Avatech Solutions Announces Q4 And Year-end Results

BALTIMORE—(BUSINESS WIRE)—September 28, 2006 12:00 am—

Avatech Solutions, Inc. (OTCBB: AVSO.OB), the nationwide technology experts for design, engineering, and facilities management solutions, today announced financial results for its fourth quarter and fiscal year ended June 30, 2006.

Fiscal 2006 Highlights

  • Revenue for the fiscal year increased 16% to $39.6 million. Excluding the one-time sale of developed software to a major supplier in fiscal year 2005, revenue increased 23%. The company realized double-digit sales growth in all three of its revenue categories.
  • Net income for the fiscal year increased to $2.2 million, a 14% increase over the prior years net income. Excluding the one-time software sale in fiscal year 2005, net income increased by $2.1 million.
  • The company closed its acquisition of Sterling Systems and Consulting, Inc., on May 30, 2006. This acquisition contributed $1.1 million of revenue in fiscal year 2006 and provided the company with four new locations in the upper Midwest.
  • The company significantly expanded its professional staff, adding a total of 24 sales representatives, including 11 from the Sterling acquisition, and 20 technical engineers, including 12 from the Sterling acquisition.
  • The company was able to significantly strengthen its balance sheet through its profitable operations, two equity offerings, and the repayment of long-term debt, and increased its stockholders equity to $4.7 million at June 30, 2006 from a deficit of $2.7 million at June 30, 2005.

For the year ended June 30, 2006, revenue totaled $39.6 million compared to $34.1 million for fiscal year 2005. Excluding the one-time $1.9 million sale of developed software to a major supplier in 2005, revenue increased 23%. Net income for fiscal year 2006 totaled $2.2 million, or $0.18 per share, compared to net income of $1.9 million, or $0.18 per share, for fiscal year 2005. Excluding the one-time software sale, net income for fiscal year 2005 would have been $111,000, or $0.01 per share. Results for fiscal year 2006 reflect the effect of expensing stock options which totaled $315,000, or $0.03 per share.

For the fourth quarter ended June 30, 2006, revenue totaled $9.9 million compared to $8.8 million for the fourth quarter of fiscal year 2005. The company reported a net loss of $84,000, or $0.01 per share, for the fourth quarter of 2006, compared to net income of $714,000, or $0.06 per share, for the same period last year.

Chief Executive Officer Scotty Walsh commented, Avatech performed well for the year overall, meeting our revenue goal and outperforming our internal expectations for the bottom line. These accomplishments were driven largely by the companys success in vertical markets where customers are increasingly converting to 3D design. As planned, another key accomplishment for fiscal year 2006 was the strengthening of our balance sheet.

The companys fourth quarter was somewhat less robust than we would have liked, particularly in comparison to our very strong third quarter, which benefited from increased sales activity related to the retirement of certain products by our main supplier, Autodesk. During the fourth quarter, we made significant investment in sales and technical staff in addition to adding personnel through the Sterling acquisition. We expect these new personnel, who were not yet fully productive in the fourth quarter, to begin contributing to revenue growth in fiscal year 2007. In addition to the higher selling expenses, our financial results for the quarter were also impacted by a non-recurring interest expense of $65,000 associated with the short-term loan we secured to finance the Sterling acquisition.

Overall, our growth strategy -- aimed at transitioning Avatech to a diversified services and solutions provider -- has been very successful, and in fiscal 2007 we plan to build on the progress we have achieved to date. Management expects that this strategy will include the exploration of acquisition opportunities as they arise and acting on those that management believes involve profitable, well-managed companies expected to diversify our revenue stream, expand our customer base, and increase the profitability of the services we offer. Because the ability to close on any acquisition opportunity depends on our financial condition at the time and other unpredictable factors beyond our control, there can be no guarantee that we will pursue or realize on any opportunity that may arise. During the coming year, we also expect to reap the benefits of an expanded and fully productive sales and technical force.

Our goal for fiscal year 2007 is to generate revenue in the range of $55 million to $60 million, excluding the effects of any additional acquisitions, and to achieve measurable improvement in our operating margins. The realization of this goal, however, is highly dependent on the successful expansion and diversification of our range of products, the growth of our geographic footprint, and an increase in our sales and customer-facing experts, all of which are subject to several risks and uncertainties related to our business and other factors beyond our control. Accordingly, there can be no guarantee that we will achieve this goal.

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