8-K

 

UNITED STATES
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 (Date of Earliest Event Reported): August 21, 2008

Avatech Solutions, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Delaware	001-31265	84-1035353
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
10715 Red Run Boulevard, Owings Mills, Maryland		21117
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

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

Not Applicable
______________________________________________
Former name or former address, if changed since last report

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:

[  ]  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))

Item 2.02 Results of Operations and Financial Condition.

On August 26, 2008, Avatech Solutions, Inc. issued a press release setting forth its preliminary, unaudited results for the fourth quarter and year end of its fiscal year ended June 30, 2008. A copy of the press release is furnished herewith as Exhibit 99.1. The information contained in this Item 2.02 and in Exhibit 99.1 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

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

(e) Compensation Arrangements

On August 21, 2008, Avatech Solutions, Inc. (the "Company") and its President and Chief Executive Officer, George Davis, agreed to renew Mr. Davis’ employment agreement. Mr. Davis’ previous employment agreement was filed on September 18, 2007 as Exhibit 10.1 to the Company’s Current Report on Form 8-K. The renewed employment agreement contains all of the same terms and conditions, except that Mr. Davis’ annual salary was increased to $250,000 and the agreement’s term will expire on June 30, 2009, subject to one additional one-year renewal upon the mutual agreement of the parties.

Item 7.01 Regulation FD Disclosure.

Company management will be making presentations to an investor conference on August 26 and 27, 2008. 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 Renewal of Amended and Restated Employment Agreement with George Davis dated August 21, 2008 (filed herewith)
Exhibit 99.1 Press release dated August 26, 2008 (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 hereunto duly authorized.

	Avatech Solutions, Inc.
August 25, 2008	By:	Lawrence Rychlak
		Name: Lawrence Rychlak
		Title: Executive Vice President and Chief Financial Officer

Exhibit Index

Exhibit No.	Description
10.1	Renewal of Amended and Restated Employment Agreement with George Davis dated August 21, 2008
99.1	Press release dated August 26, 2008 (furnished herewith)
99.2	Investor presentation slides (furnished herewith)

EX-10.1

Exhibit 10.1

RENEWAL OF AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Avatech Solutions, Inc. (the “Company”) and George Davis (the “Executive”) have signed this document this 21^st day of August, 2008 (the “Effective Date”) for the purpose of renewing the Company’s employment agreement with the Executive.

WHEREAS, on September 12, 2007, the Company and the Executive entered into an Amended and Restated Employment Agreement (the “Agreement”) to provide for the terms and conditions of the employment of the Executive as the Company’s President and Chief Executive Officer.

WHEREAS, the Agreement expired by its terms on June 30, 2008 and the Company desires the Executive to continue to serve as its President and Chief Executive Officer, and the Executive desires to continue in such position, subject to the terms and conditions set forth in the Agreement, as modified hereby.

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

Section 1. Renewal of Agreement. The Agreement, which is incorporated herein by reference, is hereby renewed subject to the other provisions hereof, except the parties acknowledge that the execution of this document does not obligate the Company to (i) pay the Executive the $21,666 lump-sum payment contemplated by Section 4.1 of the Agreement or (ii) grant the Executive the 75,000 options contemplated by Section 4.2(a) of the Agreement, each of which was paid and satisfied upon the execution of the Agreement on September 12, 2007. Except as expressly provided herein, the terms and conditions of the Agreement shall remain unchanged and shall continue in effect until the expiration of the Term (as defined below).

Section 2. Term. The term of the Executive’s employment under the Agreement (the “Term”) shall be extended through June 30, 2009, subject to earlier termination as set forth in the Agreement. The Agreement, as renewed hereby, shall be renewable for a one-year term on July 1, 2009 by mutual agreement of the parties.

Section 3. Base Compensation. During the Term, the Company will pay the Executive a base salary (the “Base Salary”) at an annual rate of $250,000, payable in accordance with the Company’s normal payroll procedures for executive employees.

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

AVATECH SOLUTIONS, INC.

By: /s/ Thom Waye
Name: Thom Waye
Title: Chair of the Board of Directors

/s/ George Davis

George Davis

Exhibit 99.1

Avatech Solutions Reports Preliminary Net Income for Fiscal 2008
—
Company achieves record earnings per fully diluted share of $0.15 during fiscal 2008

BALTIMORE – September 26, 2008 – Avatech Solutions, Inc. (OTCBB: AVSO), the nationwide technology experts for design, engineering, and facilities management, today announced preliminary unaudited financial results for its fiscal fourth quarter and year ended June 30, 2008.

For the fourth quarter of fiscal 2008, Avatech expects to report total revenue of approximately $11.5 million, compared to $11.5 million in the fourth quarter of fiscal 2007. Preliminary net income increased to $741,000, or $0.03 per fully diluted share, compared to a net loss of $(873,000), or $(0.05) per fully diluted share, in the same period of the prior year. EBITDA as adjusted (as defined) increased to $807,000 in the fourth quarter of fiscal 2008, from a loss of $(607,000) in the prior year period.

For the full year ended June 30, 2008, Avatech expects to report revenues of approximately $49.6 million, compared to $50.5 million in the prior year. Preliminary net income is expected to increase to approximately $3,090,000, or $0.15 per fully diluted share, compared to a net loss of $(555,000), or $(0.04) per fully diluted share in fiscal 2007. EBITDA as adjusted increased to $4,678,000 in fiscal 2008, compared to $1,236,000 in fiscal 2007.

George Davis, President and Chief Executive Officer of Avatech Solutions, said, “Our strong preliminary net income and Adjusted EBITDA in fiscal 2008 indicate the successful execution of our business strategy and continued cash flow generation throughout the entire year. Over the last 12 months, we have focused intently on reducing costs and achieving consistent profitability, in the face of a weakening economic environment. As a direct result of these cost-saving initiatives, we have delivered record net income, increased our cash balance by 225% to approximately $5.5 million and increased shareholder equity by 38% to $13.2 million. Looking forward to 2009, we are concentrating on top line growth by expanding our go to market (sales) and implementation (engineering) teams with a continued focus on growing the services component of our business. Additionally, we will continue to expand our offerings through new initiatives, including expanding the marketing efforts for our new Manufacturing Consulting Division.”

These expected operating results are preliminary and subject to management and the Company’s auditors completing their quarterly closing review procedures.

The Company plans to release its financial results for the fiscal fourth quarter and year ended June 30, 2008 on September 29, 2008 and will host a conference call that day to discuss in detail the quarter’s results.

Note Regarding Use of Non-GAAP Financial Measure

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

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

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

About Avatech Solutions

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

Forward-looking Statement
This press release contains forward-looking statements about the expectations, beliefs, plans, intentions, and strategies of Avatech Solutions, Inc. There are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information. Statements that are not historical in nature, including those that include the words “goal,” “expect,” “anticipate,” “estimate,” “should,” “believe,” “intend,” and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which Avatech operates, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, and demand for our products and services; changes in our competitive position or competitive actions by other companies; the ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or, if substantially realized, will have the expected consequences on our business or operations.

Company Contact	Investor Relations Contact
Jean Schaeffer Avatech Solutions, Inc. Phone +1 (410) 581-8080 Fax +1 (410) 753-1591 jean.schaeffer@avatech.com	Todd Fromer / Garth Russell KCSA Strategic Communications Phone +1 (212) 896-1215 / 1250 tfromer@kcsa.com / grussell@kcsa.com

###

	AVATECH SOLUTIONS, INC.
	RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
	Three months ended						Year ended
	6/30/08			6/30/07			6/30/08			6/30/07
GAAP net income (loss)	$	741,000		$	(873,000	)	$	3,091,000		$	(555,000	)
Provision for (benefit from) income
taxes		(296,000	)		27,000			493,000			227,000
Income (loss) before income taxes		445,000			(846,000	)		3,584,000			(328,000	)
Stock-based compensation		204,000			61,000			498,000			739,000
Interest income		(21,000	)		(1,000	)		(126,000	)		(62,000	)
Interest expense		9,000			5,000			29,000			198,000
Depreciation and amortization		170,000			174,000			693,000			689,000
EBITDA as adjusted	$	807,000		$	(607,000	)	$	4,678,000		$	1,236,000

Note 1 – Management uses EBITDA as adjusted and Non-GAAP net income, non-GAAP measures, to evaluate the Company’s operating performance and compare the Company’s current results with those for prior periods, but cautions that they should not be considered as substitutes for disclosures made in accordance with GAAP.

Exhibit 99.2

Investor Roadshow Slides – August 26, 2008

Avatech Solutions, Inc.
OTC BB:AVSO

Forward-Looking Statement
This presentation contains forward-looking statements about the expectations, beliefs, plans, intentions, and strategies of Avatech Solutions, Inc. There are a number of important factors that could cause actual results to differ materially from those anticipated by any forward-looking information. Statements that are not historical in nature, including those that include the words “goal,” “expect,” “anticipate,” “estimate,” “should,” “believe,” “intend,” and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which Avatech operates, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, and demand for our products and services; changes in our competitive position or competitive actions by other companies; the ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this presentation are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or, if substantially realized, will have the expected consequences on our business or operations.

Corporate Profile
? America’s leading professional technology services company for design engineering

•
•
• Technology consulting, implementation, training, and support services
Process automation and integration consulting
Largest U.S.-based provider of Autodesk (Nasdaq: ADSK) solutions

? Avatech advances the way organizations design, develop, and manage building, infrastructure, and manufacturing projects

? Over 18,000 clients, with no single client contributing more than 2% of annual revenues

?
• Successful turnaround in fiscal 2008, focused on profitability
Revenue of $49.6 Million in FY 2008, compared to $50.5 Million in FY 2007

• Net Income of $3.1 Million, or $ 0.15 per diluted share, in FY 2008, compared to net loss of $(.6) Million in FY 2007, or $ (0.07) per diluted share

? Well-positioned to resume profitable growth in fiscal 2009

Core Capabilities
? Providing best of breed consultative engineering in support of CAD/CAM software, technology and process

? • • •	Workflow Design Efficiencies Architectural, Structural & MEP Usage with 2D and 3D Technologies Manufacturing Process and Data Management Expertise Facilities Management Experience
?	Technical Competence & Services

• Software and Production Process Training, Content Creation and long-term integration
• Laser Scanning Services, Production Sourcing, Project Data Storage Virtual Modeling

?
• SW Development Team
Filling technology gaps

? Professional services including implementation, consulting services, training and technical support

Competitive Advantages
? Technical Expertise – 90 engineers that provide consulting and implementation services in the markets where the company competes

? National Footprint – possesses a strong regional presence in 18 locations across the U.S.

? Unrivalled Industry Expertise — proven methodologies, passion and commitment to help clients’ businesses succeed

? Scale – ability to leverage a large installed base movement to 3D modeling

? Dedicated Partner – viewed as a committed partner that injects innovation into the business practices of clients

Blue Chip Clients

Client: SVI Trucks
Premier builder for fire, police and multi-use emergency vehicles

? SVI wanted to speed delivery times and improve quality.
? Avatech Implemented 3D modeling design, digital prototyping and data management.

•
•
•
•
• Cut design time by 50%
Significantly enhanced ability to improve designs
Faster and more efficient assembly
Reduced raw materials inventory
Reduced fabrication waste

Client: Barton Malow

General Contractor and Design/Build Firm

?	Revenues $1 billion, full time staff of 1,000
?	Building information modeling (BIM)

across all disciplines and all dimensions

? 3D modeling to determine constructability

? 4D — construction phasing using time-lapsed models to visualize a project as it would be constructed

? 5D — identify construction costs early on in the design process, using the model

“We see huge potential for better coordination, improved times to completion and reduced construction costs.”

Jim Dome, Vice President

Client: MILLER LEGG

One of Florida’s Largest Consulting Engineering Firms

? Early adopter of model-based            civil engineering technology

? Pilot project demonstrated tremendous gains

? Dynamic modeling has increased productivity and quality, providing firm with a competitive advantage

Market Opportunities
Market Drivers
Go Forward Positioning
? Exploit Avatech’s industry presence and core experience to be the Go-To company for engineering and professional services support in multiple design engineering markets

? Leverage our manufacturing and AEC footprint and installed base of over 18,000 customers

? Set the industry standard for process and methodology that will maximize our customers return on technology investments

? Develop repeatable, profitable processes that can exponentially scale and grow

Manufacturing Focus
? Upgrading Engineering Process is just as important, if not more so, than upgrading Technology

?	The technology is being commoditized – everyone has it or can have it.
?	Methodology is what gives real productivity gains to the business - - Technology helps make it happen.
?	Avatech is focusing here

A Comparison – Technology Versus Methodology

Technology

Typical Results of moving from 2D to 3D

• 20 – 30% improvement in engineering productivity

Methodology

Web-based configuration process that is 10X faster than the same manual 3D Process

Manufacturing New Consulting Services Team
May 2008
?	Focused on large scale engineering automation projects (PLM for the SMB)
?	Process and workflow transformation
?	Leverages installed base
?	Creates new market opportunities
?	Pipeline established – incremental revenue

AEC Market Situation
The restructuring of the AEC design professions is being driven by new methods, processes technologies, demographics, values and behaviors
Building Information Modeling
? BIM is the creation and use of coordinated, internally consistent, computable information about a building project in design and construction

? BIM reduces costs and increases efficiency throughout the building life cycle

? Brings together all the players in the lifecycle of a building to create, manage and share information about design and construction, from concept to reuse or demolition

AEC Market Focus
? The building sector is and will move to a design/build and building information modeling (BIM) environment

? The sector requires management, process and methodology support to achieve success and to maximize ROI

?
•
•
• Avatech is focused here
Building process/methodology
Customer engagements
Repeatable/Profitable engineering services

Growth Strategy

Focus on expanding our offerings, geography and people with a clear emphasis on growing our Services business.

Financial Highlights
? •	Record of consistent top line growth Compound Annual Revenue Growth Rate of 17.13% from FY03-FY08
?	Four consecutive quarters of profitability in FY08 – will continue
? • • • •	Enhanced Balance Sheet No Long Term Debt $5.5MM in Cash $13.2MM Net Worth $5.0MM unused line of credit

As of June 30, 2008 (Preliminary)

?	Current Asset:$14.0 MM
?	Total Assets: $22.7MM
?	Current Liabilities: $9.4MM
?	Working Capital: $4.6MM
?	Total Long Term Debt: $0
?	Net Worth: $13.2 MM

Improved Shareholder Equity
Current Valuation/Key Ratios
?	Market Cap: $13.7 MM
?	Book Value: $13.2 MM
?	Revenue: $49.6 MM (Fiscal 2008)
?	Net Income : $3.1MM or $.15 per diluted share (Fiscal 2008)
?	Positioned to resume profitable growth in FY 2009

• Based on preliminary, unaudited results as of June 30, 2008

Future Direction
Next 2-3 Years:

?
• Continue to profitably grow our core business and increase market share
Double digit per annum

? Increase Services Revenues to 30-40% of Total Revenues and increase the Gross Margin

?
•
? Develop/buy complementary products and services –diversify
Accelerate growth
Position Avatech to be the “go-to-company” for design engineering services.

Executive Management Team
George Davis – CEO
•	25 + years of leadership experience

Larry Rychlak - CFO
•	30 years of financial management experience

Bill Zavadil - Senior Vice President of Services
•	18 years of industry experience

Bruce White - Senior Vice President of Sales
•	17 years of industry experience

Investment Highlights
?	Dominant provider of Design Automation solutions in the U.S.
?	Longstanding, mutually beneficial relationship with with Autodesk
?	Profitable and growing consulting services group

? Established workforce of approximately 90 engineers nationwide to meet high increasing for complex consulting services

? Over 18,000 clients — no single customer generating more than 2% of revenue

? Clean balance sheet — Cash increased 225% to $5.5M in FY 2008; NO long-term debt

? Positioned to exploit market demand and growth expectations