--------------------------------------------------------------------------------

                       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, 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 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, 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.....................................................7

   Item 1.  Legal Proceedings..................................................7
   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..................................................8
   Item 6.  Exhibits And Reports On Form 8-K...................................8












                                      -i-
<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

                              AVATAR SYSTEMS, INC.
                                 BALANCE SHEETS

                                                               June       December 31,
                                                               2002           2001
                                                           ------------   ------------
                                                            (unaudited)
<S>                                                        <C>            <C>

                                     ASSETS

Current assets:
Cash and cash equivalents                                  $    342,688   $    397,362
Accounts receivable, net                                        181,696        191,861
Prepaid Expense                                                   9,175         22,281
Net assets of discontinued ecommerce subsidiary                    --           51,122
Deferred income taxes                                           110,564        110,564
                                                           ------------   ------------
Total current assets                                            644,123        773,190
                                                           ------------   ------------

Property and Equipment - at cost, net                           169,199        145,268
Purchased Software, net                                         354,607        416,154
Software Development Costs, net                               1,311,132      1,218,831

Other Assets                                                       --              488
                                                           ------------   ------------
Total assets                                               $  2,479,061   $  2,553,931
                                                           ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current maturities of long-term debt                       $     13,623   $     60,402
Accounts payable                                                129,661        109,307
Accrued expense                                                  25,604         38,088
Deferred revenues                                               216,821        216,821
                                                           ------------   ------------
Total current liabilities                                       385,709        424,618
Deferred income taxes                                           169,656        180,600
Long-term debt                                                     --            3,773
                                                           ------------   ------------
Total liabilities                                               555,365        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                                               146,655        167,899
                                                           ------------   ------------
Total stockholders' equity                                    1,923,696      1,944,940
                                                           ------------   ------------
Total liabilities and stockholders' equity                 $  2,479,061   $  2,553,931
                                                           ============   ============
</TABLE>

The accompanying notes are an integral part of these financial statements


                                      -1-
<PAGE>
<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                         CONDENSED STATEMENTS OF INCOME

                                                    Three Months Ended June 30,     Six Months Ended June 30,
                                                    ---------------------------    ---------------------------
                                                         2002            2001           2002            2001
<S>                                                 <C>             <C>            <C>             <C>

Revenues:
 Software                                           $    70,248     $   136,225    $   146,578     $   358,541
 Maintenance                                            211,655         239,096        499,607         509,349
 Professional services                                   51,855         102,567        139,491         255,577
 Hardware                                                43,216          48,331         57,156          68,143
                                                    -----------     -----------    -----------     -----------
    Net revenues                                        376,974         526,219        842,832       1,191,610
Cost of revenues:
 Software                                                17,551          22,130         36,522          60,682
 Maintenance                                             77,244          81,911        154,124         160,462
 Professional services                                   14,309          30,897         32,670          87,598
 Hardware                                                40,553          45,506         53,673          58,626
                                                    -----------     -----------    -----------     -----------
     Total cost of revenues                             149,657         180,444        276,989         367,368
                                                    -----------     -----------    -----------     -----------
       Gross margin                                     227,317         345,775        565,843         824,242
Operating expenses:
  Sales and marketing                                    48,565          73,940        112,180         137,794
  General and administrative                            154,304         156,446        291,664         344,660
  Amortization of intangibles                            87,585          50,974        161,592         101,948
  Depreciation                                           20,167          16,767         36,654          33,533
  Write off of acquisition costs                        323,539            --          323,539
                                                    -----------     -----------    -----------     -----------
      Total operating expenses                          310,621         621,666        602,090         941,474
                                                    -----------     -----------    -----------     -----------
        Loss from operations                            (83,304)       (275,891)       (36,247)       (117,232)
   Interest income                                        1,230           6,540          4,648          16,582
   Interest expense                                         107           6,970            588          10,758
                                                    -----------     -----------    -----------     -----------
        Loss from continuing operations before          (82,181)       (276,321)       (32,187)       (111,408)
        income taxes
   Provision for income taxes (credit)                  (25.902)        (95,624)       (10,944)        (37,878)
                                                    -----------     -----------    -----------     -----------
        Loss from continuing operations                 (56,279)       (180,697)       (21,243)        (73,530)
  Discontinued operations:
  Income from operations of Talon Global Systems,
  Inc. (net of income taxes)                               --            35,369           --            53,911
                                                    -----------     -----------    -----------     -----------

         Net loss                                   $   (56,279)    $  (145,328)   $   (21,243)    $   (19,619)
                                                    ===========     ===========    ===========     ===========

Earnings per share:
Basic
Loss from continuing operations                     $     (0.01)    $     (0.02)   $      0.00     $     (0.01
Net loss                                            $     (0.01)    $     (0.02)   $      0.00     $      0.00
Shares used in per share calculations                 8,695,652       8,695,652      8,695,652       8,695,652

Diluted
Loss from continuing operations                     $     (0.01)    $     (0.02)   $      0.00     $     (0.01)
Net loss                                            $     (0.01)    $     (0.02)   $      0.00     $      0.00
Shares used in per share calculations                 8,695,652       8,695,652      8,695,652       8,695,652

</TABLE>

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


                                      -2-
<PAGE>
<TABLE>
<CAPTION>

                              AVATAR SYSTEMS, INC.
                            STATEMENTS OF CASH FLOWS

                                                                           Six Months Ended June 30,
                                                                           -------------------------
                                                                              2002           2001
                                                                           ----------     ----------
                                                                                  (unaudited)
<S>                                                                        <C>            <C>
Cash flows from operating activities:
   Net income (loss)                                                       $  (21,243)    $  (73,530)
   Adjustments to reconcile net income to net cash provided by operating
     activities:
     Amortization of intangibles                                              161,732        102,766
     Depreciation                                                              36,654         33,533
     Deferred income taxes                                                    (10,944)       (37,878)
     Write off of acquisition costs                                           323,539
     Changes in operating assets and liabilities:
        Accounts receivable                                                    10,165        (35,375)
        Inventory                                                                --           20,094
        Prepaid expense                                                        13,106
        Accounts payable and accrued expense                                    7,870         14,666
        Deferred revenue                                                         --         (281,940)
                                                                           ----------     ----------
          Net cash provided by operating activities                           197,340         65,875
                                                                           ----------     ----------
Cash flows from investing activities:
   Acquisition of fixed assets                                                (60,584)       (37,247)
   Capitalized software development costs                                    (192,000)      (150,000)
   Payment received on note receivable                                         51,122
   Deposits                                                                    (4,986)
                                                                           ----------     ----------
          Net cash used in investing activities                              (201,462)      (192,233)
                                                                           ----------     ----------
Cash flows from financing activities:
   Payments on note payable and capital lease obligation                      (50,552)       (95,201)
                                                                           ----------     ----------
Net cash used in discontinued operations                                         --          (26,319)
                                                                           ----------     ----------
Net decrease in cash and cash equivalents                                     (54,674)      (247,878)
Cash and cash equivalents at beginning of period                              397,362        933,009
                                                                           ----------     ----------
Cash and cash equivalents at end of period                                 $  342,688     $  685,131
                                                                           ==========     ==========

Supplemental disclosure of cash flow information:
   Cash paid for interest                                                  $      441     $   10,758
</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 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    Six Months Ended
                                            June 30,             June 30,
                                      -------------------   -------------------
                                        2002       2001       2002       2001
                                      --------   --------   --------   --------
Revenues                              $   --     $260,025   $   --     $435,619
Income before income taxes                --       53,590       --       81,683
Income tax expense                        --       18,221       --       27,772
Income from discontinued operations       --       35,369       --       53,911


                                      -4-
<PAGE>
<TABLE>
<CAPTION>

3.   Earnings Per Share

                                                               Three Months Ended                Six Months Ended
                                                                     June 30,                         June 30,
                                                         -----------------------------    -----------------------------
                                                               2002            2001             2002            2001
                                                         -------------   -------------    -------------   -------------
<S>                                                      <C>             <C>              <C>             <C>
Loss from continuing operations                          $     (56,279)  $    (180,697)   $     (21,243)  $     (73,530)

Income from discontinued operations                               --            35,369             --            53,911
Weighted average common shares outstanding - basic           8,695,652       8,695,652        8,695,652       8,695,652

Weighted average shares outstanding - diluted                8,695,652       8,695,652        8,695,652       8,695,652

Earnings per share from continuing operations
Basic                                                    $        (.01)  $       (0.02)   $        0.00   $       (0.01)
                                                         =============   =============    =============   =============

Diluted                                                  $       (0.01)  $       (0.02)   $        0.00   $        0.00
                                                         =============   =============    =============   =============

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

Diluted                                                  $        0.00   $        0.00    $        0.00   $        0.01
                                                         =============   =============    =============   =============
</TABLE>


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 second quarter ended June 30, 2002 decreased 28.4% to $376,974 compared with
net revenues of $526,219  for the same period in 2001.  Net revenues for the six
months  ended  June 30,  2002  decreased  29.3% to  $842,832  compared  with net
revenues of  $1,191,610.  Revenues for 2001 were higher  because of sales of our
Petroware2000 software package, which was released in October of 2000.


Software.  Software  sales for the  second  quarter of 2002  decreased  48.4% to
$70,248 compared with software sales of $136,225 for the second quarter of 2001.
Software  sales  for the six  months  ended  June 30,  2002  decreased  59.1% to
$146,578, compared with $358,541 from the same period last year. The decrease in
software  revenues  is due to the high  levels  of  sales  of our  Petroware2000
software package in 2001, which was released in October 2000.

                                      -5-
<PAGE>

Maintenance and other recurring revenue. Maintenance and other recurring revenue
for the  second  quarter  of 2002  decreased  11.5% to  $211,655  compared  with
maintenance  and other  recurring  revenue of $239,096 for the second quarter of
2001.  Maintenance and other recurring revenue for the six months ended June 30,
2002 decreased 1.9% to $499,607  compared with  maintenance  and other recurring
revenue of $509,349 for the same period last year.


Professional  services.  Professional  service revenue for the second quarter of
2002 decreased 49.4% to $51,855  compared with  professional  service revenue of
$102,567 for the second quarter of 2001.  Professional  service  revenue for the
six months  ended June 30,  2002  decreased  45.4% to  $139,491,  compared  with
$255,577 for the same period last year. The decrease in professional services is
related to the lower sales volume of our Petroware2000 software package.


Hardware.  Hardware  sales for the  second  quarter of 2002  decreased  10.6% to
$43,216, compared with hardware sales of $48,331 for the second quarter of 2001.
Hardware sales for the six months ended June 30, 2002 declined 16.1% to $57,156,
compared  with $68,143 from the same period last year.  The decrease in hardware
sales is due to a decline in  customer  demand as well as a shift in sales focus
to the higher margin software sales.


COST OF REVENUES


Our  cost of  revenues  includes  four  components:  cost of  software,  cost of
maintenance  and other  recurring,  cost of professional  services,  and cost of
hardware  sales.  Our cost of revenues for the second  quarter of 2002 decreased
17.1% to $149,657  compared  with cost of  revenues  of $180,444  for the second
quarter  of 2001.  Cost of  revenues  for the six  months  ended  June 30,  2002
decreased  24.6% to $276,989  compared  with  $367,368  for the same period last
year.  Cost of revenues as a percentage  of net revenues  increased to 39.7% for
the three  months  ended June 30,  2002 from 34.3% from the same period in 2001.
Cost of revenues as a percentage  of net revenue  increased to 32.9% for the six
months ended June 30, 2002, compared with 30.8% for the same period last year.


Cost of  software.  Cost of  software  decreased  20.7% to $17,551 in the second
quarter of 2002 from  $22,130 in the second  quarter of 2001.  Cost of  software
decreased 39.8% to $36,522 in the six months ended June 30, 2002,  compared with
$60,682 in the same  period  last year.  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  increased to 25.0% for the second quarter of
2002  compared  to 16.2%  for the same  period  in  2001,  primarily  due to the
decrease in software  sales.  Cost of  software as a  percentage  of the related
revenues  increased to 24.9% for the six months  ended June 30,  2002,  compared
with 16.9% for the for the same period last year.


Cost of maintenance and other recurring revenues.  Cost of maintenance and other
recurring revenues decreased 5.7% to $77,244 for the second quarter of 2002 from
$81,911 for the second quarter of 2001.  Cost of maintenance and other recurring
revenues  decreased  3.9% to $154,124  for the six months  ended June 30,  2002,
compared with $160,462 for the same period last year.  Cost of  maintenance  and
other  recurring  revenues as a percentage of the related  revenue  increased to
36.5% for the second  quarter  2002,  compared to 34.3% for the same period last
year. Cost of maintenance  and other  recurring  revenues as a percentage of the
related  revenue  decreased  slightly to 30.8% for the six months ended June 30,
2002, compared with 31.5% for the same period last year.


Cost of professional services.  Cost of professional services decreased 53.7% to
$14,309 for the three months ended June 30, 2002,  compared with $30,897 for the
same period last year. Cost of professional  services decreased 62.7% to $32,670
for the six months  ended June 30,  2002 from  $87,598  for the same period last
year.  Cost of  professional  services as a  percentage  of the related  revenue
decreased to 27.6% in the second  quarter  2002,  compared to 30.1% for the same
period last year. Cost of  professional  services as a percentage of the related
revenue decreased to 23.4% for the six months ended June 30, 2002, compared with
34.3%  for the  same  period  last  year.  The  decreases  in cost  were  due to
reductions in use of outside  consultants  and the reduction in  percentages  of
related revenue were due to decreased demand for professional services.


Hardware.  Cost of hardware sold decreased 10.9% to $40,553 for the three months
ended June 30, 2002,  compared with $53,673 for the same period last year.  Cost
of hardware  sold  decreased  8.4% to $53,673 for the six months  ended June 30,
2002, compared with $45,506 for the same period last year. Cost of hardware as a
percentage of the related revenue  decreased to 93.8% for the three months ended
June 30,  2002,  compared  with 94.2% for the same  period  last  year.  Cost of
hardware as a percentage of the related revenue increased to 93.9% for the three
months ended June 30, 2002, compared with 86.0% for the same period last year.

                                      -6-
<PAGE>

OPERATING EXPENSES


Sales and Marketing.  Our sales and marketing expenses for the second quarter of
2002 decreased 34.3% to $48,565, compared with $73,940 for the second quarter of
2001.  Sales and  marketing  expenses  for the six months  ended  June 30,  2002
decreased  18.6% to  $112,180,  compared  with  $137,794 in the same period last
year. Sales and marketing  expenses as a percentage of net revenues decreased to
12.9% for the three months ended June 30, 2002, compared with 14.1% for the same
period last year.  Sales and marketing  expenses as a percentage of net revenues
increased to 13.3% for the six months ended June 30, 2002,  compared  with 11.6%
for the same period last year.


General and  Administrative.  Our general and  administrative  expenses  for the
second  quarter of 2002  decreased  1.4% to $154,304,  compared with general and
administrative  expenses of $156,446 for the second quarter of 2001. General and
administrative  expenses  decreased  15.4% to $291,664  for the six months ended
June 30, 2002,  compared with $344,660 in the same period last year. General and
administrative  expenses as a percentage  of net revenues  increased to 40.9% in
the second  quarter of 2002,  compared with 29.7% in the second quarter of 2001.
General and administrative expenses as a percentage of net revenues increased to
34.6% in the six months  ended June 30,  2002,  compared  with 28.9% in the same
period last year. The increase in the  percentage of general and  administrative
expenses is related to the lower overall revenues.


Interest  Income.  Interest  income  was  $1,230 in the  second  quarter of 2002
compared to $6,540 in 2001.  Interest  income was $4,648 in the six months ended
June 30, 2002,  compared with $16,582 in the same period last year. The decrease
was primarily due to smaller balances available for investments because of costs
we incurred in our reverse  merger,  write offs of deposits we made on contracts
for potential acquisition  candidates and legal and accounting costs we incurred
related to being publicly held.


Interest  Expense.  Interest  expense  was $107 in the  second  quarter  of 2002
compared to $6,970 in the same period  last year.  Interest  expense was $588 in
the six months  ended June 30,  2002,  compared  with $10,758 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.


Provision for Income Taxes.  For the three and six months ended June 30, 2002 we
recorded a tax  credit on losses  from  continuing  operations  of  $25,902  and
$10,944, respectively, based on our pretax income using an effective tax rate of
34%, which is our  anticipated  effective tax rate for the fiscal year 2002. The
actual  effective tax rate for the entire  fiscal year could vary  substantially
depending on actual results achieved.

                           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.


                                      -7-
<PAGE>

Item 5.  Other Information

None

Item 6.  Exhibits And Reports On Form 8-K

       (a) Exhibits
               None.

       (b) Reports on Form 8-K
               None.













                                      -8-


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







 STATEMENT FURNISHED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002,
                             18 U.S.C. SECTION 1350


The  undersigned,  Robert C. Shreve,  Jr., is the President and Chief  Executive
Officer of Avatar Systems Inc. (the "Company").


This statement is being  furnished in connection  with the filing by the Company
of the Company's  Quarterly Report on Form 10-QSB for the quarter ended June 30,
2002. (the "Report").


By execution of this statement, I certify that:

     (A)  the report fully  complies with the  requirements  of Section 13(a) or
          15(d) of the  Securities  Exchange  Act of 1934 (15  U.S.C  78m(a)  or
          78o(d) and

     (B)  the  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the  Company  as of the dates and for the  periods  covered  by the
          Report.


This  statement is authorized to be attached as an exhibit to the Report so that
this  statement  will  accompany  the Report at such time as the Report is filed
with the  Securities  and  Exchange  Commission,  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. It is not intended that this
statement be deemed to be filed for purposes of the  Securities  Act of 1934, as
amended.

                                                    AVATAR SYSTEMS, INC.

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