 Directly or indirectly, knowingly engage or be interested in (as owner, partner, shareholder, employee, director, officer, agent, consultant or otherwise), with or without compensation, any business entity or operation that engages in the business of selling computer-aided design software or providing professional, consulting, technical or training services related to computer-aided design software within fifty (50) miles of any location where the Company, its affiliates or subsidiaries, maintains a place of business, except that Executive may own up to a five percent (5%) interest in the publicly-traded securities of a publicly traded corporation. As used herein, “affiliate” means any corporation, firm or business entity controlled, directly or indirectly, by the Company or by the same persons, corporations, firms or business entities which control the Company;

6.2.2 Employ or retain or participate in or arrange the employment or retention of any person who was employed or retained by the Company, any successor to the Company’s business, or any of their affiliates or subsidiaries during the period of Executive’s employment; or

6.2.3 Directly or indirectly solicit any customers or clients of the Company, its affiliates, or subsidiaries.

6.3 Remedy for Breach and Modification. Executive acknowledges that the provisions of this Section 6 are reasonable and necessary for the protection of the Company and that the Company will be irrevocably damaged if these provisions are not specifically enforced. Accordingly, Executive agrees that, in addition to any other relief or remedies available to the Company, including reasonable attorneys’ fees and costs, the Company is entitled to seek and obtain an appropriate injunction or other equitable remedy for the purposes of restraining the Executive from any actual or threatened breach of or otherwise enforcing these provisions and no bond or security will be required in connection with such equitable remedy. If any provision of this Section 6 is deemed invalid or

unenforceable in any jurisdiction, such provision will be deemed modified and limited in such jurisdiction to the extent necessary to make it valid and enforceable in such jurisdiction.

Section 7. Arbitration of Certain Disputes. Any dispute or controversy arising under or in connection with this Agreement, other than with respect to an alleged breach of any of any of the provisions of Section 6, shall be resolved by binding arbitration held in Baltimore City or Baltimore County, Maryland before a single arbitrator. Such arbitration will be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect and otherwise in accordance with principles that would be applied by a court of law or equity. The arbitrator shall make written findings of fact and law to support his decision, which will be final and binding upon all parties. Judgment on any award may be entered and enforced in any court having jurisdiction.

Section 8. Miscellaneous.

8.1 Certain Permitted Changes in Executive’s Position. Anything in this Agreement to the contrary notwithstanding, in the event of a merger, consolidation, reorganization, sale of substantially all of the Company’s assets, or similar transaction (a “Transaction”), a change only in Executive’s title (but not a material reduction in the actual scope of Executive’s responsibilities, authority, or duties) does not constitute a failure by the Company to perform any term or provision of this Agreement. In the event of such a change in the Executive’s title, any reference, whether express or implied, in this Agreement to Executive’s title will be deemed to refer to Executive’s title as so changed.

8.2 Entire Agreement; Amendment. This Agreement supersedes all prior agreements between the parties with respect to its subject matter, is intended as a complete and exclusive statement of the terms of the agreement between the parties with respect thereto, and may be amended only by a writing signed by both parties hereto.

8.3 Nonwaiver. The failure of either party to insist upon strict adherence to any term of this Agreement on any occasion will not operate as a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in a writing signed by the party to be charged therewith.

8.4 Assignment. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement may not be assigned by either party without the consent of the other, except that the Company may assign all of its rights and delegate performance of all of its obligations hereunder in connection with a Transaction.

8.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be an original, but all of which together will constitute the same instrument.

8.6 Headings. The headings in this Agreement are for convenience of reference only and should not be given any effect in the interpretation of this Agreement.

8.7 Governing Law. This Agreement is governed by the laws of the State of Maryland, without regard to any provision that would result in the application of the laws of any other state or jurisdiction.

8.8 Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of any other provision of this Agreement.

8.9 Company Policies, Plans and Programs. Whenever any rights under this Agreement depend on the terms of a policy, plan, or program established or maintained by the Company, any determination of these rights will be made on the basis of the policy, plan, or program in effect at the time as of which such determination is made. No reference in this Agreement to any policy, plan, or program established or maintained by the Company precludes the Company from prospectively or retroactively changing or amending or terminating that policy, plan, or program or adopting a new policy, plan, or program in lieu of the then existing policy, plan, or program.

8.10. Board Action. Any action that may be taken hereunder by the Board of Directors of the Company with respect to the compensation and benefits of Executive may be taken by an authorized committee of the Board.

IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first above written.

WITNESS:	AVATECH SOLUTIONS, INC.
	By:
		George Davis
		Date of Execution:                         , 2006

EXHIBIT A

Options Vesting and Accelerated Vesting Schedule

Number of Options:	100,000
Vesting:	25,000 vest immediately (December 1, 2006)
	25,000 vest on December 1, 2007
	50,000 vest at the rate of 1/36 per month beginning
	January 1, 2008 (the “Performance Options”)
Accelerated Vesting of
Performance Options:	37,500 options (or a pro rata portion thereof) shall vest immediately based on the incentive compensation targets for senior executives of the Company adopted by the Company’s Compensation Committee on September 29, 2006 (as the same may be subsequently adjusted or revised by such Committee), except that (i) the percentages therein stated shall be percentages of 37,500 option shares, instead of percentages of targeted incentive compensation, and (ii) percentages related to service revenue attainments shall be ignored for purposes of this acceleration in vesting.
	12,500 options shall immediately vest at such time as the Company achieves $5,000,000 in additional “non-organic” revenue growth (representing revenue growth attributable to revenue sources other than the resale of Autodesk software).

EX-10.2

Exhibit 10.2

Avatech Solutions, Inc.

Management Incentive Compensation Plan Targets for FY 2007

	Target IC at Plan
	% of Salary		Amount
Donald R (“Scotty”) Walsh	75	%	$	225,000
Scott Harris	50	%	$	130,000
Larry Rychlak	33	%	$	70,950
			$	425,950

A: 75% of Incentive Compensation (IC) based on EPS*

B: 25% of IC based on achieving Service revenue objective

50%	of A earned at EPS	$	0.18
60%	of A earned at EPS	$	0.19
70%	of A earned at EPS	$	0.20
80%	of A earned at EPS	$	0.21
90%	of A earned at EPS	$	0.22
100%	of A earned at EPS	$	0.23
*	Numbers to be adjusted if acquisition completed using pooling accounting
50%	of B earned at $9,000,000 in Service Revenue
100%	of B earned at $10,300,000 in Service Revenue
	Pro rata percent for amount between $9,000,000 and $10,300,000

Incentive compensation will be paid upon completion of FY 2007 audit

The Incentive Compensation Plan will also provide for an over achievement increase in the IC pool of $20,000 for each $.01 EPS above $.23.

EX-99.1

Exhibit 99.1

Avatech Solutions Appoints George M. Davis

Executive Vice Chairman

BALTIMORE, MARYLAND – December 18, 2006 – Avatech Solutions, Inc. (OTCBB: AVSO.OB), the nationwide technology experts for design, engineering, and facilities management, today announced the appointment of George M. Davis as Executive Vice Chairman. Mr. Davis, committing the majority of his time, will lead the company’s corporate and strategic development efforts and report directly to the Board of Directors.

Avatech Chairman W. James Hindman commented, “Since joining our Board earlier this year, George has proven an essential and highly experienced resource for Avatech. Through his expanded responsibilities, he will now lead the evolution of a new phase at our company. Working arm in arm with our executive management team and Board of Directors, George will implement the new strategic direction we have set for Avatech, enabling us to take advantage of the compelling growth opportunities in our industry and fulfill our goal of transitioning Avatech to a diversified services and solutions provider.”

Mr. Davis noted, “Over the past six months, I have been increasingly impressed with the many opportunities that await Avatech, particularly as more and more small- and medium-sized businesses seek help in converting to advanced computer-aided design solutions. Strategic development and service growth are key goals for Avatech, and I look forward to helping the Board and management realize the company’s full potential.”

Mr. Davis co-founded Aether Systems, a wireless data software and services company, in 1996. Serving as its President and Vice Chairman until 2003, he helped build the venture into a $100 million company, leading its public offering in 1999 and several secondary offerings in 2000. From 1980 to 1996, he worked for Westinghouse Electric Corporation, now a division of Northrop Grumman, with increasing levels of responsibility in program management, including P&L accountability for major defense contracts involving the design, manufacture and support of integrated military avionics.

Mr. Davis is an Investing Partner in Demesys, LLC, an electronic medical records software and services company. He is also an Investing Partner in Coastal Ventures, LLC, a partnership focused on the restaurant and entertainment industry. Mr. Davis serves on the board of Defywire, a wireless software and services company, and is a trustee of Bethany College in West Virginia, where he received a BS in Economics in 1978.

About Avatech Solutions

Avatech Solutions, Inc. (OTCBB:AVSO.OB) is the recognized leader in design and engineering technology with unparalleled expertise in design automation, data management, and process optimization for the manufacturing, engineering, building design, and facilities management markets. Headquartered in Owings Mills, Maryland, the company specializes in consulting, software systems integration and implementation, standards development and deployment, education, and technical support. Avatech is one of the largest integrators of Autodesk software worldwide and a leading provider of PLM solutions. The company’s clients include industry leaders from Fortune 500 and Engineering News Record’s Top 100 companies. Visit http://www.avatech.com for more information.

This press release contains forward-looking statements about the expectations, beliefs, plans, intentions, and strategies of Avatech Solutions, Inc. There are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information. A description of risks and uncertainties attendant to Avatech and its industry, and other factors that could affect the Company’s financial results, are included in its Securities and Exchange Commission filings, including, but not limited to, the annual report on Form 10-K for the fiscal year ending June 30, 2006 and other Securities and Exchange Commission filings. Investors and shareholders may obtain a free copy of the documents filed by Avatech Solutions, Inc. with the Commission at the Commission’s web site at www.sec.gov.

###

Company Contact Jean Schaeffer	Investor Relations Contact Harriet Fried / Jody Burfening
Avatech Solutions, Inc.	Lippert/Heilshorn & Associates
Phone +1 (410) 581-8080 Fax +1 (410) 753-1591	Phone +1 (212) 838-3777 Fax +1 (212) 838-4568
jean.schaeffer@avatech.com	hfried@lhai.com

EX-99.2

Avatech Solutions Inc.

Avatech Solutions Inc.

(OTC BB: AVSO)

(OTC BB: AVSO)

Scotty Walsh

CHIEF EXECUTIVE

OFFICER

George Davis

EXECUTIVE VICE

CHAIRMAN

Lawrence

Rychlak

CHIEF FINANCIAL

OFFICER

December 2006

Exhibit 99.2

2

Forward-Looking Statement

Forward-Looking Statement

Statements

contained

herein

and

the

information

incorporated

by

reference

herein

may

be

forward-looking

statements

within

the

meaning

of

Section

21E

of

the

Securities

Exchange

Act

of

1934

(the

"Exchange

Act").

Forward-looking

statements

can

be

identified

by

the

use

of

forward-looking

terminology

such

as,

but

not

limited

to,

"may,"

"will,"

"expect,"

"anticipate,"

"estimate,"

"would

be,"

"believe,"

or

"continue"

or

the

negative

or

other

variations

of

comparable

terminology.

We

intend

such

forward-looking

statements

to

be

covered

by

the

safe

harbor

provisions

applicable

to

forward-looking

statements

contained

in

Section

21E

of

the

Exchange

Act.

Such

statements

(none

of

which

is

intended

as

a

guarantee

of

performance)

are

subject

to

certain

assumptions,

risks

and

uncertainties,

which

could

cause

our

actual

future

results,

achievements

or

transactions

to

differ

materially

from

those

projected

or

anticipated.

Such

risks

and

uncertainties

are

set

forth

herein.

Forward-looking

statements

include

statements

concerning

plans,

objectives,

goals,

strategies,

future

events,

or

performance

and

underlying

assumptions

and

other

statements,

which

are

other

than

statements

of

historical

facts.

These

statements

are

subject

to

uncertainties

and

risks

including,

but

not

limited

to,

product

and

service

demands

and

acceptance,

changes

in

technology,

economic

conditions,

the

impact

of

competition

and

pricing,

and

government

regulation

and

approvals.

Avatech

Solutions

cautions

that

assumptions,

expectations,

projections,

intentions,

or

beliefs

about

future

events

may,

and

often

do,

vary

from

actual

results

and

the

differences

can

be

material.

Our

expectations,

beliefs

and

projections

are

expressed

in

good

faith

and

are

believed

to

have

a

reasonable

basis,

including

without

limitation,

our

examination

of

historical

operating

trends,

data

contained

in

our

records

and

other

data

available

from

third

parties.

There

can

be

no

assurance,

however,

that

our

expectations,

beliefs

or

projections

will

result,

be

achieved,

or

be

accomplished.

Readers

are

cautioned

not

to

place

undue

reliance

on

these

forward-looking

statements,

which

speak

only

as

of

the

date

hereof.

We

undertake

no

duty

to

update

these

forward-looking

statements.

3

Mission

To be the recognized leader in delivering

solutions and services that drive product

innovation, productivity and collaboration

in target vertical markets.

4

Investment Highlights

Investment Highlights

Dominant provider in the U.S. Design Automation software and services

market.

•

Installed base of 25,000+ customers; 90% repeat purchasers.

•

Largest U.S. Autodesk VAR.

Favorable industry dynamics creating strong Product and Service growth

opportunities.

•

Next generation Autodesk products driving conversion to 3D.

•

Accelerating SMB market adoption.

Targeting $100MM revenue run rate over 3-5 years.

•

Leverage installed base to offer diversified set of software solutions

and services.

•

Expand geographic footprint through opportunistic acquisitions.

Expanding Service revenues.

•

Focus on increasing service revenues from 19% in FY2006 to 30-40%

over 3-5 years.

Turned the corner on profitability in FY2005.

Proven management team supported by strong Board of Directors.

5

As the largest U.S. VAR of Autodesk (ADSK) software, Avatech

provides high-end software solutions and value-added engineering

consulting services…

…enabling businesses to optimize productivity and innovation with

a

fully integrated solution.

Enabling Productivity and Innovation

Enabling Productivity and Innovation

SOLUTIONS

SERVICES

•

Design Automation

•

Product Lifecycle Mgmt

•

Facilities Mgmt

•

Training

•

Installation/Integration

•

Consulting

•

Custom Software Devl.

6

Enabling Customers In:

Enabling Customers In:

Building

Infrastructure

Manufacturing

•

Automotive

•

Aerospace

•

Building and Plant

Machinery

•

Consumer Prod

•

Architecture

•

Engineering

•

Construction

•

Utilities

•

Public Works

•

Transportation

7

Market Opportunities

Market Opportunities

•

Gov’t-driven

Infrastructure

Improvements

•

Improve Site

Development

$1.5BN

CAD Solutions

•

Collaboration

•

Urban Renewal

•

Suburban

Expansion

$3BN

CAD Solutions

•

Globalization +

Collaboration

PDM

•

Shorter Product

Lifecycles

•

2D to 3D

•

PLM

•

FM

$12BN

PLM Solutions

$8BN

CAD/CAM Solutions

Sector

Drivers

Market

Drivers

Global

Market Size*

Building

Infrastructure

* Source: Daratech

and Autodesk Internal Research

Manufacturing

8

Avatech Solutions Overview

Avatech Solutions Overview

Avatech is the leading design automation and

engineering systems integrator in the U.S.

Avatech enables organizations to more effectively

design, develop and manage projects, products and

facilities.

Typical projects include:

•

Implementation of Design Automation, Product Lifecycle

Management and Facilities Management Software.

•

Design and development of business rules, workflows and

design standards for major projects in

architecture/building, civil development and manufacturing.

•

Enterprise-level education and training for designers,

engineers and architects.

9

Strong Customer Base

Strong Customer Base

25,000+ customers with 90% repeat business.

No customer represents more than 2% of revenues.

Prominent customers include:

10

Avatech’s

Avatech’s

History

History

* Excluding Proprietary Software Sale of $1.9MM

$0

$10

$20

$30

$40

$50

$60

$70

FY03

FY04

FY05

FY06

FY07 (Est.)

$23MM

$28MM

$32MM*

$40MM

$55-60MM

11

Largest Integrator of Autodesk Solutions in the U.S.

Largest Integrator of Autodesk Solutions in the U.S.

21 Offices Nationwide

30 Training Centers and Mobile Labs

Focused Vertical Industry Teams

•

Manufacturing

•

Infrastructure/Civil

•

Building Solutions

National Technical Support Center

Autodesk Authorized Training Center

175+ Sales and Service Personnel

12

The Opportunity

The Opportunity

Conversion to

3D Modeling

The Computer-Aided Design (CAD) Market is

growing driven by the need for 3D conversions.

Diversification

The Facilities Management (FM) and Product

Lifecycle Management (PLM) markets are high

growth with the potential for high service blends.

Shortage of

Solutions

Integrators

There is an extreme shortage of solutions

integrators with scale to serve the market.

Avatech is well positioned to become the leading

solutions integrator to Small and Medium Businesses

(SMB).

13

Computer Aided Design -

Computer Aided Design -

CAD

CAD

Convert

to

3D

to

Compete

–

Customers

who

used

2D

design

software products are converting to 3D solutions to compete.

Conversion to 3D systems will drive at least half of all CAD software

spending and produce substantial new revenues and services

opportunities.

The CAD and Collaborative Design software market exceeds

$7.5BN in revenues and needs more services companies to drive

growth.

3D solutions allow designers

to picture how the finished

product will look and perform

before it is built.

14

Product Lifecycle Management –

Product Lifecycle Management –

PLM

PLM

PLM is the process of collecting, integrating and managing all the data

related to a product over its lifecycle.

PLM expected to equal ERP solutions in importance for manufacturers

in multiple vertical industries over the next decade.

Services revenues expected to equal 1.5-2X software revenues.

The SMB market will account for a majority of the PLM spending

through Avatech’s

planning horizon.

Avatech is converting manufacturing clients today.

15

Facilities Management -

Facilities Management -

FM

FM

FM solutions provide an organization with the capability to track and

manage their fixed assets and human capital.

High growth practice. Value Added

Services generate 2-5X more revenue

than software.

Customers include NASA, NIH, Auburn

University.

MARKET TRENDS

Allows access to facilities data for emergency situations

and to share that data with emergency services.

Homeland

Security

Enable Corporations to make decisions that optimize

ROI and increase overall productivity and profitability.

Corporate Real

Estate

Public grants require organizations to submit detailed

facilities reports to maintain funding.

Educational/

Government

16

Case Study:  Baltimore Gas & Electric Company

Case Study:  Baltimore Gas & Electric Company

Company Profile:

A premier utility service provider in Maryland, BGE serves

more than one million business and residential electric customers and more

than 600,000 gas customers.  It is a division of Constellation Energy (NYSE:

CEG), the #1 supplier of energy in competitive markets and the largest

wholesale power provider in North America.

Challenge

Results

Scope of AVSO’s

Services

•

Develop a streamlined, error-free

process for BGE’s

Real Estate

Facilities Services division to

manage the company’s extensive

real estate assets.

•

Meet CEG’s

application and

database requirements.

•

Facilitate importation of financial

and personnel data.

•

Business and implementation

planning for replacement of

Aperture system with

Archibus/FM and OSIS

Enterprise.

•

Needs analysis and consulting

services for systems integration

of Archibus/FM, OSIS and Map

Guide applications.

•

Pilot site development for testing

and validation.

•

Application training and project

management.

•

Improved access to facility and

infrastructure information.

•

Reduced errors and eliminated

data maintenance issues

between multiple systems.

•

Conformed  to all CEG standards.

•

Facilitated access of financial and

accounting data.

•

Open information project.

17

Growth Strategy

Growth Strategy

Focuses on expanding our products, geography and people with a

clear emphasis on growing our Services business.

Profitable operations in new geographic regions and the

potential

to

be

accretive

to

Avatech’s

Service

revenues

(e.g., Sterling acquisition in May 2006).

Opportunistic

Acquisitions

Add new software manufacturers, offer additional

services and continue development of new proprietary

software products to fill voids in existing markets.

Diversification

Organic expansion into underserved geographic areas

where Avatech can profitably provide value added

solutions and services.

Organic/

Geographic

Expansion

18

Financials

19

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

FY2003

FY2004

FY2005

FY2006

Product

Services

Commission

12.4

5.9

4.2

17.7

5.5

4.8

20.7

6.1

5.5

25.4

7.4

6.9

$22.5

$28.0

$32.2

$39.6

Revenue Growth from FY2003

Revenue Growth from FY2003

23%

19% of

Revs

* Services

22% of Revenues, Q1 2007

20

Earnings Trend

Earnings Trend

$(3.8)

$(0.9)

$2.2

$0.1*

$(5.0)

$(4.0)

$(3.0)

$(2.0)

$(1.0)

$-

$1.0

$2.0

$3.0

FY2003

FY2004

FY2005

FY2006

* Excludes one-time proprietary software sale to Autodesk.

21

$1.06

$0.96

$0.04

$0.05

$0.04

$-

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Q1'06

Q2'06

Q3'06

Q4'06

Q1'07

Long-term debt has been

reduced…

…while shareholder’s equity has

improved to $4.9MM.

$(1.3)

$(0.3)

$1.1

$4.7

$4.9

$(2.0)

$(1.0)

$-

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Q1'06

Q2'06

Q3'06

Q4'06

Q1'07

Enhanced Balance Sheet

Enhanced Balance Sheet

22

Financial Highlights

Financial Highlights

23% Annual Revenue Growth from FY2005

•

14.8% CAGR since FY2003

2

nd

Profitable Year

•

8

th

Sequential Quarter of Operating Profit

Enhanced Balance Sheet

•

Reduction of Long Term Debt

•

$4.9MM positive Shareholder’s Equity as of Q1 FY2007 vs.

$1.3MM deficit in Q1 FY2006.

$4.4MM in Cash Flow from Operating Activities

in FY2006

23

Future Direction

Future Direction

Our financial goals include:

10-20% annual revenue growth to achieve a $100MM revenue run

rate in the next 3-5 years.

Increasing net income to 10-12% of total revenues.

Increasing Services revenues to 30-40% of total revenues and raising

the Services gross margin by 4-5%.

•

Offer other non-CAD

software solutions

and services to

existing customers.

•

Continue FM and

PLM Divisions

expansion.

•

Increase variety of

value added

services.

DIVERSIFICATION

•

Leverage extensive

customer base to

sell add’l

services.

•

Increase utilization

of technical

personnel.

•

Opportunistically

acquire companies

with the potential of

increasing services.

SERVICES

Growth Drivers

24

Investment Highlights

Investment Highlights

Dominant provider in the U.S. Design Automation software and services

market.

•

Installed base of 25,000+ customers; 90% repeat purchasers.

•

Largest U.S. Autodesk VAR.

Favorable industry dynamics creating strong Product and Service growth

opportunities.

•

Next generation Autodesk products driving conversion to 3D.

•

Accelerating SMB market adoption.

Targeting $100MM revenue run rate over 3-5 years.

•

Leverage installed base to offer diversified set of software solutions

and services.

•

Expand geographic footprint through opportunistic acquisitions.

Expanding Service revenues.

•

Focus on increasing service revenues from 19% in FY2006 to 30-40%

over 3-5 years.

Turned the corner on profitability in FY2005.

Proven management team supported by strong Board of Directors.