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                       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 June 30, 2003

                                       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 Identification Number)
  incorporation or organization
                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 June 30, 2003


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




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<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...........................................4
   ITEM 3. CONTROLS AND PROCEDURES.............................................6

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

   ITEM 1.  LEGAL PROCEEDINGS..................................................6
   ITEM 2.  CHANGES IN SECURITIES..............................................6
   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
   SIGNATURES..................................................................8































                                      -i-
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<TABLE>
<CAPTION>


                          PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
                              AVATAR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                               June 30,     December 31,
                                                                 2003           2002
                                                             (unaudited)
<S>                                                          <C>            <C>
                                     ASSETS

Current assets:
Cash and cash equivalents                                    $    415,039   $    395,256
Accounts receivable, net                                          101,741        199,102
Prepaid Expense                                                     6,031          7,603
Deferred income taxes                                              10,319         10,319
                                                             ------------   ------------
Total current assets                                              533,130        612,280

Property and Equipment - at cost, net                             189,840        134,280
Purchased Software, net                                           237,137        293,060
Software Development Costs, net                                 1,632,445      1,562,141
                                                             ------------   ------------

Total assets                                                 $  2,592,552   $  2,601,761
                                                             ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt                         $      9,729   $     13,433
Accounts payable                                                   51,204         75,937
Accrued expense                                                    63,464         51,642
Deferred revenues                                                 235,016        235,016
                                                             ------------   ------------
Total current liabilities                                         359,413        376,028
Deferred income taxes                                             141,368        148,504
Long-term debt                                                     29,678           --
                                                             ------------   ------------
Total liabilities                                                 530,459        524,532
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                                                 285,052        300,188
Total stockholders' equity                                      2,062,093      2,077,229
                                                             ------------   ------------
Total liabilities and stockholders' equity                   $  2,592,552   $  2,601,761
                                                             ============   ============
</TABLE>






The accompanying notes are an integral part of these financial statements








                                       1
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<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                         CONDENSED STATEMENTS OF INCOME

                                        Three Months Ended June 30,       Six Months Ended June 30,
                                            2003            2002            2003            2002
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
Revenues:
 Software                               $     79,568    $     70,248    $    153,126    $    146,578
 Maintenance                                 230,493         211,655         516,258         499,607
 Professional services                        43,449          51,855          76,802         139,491
 Hardware                                      8,209          43,216         106,434          57,156
                                        ------------    ------------    ------------    ------------
    Net revenues                             431,719         376,974         852,620         842,832
Cost of revenues:
 Software                                     31,562          17,551          47,841          36,522
 Maintenance                                  41,882          77,244          81,728         154,124
 Professional services                        11,510          14,309          23,696          32,670
 Hardware                                     53,531          40,553          78,815          53,673
                                        ------------    ------------    ------------    ------------
     Total cost of revenues                  138,485         149,657         232,080         276,989
                                        ------------    ------------    ------------    ------------
       Gross margin                          293,234         227,317         620,540         565,843
Operating expenses:
  Sales and marketing                        105,204          48,565         193,382         112,180
  General and administrative                 110,334         154,304         245,530         291,664
  Amortization of intangibles                 88,809          87,585         177,618         161,592
  Depreciation                                15,474          20,167          27,609          36,654
                                        ------------    ------------    ------------    ------------
      Total operating expenses               319,821         310,621         644,139         602,090
                                        ------------    ------------    ------------    ------------
        Operating income (loss)              (26,587)        (83,304)        (23,599)        (36,247)
   Interest income                               665           1,230           1,453           4,648
   Interest expense                              126             107             126             588
                                        ------------    ------------    ------------    ------------
        Loss from operations before          (26,048)        (82,181)        (22,272)        (32,187)
        income taxes
   Deferred income tax benefit                (8,420)        (25,902)         (7,136)        (10,944)
                                        ------------    ------------    ------------    ------------

         Net loss                       $    (17,628)   $    (56,279)   $    (15,136)   $    (21,243)
                                        ============    ============    ============    ============

Loss per share:
Basic
Net loss                                $          *    $          *    $          *    $          *
                                        ============    ============    ============    ============
Shares used in per share calculations      8,695,652       8,695,652       8,695,652       8,695,652
                                        ============    ============    ============    ============

Diluted
Net loss                                $          *    $          *    $          *    $          *
                                        ============    ============    ============    ============
Shares used in per share calculations      8,695,652       8,695,652       8,695,652       8,695,652
                                        ============    ============    ============    ============
</TABLE>

* Less than $(0.01) per share.


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



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<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS

                                                                         Six Months Ended June 30,
                                                                            2003           2002
                                                                               (unaudited)
 <S>                                                                      <C>            <C>

Cash flows from operating activities:
   Net loss                                                              $  (15,136)    $  (21,243)
   Adjustments to reconcile net loss to net cash provided by operating
     activities:
     Amortization of intangibles                                            177,618        161,732
     Depreciation                                                            27,609         36,654
     Deferred income taxes                                                   (7,136)       (10,944)
     Changes in operating assets and liabilities:
        Accounts receivable                                                  97,361         10,165
        Prepaid expense                                                       1,572         13,106
        Accounts payable and accrued expense                                (12,911)         7,870
                                                                         ----------     ----------
          Net cash provided by operating activities                         268,977        197,340
Cash flows from investing activities:
   Acquisition of fixed assets                                              (46,154)       (60,584)
   Capitalized software development costs                                  (192,000)      (192,000)
   Payment received on note receivable                                         --           51,122
                                                                         ----------     ----------
          Net cash used in investing activities                            (238,154)      (201,462)
Cash flows from financing activities:
   Payments on note payable and capital lease obligation                    (11,040)       (50,552)
                                                                         ----------     ----------
Net change in cash and cash equivalents                                      19,783        (54,674)
Cash and cash equivalents at beginning of period                            395,256        397,362
                                                                         ----------     ----------
Cash and cash equivalents at end of period                               $  415,039     $  342,688
                                                                         ==========     ==========

Supplemental disclosure of cash flow information:
   Cash paid for interest                                                $      126     $      441
                                                                         ==========    ==========
</TABLE>





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





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<PAGE>

                              AVATAR SYSTEMS, INC.


                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)


1. Basis of Presentation


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 2002 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 the financial  position and results of operations  for each
interim period shown.

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 2002
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 second quarter ended June 30, 2003 increased 14.5% to $431,719 compared with
net revenues of $376,974  for the same period in 2002.  Net revenues for the six
months ended June 30, 2003 increased 1.2% to $852,620 compared with net revenues
of $842,832 for the same period last year. Net revenues were impacted  primarily
by an  increase  in  maintenance  revenue  and an  increase  in  sales  of AS400
hardware.


Software.  Software  sales for the  second  quarter of 2003  increased  13.3% to
$79,568  compared with software sales of $70,248 for the second quarter of 2002.
Software  sales  for the six  months  ended  June  30,  2003  increased  4.5% to
$153,126, compared with $146,578 from the same period last year. The increase in
software sales is due to our increased marketing efforts.


Maintenance.  Maintenance and other recurring  revenue for the second quarter of
2003 increased 8.9% to $230,493  compared with  maintenance  and other recurring
revenue of  $211,655  for the  second  quarter  of 2002.  Maintenance  and other
recurring  revenue  for the six months  ended June 30,  2003  increased  3.3% to
$516,258  compared with maintenance and other recurring  revenue of $499,607 for
the same  period last year.  The  increase  in  maintenance  revenue is directly
related to the increase in numbers of users from new software sales.


Professional services. Professional services revenue for the second quarter of
2003 decreased 16.2% to $43,449 compared with professional service revenue of
$51,855 for the second quarter of 2002. Professional service revenue for the six
months ended June 30, 2003 decreased 44.9% to $76,802, compared with $139,491
for the same period last year. The reduction in professional services is due to
reduced demand for software training.


                                       4
<PAGE>

Hardware.  Hardware  sales for the  second  quarter of 2003  increased  81.0% to
$78,209, compared with hardware sales of $43,216 for the second quarter of 2002.
Hardware  sales  for the six  months  ended  June 30,  2003  increased  86.2% to
$106,434,  compared with $57,156 from the same period last year. The increase in
hardware  sales is due to an  increase  in  demand  for  AS400  hardware  and an
unusually low quarter during the previous year.


COST OF REVENUES


Our  cost of  revenues  includes  four  components:  cost of  software,  cost of
maintenance, cost of professional services, and cost of hardware sales. Our cost
of revenues for the second quarter of 2003  decreased 7.5% to $138,485  compared
with cost of  revenues  of  $149,657  for the second  quarter  of 2002.  Cost of
revenues  for the six months  ended June 30,  2003  decreased  16.2% to $232,080
compared  with  $276,989  for the same period  last year.  Cost of revenues as a
percentage of net revenues  decreased to 32.1% for the six months ended June 30,
2003 from 39.7% for the same period in 2002. Cost of revenues as a percentage of
net revenue decreased to 27.2% for the six months ended June 30, 2003,  compared
with 32.9% for the same period last year. Reductions in the cost of revenues and
cost of revenues as a percentage  of net  revenues  were  impacted  primarily by
decreases in maintenance personnel neceessary to support our products.


Cost of  software.  Cost of  software  increased  79.8% to $31,562 in the second
quarter of 2003 from  $17,551 in the second  quarter of 2002.  Cost of  software
increased 16.4% to $42,502 in the six months ended June 30, 2003,  compared with
$36,522 in the same period last year.  The  increase in cost of software for the
current  quarter is related to the timing of a payment to a royalty owner and an
increase in commissions on higher software sales.  The overall  increase in cost
of software  for the six months  ended June 30, 2003 is directly  related to the
increase in software  sales.  Cost of  software as a  percentage  of the related
revenue  increased to 39.7% for the second quarter of 2003 compared to 25.0% for
the same period in 2002,  due to the timing of payment to a royalty owner and an
increase  in  commisions  on  higher  software  sales..  Cost of  software  as a
percentage of the related  revenues  increased to 27.8% for the six months ended
June 30, 2003, compared with 24.9% for the for the same period last year.


Cost of maintenance..  Cost of maintenance  revenues  decreased 45.8% to $41,882
for the second quarter of 2003 from $77,244 for the second quarter of 2002. Cost
of maintenance revenues decreased 43.5% to $87,067 for the six months ended June
30,  2003,  compared  with  $154,124  for the same  period  last  year.  Cost of
maintenance  revenues as a percentage of the related revenue  decreased to 18.2%
for the second  quarter  2003,  compared to 36.5% for the same period last year.
Cost of maintenance revenues as a percentage of the related revenue decreased to
16.9% for the six months ended June 30, 2003,  compared  with 30.8% for the same
period last year.  The  reduction  in cost of revenues  was due  primarily  to a
reduction in maintenance  personnel.  Demand for maintenace support has declined
as our users have gained experience with recently released products.


Cost of professional services.  Cost of professional services decreased 19.6% to
$11,510 for the three months ended June 30, 2003,  compared with $14,309 for the
same period last year. Cost of professional  services decreased 27.5% to $23,696
for the six months  ended June 30,  2003 from  $32,670  for the same period last
year.  Cost of  professional  services as a  percentage  of the related  revenue
decreased to 26.5% in the second  quarter  2003,  compared to 27.6% for the same
period last year. Cost of  professional  services as a percentage of the related
revenue increased to 30.9% for the six months ended June 30, 2003, compared with
23.4%  for the  same  period  last  year.  The  decreases  in cost  were  due to
reductions in use of outside training  consultants.The increase in percentage of
related  revenue  for the six months  ended June 30,  2003 was due to  decreased
demand for higher margin training services.


Hardware.  Cost of hardware sold  increased  32.0% to $53,531 for the six months
ended June 30, 2003,  compared with $40,553 for the same period last year.  Cost
of hardware  sold  decreased  46.8% to $78,815 for the six months ended June 30,
2003, compared with $53,673 for the same period last year. Cost of hardware as a
percentage  of the related  revenue  decreased to 68.4% for the six months ended
June 30,  2003,  compared  with 93.8% for the same  period  last  year.  Cost of
hardware as a percentage of the related  revenue  decreased to 74.1% for the six
months ended June 30, 2003,  compared  with 93.9% for the same period last year.
The decrease in software  cost as a percentage  of the related  revenue was from
increased demand for hardware products with better margins.



                                       5
<PAGE>

OPERATING EXPENSES


Sales and Marketing.  Our sales and marketing expenses for the second quarter of
2003 increased  74.8% to $105,204,  compared with $60,174 for the second quarter
of 2002.  Sales and  marketing  expenses  for the six months ended June 30, 2003
increased  56.2% to  $193,382,  compared  with  $123,789 in the same period last
year. Sales and marketing  expenses as a percentage of net revenues increased to
24.4% for the second  quarter of 2003,  compared  with 16.0% for the same period
last  year.  Sales  and  marketing  expenses  as a  percentage  of net  revenues
increased to 22.7% for the six months ended June 30,  2003,  compared  with 14.7
for the same period last year.The  increases in cost and related  percentages of
revenue were due our implementation of a new marketing program.


General and  Administrative.  Our general and  administrative  expenses  for the
second  quarter of 2003 decreased  22.7% to $110,334,  compared with general and
administrative  expenses of $142,695 for the second quarter of 2002. General and
administrative  expenses  decreased  12.3% to $245,530  for the six months ended
June 30, 2003,  compared with $280,055 in the same period last year. General and
administrative  expenses as a percentage  of net revenues  decreased to 25.6% in
the second  quarter of 2003,  compared with 37.9% in the second quarter of 2002.
General and administrative expenses as a percentage of net revenues decreased to
28.8% in the six months  ended June 30,  2003,  compared  with 33.2% in the same
period  last year.  The  decreases  in the costs and  percentage  of general and
administrative  expenses  is related to our cost  reduction  efforts  and higher
revenues.


Interest Income. Interest income was $665 in the second quarter of 2003 compared
to $1,230 in 2002.  Interest  income was $1,453 in the six months ended June 30,
2003,  compared  with  $4,645 in the same  period last year.  The  decrease  was
primarily due to lower interest rates.


Provision for Income Taxes.  For the three and six months ended June 30, 2003 we
recorded  a  tax  credit  on  losses  from  operations  of  $8,420  and  $7,136,
respectively,  based on our pretax  income using an  effective  tax rate of 34%,
which is our anticipated effective tax rate for the fiscal year 2003. The actual
effective tax rate for the entire fiscal year could vary substantially depending
on actual results achieved.

Item 3. Controls and Procedures

The  Chief  Executive   Officer/Chief  Financial  Officer  of  the  Company  has
established and is currently maintaining  disclosure controls and procedures for
the Company. The disclosure controls and procedures have been designed to ensure
that material  information  relating to the Company is made known to him as soon
as it is known by others  within the  Company.  There  have been no  significant
changes in these controls within the reporting period.


During the period immediately after the end of the quarter,  the Chief Executive
Officer/Chief  Financial  Officer conducts an update and a review and evaluation
of the effectiveness of the Company's disclosure controls and procedures.  It is
the Chief Executive  Officer's/Chief Financial Officer's opinion, based upon the
evaluation  he  completed by June 30,  2003,  that the  controls and  procedures
currently  being  utilized by the Company are  sufficiently  effective to ensure
that any material  information relating to the Company would become known to him
within a reasonable time.

                           PART II. OTHER INFORMATION
Item 1.  Legal Proceedings

None.

Item 2.  Changes in Securities

None.




                                       6
<PAGE>

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

None

Item 6.  Exhibits And Reports On Form 8-K

     (a)  Exhibits

               31.1 Section 302 Certification pursuant to Sarbane-Oxley Act.
               32.1 Section 906 Certification pursuant to Sarbane-Oxley Act.


     (b)  Reports on Form 8-K
               Form 8-K was  filed on June 16,  2003.  The items  included  were
               filed under Item 4 Financial  Statements  and Exhibits and Item 7
               Regulation FD Disclosure of Form 8-K























                                       7
<PAGE>


                                   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: August 13, 2003                              By: /s/ROBERT C. SHREVE, JR.
                                                       -------------------------
                                                       Robert C. Shreve, Jr.
                                                       Chief Executive Officer
                                                       Chief Financial Officer





























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