SOURCE: Avatar Systems, Inc.

August 23, 2007 08:00 ET

Avatar Systems, Inc. Reports Second Quarter and Six Month Results

Revenues Increase 36.4% for Six Months and 5.1% for 2nd Quarter

FRISCO, TX--(Marketwire - August 23, 2007) - Avatar Systems, Inc. (OTCBB: AVSY) today announced 2nd Quarter and six month results for the period ending June 30, 2007. Revenues for the 2nd Quarter were $973,423 and increased 5.1% over the corresponding period of 2006 which had revenues of $926,288. For the six month period, 2007 revenues were $1,939,672 compared to $1,421,878 for 2006, a 36.4% increase. Maintenance revenues for the 2nd Quarter increased 73.8% to $651,099 from $374,685 in 2006. Other revenue components were down for the 2nd Quarter following a very strong first Quarter of 2007.

Net income was $15,472 for the 2007 2nd Quarter compared to $168,050 for 2006. Net Income was impacted by a significant increase in amortization expense and interest expense, which are related to the Questa acquisition made in August of 2006. Amortization expense (non-cash) increased $91,586 and interest expense increased $66,064 for the 2nd Quarter of 2007 versus the 2nd Quarter of 2006. Fully diluted shares outstanding increased 11.7% to 9,874,323 shares for six months ended June 30, 2007.

Chuck Shreve, President and Chief Executive Officer of Avatar Systems, Inc., commented, "Our revenue components other than maintenance were down and we expect that to be a 2nd Quarter abnormality. Avatar anticipates releasing two significant new modules for its current and new customers in the 4th Quarter 2007. These modules will produce significant sales in the 4th Quarter 2007 and the first and second Quarter's of 2008. In addition, Avatar is making a contractually allowed, across the board Software Maintenance rate increase of 6.7% to current and future customers. This increase will affect all subsequent quarters beginning September 1, 2007."

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

The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements to the future financial performance of the Company. Although the Company believes that the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectation or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful performance of internal plans, product development and acceptance, the impact of competitive services and pricing, or general economic risks and uncertainties.


                             Avatar Systems, Inc.
                           STATEMENT OF OPERATIONS
                                 (unaudited)


                                 Three months ended     Six months ended
                                      June 30,              June 30,
                                --------------------  --------------------
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------

Revenue:
Software                        $ 170,924  $ 306,768  $ 314,675  $ 383,468
Maintenance                       651,099    374,685  1,277,393    708,074
Professional services             148,752    153,628    325,643    215,860
Hardware                            2,648     91,207     21,961    114,476
                                ---------  ---------  ---------  ---------
Total revenue                     973,423    926,288  1,939,672  1,421,878

Cost of revenue:
Software                           42,201    124,514    102,252    163,017
Maintenance                       111,909     69,334    229,508    129,001
Professional services              53,867     28,186    109,793     46,854
Hardware                            1,990     77,654     18,918     91,627
                                ---------  ---------  ---------  ---------
Total cost of revenue             209,967    299,688    460,471    430,499
                                ---------  ---------  ---------  ---------

Gross profit                      763,456    626,600  1,479,201    991,379

Operating expenses:
Sales and marketing               120,347     63,348    226,258    139,037
General and administrative        313,715    161,723    624,253    300,809
Amortization                      189,747     98,161    379,495    196,323
Depreciation                       51,107     51,913    102,214    102,437
                                ---------  ---------  ---------  ---------
Total operating expenses          674,916    375,145  1,332,220    738,606
                                ---------  ---------  ---------  ---------

Operating income                   88,540    251,455    146,981    252,773

Other income (expense):
Investment income                   4,231      6,689      8,463     12,304
Loss on sales of marketable
 securities                             -       (258)       (15)      (258)
Interest expense                  (69,329)    (3,265)  (140,947)    (5,689)
                                ---------  ---------  ---------  ---------
Total other income (expense)      (65,098)     3,166   (132,499)     6,357
                                ---------  ---------  ---------  ---------

Income before income taxes         23,442    254,621     14,482    259,130

Deferred income tax expense         7,970     86,571      4,924     88,104
                                ---------  ---------  ---------  ---------

NET INCOME                      $  15,472  $ 168,050  $   9,558  $ 171,026

Other comprehensive income, net
 of tax
Unrealized gain on marketable
 securities                         3,998      1,526      4,521      9,641
Deferred income tax expense         1,359        519      1,537      3,278
                                ---------  ---------  ---------  ---------
Other comprehensive income          2,639      1,007      2,984      6,363
                                ---------  ---------  ---------  ---------

Total comprehensive income      $  18,111  $ 169,057  $  12,542  $ 177,389
                                =========  =========  =========  =========

Net income per share:
Basic and diluted               $       -  $    0.02  $       -  $    0.02
                                =========  =========  =========  =========

Weighted average common shares
 outstanding:
Basic                           9,038,152  8,838,152  9,038,152  8,838,152
                                =========  =========  =========  =========
Diluted                         9,874,323  8,838,152  9,874,323  8,838,152
                                =========  =========  =========  =========

Contact Information

  • Investor Relations Contact:
    The Eversull Group, Inc.
    Jack Eversull
    972-378-7917
    972-378-7981 (fax)
    Email Contact