Avatech Solutions Reports Fourth Consecutive Quarter of Profitability and Net Income of $3.1 Million in Fiscal 2008
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Avatech Solutions Reports Fourth Consecutive Quarter of Profitability and Net Income of $3.1 Million in Fiscal 2008

BALTIMORE—(BUSINESS WIRE)—September 29, 2008— Avatech Solutions, Inc. (OTCBB: AVSO), the nationwide technology experts for design, engineering, and facilities management, today announced financial results for its fiscal fourth quarter and year ended June 30, 2008.

For the fourth quarter of fiscal 2008, the Company reported revenues of $11.5 million, compared to $11.5 million in the prior-year quarter. Selling, general & administrative (SG&A) expenses were approximately $4.4 million, or 38% of sales, compared to $5.7 million, or 49% of sales, in the prior year quarter. Net income for the three months ended June 30, 2008 was $742,000, or $0.03 per fully diluted share, compared to a net loss of $(874,000), or $(0.07) per fully diluted share, in the same period in the prior year. Adjusted EBITDA (as defined) increased to $808,000 in the fourth quarter of fiscal 2008, from negative adjusted EBITDA of $(626,000) in the prior period.

For the fiscal year ended June 30, 2008, the Company reported revenues of $49.6 million, compared to $50.5 million in the prior year. During the year, Avatech increased Service revenue by 6% to $11.4 million as a result of the Companys increased focus on growing this business to diversify its revenue base. SG&A expense was $18.5 million, or 37% of sales, compared to $22.7 million, or 45% of sales, in the prior year. For the year ended June 30, 2008, the Company reported net income of $3.1 million, or $0.15 per fully diluted share, compared to a net loss of $(555,000), or $(0.07) per fully diluted share for fiscal year 2007. Adjusted EBITDA increased to $4.7 million in fiscal 2008, as compared to adjusted EBITDA of $1.2 million in fiscal 2007.

George Davis, President and Chief Executive Officer of Avatech Solutions, commented, In fiscal 2008 we returned to profitability with record net income and strengthened our balance sheet, which includes increasing our cash position more than three-fold since the beginning of the year. These achievements are the result of our new strategy implemented at the end of fiscal 2007 to improve productivity, diversify revenue with an expanded focus on services, all while reducing operating expenses throughout the Company. I am especially pleased with our ability to achieve record profitability in fiscal 2008 when considering the challenging macro-economic environment that had both direct and indirect impacts on our U.S. based design engineering markets throughout the year.

Looking forward to fiscal 2009, we expect that macro-economic pressures will continue to exist requiring that we prudently manage our plans; maintaining focus on our fundamentals while we engage in efforts to return to top line revenue growth. Our efforts over the last year have significantly improved our financial baseline which uniquely positions us to execute on our strategy. We are moving forward with plans that will support our top-line growth initiatives by expanding both our software sales and engineering services teams, in anticipation that we will see positive results as the year progresses. We remain focused on establishing Avatech as the Go To company for design engineering technology, service and support. Since being launched in May 2008, our Manufacturing Consulting Services Group has established a solid pipeline of incremental services business in line with our stated objectives. We believe that through a combination of maintaining and profitably growing our core business and prudently engaging in diverse yet complimentary strategic initiatives, we will continue to position Avatech for a strong future, concluded Mr. Davis.

The turnaround at Avatech was achieved with exceptional commitment and hard work by the companys management team and employees, and was attained via great attention to detail and a bottom line orientation, noted Thom Waye, Chairman of the Board. As a major shareholder in the company I could not have asked for better financial performance than what was accomplished this past year. Although we have entered turbulent economic times, with a strong balance sheet and reduced operating costs, the company is well positioned to work toward achieving revenue growth and continued profitability in Fiscal 2009.

Conference Call Information

Avatech Solutions will hold a conference call to discuss its fiscal fourth quarter and year end results at 11:00 a.m. ET on September 29, 2008. The dial-in number for the conference call is 888.680.0865 (Domestic) or 617.213.4853 (International), and enter the passcode (96245152). A replay of the call will also be available through October 6, 2008 and can be accessed by dialing 888.286.8010 (Domestic) or 617. 801.6888 (International), and enter the passcode (35013558).

A live webcast of the call will be broadcast in the Investor Relations section of the Companys website, http://www.avatech.com. For those who cannot listen to the live broadcast, an audio replay of the call will also be available on the site for a limited time.

Note Regarding Use of Non-GAAP Financial Measure

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

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

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

About Avatech Solutions

Avatech Solutions, Inc. (OTCBB: AVSO) is Americas 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 worlds 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.

Avatech Solutions, Inc.
Reconciliation of non-GAAP financial measure
       
Three Months Ended Twelve Months Ended
6/30/2008 6/30/2007 6/30/2008 6/30/2007
 
GAAP net income (loss) $ 742,000 $ (874,000 ) $ 3,091,000 $ (555,000 )
Provision for (benefit) from income taxes   (296,000 )   27,000     493,000     227,000  
Income (loss) before income taxes 446,000 (847,000 ) 3,584,000 (328,000 )
 
Stock-based compensation 204,000 61,000 499,000 739,000
Interest income (21,000 ) (19,000 ) (114,000 ) (62,000 )
Interest expense 9,000 5,000 28,000 198,000
Depreciation and amortization   170,000     174,000     693,000     689,000  
Adjusted EBITDA $ 808,000   $ (626,000 ) $ 4,690,000   $ 1,236,000  
 
 

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

Avatech Solutions, Inc.
Summary Consolidated Financial Data
       
Three Months Ended Twelve Months Ended
June 30, June 30,
2008   2007 2008   2007
 
Revenues-
Product sales $6,690,000 $6,511,000 $27,650,000 $30,125,000
Service revenue 2,728,000 2,922,000 11,363,000 10,689,000
Commission revenue 2,126,000 2,061,000 10,631,000 9,721,000
Total revenues 11,544,000 11,494,000 49,644,000 50,535,000
 
Cost of revenues-
Cost of product sales 4,529,000 4,545,000 18,801,000 19,963,000
Cost of service revenue 2,016,000 1,975,000 8,145,000 7,416,000
Total cost of revenues 6,545,000 6,520,000 26,946,000 27,379,000
 
Gross margin 4,999,000 4,974,000 22,698,000 23,156,000
Operating income (loss) 415,000 (860,000) 3,498,000 (192,000)
Net income (loss) 742,000 (874,000) 3,091,000 (555,000)
 
Earnings (loss) per share:
Basic $ 0.03 $ (0.07) $ 0.16 $ (0.07)
Diluted $ 0.03 $ (0.07) $ 0.15 $ (0.07)
 
Weighted average common shares outstanding:
Basic 16,370,186 15,287,598 16,166,067 14,246,390
Diluted 16,643,517 15,287,598 20,121,896 14,246,390
 
 
June 30, June 30,
2008 2007
 
Current assets $13,955,000 $10,840,000
Property and equipment 781,000 934,000
Other long-term assets 7,860,000 7,800,000
Total assets $22,596,000 $19,574,000
 
Current liabilities $9,425,000 $9,725,000
Series F convertible preferred stock 3,629,000 3,629,000
Stockholders' equity 9,542,000 6,220,000
Total liabilities and stockholders' equity $22,596,000 $19,574,000



Contact:

Avatech Solutions, Inc.
Jean Schaeffer, +1 410-581-8080
Fax: +1 410-753-1591
Email Contact
or
Investor Relations:
KCSA Strategic Communications
Todd Fromer / Garth Russell, +1 212-896-1215 / 1250
Email Contact / Email Contact