SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

|X|  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                  for the quarterly period ended March 31, 2002

                                       Or

|_|  Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934

                        Commission file number: 000-32925

                              AVATAR SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

           Texas                                           75-2796037
           -----                                           ----------
(State or other jurisdiction of                          (IRS Employer
 incorporation or organization)                       Identification Number)

                5728 LBJ Freeway, Suite 270, Dallas, Texas 75240
                ------------------------------------------------
              (Address of principal executive offices and zip code)


                                 (972) 720-1800
                                 --------------
              (Registrant's telephone number, including area code)


                      APPLICABLE ONLY TO CORPORATE ISSUERS


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:


                Class                     Number of shares outstanding at
                                                  March 31, 2002

 Common stock,  $0.001 par value                     8,695,652




<PAGE>


                                      INDEX

PART I. FINANCIAL INFORMATION..................................................1

   Item 1. Financial Statements................................................1
   Item 2. Management's Discussion and Analysis of Financial
   Condition and Results of Operations.........................................5

PART II. OTHER INFORMATION.....................................................6

   Item 1. Legal Proceedings...................................................6
   Item 2. Changes in Securities...............................................7
   Item 3. Defaults Upon Senior Securities.....................................7
   Item 4. Submission of Matters to a Vote of Security Holders.................7
   Item 5. Other Information...................................................7
   Item 6. Exhibits And Reports On Form 8-K....................................7



<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                              AVATAR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                              March 31    December 31,
                                                                 2002         2001
                                                             ------------   ------------
                                                             (unaudited)
                                     ASSETS

<S>                                                          <C>            <C>
Current assets:
   Cash and cash equivalents                                 $    379,942   $    397,362
   Accounts receivable, net                                       195,984        191,861
   Prepaid Expense                                                 14,156         22,281
   Net assets of discontinued ecommerce subsidiary                   --           51,122
   Deferred income taxes                                          110,564        110,564
                                                             ------------   ------------
                                                                  700,646        773,190
Total current assets
                                                             ------------   ------------

Property and Equipment - at cost, net                             173,066        145,268
Purchased Software, net                                           385,380        416,154
Software Development Costs, net                                 1,271,944      1,218,831

Other Assets                                                         --              488
                                                             ------------   ------------
     Total assets                                               2,531,036     $2,553,931
                                                             ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt                      $     16,468   $     60,402
   Accounts payable                                                77,676        109,307
   Accrued expense                                                 44,538         38,088
   Deferred revenues                                              216,821        216,821
                                                             ------------   ------------
     Total current liabilities                                    355,503        424,618
Deferred income taxes                                             195,558        180,600
Long-term debt                                                       --            3,773
                                                             ------------   ------------
     Total liabilities                                            551,061        608,991
                                                             ------------   ------------
Stockholders' equity:
   Common stock, $0.001 par value; 30,000,000 shares
     authorized; 8,695,652 shares, issued and outstanding           8,696          8,696
   Additional paid-in capital                                   1,768,345      1,768,345
   Retained earnings                                              202,934        167,899
                                                             ------------   ------------
     Total stockholders' equity                                 1,979,975      1,944,940
                                                             ------------   ------------
     Total liabilities and stockholders' equity              $  2,531,036   $  2,553,931
                                                             ============   ============
</TABLE>

The accompanying notes are an integral part of these financial statements.







                                       1
<PAGE>
<TABLE>
<CAPTION>

                               AVATAR SYSTEMS, INC
                              STATEMENTS OF INCOME


                                                                Three Months Ended March 31,
                                                                ----------------------------
                                                                     2002             2001
                                                                -----------      -----------
                                                                         (unaudited)
<S>                                                             <C>              <C>
Revenues:
   Software                                                     $    76,330      $   222,316
   Maintenance                                                      287,954          270,253
   Professional services                                             87,636          153,011
   Hardware                                                          13,940           19,813
                                                                -----------      -----------
     Total revenues                                                 465,860          665,393
                                                                -----------      -----------
Cost of revenues:
   Software                                                          18,972           38,552
   Maintenance                                                      110,402          136,843
   Professional services                                             35,123           56,701
   Hardware                                                          13,120           13,120
                                                                -----------      -----------
     Total cost of revenues                                         177,617          245,216
                                                                -----------      -----------
        Gross margin                                                288,243          420,177
                                                                -----------      -----------
Operating expenses:
   Sales and marketing                                               63,614           63,854
   General and administrative                                        87,078          129,922
   Amortization of intangibles                                       74,007           50,974
   Depreciation                                                      16,487           16,767
                                                                -----------      -----------
     Total operating expenses                                       241,186          261,517
                                                                -----------      -----------
        Income from operations                                       47,057          158,660
   Interest income                                                    3,418           10,042
   Interest expense                                                     481            3,788
                                                                -----------      -----------
        Income from continuing operations before income taxes        49,994          164,914
   Provision for income taxes                                        14,958           57,746
                                                                -----------      -----------
        Income from continuing operations                       $    35,036      $   107,168
 Discontinued operations:
   Income from operations of Talon Global Systems,
  Inc. (net of income taxes)                                         18,542
                                                                -----------      -----------
        Net Income                                              $    35,036      $   125,710
                                                                ===========      ===========

Earnings per share
Basic
Income from continuing operations                               $      0.00      $      0.01
Net income                                                      $      0.00      $      0.01
Shares used in per share calculations                             8,695,652        8,695,652

Diluted
Income from continuing operations                               $      0.00      $      0.01
Net income                                                      $      0.00      $      0.01
Shares used in per share calculations                            11,590,036        8,695,652
</TABLE>

The accompanying notes are an integral part of these financial statements.




                                       2
<PAGE>
<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS

                                                           Three Months Ended March 31,
                                                           ----------------------------
                                                              2002               2001
                                                           ---------          ---------
                                                                   (unaudited)
<S>                                                        <C>                <C>
Cash flows from operating activities:
   Net income                                              $  35,036          $ 125,709
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Amortization of intangibles                              74,007             50,974
     Depreciation                                             16,487             16,767
     Deferred income taxes                                    14,958             57,746
     Changes in operating assets and liabilities:
        Accounts receivable                                   (4,123)           (36,773)
        Inventory                                               --               14,382
        Prepaid expense                                        8,125               --
        Accounts payable and accrued expense                 (25,181)           (19,256)
        Deferred revenue                                        --             (182.500)
                                                           ---------          ---------
          Net cash provided by operating activities          119,309             27,049
                                                           ---------          ---------
Cash flows from investing activities:
   Acquisition of fixed assets                               (44,285)           (26,637)
   Capitalized software development costs                    (96,000)           (75,000)
   Payments received on note receivable                       51,122               --
   Other                                                         141             (4,576)
                                                           ---------          ---------
          Net cash used in investing activities              (89,022)          (106,213)
                                                           ---------          ---------
Cash flows from financing activities:
   Payments on note payable and capital lease obligation     (47,707)           (47,600)
                                                           ---------          ---------
          Net cash used by financing activities              (47,707)           (47,600)
                                                           ---------          ---------
Net cash used in discontinued operations                        --              (53,642)
                                                           ---------          ---------
Net decrease in cash and cash equivalents                    (17,420)          (180,406)
Cash and cash equivalents at beginning of period             397,362            933,007
                                                           ---------          ---------
Cash and cash equivalents at end of period                 $ 379,942          $ 752,601
                                                           =========          =========

Supplemental disclosure of cash flow information:
   Cash paid for interest                                  $     481          $   3,788
</TABLE>

The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>


                              AVATAR SYSTEMS, INC.

                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

1. Basis of Presentation


The condensed  financial  statements include the accounts of Avatar Systems Inc.
("Avatar") and its wholly-owned  subsidiary.  We have eliminated all significant
intercompany balances and transactions.


We prepared the condensed financial  statements in accordance with the rules and
regulations  of the  Securities and Exchange  Commission  ("SEC")  applicable to
interim  financial  information.  Certain  information and footnote  disclosures
included  in  financial   statements  prepared  in  accordance  with  accounting
principles  generally accepted in the United States of America have been omitted
in these  interim  statements  pursuant  to such SEC rules and  regulations.  We
recommend that these interim  financial  statements be read in conjunction  with
the audited  financial  statements and related notes included in our 2001 Annual
Report on Form 10-KSB filed with the SEC.  Interim  results are not  necessarily
indicative of the results to be expected for the full year.


In our opinion,  the  condensed  financial  statements  include all  adjustments
necessary to present fairly the financial position and results of operations for
each interim period shown.


2. Discontinued Operations


In October 2001, the Company elected to exit its direct sales software business.
In accordance with this plan, the Company sold Talon Global Solutions, Inc., its
direct sales software  business,  to its minority  shareholder for $20,000 and a
note  receivable  for  $55,600.  The  Company  recorded a loss of $11,561 on the
disposition, net of related income tax benefit of $5,912.


The financial  data related to direct sales  software  business is classified as
discontinued operations for all periods presented.


Operating results from discontinued operations were as follows:

                                                              Three Months Ended
                                                                    March 312001
                                                              ------------------

Revenues                                                               $175,594
Income before income taxes                                               28,093
Income tax expense                                                        9,551
Income from discontinued operations                                      18,542


                                       4
<PAGE>


3.Earnings Per Share

                                                          Three Months Ended
                                                              March 31,
                                                     ---------------------------
                                                          2002            2001
                                                     -----------   -------------
Income from continuing operations                    $    35,036   $     107,168

Income from discontinued operations                                       18,542

Weighted average common shares outstanding - basic     8,695,652       8,695,652
Dilutive effect of employee stock options                 44,384
Dilutive effect of stock warrants                      2,850,000
                                                     -----------   -------------

Weighted average shares outstanding - diluted         11,590,036       8,695,652

Earnings per share from continuing operations
Basic                                                $      0.00   $        0.01
                                                     ===========   =============

Diluted                                              $      0.00   $        0.01
                                                     ===========   =============

Earnings per share from discontinued operations
Basic                                                $      0.00   $        0.00
                                                     ===========   =============

Diluted                                              $      0.00   $        0.00
                                                     ===========   =============

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

You should read the  following  discussion  in  conjunction  with our  financial
statements and related notes. Except for historical  information,  the following
discussion contains forward-looking statements within the meaning of Section 27a
of the Securities Act of 1933 and Section 21e of the Securities  Exchange Act of
1934.  These   forward-looking   statements  involve  risks  and  uncertainties,
including,  among other things, statements about our gross margins and operating
costs and  expenses.  Our actual  results  may differ  significantly  from those
projected  in the  forward-looking  statements.  Factors that might cause future
results  to  differ  materially  from  those  discussed  in the  forward-looking
statements  include,  but are not limited to, those  discussed in  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
elsewhere in this  document as well as other  information  set forth in our 2001
Annual Report on Form 10-KSB filed with the SEC and other documents we file from
time to time with the SEC.

Results of Operations

Revenues

Our  net   revenues   include  four   components:   software   licensing   fees,
maintenance/recurring,  professional services and hardware. Our net revenues for
the first quarter ended March 31, 2002 decreased 30.0% to $465,860 compared with
net  revenues of $665,393  for the same period in 2001.  Revenues  for the first
quarter  of 2001 were  higher  because  of sales of our  Petroware2000  software
package, which was released in October of 2000.

Software.  Software  sales  for the first  quarter  of 2001  decreased  65.7% to
$76,330  compared with software sales of $222,316 for the first quarter of 2001.
The  decrease  in  software  revenues  is due to the high levels of sales of our
Petroware 2000 in 2001, which was released in October 2000.

Maintenance and other recurring revenue. Maintenance and other recurring revenue
for  the  first  quarter  of  2002  increased  6.5% to  $287,954  compared  with
maintenance  and other  recurring  revenue of $270,253 for the first  quarter of
2001. The increase in maintenance and other recurring revenues is related to the
Petroware  2001  software  package,  which was  released in October of 2001.  We
increased our maintenance fee rates on March 1, 2002.

                                       5
<PAGE>

Professional  services.  Professional  service  revenue for the first quarter of
2002 decreased 42.7% to $87,636  compared with  professional  service revenue of
$153,011 for the first  quarter of 2001.  The decrease in  professional  service
revenue is related to the decrease in the  installations  of our Petroware  2000
product. We increased our professional fee rates on February 1, 2002.

Cost of Revenues

Our  cost of  revenues  includes  four  components:  cost of  software,  cost of
maintenance and other recurring revenue, cost of professional services, and cost
of hardware sales.  Our cost of revenues for the first quarter of 2002 decreased
27.6% to $177,617  compared  with cost of  revenues  of  $245,216  for the first
quarter of 2001.  Cost of revenues as a percentage of net revenues  increased to
38.1% for the three  months ended March 31, 2002 from 36.9% from the same period
in 2001.

Cost of  software.  Cost of  software  decreased  50.8% to  $18,972 in the first
quarter of 2002 from $38,552 in the first quarter of 2001.  The decrease in cost
of software is directly  related to the  decrease in software  revenue.  Cost of
software as a  percentage  of the related  revenues  increased  to 24.9% for the
first quarter of 2002 compared with 17.3% for the same period in 2001, primarily
due to the decrease in software sales.

Cost of maintenance and other recurring revenues.  Cost of maintenance and other
recurring  revenues  decreased  19.3% to $110,402 for the first  quarter of 2002
from  $136,843  for the first  quarter of 2001.  Cost of  maintenance  and other
recurring revenues as a percentage of the related revenue decreased to 38.3% for
the first quarter 2002 compared to 50.6% for the same period last year.


Cost of professional services.  Cost of professional services decreased 38.1% to
$35,123 for the three months ended March 31, 2002, compared with $56,701 for the
same period last year.  Cost of  professional  services as a  percentage  of the
related  revenue  increased to 40.1% in the first quarter 2002 compared to 37.1%
for the same period last year.  The  decreases in cost were due to the reduction
in related revenue for professional services

Operating Expenses

Sales and Marketing.  Our sales and marketing  expenses for the first quarter of
2002  decreased  .4% to $63,614  compared  with $63,854 for the first quarter of
2001. Sales and marketing  expenses as a percentage of net revenues increased to
13.7% for the three months ended March 31, 2002, compared with 9.6% for the same
period last year.

General and  Administrative.  Our general and  administrative  expenses  for the
first  quarter of 2002  decreased  33.0% to $87,078  compared  with  general and
administrative  expenses of $129,922 for the first quarter of 2001.  General and
administrative  expenses as a percentage  of net revenues  decreased to 18.7% in
the first  quarter of 2002  compared with 19.5% in the first quarter of 2001.The
decrease in general and administrative  expense was due primarily to a reduction
in  professional  fees  related to our reverse  merger and costs  related to our
registration with the Securities and Exchange Commission.

Interest  Income.  Interest  income  was  $3,418  in the first  quarter  of 2002
compared to $10,042 in 2001. The decrease was primarily due to smaller  balances
available for investment  because of costs we incurred in our reverse merger and
lower interest rates.

Interest  Expense.  Interest  expense  was  $481 in the  first  quarter  of 2002
compared  to $3,788 in the same  period  last year.  The  decrease  in  interest
expense was due to lower balances on our long-term debt that was paid in full on
March 31, 2002.


                                       6
<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

Item 6. Exhibits And Reports On Form 8-K

       (a) Exhibits

               None.

       (b) Reports on Form 8-K


               None.


                                   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.




                                                    AVATAR SYSTEMS, INC.

Dated: May 14, 2002                             By: /s/ ROBERT C. SHREVE, JR.
                                                    ----------------------------
                                                       Robert C. Shreve, Jr.
                                                      Chief Executive Officer
                                                      Chief Financial Officer


                             7