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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 March 31, 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 March 31, 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 AND NOTES TO CONDENSED FINANCIAL
           STATEMENTS..........................................................1
   ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS...........................................4
   ITEM 3. CONTROLS AND PROCEDURES.............................................5

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


INFORMATION....................................................................6

   ITEM 1. LEGAL PROCEEDINGS...................................................6
   ITEM 2. CHANGES IN SECURITIES...............................................6
   ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................6
   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................6
   ITEM 5. OTHER INFORMATION...................................................6
   ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................6
   SIGNATURES..................................................................7
   CERTIFICATIONS..............................................................8
   EXHIBIT 99.3................................................................9
   STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
   2002, 18 U.S.C. SECTION 1350...............................................9





<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements and Notes to Condensed Financial Statements

                              AVATAR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                                       March      December 31,
                                                                   ------------   ------------
                                                                       2003           2002
                                                                   ------------   ------------
                                                                    (unaudited)
                                                                   ------------   ------------
<S>                                                                <C>            <C>
                                     ASSETS

Current assets:
Cash and cash equivalents                                          $    408,488   $    395,256
Accounts receivable, net                                                144,284        199,102
Prepaid Expense                                                           6,817          7,603
Deferred income taxes                                                    10,319         10,319
                                                                   ------------   ------------
Total current assets                                                    569,908        612,280

Property and Equipment - at cost, net                                   143,018        134,280
Purchased Software, net                                                 265,099        293,060
Software Development Costs, net                                       1,597,293      1,562,141
                                                                   ------------   ------------

Total assets                                                       $  2,575,318   $  2,601,761
                                                                   ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt                               $      7,218   $     13,433
Accounts payable                                                         60,307         75,937
Accrued expense                                                          43,270         51,642
Deferred revenues                                                       235,016        235,016
                                                                   ------------   ------------
Total current liabilities                                               345,811        376,028
Deferred income taxes                                                   149,788        148,504
                                                                   ------------   ------------
Total liabilities                                                       495,599        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                                                       302,678        300,188
                                                                   ------------   ------------
Total stockholders' equity                                            2,079,719      2,077,229
                                                                   ------------   ------------
Total liabilities and stockholders' equity                         $  2,575,318   $  2,601,761
                                                                   ============   ============
</TABLE>

The accompanying notes are an integral part of these financial statements






                                       1
<PAGE>

                              AVATAR SYSTEMS, INC.
                         CONDENSED STATEMENTS OF INCOME

                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                        2003            2002
                                                    ------------    ------------
                                                            (unaudited)
                                                    ----------------------------
Revenues:
 Software                                           $     73,558    $     76,330
 Maintenance                                             285,764         287,954
 Professional services                                    33,353          87,637
 Hardware                                                 28,225          13,940
                                                    ------------    ------------
   Net revenues                                          420,900         465,861
                                                    ------------    ------------
Cost of revenues:
 Software                                                 16,279          18,972
 Maintenance                                              39,846          76,879
 Professional services                                    12,186          18,362
 Hardware                                                 25,285          13,120
                                                    ------------    ------------
    Total cost of revenues                                93,596         127,333
                                                    ------------    ------------
      Gross profit                                       327,304         338,528
Operating expenses:
 Sales and marketing                                      88,180          63,614
 General and administrative                              135,195         137,363
 Amortization of intangibles                              88,809          74,007
 Depreciation                                             12,134          16,487
                                                    ------------    ------------
     Total operating expenses                            324,318         291,471
                                                    ------------    ------------
       Operating income                                    2,986          47,057
  Interest income                                            788           3,418
  Interest expense                                          --               481
                                                    ------------    ------------
       Income from operations before                       3,774          49,994
       income taxes
  Deferred income tax expense                              1,284          14,958
                                                    ------------    ------------

       Net Income                                   $      2,490    $     35,036
                                                    ============    ============

Earnings per share:
Basic
Net income                                          $         *     $         *
                                                    ============    ============
Shares used in per share calculations                  8,695,652        8,695,65
                                                    ============    ============

Diluted
Net income                                          $         *     $         *
                                                    ============    ============
Shares used in per share calculations                  8,695,652      11,590,036
                                                    ============    ============

* Less than $0.01 per share.

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








                                       2
<PAGE>
<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS

                                                                         Three Months Ended March 31,
                                                                         ----------------------------
                                                                             2003            2002
                                                                         ------------    ------------
                                                                                  (unaudited)
                                                                         ----------------------------
<S>                                                                      <C>             <C>
Cash flows from operating activities:
   Net income                                                            $      2,490    $     35,036
   Adjustments to reconcile net income to net cash provided by
     operating activities:
     Amortization of intangibles                                               88,809          74,007
     Depreciation                                                              12,134          16,487
     Deferred income taxes                                                      1,284          14,958
     Changes in operating assets and liabilities:
        Accounts receivable                                                    54,818          (4,123)
        Prepaid expense                                                           786           8,125
        Accounts payable and accrued expense                                  (24,002)        (25,181)
        Deferred revenue                                                         --              --
                                                                         ------------    ------------
         Net cash provided by operating activities                            136,319         119,309
Cash flows from investing activities:
   Property and Equipment                                                     (20,872)         (2,215)
   Capitalized software development costs                                     (96,000)        (96,000)
   Payments received on note receivable                                          --             9,052
   Other                                                                         --               141
                                                                         ------------    ------------
         Net cash used in investing activities                               (116,872)        (89,022)
Cash flows from financing activities:
   Payments on note payable and capital lease obligation                       (6,215)        (47,707)
                                                                         ------------    ------------
         Net cash used in financing activities                                 (6,215)        (47,707)
                                                                         ------------    ------------
Net increase (decrease) in cash and cash equivalents                           13,232         (17,420)
Cash and cash equivalents at beginning of period                              395,256         397,362
                                                                         ------------    ------------
Cash and cash equivalents at end of period                               $    408,488    $    379,942
                                                                         ============    ============

Supplemental disclosure of cash paid for:
   Interest                                                              $       --      $        481
                                                                         ============    ============

Supplemental disclosure of noncash investing and financing activities:
   Equipment acquired through foreclosure of note receivable             $       --      $     42,070
                                                                         ============    ============
</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


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.


Certain items in the March 31, 2002 financial statements have been reclassified
to conform with subsequent presentations.

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,
professional services and hardware. Our net revenues for the first quarter ended
March 31, 2003 decreased 9.7% to $420,900 compared with net revenues of $465,861
for the same period in 2002.  The  decrease in revenues  was due  primarily to a
reduction in demand for professional services


Software. Software sales for the first quarter of 2003 decreased 3.6% to $73,558
compared with software sales of $76,330 for the first quarter of 2002.


Maintenance revenue. Maintenance revenue for the first quarter of 2003 decreased
0.8% to $285,764  compared with maintenance of $287,954 for the first quarter of
2002.


Professional  services.  Professional  service  revenue for the first quarter of
2003 decreased 61.9% to $33,353  compared with  professional  service revenue of
$87,637 for the first quarter of 2002. The decrease in professional  services is
related  to the  lower  sales  volume  of  our  Petroware2000  software  package
subsequent to its initital release in October of 2001.


                                       4
<PAGE>

Hardware.  Hardware  sales for the first  quarter  of 2003  increased  102.5% to
$28,225, compared with hardware sales of $13,940 for the first quarter of 2002.


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 first quarter of 2003  decreased  26.5% to $93,596  compared
with cost of  revenues  of  $127,333  for the  first  quarter  of 2002.  Cost of
revenues as a percentage of net revenues decreased to 22.2% for the three months
ended March 31, 2003 from 27.3% for the same period in 2002.


Cost of  software.  Cost of  software  decreased  14.2% to  $16,279 in the first
quarter of 2003 from $18,972 in the first quarter of 2002.  The decrease in cost
of software is directly  related to the  decrease in software  revenue.  Cost of
software as a percentage of the related revenue decreased to 22.1% for the first
quarter of 2003 compared to 24.9% for the same period in 2002.


Cost of maintenance  revenue.  Cost of maintenance  revenue  decreased  48.2% to
$39,846 for the first quarter of 2003 from $76,879 for the firstquarter of 2002.
Cost of maintenance  revenue as a percentage of the related revenue decreased to
13.9% for the first  quarter  2003,  compared  to 26.7% for the same period last
year.  The decreases in cost and  percentage of  maintenance  revenue are due to
reductions in personnel providing maintenance support.


Cost of professional services.  Cost of professional services decreased 33.6% to
$12,186 for the three months ended March 31, 2003, compared with $18,362 for the
same period last year.  Cost of  professional  services as a  percentage  of the
related revenue increased to 36.5% in the first quarter 2003,  compared to 21.0%
for the same period last year. The decrease in cost of professional services was
directly related to lower professional services revenue.


Hardware.  Cost of hardware sold increased 92.7% to $25,285 for the three months
ended March 31, 2003,  compared with $13,120 for the same period last year. Cost
of hardware as a percentage  of the related  revenue  decreased to 89.6% for the
three months ended March 31, 2003,  compared with 94.1% for the same period last
year.


OPERATING EXPENSES


Sales and Marketing.  Our sales and marketing  expenses for the first quarter of
2003 increased 38.6% to $88,180,  compared with $63,614 for the first quarter of
2002. Sales and marketing  expenses as a percentage of net revenues increased to
21.0% for the three  months ended March 31,  2003,  compared  with 13.7% for the
same  period  last  year.  The  increases  in  sales  and  marketing  costs  and
percentages are the result of the implementation of new marketing programs.


General and  Administrative.  Our general and  administrative  expenses  for the
first  quarter of 2003  decreased  1.6% to $135,195  compared  with  general and
administrative  expenses of $137,363 for the first quarter of 2002.  General and
administrative  expenses as a percentage  of net revenues  increased to 32.1% in
the first quarter of 2003, compared with 29.5% in the first quarter of 2002. The
increase in general and administrative  expenses as a percentage of net revenues
was due to the overall decrease in net revenues.


Interest Income.  Interest income was $788 in the first quarter of 2003 compared
to $3,418 in 2002. The decrease was primarily due to smaller balances  available
for investments and lower interest rates.


Provision for Income Taxes. For the three months ended March 31, 2003 we accrued
income tax expense on  operating  income of $1,284,  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.


                                       5
<PAGE>

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 April 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.

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
                  Exhibit  99.3 Certifications

         (b)      Reports on Form 8-K
                  None





















                                       6
<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: May 14, 2003                                 By: /s/ROBERT C. SHREVE, JR.
                                                       -------------------------
                                                       Robert C. Shreve, Jr.
                                                       Chief Executive Officer
                                                       Chief Financial Officer




























                                       7
<PAGE>

                                 Certifications

I, Robert C. Shreve, Jr., certify that:

1.       I have reviewed this quarterly  report on Form 10-QSB of Avatar Systems
         Inc.;
2.       Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this quarterly report;
3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;
4.       I am responsible for establishing and maintaining  disclosure  controls
         and  procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for
         the registrant and I have:

         a)       designed  such  disclosure  controls and  procedures to ensure
                  that material  information  relating to the registrant is made
                  known to me by  others  within  those  entities,  particularly
                  during the period in which this quarterly report was prepared;
         b)       evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing  date of this  quarterly  report  (the  "Evaluation
                  Date"); and
         c)       presented in this quarterly  report my  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on the required evaluation as of the Evaluation Date;
5.       I  have  disclosed,   based  on  my  most  recent  evaluation,  to  the
         registrant's  auditors and the audit committee of registrant's board of
         directors (or persons performing the equivalent function):
         a)       all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and
         b)       any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and
6.       I have  indicated in this  quarterly  report  whether or not there were
         significant changes in internal controls or in other factors that could
         significantly  affect internal  controls  subsequent to the date of our
         most recent evaluation, including any corrective actions with regard to
         significant deficiencies and material weaknesses.

Date:     May 14, 2003

               /s/  Robert C. Shreve, Jr.
              ---------------------------
              Chief Executive Officer and Chief Financial Officer
              (principal executive and accounting officer)


                                       8