Company Profile

Avatar Systems provides ERP/Accounting Software and Computing Infrastructure Solutions for companies engaged in petroleum exploration and production. Avatar has a growing customer base using its Petroware2000™ and Integra Energy™ products for Microsoft Windows and Avatar400™ on the IBM AS400 platform, as well as many subscribers utilizing its Software as a Service (SaaS) On-Demand ASP services. Avatar’s products and services provide an excellent resource for the critical information management requirements of the petroleum industry. Avatar also provides document imaging, workflow and business process management as well as disaster recovery and remote backup services for all the vertical markets it serves. The Company is headquartered in Frisco, Texas and has branch offices in Midland and Tyler, Texas.

In August 2006, Avatar acquired Questa Software Systems, Inc., which also develops ERP/Accounting Software for the petroleum production industry. Questa’s contribution to Avatar’s growth is evidenced in the Company’s financial results for the six months ended June 30, 2007. Avatar’s revenues increased 36.4% year-over-year to $1.9 million. Questa contributed about one-third of revenue growth. In the second half of 2007, the Company plans to release two new software modules, which are expected to produce significant sales in the fourth quarter of 2007 and in 2008.

Avatar Systems, Inc. was founded in September 1996 as a limited partnership firm with Avatar Systems International as the general partner. In July 2000, the limited partners assigned their respective partnership interests to Avatar International, Inc. The partnership was dissolved and Avatar International changed its name to Avatar Systems, Inc. The common stock of Avatar Systems began trading in April 2001 and moved to the NASD OTC Bulletin Board in December 2001. Its shares trade over the counter as AVSY.OB.

Investment Highlights

A huge opportunity in the energy application market

The increasing demand for oil, coupled with high prices and declining US oil production, has necessitated new exploration activities to help meet future demand. According to API, US drilling activity in the first quarter of 2007 hit a 21-year high and was nearly twice the level of first quarter drilling activities recorded during the 1990s. Also, major US oil companies have divested many of their smaller US-based assets to pursue opportunities abroad. These sales have opened the door for independent oil companies to acquire more energy assets. Independent energy producers are purchasing oil and gas accounting and financial software to manage their operations, creating a major new sales opportunity for software providers such as Avatar Systems.

New software modules will fuel future growth

The Company is planning to release two significant new software modules in the second half of 2007 that are expected to drive sales gains in 2007 and in 2008. In addition, the Company is raising prices on its Software Maintenance services. The new software modules and higher maintenance services contract rates should provide additional revenue streams. In addition, Avatar has also announced plans to develop software solutions specifically designed to run on the 64-bit Microsoft .NET platform.

Partnerships with major players

The Company’s partnerships with Microsoft, HP and IBM have extended its product and service offerings and expanded its business into new vertical niche markets.

Acquisitions extend market reach

Avatar plans to leverage its technology, business and marketing strengths by acquiring software businesses in additional IT industry verticals such as financial services and healthcare.