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                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

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

                                 FORM 10-KSB/A

(Mark one)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934.

For the fiscal year ended December 31, 2000

                                      OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934.

For the transition period from       to

                         Commission File No. 000-27095

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

                          AVERY COMMUNICATIONS, INC.
                (Name of Small Business Issuer in Its Charter)

               Delaware                              12-2227079
    (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)               Identification No.)

 190 South LaSalle Street, Suite 1710                   60603
           Chicago, Illinois                         (Zip code)
    (Address of Principal Executive
               Offices)

                                (312) 419-0077
               (Issuer's Telephone Number, Including Area Code)

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

      Securities registered under Section 12(b) of the Exchange Act: None

        Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, par value $.01 per share

                                Title of Class

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

  Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days. YES [X] NO [_]

  Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]

                                                              
   Issuers revenues for the most recent fiscal year...............  $36,475,177
   Aggregate market value of the 8,191,305 shares of Common Stock
   held
   by non-affiliates of the registrant at the average bid and
   asked price on
   March 29, 2001.................................................  $ 6,389,218
   Number of shares of Common Stock outstanding as of the close of
   business on March 29, 2001.....................................   10,062,076

   

                   DOCUMENTS INCORPORATED BY REFERENCE: NONE

  Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]

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                               TABLE OF CONTENTS



                                                                            Page
                                                                            ----
                                                                         
                                  PART I

Item 1.   Description of Business.........................................    1
Item 2.   Description of Properties.......................................    8
Item 3.   Legal Proceedings...............................................    8
Item 4.   Submission of Matters to a Vote of Security Holders.............    8

                                 PART II

Item 5.   Market for Common Equity and Related Stockholder Matters........    9
Item 6.   Management's Discussion and Analysis or Plan of Operation.......   10
Item 7.   Financial Statements............................................   15
Item 8.   Changes In and Disagreements With Accountants on Accounting and
            Financial Disclosure..........................................   15

                                 PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
            Compliance with Section 16(a) of the Exchange Act.............   16
Item 10.  Executive Compensation..........................................   17
Item 11.  Security Ownership of Certain Beneficial Owners and Management..   20
Item 12.  Certain Relationships and Related Transactions..................   22
Item 13.  Exhibits and Reports on Form 8-K................................   23
Index to Financial Statements.............................................   25



                                    PART I

Item 1. Description of Business

General

  Avery is a telecommunications service company which, through its operating
subsidiary, HBS Billing Services Company, is engaged in providing billing and
collection services for inter-exchange carriers and long-distance resellers.

HBS Billing Services Company

 General

  HBS Billing Services Company is a third-party billing clearinghouse for the
telecommunications industry. HBS Billing Services' customers consist primarily
of direct dial long distance telephone companies. HBS Billing Services
maintains billing arrangements with approximately 1,300 telephone companies
that provide access lines to, and collect for services from, end-users of
telecommunication services. HBS Billing Services processes transaction records
and collects the related end-user charges from these telephone companies for
its customers.

  HBS Billing Services' customers use HBS Billing Services as a billing
clearinghouse for processing records generated by their end-users. Although
such carriers can bill end-users directly, HBS Billing Services provides these
carriers with a cost-effective means of billing and collecting residential and
small commercial accounts.

  HBS Billing Services acts as an aggregator of telephone call records and
other transactions from various sources, and, due to its large volume,
receives discounted billing costs from the telephone companies and can pass on
these discounts to its customers. Additionally, HBS Billing Services can
provide its services to those long distance resellers that would otherwise not
be able to make the investments necessary to meet the minimum fees, systems,
infrastructure and volume commitments required to establish and maintain
relationships with the telephone companies.

  HBS Billing Services is obligated to pay minimum usage charges over the
lifetime of most local exchange carrier billing contracts. Each contract has a
minimum usage amount which relates to HBS Billing Services' customers' sales
volume to be processed through the local exchange carrier. The remaining
minimum usage for significant contracts at December 31, 2000, totaled $4.0
million through 2003. As a frame of reference, customers' sales processed by
HBS Billing Services relating to all contracts in January, 2001 were
approximately $33.5 million. A portion of this amount applies to the minimum
usage requirements. The billing and collection agreements do not provide for
any penalties other than payment of the obligation should the usage levels not
be met. HBS Billing Services has met all such volume commitments in the past
and anticipates exceeding the minimum usage volumes with all of these vendors.

  HBS Billing Services also provides enhanced billing services for
transactions related to providers of premium services or products that can be
billed through the local telephone companies, such as Internet access, voice
mail services, and other telecommunications charges, although this business
was significantly reduced in 1999.

 Industry Background

  Billing clearinghouses in the telecommunications industry developed out of
the 1984 breakup of AT&T and the Bell System. In connection with the breakup,
the local telephone companies that make up the regional Bell operating
companies, Southern New England Telephone, Cincinnati Bell and GTE, were
required to provide billing and collection services on a nondiscriminatory
basis to all carriers that provided telecommunication services to their end-
user customers. Due to both the cost of acquiring and the minimum charges
associated with

                                       1


many of the local telephone company billing and collection agreements, only
the largest long distance carriers, including AT&T, MCI and Sprint, could
afford the option of billing directly through the local telephone companies.
Several companies, including HBS Billing Services, entered into these billing
and collection agreements and became aggregators of telephone call records of
third-tier long distance companies, thereby becoming "third-party
clearinghouses." Today, HBS Billing Services provides billing clearinghouse
services to approximately 29 customers in the telecommunications industry.

  Third-party clearinghouses such as HBS Billing Services process these
telephone call records and other transactions and submit them to the local
telephone companies for inclusion in their monthly bills to end-users.
Generally, as the local telephone companies collect payments from end-users,
they remit them to the third-party clearinghouses who, in turn, remit payments
to their customers.

 Billing Clearinghouse Services

  In general, HBS Billing Services performs billing clearinghouse services
under billing and collection agreements with local telephone companies. HBS
Billing Services performs direct dial long distance billing, which is the
billing of "1+" long distance telephone calls to individual residential
customers and small commercial accounts. In addition, HBS Billing Services
performs enhanced billing clearinghouse services for other telecommunication
services, such as Internet access, paging services, and voice mail services.

 Billing Process

  Local telephone company billing relates to billing for transactions that are
included in the monthly local telephone bill of the end-user as opposed to a
direct bill that the end-user would receive directly from the
telecommunications or other services provider.

  HBS Billing Services' customers submit telephone call record data in batches
on a daily to monthly basis, but typically in weekly intervals. The data is
submitted electronically.

  HBS Billing Services, through its proprietary software, sets up an account
receivable for each batch of call records that it processes and processes the
record to determine its validity. HBS Billing Services then submits the
relevant billable telephone call records and other transactions to the
appropriate local telephone company for billing and collection. HBS Billing
Services monitors and tracks each account receivable by customer and by batch
throughout the billing and collection process.

  The local telephone companies then include the charges for these telephone
call records and other transactions in their monthly local telephone bills,
collect the payments and remit the collected funds to HBS Billing Services for
payment to its customers.

  The complete cycle can take up to 18 months from the time the records are
submitted for billing until all bad debt reserves are "trued up" with actual
bad debt experience. However, the billing and collection agreements provide
for the local telephone companies to purchase the accounts receivable, with
recourse, within a 42- to 90-day period. The payment cycle from the time call
records are transmitted to the local telephone companies to the initial
receipt of funds by HBS Billing Services is, on average, approximately 50
days.

  HBS Billing Services accrues for end-user customer service refunds, holdback
reserves and certain adjustments charged to HBS Billing Services by the local
telephone companies. HBS Billing Services reviews the activity of its customer
base to detect potential losses. If there is uncertainty with respect to an
account in an amount which exceeds its holdback reserve, HBS Billing Services
can discontinue paying the customer in order to hold funds to cover future
end-user customer service refunds, bad debt and unbillable adjustments. If a
customer discontinues doing business with HBS Billing Services and there are
insufficient funds being held to cover future refunds and adjustments, HBS
Billing Services' only recourse is through legal action.

                                       2


  HBS Billing Services processes the tax records associated with each
customer's submitted telephone call records and other transactions and files
certain federal excise and state and local telecommunications-related tax
returns covering such records and transactions for its customers. HBS Billing
Services currently submits state and local tax returns for its customers in
over 500 taxing jurisdictions.

  HBS Billing Services provides end-user customer service for billed telephone
records. This service allows end-users to make inquiries regarding
transactions for which they were billed directly to HBS Billing Services'
customer service call center. HBS Billing Services' customer service telephone
number is included in the local telephone company bill to the end-user, and
HBS Billing Services' customer service representatives are authorized to
resolve end-user disputes regarding such transactions.

  HBS Billing Services' operating revenues consist of a processing fee that is
assessed to customers either as a fee charged for each telephone call record
or other transaction processed, and a customer service inquiry fee that is
assessed to customers as a fee charged for each billing inquiry made by end-
users. Any fees charged to HBS Billing Services by local telephone companies
for billing and collection services are also included in revenues and are
passed through to the customer.

 Operations

  HBS Billing Services' billing clearinghouse services are highly automated
through HBS Billing Services' proprietary computer software. The staff
required to provide HBS Billing Services' billing clearinghouse and
information management services is largely administrative and the number of
employees is not directly volume sensitive. All of HBS Billing Services'
customers submit their records to HBS Billing Services using electronic
transmission protocols directly into HBS Billing Services' electronic bulletin
board or over the Internet. These records are automatically accessed by HBS
Billing Services' proprietary software, processed, and submitted to the local
telephone companies. Upon completion of the billing process, HBS Billing
Services provides reports relating to billable records and returns any
unbillable records to its customers electronically through the bulletin board
or through the Internet.

  HBS Billing Services has made a significant investment in computer systems
so that its customers' call records are processed and ready to be submitted to
the local telephone companies in a timely manner, generally within 24 hours of
receipt by HBS Billing Services.

  HBS Billing Services' contracts with its customers provide for the billing
services required by the customer, specifying, among other things, the
services to be provided and the cost and term of the services. Once the
customer executes an agreement, HBS Billing Services updates tables within
each of the local telephone companies' billing systems to control the type of
records processed, the products or services allowed by the local telephone
companies, and the printing of the customer's name on the end-user's monthly
bill. While these local telephone company tables are being updated, HBS
Billing Services' technical support staff tests the customer's records through
its proprietary software to ensure that the records can be transmitted to the
local telephone companies.

  HBS Billing Services maintains a relatively small direct sales force and
accomplishes most of its marketing efforts through active participation in
telecommunications industry trade shows and advertising in trade journals and
other industry publications.

 Customers

  HBS Billing Services provides billing and information management services to
the following categories of telecommunications services providers:

  .  Inter-exchange Carriers or Long Distance Companies: Facilities-based
     carriers that possess their own telecommunications switching equipment
     and networks and that provide traditional land line direct dial
     telecommunications services.

                                       3


  .  Switchless Resellers: Marketing organizations, affinity groups, and
     aggregator operations that buy direct dial long distance services in
     volume at wholesale rates from a facilities-based long distance company
     and sell it back to individual customers at market rates.

  .  Information Providers: Companies that provide various forms of
     information or voice mail services to subscribers.

  Other customers include suppliers of various forms of telecommunications
equipment, Internet services and paging companies.

  HBS Billing Services has two material customers which represented 57% and
22%, respectively, of total call records processed in calendar 2000.

 Competition

  HBS Billing Services operates in a highly competitive segment of the
telecommunications industry. Competition among the clearinghouses is based on
the quality of information reporting, program flexibility, collection history,
the speed of collections, the price of services and availability of an
advanced funding program. All other third-party clearinghouses are either
privately held or are part of a larger parent company. Management believes,
based on publicly available independent industry research reports, that
Billing Concepts Corp. is presently the largest participant in the third-party
clearinghouse industry in the United States, followed by OAN Services, Inc.
These competitors and other third-party clearinghouses have greater name
recognition than HBS Billing Services, and have, or have access to,
substantially greater financial and personnel resources than those available
to HBS Billing Services.

  As a large user of local exchange carrier billing services, HBS Billing
Services enjoys favorable rates and passes the benefits of its buying power on
to its customers. We believe that HBS Billing Services enjoys a good
reputation within the industry for the timeliness and accuracy of its
collections and disbursements to customers.

  Several significant challenges face potential new entrants in the local
telephone company billing services industry. The cost to acquire the necessary
billing and collection agreements is significant, as is the cost to develop
and implement the required systems for processing telephone call records and
other transactions. Additionally, most billing and collection agreements
require a user to make substantial monthly or annual volume commitments. Given
these factors, the average cost of billing and collecting a record could
hinder efforts to compete effectively on price until a new entrant could
generate sufficient volume. The price charged by most local telephone
companies for billing and collection services is based on volume commitments
and actual volumes being processed.

  Since most customers in the billing clearinghouse industry are under
contracts with a minimum term of at least one year, penetration of the
existing market will be difficult. In addition, a new entrant must be
financially sound and have system integrity because funds collected by the
local telephone companies flow through the third-party clearinghouse, which
then distributes the funds to the customer whose traffic is being billed.

 Insurance

  Avery does not maintain errors and omissions insurance for the business
conducted by HBS Billing Services.

 Employees

  At December 31, 2000, HBS Billing Services had 32 full-time employees,
including two executive officers, two sales and marketing personnel, six
technical and operations personnel, six accounting, administrative and support
personnel, and 16 customer service representatives and related support
personnel. HBS Billing Services' employees are not represented by a union. HBS
Billing Services believes that its employee relations are good.

                                       4


Primal Distribution

  In August 2000, the Board of Directors of Avery approved the distribution of
all of the shares of our subsidiary, Primal Solutions, Inc., to our
securityholders. We completed the distribution of Primal to our stockholders
on February 12, 2001.

  Of the capital stock distributed, 32% was distributed to the seven original
stockholders of Primal at the time of Primal's acquisition by Avery in
redemption of 4,976,401 shares of our series g voting preferred stock issued
to these persons in connection with our acquisition of Primal. The shares of
our series g voting preferred stock are now held of record as follows: John
Faltys -- 655,604 shares; Joseph R. Simrell and David Haynes-- 464,505 shares
each; Mark J. Nielsen -- 354,763 shares; and Arun Anand, Murani Cholappadi and
Sanjay Gupta-- 70,372 shares each. On the date of the distribution, the
aggregate 2,150,493 shares of series g voting preferred stock outstanding were
convertible into 2,150,493 shares of Avery's common stock, or 15% of the total
14,336,618 shares of Avery's common stock outstanding on such date and
reserved for issuance upon the exercise of options and the conversion of
convertible securities outstanding on such date. As part of the distribution,
the exercise prices of Avery's outstanding options and the conversion prices
of Avery's convertible securities were adjusted to reflect the distribution.
As a result of such adjustments, on February 12, 2001, Avery had a total of
16,002,540 shares of common stock outstanding and reserved for issuance upon
the exercise of options and the conversion of convertible securities.
Accordingly, the conversion price of the series g preferred stock was
decreased from $1.00 to $0.895896, and the 2,150,493 shares of the series g
voting preferred stock held by the original Primal stockholders became
convertible into an aggregate 2,400,381 shares of Avery's common stock, or 15%
of the total 16,002,540 shares of Avery's common stock outstanding and
reserved for issuance upon the exercise of options outstanding and the
conversion of convertible securities outstanding on such date.

  Readers should read the information under the caption "Change in Control of
Avery," below, for more detailed information regarding the distribution of
Primal and related transactions.

Change in Control of Avery

  On August 1, 2000, as part of a distribution agreement providing for us to
distribute all the shares of our subsidiary, Primal Solutions, Inc., to our
securityholders, Thurston Group, Inc. acquired a proxy to vote 7,126,894
shares of our series g voting preferred stock.

  Thurston Group is controlled by Patrick J. Haynes, III, the Chairman of
Avery.

  After being granted the proxy to vote the 7,126,894 shares of our series g
voting preferred stock, Mr. Haynes had the right to vote or to direct the
voting of an aggregate of 10,360,485 shares, or approximately 50.5%, of our
20,524,158 then outstanding voting securities.

  The 7,126,894 shares of our series g voting preferred stock were issued to
the original seven stockholders of Primal, John Faltys, Joseph R. Simrell,
David Haynes, Mark J. Nielsen, Arun Anand, Murari Cholappadi, and Sanjay
Gupta, in exchange for an aggregate of 7,126,894 shares of our series f non-
voting preferred stock as part of a series of transactions in contemplation of
our distribution of all the issued and outstanding shares of Primal to our
securityholders.

  As described above under the caption "Primal Distribution," we completed the
distribution of Primal to our stockholders on February 12, 2001. In connection
with the distribution, Avery redeemed 4,976,401 shares of the series g
preferred stock from the original seven stockholders of Primal in exchange for
shares of Primal common stock representing 32% of Primal's outstanding common
stock. As a result of these and other transactions since August 1, 2000, Mr.
Haynes presently beneficially owns 26.7% of our outstanding voting securities.
Excluding shares of common stock that Mr. Haynes and others could acquire
within 60 days upon the exercise of options and the conversion of shares of
preferred stock, Mr. Haynes presently beneficially owns 34.4% of our
outstanding voting securities.

  Patrick J. Haynes, III and David Haynes are not related.

                                       5


                                 RISK FACTORS

  Prospective purchasers of our common stock should consider carefully the
factors set forth below, as well as other information contained in this
prospectus, before making a decision to invest in our common stock.

Our ability to acquire other telecommunications services providers faces
substantial obstacles. Our failure to overcome any of these obstacles may
materially and adversely affect our planned growth.

  A key element of our business strategy is to acquire other
telecommunications services providers. The success of our acquisition program
will depend on our ability to overcome substantial obstacles, such as the
availability of acquisition candidates, our ability to compete successfully
with other potential acquirors seeking similar acquisition candidates, the
availability of funds to finance acquisitions and the availability of
management resources to oversee the operation of acquired businesses. We have
limited resources and we can offer no assurance that we will succeed in
consummating any additional acquisitions or that we will be able to integrate
and manage any acquisitions successfully.

  We have no present commitments, understandings or plans to acquire other
telecommunications service providers.

We will need substantial additional financing to fund future acquisitions.

  We will need substantial additional financing to fund our planned
acquisition program and to market our new products and services aggressively.
If we are not able to obtain financing, or obtain financing on terms that we
consider acceptable, our acquisition program would be materially adversely
affected.

Our business at HBS Billing Services is largely dependent on two customers
that accounted for approximately 79% of our call records processed in 2000.
The loss of any one of these customers would materially and adversely affect
our results of operations.

  One of the HBS Billing Services customers accounted for 57% of our call
records processed and the other accounted for 22% of our call records
processed between January 1, and December 31, 2000. On March 9, 2001, HBS
Billing Services' largest customer, which accounted for 57% of its call
records processed in 2000, filed a voluntary petition for protection under
Chapter 11 of the U.S. Bankruptcy Code in connection with the reorganization
of its parent company. As of April 2, 2001, the filing has had no material
adverse effect on HBS Billing Services' business relationship with this
customer, and, based upon conversations between the managements of the two
companies, we do not presently anticipate that this filing will materially
adversely affect the relationship with this company in the immediate future.

We face substantial competition in the billing clearinghouse industry, and
many of our competitors are larger and have more resources than we have. We
may not be able to compete successfully with existing or future competitors.

  Our major competitors in the local exchange carrier billing clearinghouse
industry are Billing Concepts Corp. and OAN Services, Inc., a wholly owned
subsidiary of nTeleCom Holdings, Inc. Competition among the local exchange
carrier billing clearinghouses is based on the quality of information
reporting, collection history, the speed of collections, the ability to factor
a long-distance reseller's accounts, and the price of services. Our
competitors have greater name recognition and have, or have access to,
substantially greater financial and personnel resources than those available
to us.

HBS Billing Services is a billing clearinghouse. Therefore, its business is
dependent both on the local exchange carriers' continuing to accept its call
records, and continuing to do so on reasonable terms, and its customers'
continuing to need its billing services.

  The success of our business to date has been largely attributable to our
having contracts with the regional Bell operating companies, Sprint, GTE and
other local exchange carriers. This permits us to bill for

                                       6


telecommunications services provided by our customers throughout the United
States. If the local exchange carriers were not to renew our existing
contracts, or were to terminate our contracts, our ability to bill for our
customers on a nation-wide basis could be adversely affected. While we have
not received any notice of any local exchange carriers' intention to refuse
renewal or to terminate, the current regulatory environment has raised the
visibility of third-party billing in the local exchange carriers.

If the local exchange carriers were to increase the costs payable by our
customers for including our customers' charges on the local exchange carrier
bills, it could make our customers' operations less profitable or not
profitable. This could result in our customers seeking alternative billing
arrangements. Our customers could enter into billing arrangements with
companies, other than the local exchange carriers, that would bill their
customers directly, or, in some instances, our customers could begin billing
directly for their services without the use of any third party. It is also
possible that some of our customers could determine that it would be
financially beneficial to them to install a direct billing system.

Substantially all of our outstanding common stock is freely tradable and may
be sold into the market at any time, and another approximately 7.5 million
shares not yet issued will be freely tradable immediately upon issuance. This
could cause the market price of our common stock to drop significantly, even
if our business is doing well.

The approximately 7.5 million shares that are not yet issued but which will be
freely tradable immediately upon issuance represent an increase in our
presently outstanding common stock of approximately 75%. The market price of
our common stock could drop significantly if the holders all our freely
tradable shares sell them or are perceived by the market as intending to sell
them.

Our common stock trades only sporadically and has experienced in the past, and
is expected to experience in the future, significant price and volume
volatility, which substantially increases the risk of loss to persons owning
our common stock.

Because of the limited trading market for our common stock, and because of the
possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. The inability to sell your shares in a rapidly
declining market may substantially increase your risk of loss because of such
illiquidity and because the price for our common stock may suffer greater
declines because of its price volatility.

We are not required to meet or maintain any listing standards for our common
stock to be traded on the OTC Bulletin Board.

The OTC Bulletin Board is separate and distinct from The Nasdaq Stock Market.
Although the OTCBB is a regulated quotation service operated by The Nasdaq
Stock Market that displays real-time quotes, last sale prices, and volume
information in over-the-counter equity securities like our common stock, we
are not required to meet or maintain any qualitative or quantitative standards
for our common stock to be traded on the OTCBB. Our common stock does not
presently meet the minimum listing standards for listing on The Nasdaq Stock
Market or any national securities exchange.

We are required to pay substantial preferential dividends to holders of our
preferred stock.

Holders of our preferred stock are entitled to preferential quarterly
dividends before any common stock dividends are declared or paid. The amount
of these dividends is presently approximately $433,000 annually. Upon our
liquidation, dissolution or winding-up, holders of our preferred stock are
each entitled to receive a liquidation distribution, plus any accumulated
dividends to date before the holders of common stock receive any
distributions.


                                       7


Item 2. Description of Properties

  HBS Billing Services leases approximately 8,700 square feet of general and
administrative office space in San Antonio, Texas. HBS Billing Services's
monthly rent is approximately $9,000. HBS Billing Services' lease expires
December 31, 2002.

Item 3. Legal Proceedings

  We are not party to any material litigation.

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

  None.

                                       8


                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters

  The common stock is quoted and traded on a limited and sporadic basis on the
OTC Bulletin Board operated by The NASDAQ Stock Market, Inc. under the trading
symbol "ATEX." The limited and sporadic trading does not constitute, nor
should it be considered, an established public trading market for the common
stock. The following table sets forth the high and low closing bid and asked
prices for our common stock for the periods indicated, as reported by Pink
Sheets LLC. Such quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commissions, and may not necessarily represent actual
transactions.



                                                   Closing Bid    Closing Asked
                                                  -------------- ---------------
                                                   High    Low    High     Low
                                                  ------ ------- ------- -------
Year Ended December 31, 1999
                                                             
 First Quarter...................................      2  1.3125  2.1875    1.50
 Second Quarter..................................   1.75  1.4375       2 1.53125
 Third Quarter................................... 1.4375    0.25 1.53125  0.8125
 Fourth Quarter.................................. 1.9375    0.75       2  0.9375

Year Ended December 31, 2000
                                                             
 First Quarter...................................  4.875    1.75       5   1.875
 Second Quarter..................................  3.125 1.34375    3.25   1.375
 Third Quarter................................... 1.9375 0.90625  2.0625 0.96875
 Fourth Quarter.................................. 1.6875  0.9375    1.75    1.00


  As of March 30, 2001, there were approximately 454 holders of record of our
common stock.

Dividend Policy

  We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we expect to retain any earnings to finance the
operation and expansion of our business. We also presently have outstanding
preferred stock that requires us to accrue dividends in the amount of
approximately $108,000 every quarter. The holders of our outstanding preferred
stock are entitled to receive all accrued dividends before we can pay any
dividends on our common stock. In addition to the terms of our outstanding
preferred stock, it is anticipated that the terms of future debt and/or equity
financings may restrict the payment of cash dividends. Therefore, the payment
of any cash dividends on the common stock is unlikely.

Recent Sales of Unregistered Securities

  Since January 1, 1997, Avery issued an aggregate of 817,386 shares of common
stock to approximately 18 persons upon exercise of outstanding warrants
previously issued by Avery to such persons. Each of the purchasers of such
shares upon exercise of such warrants was an accredited investor who acquired
such shares for investment. Avery issued such shares upon exercise of such
warrants in transactions not involving a public offering in reliance upon the
exemption set forth in Section 4(2) of the Securities Act.

  On July 1, 1998, Avery granted to Patrick J. Haynes, III, its Chairman and
then Chief Executive Officer, pursuant to his employment agreement, a ten-year
warrant to purchase 420,000 shares of Avery's common stock at $3.00 per share.
On December 1, 1998, Avery granted to Mark J. Nielsen, its new Chief Executive
Officer, pursuant to his employment agreement, a ten-year option to purchase
425,000 shares of Avery's common stock at $2.00 per share. These securities
were issued in reliance upon the exemption set forth in Rule 701 under the
Securities Act.

  The shares of convertible preferred stock issued in the Primal merger were
issued to seven individuals who were the stockholders of Primal. Each of these
persons was either an accredited investor or a person who either alone or with
his purchaser representative(s) had such knowledge and experience in financial
and business

                                       9


matters that he was capable of evaluating the risks of the investment in
Avery, or who Avery reasonably believed came within this description. Each of
such persons confirmed that he was acquiring such shares for investment
purposes and not with a view to the distribution thereof within the meaning of
the Securities Act, and agreed not to sell such shares except pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from such registration requirements. The certificate representing
such shares contains a legend to such effect, and appropriate stop transfer
orders were given to Avery's transfer agent. Such shares were issued in a
transaction not involving a public offering in reliance upon the exemption set
forth in Section 4(2) of the Securities Act and in reliance on the safe harbor
provided by Rule 506 thereunder.

  The 7,126,894 shares of series g voting preferred stock were issued to the
original seven stockholders of Primal, John Faltys, Joseph R. Simrell, David
Haynes, Mark J. Nielsen, Arun Anand, Murari Cholappadi, and Sanjay Gupta, in
exchange for an aggregate of 7,126,894 shares of series f non-voting preferred
stock as part of a series of transactions in contemplation of the distribution
of all of the issued and outstanding shares of Primal to our securityholders.
Each of these persons was either an accredited investor or a person who either
alone or with his purchaser representative(s) had such knowledge and
experience in financial and business matters that he was capable of evaluating
the risks of the investment in Avery, or who Avery reasonably believed came
within this description. Each of such persons confirmed that he was acquiring
such shares for investment purposes and not with a view to the distribution
thereof within the meaning of the Securities Act, and agreed not to sell such
shares except pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from such registration
requirements. The certificate representing such shares contains a legend to
such effect, and appropriate stop transfer orders were given to Avery's
transfer agent. Such shares were issued in a transaction not involving a
public offering in reliance upon the exemption set forth in Section 4(2) of
the Securities Act and in reliance on the safe harbor provided by Rule 506
thereunder.

  On October 19, 2000, Avery issued 50,000 shares of common stock to Investor
Network Company, LLC in connection with a consulting agreement pertaining to
financial public relations entered into by the parties on the same date.
Investor Network Company was an accredited investor that acquired such shares
for investment purposes. Avery issued such shares in a transaction not
involving a public offering in reliance upon the exemption set forth in
Section 4(2) of the Securities Act.

  On February 21, 2001, Avery issued an aggregate of 1,600,000 shares of its
series h convertible preferred stock to Waterside Capital Corporation and
CapitalSouth Partners Fund I, L.P. for an aggregate consideration of
$1,600,000. The shares of series h convertible preferred stock may be
converted, at the option of the holder, into shares of common stock at a rate
equal to one share of common stock per share. Each purchaser was an accredited
investor that acquired such shares for investment purposes. Avery issued such
shares in a transaction not involving a public offering in reliance upon the
exemption set forth in Section 4(2) of the Securities Act and in reliance on
the safe harbor provided by Rule 506 thereunder.

Item 6. Management's Discussion and Analysis or Plan of Operation

  The following discussion should be read in conjunction with the consolidated
financial statements and related notes and the other financial information
included elsewhere in this report.

A Note About Forward-Looking Statements

  The statements, other than statements of historical fact, included in this
report are forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "plan," "seek," or
"believe." We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause or contribute to such differences
include, but are not limited to:

  .  our ability to acquire additional complementary businesses on terms
     favorable to us;

  .  the passage of legislation or court decisions adversely affecting the
     telecommunications industry;

                                      10


  .  our ability to repay our outstanding indebtedness;

  .  competition in the telecommunications industry; and

  .  the advent of new technology.

  You should not unduly rely on these forward-looking statements, which speak
only as of the date of this report. Except as required by law, we are not
obligated to release publicly any revisions to these forward-looking
statements to reflect events or circumstances occurring after the date of this
report or to reflect the occurrence of unanticipated events. Important factors
that could cause our actual results to differ materially from our expectations
are discussed under "Risk Factors" and elsewhere in this report.

Selected Financial Information Line Item Explanations

  The following is a discussion of our consolidated financial condition and
audited results of operations for the fiscal years ended December 31, 2000 and
1999. It should be read in conjunction with our Consolidated Financial
Statements, the notes thereto and other financial information included
elsewhere in this report.

  The results on the "Discontinued operations" lines represent the results of
operations for the respective periods for Primal. Prior filed annual financial
statements reflect HBS Billing Services as discontinued operations. See Note 2
to Consolidated Financial Statements for further explanation. Revenue, cost of
revenues, and operating expenses presented in the statements of operations
pertain only to continuing operations, which consist of Avery and HBS Billing
Services.

  Our revenues are derived primarily from the provision of billing
clearinghouse and information management services to direct dial long distance
resellers and operator services providers, commonly referred to as "local
exchange carrier billing" or "LEC billing." Revenues are also derived from
enhanced billing services provided to companies that offer voice mail, paging
and Internet services or other non-regulated telecommunications equipment and
services. LEC billing fees charged by us include processing and customer
service inquiry fees. Processing fees are assessed to customers either as a
fee charged for each telephone call record or other transaction processed or
as a percentage of the customer's revenue that is submitted by us to local
telephone companies for billing and collection. Processing fees also include
any charges assessed to us by local telephone companies for billing and
collection services that are passed through to the customer. Customer service
inquiry fees are assessed to customers either as a fee charged for each record
processed by us or as a fee charged for each billing inquiry made by end
users.

  Cost of revenues includes billing and collection fees charged to us by local
telephone companies and related transmission costs, as well as all costs
associated with the customer service organization, including staffing expenses
and costs associated with telecommunications services. Billing and collection
fees charged by the local telephone companies include fees that are assessed
for each record submitted and for each bill rendered to its end-user
customers. We achieve discounted billing costs due to our aggregated volumes
and can pass these discounts on to our customers.

  Operating expenses are comprised of sales and marketing costs and general
and administrative costs. Sales and marketing costs include salaries and
benefits, commissions, advertising and promotional and presentation materials.
General and administrative costs consist of general management and support
personnel salaries and benefits, information systems costs, legal and
accounting fees, travel and entertainment costs and other support costs.

  Advance funding program income and expense consists of income and expenses
related to our financing certain customers' accounts receivable. Typically,
50% to 75% of the amount receivable from the local exchange carrier, or LEC,
is advanced to the customer upon acceptance of its call records. When the LEC
remits payment of the receivable, we are repaid the advance and receive a
financing fee, which generates the "Advance funding program income." Avery
maintained a line of credit to provide the funds to finance the advance
funding program which was repaid in August 2000. The costs associated with
this line of credit produced the "Advance funding program expenses."

                                      11


  Depreciation and amortization expenses are incurred with respect to certain
assets, including computer hardware, software, office equipment, furniture,
costs incurred in securing contracts with local telephone companies, goodwill
and other intangibles. Asset lives range between three and fifteen years.

  Since the components of "Other income (expense), net" change on a period-to-
period basis, the items included in this line are explained in the analysis
below.

  The results on the "Discontinued operations" represent the results of
operations for Primal for the twelve months ended December 31, 2000 and the
three months ended December 31, 1999.

Results of Operations for the Twelve Months Ended December 31, 2000 and 1999

  The following table sets forth selected income statement lines in actual
dollars. The Statement of Operations Data are derived from Avery's calendar
2000 and 1999 audited financial statements.

Statement of Operations Data:



                                                              December 31,
                                                            ------------------
                                                              2000      1999
                                                            --------  --------
                                                             ($000 Omitted)
                                                                
   Revenues................................................ $ 36,475  $ 23,703
   Cost of revenues........................................  (25,784)  (17,386)
                                                            --------  --------
       Gross profit........................................   10,691     6,317
                                                            --------  --------
   Operation expenses (excluding DD&A).....................   (6,897)   (4,776)
   Charge in connection with terminated customers..........      --        226
   Advance funding program income..........................      258       610
   Advance funding program costs...........................     (131)     (269)
   Depreciation and amortization expense (DD&A)............     (599)     (553)
                                                            --------  --------
     Total.................................................   (7,369)   (4,762)
                                                            --------  --------
       Operating income....................................    3,322     1,555
   Other income (expense), net ............................      315      (485)
                                                            --------  --------
   Income from continuing operations before income taxes...    3,637     1,070
   Income tax (provision) benefit..........................   (1,314)      648
                                                            --------  --------
   Income from continuing operations.......................    2,323     1,718
   Income (loss) from discontinued operations..............   (3,700)      959
                                                            --------  --------
     Net income (loss)..................................... $ (1,377) $  2,677
                                                            ========  ========


Operating Revenues

  Revenues for 2000 increased $12.8 million or 53.9% compared to calendar
1999. The revenue increase is primarily attributable to an increase in the
number of telephone call records processed and billed on behalf of direct dial
long distance customers. Telephone call record volumes were as follows:



                                                                   Year Ended
                                                                  December 31,
                                                                 ---------------
                                                                 (In Thousands)
                                                                  2000    1999
                                                                 ------- -------
                                                                   
   Direct dial long distance.................................... 343,760 230,006
   Enhanced billing.............................................   1,271     758


                                      12


Cost of Revenues

  Gross profit margin of 29.3% was achieved for calendar 2000 versus 26.7% for
1999. The increase in gross profit margin was principally due to lower LEC
billing costs as a percent of sales and higher margins in the customer service
department.

Operating Expenses

  Operating expenses, excluding depreciation and amortization expense,
increased $2,121,000, from $4,776,000 in calendar 1999 to $6,897,000 in
calendar 2000. The increase is primarily due to compensation charges of
$848,000 in connection with reduced option exercise prices associated with the
exercise of approximately 1,674,000 options in October 2000, higher
professional fees associated with the Primal spin-off of approximately
$700,000 and higher insurance costs somewhat offset by reduced personnel costs
resulting from lower levels of employment.

Charge in Connection with Terminated Customers

  The Company reversed previously recorded charges in connection with
terminated customers of $226,000 in calendar 1999. The 226,000 represents
amounts over reserved in 1998. During 1998, we charged operations with
$4,271,000 to reflect our estimate of future refunds required to be paid to
the local exchange carriers to cover their refunds to terminated customers for
inappropriate charges placed on customers' local phone bills by our customers.

Advance Funding Program Income and Expense

  Management has made significant policy changes in regards to the advance
funding program. In an effort to reduce the inherent risk involved in
advancing customers receivables, HBS Billing Services encouraged and
participated in placing current customers with significant financing needs
with third party financing companies. HBS Billing Services plans to assist
future customers in a similar manner. Although internal advance funding is
still available, its scope has been reduced to mainly start up companies and
those requiring reduced funding as a percent of gross billable revenue with
the local exchange carrier. As a result, advance funding program income fell
to $258,000 in calendar 2000 from $610,000 in calendar 1999 and advance
funding program expense was $131,000 in calendar 2000 compared with $269,000
in calendar 1999.

Depreciation and Amortization

  Depreciation and amortization expense was $599,000 in calendar 2000, and
$553,000 in calendar 1999. The increase was due to capital expenditures in
2000.

Income (Loss) from Operations

  Operating income for calendar 2000 was $3,322,000 as compared to $1,555,000
in calendar 1999.

Other Income (Expense), Net

  Other income (expense), net was $485,000 during calendar 1999 compared to
net other income of $315,000 for calendar 2000. These amounts consist of
interest income, interest expense and financing costs. Interest income, was
$129,000 and $448,000 in calendar 1999 and calendar 2000, respectively. The
improvement is due to larger cash balances on hand in 2000 resulting from a
decrease in the amount of advance payments to customers and increased interest
earned on notes receivable. Interest expense was $292,000 and $133,000 for
calendar 1999 and calendar 2000, respectively. The reduction relates to lower
interest bearing customer termination reserves in calendar 2000. Financing
costs were $322,000 and $0 for calendar 1999 and calendar 2000, respectively.
Financing costs in 1999 consisted of warrant repurchase costs.

                                      13


Income Taxes

  We recorded an income tax expense from continuing operations of $1,314,000
for 2000 which was offset by an income tax benefit of $1,430,000 in
discontinued operations. We recorded an income tax benefit from continuing
operations of $649,000 for calendar 1999, which was offset by an income tax
expense of a $668,000 in discontinued operations.

Discontinued Operations

  Loss from discontinued operations was $3,700,000 for the year ended 2000,
net of tax benefit of $1,430,000 compared to a net profit of $959,000 for the
three months ended December 31, 1999, net of a tax provision of $668,000.
Revenues from discontinued operations were $9,516,000 and $4,548,000 for the
year and three months ended December 31, 2000 and 1999, respectively. Since
Primal was acquired after the close of business on September 30, 1999, there
were only three months of operations included in the Company's financial
statements in 1999.

Liquidity

  Our cash balance increased to $6.7 million at December 31, 2000, from
$5.7 million at December 31, 1999. Large fluctuations in daily cash balances
are normal due to the large amount of customer receivables that we collect on
behalf of our customers. Timing of these receipts also produces large
movements in day-to-day cash balances.

  Our working capital position at December 31, 2000 was a negative
$10.4 million compared to a negative $3.4 million as of December 31, 1999. The
$7.0 million decline in working capital is due to a $3.7 million increase in
current liabilities, and by a $3.3 million decrease in current assets. The
increase in current liabilities is primarily attributable to a $3.1 million
increase in deposits and other payables associated with increased volume, and
a $0.6 million increase in accounts payable, accrued liabilities and income
taxes. The decrease in current assets is primarily attributable to a
$5.0 million decrease in advanced payment receivables due to our change in
direction for financing receivables (see Advanced Funding Program Income and
Expense, above) offset by an increase in cash of $1.0 million.

  Net cash provided by continuing operations was $9.9 million and
$11.6 million for the years ended December 31, 2000 and 1999, respectively.
The cash flow provided by operations for 2000 results primarily from
$2.3 million net income from continuing operations, a $5.0 million decrease in
advance payment receivables due to our change in policy in this area (see
Advanced Funding Program Income and Expense, above), a $3.1 million increase
in deposits and other payables and a $1.2 million charge to operations for the
non-cash exercise of options and warrants and the issuance of stock and
warrants for services, offset by a $2.6 million increase in deposits with
local exchange carriers.  The cash flow provided by operations for 1999
results primarily from $2.7 million of net income, a $5.1 million decrease in
advance payment receivables due to the Company's change in direction with
advance payment receivables (see Advanced Funding Program Income and Expense,
above), a $1.4 million decrease in deposits with local exchange carriers and a
$1.6 million increase in deposits from customers.

  During the year ended December 31, 2000, we spent $206,000 on capital
expenditures, $1.5 million on investments, loaned $3.6 million to affiliated
parties and $285,000 in payment of preferred dividends. This use of cash was
partially offset by $521,000 received from the issuance of shares of stock.
During the year ended December 31, 1999, we spent $174,000 on capital
expenditures, $116,000 in the acquisition of treasury stock, $468,000 in
preferred stock dividends and $5,765,000 on a net reduction of notes payable.

 Our operating cash requirements consist principally of working capital
requirements, scheduled payments of preferred dividends and capital
expenditures. We believe cash flows generated from operations will be
sufficient to fund capital expenditures, advance funding requirements, working
capital needs and debt repayment requirements for the foreseeable future.

                                      14


New Accounting Standards

  Management of Avery does not anticipate the adoption of any new standards
recently issued by the Financial Accounting Standards Board will have a
material impact on Avery's financial position or results of operations.

Obligations Under Employment Agreements

  Avery has employment agreements with its management requiring Avery to pay
specified amounts as annual base salaries and certain bonuses. Current
aggregate minimum annual cash compensation under the agreements is $406,000,
which will be funded from working capital. Additional bonuses are at the sole
discretion of Avery's Board of Directors. Avery is also required to maintain a
profit sharing plan for the benefit of its employees.

Item 7. Financial Statements

  Our consolidated financial statements required to be included in Item 7 are
set forth in the Index to Financial Statements set forth on page 25 of this
report.

Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

  Omitted pursuant to the Instructions to Item 304 of Regulation S-B.

                                      15


                                   PART III

Item 9. Directors, Executive Officers, Promoters and General Partners;
       Compliance with Section 16(a) of the Exchange Act

The following table sets forth certain information with respect to the
directors and executive officers of Avery.



   Name                    Age Position
   ----                    --- --------
                         
   Patrick J. Haynes, III   51 Director, Chairman of the Board, President and Chief Executive Officer
   Scot M. McCormick        47 Director, Vice President, Chief Financial Officer and Secretary
   Norman M. Phipps         40 Director
   J. Alan Lindauer         61 Director
   Robert T. Isham, Jr.     48 Director


  Directors hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualify.

  Patrick J. Haynes, III has served as a director and Chairman of the Board of
Avery since November 1995. Mr. Haynes was elected President and Chief
Executive Officer of Avery in July 1998, and served in such capacity until
December 1, 1998. On May 5, 2000, Mr. Haynes was re-elected as President and
Chief Executive Officer of Avery. In 1992, Mr. Haynes founded and became
President of American Communications Services, Inc., a start-up, fiber optic,
competitive access provider telephone company. Mr. Haynes directed development
of the strategic plan, put management in place and operated the company on a
day-to-day basis for 18 months. He also advised and consulted in connection
with the placement of $52 million in equity and $81 million in debt. American
Communications is now a NASDAQ-listed company with a market capitalization in
excess of $400 million. Mr. Haynes is the Senior Managing Director of the
Thurston Group, Inc., a private merchant bank in Chicago. Mr. Haynes and
Russell T. Stern, Jr. founded the Thurston Group in 1987. Previously, Mr.
Haynes was associated with Merrill Lynch, Oppenheimer & Company, and Lehman
Brothers as an investment banker.

  Scot M. McCormick has served as Vice President, Chief Financial Officer and
Assistant Secretary of Avery since July 1996. Mr. McCormick was elected as a
director and to the office of Secretary in July 1998. Prior to becoming the
Chief Financial Officer of Avery, Mr. McCormick was a consultant to Avery from
1995 through June 1996. From 1993 to 1995, Mr. McCormick served as Chief
Financial Officer and Secretary of The Park Corporation in Barrington,
Illinois. From 1990 to 1993, he served as Chief Financial and Administrative
Officer and Secretary of Whitestar Graphics, Inc. From 1978 to 1990, Mr.
McCormick was associated with the Crown organization in Chicago, including
Controller of American Envelope Company from 1980 to 1990. From 1976 to 1978,
Mr. McCormick worked for Coopers & Lybrand.

  Norman M. Phipps has served as a director of Avery since November 1995. Mr.
Phipps is also a director of LogiMetrics, Inc., a company primarily involved
in the manufacture of infrastructure equipment for the wireless broadband
telecommunications market. Since July 2000, Mr. Phipps has served as Senior
Vice President of Administration of LogiMetrics. Mr. Phipps has served as the
President and Chief Operating Officer of LogiMetrics from April 1997 until
July 2000, and also as interim Chief Financial Officer from March 1998 until
July 2000. From May 1996 to April 1997, Mr. Phipps served as Chairman of the
Board and Acting President of LogiMetrics. Mr. Phipps has served as a
principal of two private investment firms, Phipps, Teman & Company, L.L.C.
from January 1994 to December 1997 and CP Capital Partners from January 1991
to December 1993.

  J. Alan Lindauer currently serves as President of Waterside Capital
Corporation and has served as President of Waterside Management, Inc., a
business consulting firm, since 1986. Mr. Lindauer has also served as a
director of Commerce Bank of Virginia since 1986 and serves as chair of its
Loan Committee, Norfolk Division, and a member of the Executive, Trust,
Marketing, Compensation, and Mergers & Acquisition Committees. Mr. Lindauer
served as director of Citizens Trust Bank from 1982 to 1985 as well as a
member of its Trust and Loan Committees. Mr. Lindauer founded Minute-Man Fuels
in 1963 and managed Minute-Man Fuels until 1985.

                                      16


  Robert T. Isham, Jr. originally served as a director of Avery from November
1995 to March 1996, and then rejoined the Board in July 1998. Mr. Isham is
currently a managing director of the Thurston Group, Inc., a private merchant
bank based in Chicago. Previously, he ran his own commercial law practice in
Chicago and, before that, he was a partner with the law firm of McDermott,
Will & Emery.

Significant Employees

  Harold D. ("Rick") Box is President of HBS Billing Services. Mr. Box has
been involved in the telecommunications industry since 1983 in areas such as
paging, long distance and local exchange carrier clearing house services. He
served as Director of Client Relations for HBS Billing Services' major
competitor, Zero Plus Dialing, a subsidiary of Billing Concepts, Inc., from
1988 to 1993. He was a Vice President of Operations of Home Owners Long
Distance Incorporated from 1993 to 1994 and a founding partner of HBS Billing
Services.

Compensation of Directors

  Each member of the Board receives a one-time warrant to purchase 75,000
shares of common stock at an exercise price determined by the Board at the
time of issuance. Each non-employee director also receives an annual stipend
of $10,000 and an annual grant of options to purchase 10,000 shares of common
stock at an exercise price determined by the Board at the time of grant. The
non-employee directors of Avery also receive $1,000 for each meeting attended,
plus reimbursement of travel expenses.

Item 10. Executive Compensation

  The following table summarizes certain information relating to the
compensation paid or accrued by Avery for services rendered during the years
ended December 31, 2000, 1999 and 1998 to each person serving as its Chief
Executive Officer and each of Avery's other most highly paid executive
officers whose total annual salary and bonus for the years ended December 31,
2000, 1999 and 1998 exceeded $100,000.

                     Summary Executive Compensation Table



                                               Annual Compensation
                          -------------------------------------------------------------
                                                                         Long-Term
Name and Principal        Fiscal  Salary              Other Annual      Compensation
Position                   Year    ($)    Bonus ($) Compensation ($) Awards/Options (#)
- ------------------        ------ -------- --------- ---------------- ------------------
                                                      
Patrick J. Haynes,
 III(/1/)...............   2000  $200,000 $150,000      $25,187           100,000
 Chairman of the Board,
 President and             1999  $200,000 $100,000      $36,804           100,000
 Chief Executive Officer   1998  $100,000 $    --       $30,000           420,000
Scot M. McCormick(/2/)..   2000  $143,000 $ 75,000      $11,589           --
 Vice President, Chief
 Financial Officer         1999  $130,000 $ 50,000      $12,192           150,000
 and Secretary             1998  $122,667 $ 35,000      $   --             75,000

- --------
(/1/)Mr. Haynes served as the Chief Executive Officer of Avery through
     November 30, 1998 and was re-elected to such office on May 5, 2000.
     "Other Annual Compensation" represents monthly automobile allowance and
     premiums on health and major medical insurance.
(/2/)"Other Annual Compensation" represents premiums on health, life and
     disability insurance.

                                      17


                       Option Grants in Last Fiscal Year



                               Indvidual Grants
- -------------------------------------------------------------------------------
                          Number of    % of Total
                          Securities    Options
                          Underlying   Granted to
                           Options     Employees    Exercise or Base Expiration
Name                       Granted   in Fiscal Year   Price ($/Sh)      Date
- ----                      ---------- -------------- ---------------- ----------
                                                         
Patrick J. Haynes, III...  100,000         25%           $1.625       11/15/09


   Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values



                                                     Number of
                                                    Securities     Value of
                                                    Underlying    Unexercised
                                                    Unexercised  In-the-Money
                                                    Options at    Options at
                                                     FY-End(#)     FY-End($)

                 Shares Acquired                   Exercisable/  Exercisable/
Name             on Exercise (#) Value Realized($) Unexercisable Unexercisable
- ----             --------------- ----------------- ------------- -------------
                                                     
Patrick J.
 Haynes, III....     620,000         $155,000            --           --
Scot M.
 McCormick......     225,000         $ 73,125            --            --


Option Repricing

  In October 2000, Avery authorized the exercise of substantially all
outstanding options and warrants at $0.50 per underlying share. At the same
time, Avery offered to finance the exercise of the options and certain
warrants with notes receivable, due in 2002 at 6.6% per annum. As a result of
that offer, 764,754 shares of common stock were acquired for cash of $387,000
and 1,674,041 shares of common stock were acquired by loans from Avery
totaling $1,092,000. Messrs. Haynes and McCormick acquired 620,000 and 225,000
shares of common stock, respectively, as a result of such offer.

Employment Agreements

  Effective July 1, 1998, Mr. Haynes entered into an employment agreement with
Avery. Under his employment agreement, Mr. Haynes will serve as Chairman of
the Board, President and Chief Executive Officer, subject to the Board of
Directors power to elect and remove officers of Avery. The employment
agreement expires June 30, 2003. Mr. Haynes' initial base salary is $200,000
annually. In addition, Mr. Haynes is entitled to receive bonuses based on
performance goals as established by the Board of Directors, to receive stock
options, to participate in applicable incentive plans established by Avery, to
participate in Avery's hospitalization and major medical plans, or, at his
option, to be reimbursed for amounts paid by Mr. Haynes for comparable
coverage, and to an automobile of his choice. Mr. Haynes also received a ten-
year warrant to purchase 420,000 shares of common stock at $3.00 per share.

  Effective January 1, 2000, Scot M. McCormick entered into an employment
agreement with Avery. Under his employment agreement, Mr. McCormick will serve
as Vice President, Chief Financial Officer and Secretary, subject to the Board
of Directors power to elect and remove officers of Avery. The employment
agreement expires December 31, 2001, and will automatically be renewed for
additional terms unless either party notifies the other prior to November 1 of
a given year that they do not wish to renew the agreement. Mr. McCormick's
initial base salary is $143,000 annually. In addition, Mr. McCormick is
entitled to annual incentive compensation in an amount equal to 40% of his
annual salary if certain performance goals established by the Board of
Directors are met or exceeded. Mr. McCormick is entitled to participate in
applicable incentive plans established by Avery, to participate in Avery's
hospitalization and major medical plans, or, at his option, to be reimbursed
for amounts paid by Mr. McCormick for comparable coverage, and to receive such
other bonuses as the Board may determine in its sole discretion.

                                      18


  Effective January 1, 2001, Harold D. Box entered into an employment and
noncompetition agreement with HBS Billing Services. Under his employment
agreement, Mr. Box will serve as President of HBS Billing Services, subject to
the power of the Board of Directors to elect and remove officers of HBS
Billing Services. The employment agreement expires on December 31, 2003, and
will automatically be renewed for additional terms of three years unless
either party notifies the other prior to December of a given year that they do
not wish to renew the employment agreement. Mr. Box is entitled to receive an
annual salary of $200,000, subject to standard payroll deductions, to receive
bonuses from a bonus pool based on the profits of HBS Billing Services, and to
receive the same benefits as HBS Billing Services provides to other employees
at comparable salaries and responsibilities to those of Mr. Box. Mr. Box was
also issued an option to purchase 200,000 shares of common stock of Avery
which will vest in equal amounts on December 31 of 2001, 2002 and 2003.

  Under Mr. Box's employment agreement, Avery has agreed to forgive $200,000
of Mr. Box's $400,000 loan from Avery upon the signing of a new multi-year
agreement with PT-1. The remaining $200,000 of Mr. Box's loan will be renewed
for three years and will be secured with 115,000 shares of Avery common stock
and 115,000 shares of Primal common stock owned by Mr. Box. If, at the time of
signing the new PT-1 agreement, Mr. Box has paid his loan to Avery, he will
receive a $200,000 bonus.

  The employment agreement with Mr. Box contains certain covenants by such
employee not to compete with the business of HBS Billing Services and any of
its affiliates. A state court may determine not to enforce, or only partially
enforce, these covenants.

                                      19


            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

  Section 16(a) of the Securities Exchange Act of 1934 requires Avery's
directors and executive officers, and persons who own more than 10% of Avery's
common stock, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Directors, executive officers and greater
than 10% shareholders are required by SEC regulations to furnish Avery with
copies of all Section 16(a) forms they file. Based on a review of such forms,
Avery believes that all Section 16(a) filing requirements applicable to its
directors and executive officers, and all persons who own more than 10% of
Avery's common stock, were complied with for the year ended December 31, 2000.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Beneficial Ownership of Avery's Voting Securities

  On March 20, 2001, Avery had 10,062,076 shares of common stock, 1,500,000
shares of series d preferred stock, and 2,150,493 shares of series g preferred
stock outstanding. The holders of the series d preferred stock are presently
entitled to one vote per share on any matters submitted to Avery's
stockholders for a vote. The holders of the series g preferred stock are
presently entitled to 1.1162 votes per share on any matters submitted to
Avery's stockholders for a vote. The holders of these securities vote as a
single class on all matters submitted to Avery's stockholders for a vote
unless a separate vote is otherwise required by law or Avery's certificate of
incorporation.

  Therefore, as of March 20, 2001, a total of 13,962,457 shares of Avery's
voting securities were outstanding, all of which constitute a single class of
voting securities.

  The following table sets forth information for any person who is known to
Avery to be the beneficial owner of more than five percent of Avery's single
class of voting securities. A beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise has or shares:

  .  voting power, which includes the power to vote, or to direct the voting,
     of such security; and/or

  .  investment power, which includes the power to dispose, or to direct the
     disposition of, such security.

  All of Avery's voting securities beneficially owned by a person, regardless
of the form which such beneficial ownership takes, have been aggregated in
calculating the number of shares beneficially owned by such person. In making
these calculations, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of such
security within 60 days

  .  through the exercise of any option, warrant or right;

  .  through the conversion of a security;

  .  pursuant to the power to revoke a trust, discretionary account, or
     similar arrangement; or

  .  pursuant to automatic termination of a trust, discretionary account, or
     similar arrangement.

                                      20


  Any securities not outstanding which are subject to such options, warrants,
rights or conversion privileges and beneficially owned by a person in the
table below are deemed to be outstanding for the purpose of computing the
percentage of outstanding securities of the class owned by such person but are
not deemed to be outstanding for the purpose of computing the percentage of
the class beneficially owned by any other person.



                                                               Number   Percent
  Name of Beneficial Owner                                    of Shares of Class
  ------------------------                                    --------- --------
                                                                  
Patrick J. Haynes, III(1)(4)................................. 4,767,584  26.7%
Thurston Group, Inc.(1)(4)................................... 3,992,965  22.5%
J. Alan Lindauer(2).......................................... 2,255,367  14.4%
Waterside Capital Corporation(2)............................. 2,157,667  13.8%
John Faltys(3)(4)............................................   731,785   5.0%

- --------
(1) The business address of this person is 190 South LaSalle Street, Suite
    1710, Chicago, Illinois 60603. The shares shown as beneficially owned by
    Mr. Haynes include all the shares beneficially owned by the Thurston
    Group, Inc., of which Mr. Haynes is the Senior Managing Director.
(2) The business address for this person is 300 East Main Street, Suite 1380,
    Norfolk, VA 23510. The shares shown as beneficially owned by Mr. Lindauer
    include all the shares beneficially owned by Waterside Capital
    Corporation, of which Mr. Lindauer is President and a director.
(3) The business address for this person is 18881 Von Karman, Suite 500,
    Irvine, California 92612.
(4) The shares shown as beneficially owned by Mr. Faltys include 731,785 of
    the shares beneficially owned by the Thurston Group, Inc. The Thurston
    Group, Inc. holds a proxy to vote all of these shares.

Security Ownership of Management

  The following table sets forth information as of March 20, 2001, as to each
class of Avery's equity securities beneficially owned by each director, by
each executive officer, and by all directors and executive officers as a
group. In calculating the ownership percentages for Avery's common stock, we
used the 10,062,076 shares of common stock outstanding on March 20, 2001.
Since these calculations do not include the two series of Avery's voting
preferred stock included in the calculations in the preceding table, the
beneficial ownership percentages set forth below will differ from those set
forth in the preceding table.



                              Common Stock             Preferred Stock
                           ---------------------- ----------------------------
                             Number      Percent          Number      Percent
  Name of Beneficial Owner of Shares     of Class Series of Shares    of Class
  ------------------------ ----------    -------- ------ ---------    --------
                                                       
Patrick J. Haynes,
 III(1)...................  4,767,584(2)  34.2%      B     100,000(2)   25.6%
                                                     D   1,500,000(2)  100.0%
                                                     G   2,400,381(2)  100.0%
Scot M. McCormick(1)......    245,000      2.4%
Norman M. Phipps(3).......     75,000      0.7%
J. Alan Lindauer(4).......    812,867(5)  19.1%
Robert T. Isham, Jr.(1)...    187,355(6)   1.8%      A       8,333(6)    5.3%
All directors and
 executive officers as a
 group (2)(5)(6).......... 11,825,993     47.9%      A       8,333       5.3%
                                                     B     100,000      25.6%
                                                     D   1,500,000     100.0%
                                                     G   7,126,894     100.0%

- --------
 (1) The business address for this person is 190 South LaSalle Street, Suite
     1710, Chicago, Illinois 60603.
 (2) Includes 3,992,965 shares beneficially owned by the Thurston Group, Inc.,
     of which Mr. Haynes is the Senior Managing Director, 691,286 shares
     beneficially owned by Waveland, LLC, of which Mr. Haynes is the owner,
     and 83,333 held in escrow by Bank One, Texas, N.A., for the benefit of
     the former owners of HBS Billing Services and for which Mr. Haynes has an
     irrevocable proxy. Of these shares, 45,286 represent shares that may be
     acquired within 60 days upon the exercise of options or warrants,
     1,416,667 represent shares that may be acquired within 60 days upon the
     conversion of convertible securities, and 2,400,381 represent the total
     number of votes represented by the 2,150,493 shares of the series g
     preferred stock for which the Thurston Group, Inc. has an irrevocable
     proxy.
 (3) The business address of this person is 435 Moreland Road, Hauppauge, New
     York 11788.
 (4) The business address for this person is 300 East Main Street, Suite 1380,
     Norfolk, Virginia 23510.
 (5) Of these shares, 715,167 are beneficially owned by Waterside Capital
     Corporation, of which Mr. Lindauer is President and a director. Of these
     shares, 466,667 represent shares that may be acquired within 60 days upon
     the conversion of a convertible note and 1,250,000 represent shares that
     may be acquired within 60 days upon the conversion of convertible
     securities.
 (6) Of these shares, 117,487 represent shares that may be acquired within 60
     days upon the exercise of options and warrants, 3,138,889 represent
     shares that may be acquired within 60 days upon the conversion of
     convertible securities and 2,400,381 represent the total number of votes
     represented by the 2,150,493 shares of the series g preferred stock for
     which the Thurston Group has an irrevocable proxy.

                                      21


Item 12. Certain Relationships and Related Transactions

  In December 1998, Avery's Board of Directors authorized Avery to repurchase
any or all of its outstanding warrants for a price of $1.00 per underlying
share. In December 1998, Avery repurchased warrants held by Waveland, LLC to
purchase 100,000 shares of common stock at an exercise price of $1.50 per
share. On January 5, 1999, Avery repurchased warrants held by the Thurston
Group to purchase 300,000 shares of common stock at an exercise price of $1.00
per share and warrants to purchase 200,000 shares of common stock at $1.50 per
share. On March 31, 1998, Avery repurchased warrants held by the Thurston
Group to purchase 80,000 shares of common stock at an exercise price of $1.50
per share. On April 16, 1999, Avery repurchased warrants held by Thurston
Interests, LLC to purchase 41,746 shares of common stock at an exercise price
of $1.50 per share. Of the total $621,736 used to repurchase the warrants,
$300,000 was classified as compensation paid to Mr. Haynes. None of this
amount was classified as compensation paid to Mr. Isham. Waveland, Thurston
Group and Thurston Interests are affiliates of Mr. Haynes. Thurston Group and
Thurston Interests are also affiliates of Mr. Isham.

  Mark J. Nielsen, who was at the time Avery's President and Chief Executive
Officer, was also the Chairman of Primal and owned approximately 16.04% of the
Primal common equity on a fully diluted basis at the time the agreement to
acquire Primal was entered and at the close of business on September 30, 1999,
the date the acquisition was completed. Mr. Nielsen received 320,893 shares of
Avery's convertible preferred stock in the merger. Each share of Avery's
convertible preferred stock issued in the merger was immediately convertible
into shares of Avery's common stock on a one-for-one basis.

  In contemplation of entering into an agreement for the acquisition of
Primal, Avery made a $100,000 working capital loan to Primal on December 15,
1998. The loan was secured by a first lien on the accounts receivable of
Primal. On January 25, 1999, the working capital loan was increased to
$180,000. This loan was replaced with the loan described in the following
paragraph.

  In contemplation of Primal's acquisition of certain assets from an unrelated
third party, on February 3, 1999, Avery agreed to loan Primal up to $1,000,000
on a revolving credit basis in replacement of the then-outstanding $180,000
loan described above. This loan was secured by a pledge of all the stock of
Primal Billing Solutions, the wholly owned subsidiary of Primal that acquired
such assets, and by a security interest in all of the accounts receivable and
general intangibles, including all intellectual property of Primal Systems. As
noted above, Avery completed its acquisition of Primal after the close of
business on September 30, 1999, and the loan was paid in full.

  At various times between May 1, 2000 and October 30, 2000, Avery's wholly
owned subsidiary, Thurston Communications Corporation, advanced to Qorus.com,
Inc. an aggregate of $1,250,000 evidenced by convertible promissory notes.
Qorus.com is a publicly held company the securities of which are traded on the
OTC Bulletin Board. The notes bear interest at 10% per annum and are due on
March 31, 2001. Upon the successful sale of securities of Qorus.com or Aelix,
Inc., a wholly owned subsidiary of Qorus.com, resulting in cash proceeds of
$5.0 million or more, the notes will automatically convert into securities of
the same class and/or series as sold in such offering. In addition, Thurston
Communications advanced to Qorus.com $160,000 evidenced by a promissory note
dated March 16, 2001. Such promissory note bears interest at 6.6% and is due
on April 15, 2001. In connection with these loan transactions with Qorus.com,
and with the loans to Aelix discussed below, Qorus.com agreed to sell to
Thurston Communications 2,470,000 shares of its common stock for a purchase
price of one cent ($.01) per share.

                                      22


  On October 3, 2000, Avery loaned to the following officers and directors of
Avery the amount set forth opposite such person's name in connection with the
exercise of certain options and warrants:



              Name                Loan Amount
              ----                -----------
                                        
           Patrick J. Haynes, III  $378,684
           Robert T. Isham, Jr.      58,024
           J. Alan Lindauer          58,419
           Scot M. McCormick        143,843
           Norman M. Phipps          46,148


  Each loan matures on October 3, 2002 and bears interest at 6.6% per annum.

  At various times between December 21, 2000 and February 28, 2001, Thurston
Communications advanced to Aelix, Inc. an aggregate of $1,060,000 evidenced by
demand promissory notes. The notes bear interest at 12% and are due on demand.

  Patrick J. Haynes, III is the controlling stockholder of Qorus.com and a
director of Qorus.com and Aelix and Robert T. Isham, Jr. is a director of
Qorus.

  At various times between December 7, 2000 and March 16, 2001, Thurston
Communications advanced an aggregate of $1,890,000 to Customer Care &
Technology Holdings, Inc. In connection with such advances, Customer Care &
Technology Holdings has agreed to issue to Avery 1,890,000 shares of its
series b senior convertible redeemable preferred stock. Each share of series b
preferred stock is convertible at the option of the holder into four shares of
the common stock of Customer Care & Technology Holdings. The series b
preferred stock pays dividends at the rate of 10% per annum, and is
mandatorily redeemable for $1.00 per share on the fifth anniversary of the
date of issuance. Patrick J. Haynes, III is the controlling stockholder and
the Chairman of the Board of Directors, President and Chief Executive Officer
of Customer Care & Technology Holdings.

  On February 1, 2001, Avery purchased all of the capital stock of Avery held
by Franklin Capital Corporation, at the time a beneficial owner of more than
five percent (5%) of the common stock of Avery, and all outstanding options
and warrants to purchase capital stock of Avery held by Stephen Brown and
Spencer Brown. The total purchase price for the transaction was $1,786,851.
Included in such total amount were 1,183,938 shares of common stock held by
Franklin Capital purchased for $1.02 per share, 350,000 shares of series e
preferred stock held by Franklin Capital purchased for $1.00 per share plus
accrued and unpaid dividends on the preferred stock in the amount of $14,234,
warrants and options to purchase 120,000 shares of common stock of Avery held
by Stephen Brown purchased for $120,000, and warrants and options to purchase
95,200 shares of the common stock of Avery held by Spencer Brown purchased for
$95,000. In addition, Franklin Capital received 1,533,938 shares of Primal
common stock in conjunction with the distribution of Primal's common stock to
Avery's securityholders. Stephen Brown and Spencer Brown control Franklin
Capital and are former directors of Avery.

  In connection with the private placement of an aggregate of $1,600,000 of
series h convertible preferred stock on February 21, 2001, Avery sold
1,250,000 shares of such preferred stock to Waterside Capital Corporation for
a purchase price of $1.00 per share. The holders of the series h convertible
preferred stock are entitled to annual cumulative dividends of $.12 per share
payable quarterly, a $1.00 per share liquidation value and conversion into
common stock on a one for one basis. J. Alan Lindauer is a director of Avery
and is President of Waterside Capital Corporation.

  Please see the information under the caption "Change In Control of Avery"
for information regarding other transactions involving the directors and
officers of Avery.

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

  The exhibits required to be furnished pursuant to Item 13(a) are listed in
the Exhibit Index filed herewith, which Exhibit Index is incorporated herein
by reference.

(b) Reports on Form 8-K

  None.

                                      23


                                  SIGNATURES

  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                          Avery Communications, Inc.

                                                   /s/ Scot M. McCormick
                                          By: _________________________________
                                                     Scot M. McCormick
                                                      Vice President,
                                                Chief Financial Officer and
                                                         Secretary

Date: March 30, 2001

  In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.



              Signature                          Title                   Date
              ---------                          -----                   ----

                                                            
    /s/ Patrick J. Haynes, III         Director, Chairman of the    March 30, 2001
______________________________________  Board, President and
        Patrick J. Haynes, III          Chief Executive Officer
                                        (Principal Executive
                                        Officer)

      /s/ Scot M. McCormick            Director, Vice President,    March 30, 2001
______________________________________  Chief Financial Officer
          Scot M. McCormick             and Secretary (Principal
                                        Accounting Officer)

       /s/ Norman M. Phipps            Director                     March 30, 2001
______________________________________
           Norman M. Phipps

       /s/ J. Alan Lindauer            Director                     March 30, 2001
______________________________________
           J. Alan Lindauer

     /s/ Robert T. Isham, Jr.          Director                     March 30, 2001
______________________________________
         Robert T. Isham, Jr.


                                      24


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS



                                                                           Page
                                                                           ----
                                                                        
Report of Independent Certified Public Accountants........................ F-1

Financial Statements:
  Consolidated Balance Sheets at December 31, 2000 and 1999............... F-2
  Consolidated Statements of Operations for the years ended December 31,
   2000 and 1999.......................................................... F-4
  Consolidated Statements of Stockholders' Equity (Deficit) for the years
   ended December 31, 2000 and 1999....................................... F-5
  Consolidated Statements of Cash Flows for the years ended December 31,
   2000 and 1999.......................................................... F-6
  Notes to These Consolidated Financial Statements........................ F-7


                                       25


              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
Avery Communications, Inc.

  We have audited the accompanying consolidated balance sheets of Avery
Communications, Inc., and subsidiaries as of December 31, 2000 and 1999 and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We did not audit the financial statements of
Primal Solutions, Inc., a consolidated subsidiary, which statements reflect
total assets of $12,985,492 and $9,674,468 as of December 31, 2000 and 1999,
and total revenue of $9,515,805 for the year ended December 31, 2000 and
$4,547,703 for the three months ended December 31, 1999. These statements were
audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to the amounts included for Primal Solutions,
Inc. is based solely on the report of the other auditors.

  We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

  In our opinion, based on our report and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Avery Communications, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

                                          /s/ King Griffin & Adamson P.C.

March 9, 2001
Dallas, Texas

                                      F-1


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS



                                                           December 31,
                                                      ------------------------
                                                         2000         1999
                       ASSETS                         -----------  -----------
                                                             
Current assets:
 Cash and cash equivalents........................... $ 6,719,888  $ 5,744,069
 Trade accounts receivable, net of allowance for
  doubtful accounts of $242,901 and $188,901,
  respectively.......................................   1,414,249      813,589
 Advance payment receivables.........................   1,797,634    6,810,249
 Other receivables...................................     210,227      681,526
 Deferred tax asset..................................     565,562      374,086
 Other...............................................      29,661       27,527
 Net current assets of discontinued operations.......     669,620      285,029
                                                      -----------  -----------
    Total current assets.............................  11,406,841   14,736,075
                                                      -----------  -----------
Property and equipment:
 Computer equipment and software.....................   1,282,988    1,063,674
 Furniture and fixtures..............................     322,023      334,944
 Accumulated depreciation and amortization...........    (784,168)    (506,535)
                                                      -----------  -----------
    Total property and equipment, net................     820,843      892,083
                                                      -----------  -----------
Other assets:
 Goodwill, net of accumulated amortization of
  $1,001,725 and $732,869, respectively..............   2,753,892    3,022,748
 Investments.........................................   1,519,000          --
 Net long-term assets of discontinued operations.....   7,746,836    4,443,827
 Deposits............................................   2,759,604      185,514
 Purchased contracts, net of accumulated amortization
  of $328,225 and $276,208, respectively.............      26,038       70,555
 Notes receivable due from related parties...........   4,046,772      400,000
 Other...............................................       1,819       17,649
                                                      -----------  -----------
    Total other assets...............................  18,853,961    8,140,293
                                                      -----------  -----------
    Total assets..................................... $31,081,645  $23,768,451
                                                      ===========  ===========


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

                                      F-2


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS--(Continued)



                                                           December 31,
                                                      ------------------------
                                                         2000         1999
        LIABILITIES AND STOCKHOLDERS' EQUITY          -----------  -----------
                                                             
Current liabilities:
 Current notes payable............................... $     6,667  $     6,667
 Trade accounts payable..............................   4,117,671    4,369,562
 Accrued liabilities.................................   3,323,874    2,576,753
 Income taxes payable................................     314,547      255,673
 Deposits and other payables related to customers....  14,033,186   10,908,168
                                                      -----------  -----------
  Total current liabilities..........................  21,795,945   18,116,823
                                                      -----------  -----------
Long-term notes payable due to related parties.......     333,475      325,195
                                                      -----------  -----------

Redeemable preferred stock Series A through E (see
 descriptions below and
 Note 8).............................................   2,671,667          --
                                                      -----------  -----------
Commitments and contingencies (Note 3)

Stockholders' equity:
 Preferred stock (20,000,000 shares authorized):
  Series A; $0.01 par value, 391,667 and 400,000
   shares authorized,
   issued and outstanding at December 31, 2000 and
   1999, respectively (liquidation preference of
   $391,667 and $400,000 at December 31,
   2000 and 1999, respectively)......................         --         4,000
  Series B; $0.01 par value, 390,000 shares
   authorized, issued and
   outstanding at December 31, 2000 and 1999,
   respectively
   (liquidation preference of $390,000)..............         --         3,900
  Series C; $0.01 par value, 40,000 and 70,000 shares
   authorized,
   issued and outstanding at December 31, 2000 and
   1999, respectively (liquidation preference of
   $40,000 and $70,000 at December 31,
   1999 and 2000, respectively)......................         --           700
  Series D; $0.01 par value, 1,500,000 authorized,
   issued and
   outstanding at December 31, 2000 and 1999
   (liquidation
   preference of $1,500,000).........................         --        15,000
  Series E; $0.01 par value, 350,000 authorized,
   issued and
   outstanding at December 31, 2000 and 1999
   (liquidation
   preference of $350,000)...........................         --         3,500
  Series F; $0.01 par value, 0 and 3,890,373 shares
   authorized,
   issued and outstanding at December 31, 2000 and
   1999, respectively (liquidation preference of $0
   and $38,904 at December 31, 2000 and
   1999, respectively)...............................         --        38,904
  Series G; $0.01 par value, 7,126,894 and 0 shares
   authorized, issued
   and outstanding at December 31, 2000 and 1999,
   respectively
   (liquidation preference of $71,269 and $0 at
   December 31, 2000
   and 1999, respectively)...........................      71,269          --
 Common stock, $0.01 par value, 20,000,000 shares
  authorized, 12,461,230
  and 9,803,949 shares issued at December 31, 2000
  and 1999, respectively.............................     124,613       98,039
 Additional paid-in capital..........................  15,752,226   12,306,164
 Accumulated deficit.................................  (6,539,013)  (5,161,775)
 Treasury stock, 1,215,216 and 1,176,916 shares at
  December 31, 2000
  and 1999, respectively, at cost....................  (2,036,801)  (1,981,999)
 Subscription notes receivable.......................  (1,091,736)         --
                                                      -----------  -----------
   Total stockholders' equity........................   6,280,558    5,326,433
                                                      -----------  -----------
   Total liabilities and stockholders' equity........ $31,081,645  $23,768,451
                                                      ===========  ===========


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

                                      F-3


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS



                                                     Year ended December 31,
                                                    --------------------------
                                                        2000          1999
                                                    ------------  ------------
                                                            
Revenues........................................... $ 36,475,177  $ 23,702,748
Cost of revenues...................................  (25,783,816)  (17,385,337)
                                                    ------------  ------------
   Gross profit....................................   10,691,361     6,317,411
                                                    ------------  ------------
Selling, general and administrative expenses.......   (7,496,469)   (5,330,244)
Charge in connection with terminated customers.....          --        226,219
Advance funding program income.....................      257,737       609,950
Advance funding program costs......................     (131,082)     (268,656)
                                                    ------------  ------------
   Total...........................................   (7,369,814)   (4,762,731)
                                                    ------------  ------------
   Operating income................................    3,321,547     1,554,680
                                                    ------------  ------------
Other income (expense):
 Interest expense..................................     (133,120)     (292,258)
 Financing fees and debt issuance costs............          --       (321,736)
 Other, net........................................      448,340       129,045
                                                    ------------  ------------
   Total other income (expense), net...............      315,220      (484,949)
                                                    ------------  ------------
Income from continuing operations before income
 taxes.............................................    3,636,767     1,069,731
Income tax (expense) benefit.......................   (1,313,518)      648,573
                                                    ------------  ------------
Income from continuing operations..................    2,323,249     1,718,304
Income (loss) from discontinued operations, net of
 income tax benefit
 (expense) of $1,429,970 and ($667,809),
 respectively......................................   (3,700,487)      958,759
                                                    ------------  ------------
   Net income (loss)............................... $ (1,377,238) $  2,677,063
                                                    ============  ============
Per share data:
Basic net income (loss) per share:
Continuing operations.............................. $       0.22  $       0.17
Discontinued operations............................        (0.40)         0.11
                                                    ------------  ------------
Net income (loss).................................. $      (0.18) $       0.28
                                                    ============  ============
Diluted net income (loss) per share:
Continuing operations.............................. $       0.14  $       0.14
Discontinued operations............................        (0.23)         0.09
                                                    ------------  ------------
Net income (loss).................................. $      (0.09) $       0.23
                                                    ============  ============
Weighted average number of common shares:
 Basic common shares...............................    9,281,128     8,643,526
                                                    ============  ============
 Diluted common shares.............................   16,352,656    10,617,821
                                                    ============  ============


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

                                      F-4


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)



                   Preferred Stock        Common Stock                                              Treasury Stock
                  -------------------  ------------------- Additional Paid-in Subscription Notes ---------------------
                    Shares    Amount     Shares    Amount       Capital           Receivable      Shares     Amount
                  ----------  -------  ---------- -------- ------------------ ------------------ --------- -----------
                                                                                   
Balance at
December 31,
1998............   2,710,000  $27,100   9,803,949 $ 98,039    $ 8,417,991        $       --      1,130,250 $(1,866,367)
Purchase of
common shares
for the
treasury........         --       --          --       --             --                 --         46,666    (115,632)
Payment of
preferred stock
dividend........         --       --          --       --        (468,300)               --            --          --
Purchase of
Primal Systems,
Inc.............   3,890,373   38,904         --       --       3,365,173                --            --          --
Release of HBS
escrow shares--
employment
agreements......         --       --          --       --         991,300                --            --          --
Net income......         --       --          --       --             --                 --            --          --
                  ----------  -------  ---------- --------    -----------        -----------     --------- -----------
Balance at
December 31,
1999............   6,600,373   66,004   9,803,949   98,039     12,306,164                --      1,176,916  (1,981,999)
Reclassification
of preferred
stock series A,
B, C, D, E to
redeemable
preferred
stock...........  (2,671,667) (26,717)        --       --      (2,644,950)               --            --          --
Payment of
preferred stock
dividend........         --       --          --       --        (284,892)               --            --          --
Issuance of
shares for cash
in connection
with exercise of
warrants........         --       --      917,907    9,180        511,687                --            --          --
Issuance of
shares in
connection
with exercise of
warrants and
options for
notes receivable
including
compensation
cost of
$848,288........         --       --    1,674,041   16,741      1,923,283         (1,091,736)          --          --
Partial
conversion of
preferred stock
to common
stock...........     (38,333)    (383)     15,333      153            230                --            --          --
Release of HBS
escrow shares--
earn-out
agreement.......         --       --          --       --          90,000                --            --          --
Issuance of
warrants for
services........         --       --          --       --         239,819                --            --          --
Issuance of
shares for
services........         --       --       50,000      500         68,250                --            --          --
Treasury stock
received in
settlement......         --       --          --       --             --                 --         38,300     (54,802)
Preferred stock
issued in
connection with
Primal Systems,
Inc. settlement
and related
anticipated
spin-off........   3,236,521   32,365         --       --       3,542,635                --            --          --
Net loss........         --       --          --       --             --                 --            --          --
                  ----------  -------  ---------- --------    -----------        -----------     --------- -----------
Balance at
December 31,
2000............   7,126,894  $71,269  12,461,230 $124,613    $15,752,226        $(1,091,736)    1,215,216 $(2,036,801)
                  ==========  =======  ========== ========    ===========        ===========     ========= ===========

                  Accumulated
                    Deficit       Total
                  ------------ ------------
                         
Balance at
December 31,
1998............  $(7,838,840) $(1,162,077)
Purchase of
common shares
for the
treasury........          --      (115,632)
Payment of
preferred stock
dividend........          --      (468,300)
Purchase of
Primal Systems,
Inc.............          --     3,404,077
Release of HBS
escrow shares--
employment
agreements......          --       991,300
Net income......    2,677,065    2,677,065
                  ------------ ------------
Balance at
December 31,
1999............   (5,161,775)   5,326,433
Reclassification
of preferred
stock series A,
B, C, D, E to
redeemable
preferred
stock...........          --    (2,671,667)
Payment of
preferred stock
dividend........          --      (284,892)
Issuance of
shares for cash
in connection
with exercise of
warrants........          --       520,867
Issuance of
shares in
connection
with exercise of
warrants and
options for
notes receivable
including
compensation
cost of
$848,288........          --       848,288
Partial
conversion of
preferred stock
to common
stock...........          --           --
Release of HBS
escrow shares--
earn-out
agreement.......          --        90,000
Issuance of
warrants for
services........          --       239,819
Issuance of
shares for
services........          --        68,750
Treasury stock
received in
settlement......          --       (54,802)
Preferred stock
issued in
connection with
Primal Systems,
Inc. settlement
and related
anticipated
spin-off........          --     3,575,000
Net loss........   (1,377,238)  (1,377,238)
                  ------------ ------------
Balance at
December 31,
2000............  $(6,539,013) $ 6,280,558
                  ============ ============


  The accompanying notes are an integral part of this consolidated financial
                                  statement.

                                      F-5


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                      Year Ended December 31,
                                                      ------------------------
                                                         2000         1999
                                                      -----------  -----------
                                                             
Cash flows from operating activities:
 Net income (loss)................................... $(1,377,238) $ 2,677,065
 (Income) loss from discontinued operations..........   3,700,487     (958,759)
 Adjustments to reconcile net income (loss) to net
  cash provided by operating
  activities from continuing operations:
 Bad debt expense....................................      54,000      188,901
 Charge in connection with terminated customers......         --      (226,219)
 Amortization of loan discounts......................       8,280        8,280
 Deferred tax benefit................................    (191,476)    (374,086)
 Depreciation and amortization.......................     598,506      550,546
 Compensation in connection with exercise of
  options............................................     848,288          --
 Warrants issued in connection with services
  performed..........................................     239,819          --
 Compensation and services paid in stock.............     158,750      693,400
 Treasury stock received in settlement...............     (54,802)         --
 Change in operating assets and liabilities:
  Trade accounts receivable..........................    (654,660)      88,182
  Advance payment receivables........................   5,012,615    5,082,897
  Other current assets...............................     469,165     (210,476)
  Deposits...........................................  (2,574,090)   1,384,765
  Trade accounts payable and accrued liabilities.....     495,230      670,427
  Income taxes payable...............................      58,874      255,673
  Deposits and other payables related to customers...   3,125,018    1,598,688
  Other assets.......................................      15,830      177,201
                                                      -----------  -----------
    Net cash provided by continuing operations.......   9,932,596   11,606,485
    Net cash used in discontinued operations.........  (3,813,087)    (366,020)
                                                      -----------  -----------
    Net cash provided by operations..................   6,119,509   11,240,465
                                                      -----------  -----------
Cash flows from investing activities:
 Purchase of contracts...............................      (7,500)     (60,000)
 Purchase of property and equipment..................    (206,393)    (174,188)
 Purchase of investments.............................  (1,519,000)         --
 Amounts loaned for notes receivable.................  (3,646,772)         --
                                                      -----------  -----------
    Net cash used in investing activities............  (5,379,665)    (234,188)
                                                      -----------  -----------
Cash flows from financing activities:
 Proceeds from notes payable.........................         --       160,000
 Principal payments on notes payable--line of credit,
  net................................................         --    (5,924,749)
 Payment of preferred stock dividends................    (284,892)    (468,300)
 Issuance of shares of common stock for cash.........     520,867          --
 Cash paid for treasury stock........................         --      (115,632)
                                                      -----------  -----------
    Net cash provided by (used in) financing
     activities......................................     235,975   (6,348,681)
                                                      -----------  -----------
Increase in cash.....................................     975,819    4,657,596
Cash and cash equivalents at beginning of year.......   5,744,069    1,086,473
                                                      -----------  -----------
Cash and cash equivalents at end of year............. $ 6,719,888  $ 5,744,069
                                                      ===========  ===========
Supplemental disclosures:
 Interest paid....................................... $   138,508  $   372,360
                                                      ===========  ===========
 Income taxes paid................................... $   174,588  $       --
                                                      ===========  ===========
Schedule of non-cash financing and investing
 transactions:
 Preferred stock issued in acquisition of Primal..... $       --   $ 3,404,076
                                                      ===========  ===========
 Net liabilities assumed in acquisition of Primal.... $       --   $   971,300
                                                      ===========  ===========
 Release of HBS escrow shares-employment and earn-
  out-agreements..................................... $    90,000  $   991,300
                                                      ===========  ===========
 Issuance of common stock for services............... $    68,750  $       --
                                                      ===========  ===========
 Issuance of notes receivable for common stock....... $ 1,091,736  $       --
                                                      ===========  ===========
 Issuance of preferred stock in connection with
  Primal Systems, Inc. settlement and
  related anticipated spin-off....................... $ 3,575,000  $       --
                                                      ===========  ===========


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

                                      F-6


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General and Summary of Significant Accounting Principles

Business Activity

  Avery Communications, Inc. ("Avery"), a Delaware corporation, provides
services through its operating subsidiaries, Hold Billing Services Company
("HBS"), Primal Solutions, Inc. ("PSI") and Wireless Billing Solutions (100%
owned by PSI), doing business as Primal Billing Solutions ("Primal Billing
Solutions"). Avery Communications, Inc. and its subsidiaries are collectively
referred to as the "Company."

  Avery acquired PSI effective after the close of business on September 30,
1999 in a purchase transaction, and its operations are included in the
accompanying financial statements from October 1, 1999. On August 1, 2000, the
board of directors approved the spin-off of PSI. The spin-off of PSI was
effective on February 12, 2001. Accordingly, the operations of PSI have been
reflected as discontinued operations in the accompanying financial statements
for all periods presented. Through PSI and its subsidiary, Primal Billing
Solutions, the Company provides computer software programming, customization,
program maintenance and product marketing for a variety of software languages
and platforms. PSI also designs, develops and supports an integrated suite of
client/server and browser-based software solutions focusing on customer
acquisition and retention in the telecommunications industry primarily
utilizing decision support software and Internet technologies.

  HBS provides billing and collection clearinghouse services to its
telecommunications customers. Billing and collection services are performed by
Local Exchange Carriers ("LEC's") which HBS administers pursuant to long-term
contracts. HBS currently operates under contracts with all regional bell
operating companies and various other independents. The contracts give HBS the
capability of billing in 49 states and the District of Columbia.

Consolidation

  The accompanying consolidated financial statements include the accounts of
Avery and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

Statement of Cash Flows

  For purposes of the statements of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments
with original maturities of three months or less when purchased.

Property and Equipment

  Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line method over the assets' estimated useful life of
five to seven years. Depreciation of property and equipment from continuing
operations for the years ended December 31, 2000 and 1999 was $294,633 and
$256,372, respectively. Maintenance and repairs are charged to operations when
incurred. Betterments and renewals are capitalized.

Long-Lived Assets

  The Company accounts for the impairment and disposition of long-lived assets
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of. In accordance with SFAS No. 121, long-lived assets are
reviewed when events or changes in circumstances indicate that their carrying
value may not be recoverable. There was no impairment of the value of such
assets for the years ended December 31, 2000 or 1999.

                                      F-7


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Goodwill

  Goodwill results from the difference between the purchase price paid and
liabilities assumed by Avery over the estimated fair market value of assets of
HBS and subsequent increases to goodwill resulting from earn out payments.
Initial goodwill is being amortized using the straight-line method over 15
years with additional goodwill from earn out payments being amortized over the
remaining goodwill life. On an on-going basis, management reviews
recoverability and the valuation and amortization of goodwill. As a part of
this review, the Company considers the undiscounted projected future net cash
flows in evaluating the goodwill. If the undiscounted future net cash flows
were less than the stated value, goodwill would be written down to fair value.

  Amortization of goodwill from continuing operations for the years ended
December 31, 2000 and 1999 was $251,856 and $226,140, respectively.

Investments

  Investments consist of an investment in preferred stock of $1,500,000 and an
investment in common stock of $19,000. These investments are recorded at the
lower of cost or fair value.

Purchased Contracts

  The direct costs of acquiring billing and collection contracts with LEC's
are capitalized and amortized straight-line over the contract life, generally
three to five years. Amortization of LEC contracts from continuing operations
for the years ended December 31, 2000 and 1999 was $52,017 and $67,478,
respectively.

Income Taxes

  The Company utilizes the asset and liability approach to accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
computed annually for differences between the financial statements and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.

Revenue Recognition

 Continuing Operations:

 Revenue and Cost Recognition, Billing Services, and Advance Funding Programs

  Billing Services--The Company recognizes billing services revenue when its
customers' records are accepted by the LEC for billing and collection. Bills
are generated by the LEC's and the collected funds are remitted to the
Company, which in turn remits these funds, net of fees and reserves, to its
billing customers. These reserves represent cash withheld from customers to
satisfy future obligations on behalf of the customer. The obligations consist
of local exchange carrier billing fees, bad debts, and sales and excise taxes.
The Company records trade accounts receivable and service revenue for fees
charged for its billing services. When the Company collects the customers'
receivables from the LEC's, the Company's trade receivables are reduced by the
amount corresponding to the Company's processing fees. The remaining funds are
recorded as amounts due to customers and included in Deposits and other
payables related to customers in the accompanying balance sheets. The Company
also retains a reserve from its customers' settlement proceeds, calculated to
cover accounts that the LEC's are unable to collect, including LEC billing
fees and sales taxes, and are included in Deposits and other payables related
to customers in the accompanying balance sheets.

  Advance Funding Programs--The Company offers participation in advance
funding to qualifying customers through its advance payment program. Under the
terms of the agreements, the Company purchases the

                                      F-8


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

customer's accounts receivable for an amount equal to the face amount of the
billing records submitted to the LEC by the Company, less various items
including costs and expenses on previous billing records, financing fees, LEC
charges, rejects and other similar items. The Company advances 50% to 75% of
the purchased amount. The purchased accounts receivable are recorded at the
gross amount (as Advance payment receivables). The amount due to the customer
(included in Deposits and other payables related to customers in the
accompanying balance sheets) is recorded as the purchased accounts receivable
less amounts advanced, adjusted for various other reserve items. Financing
charges are assessed until the Company recoups its initial payment.

 Discontinued Operations:

 Software Licenses, Services and Post-Contract Customer Support

  Revenues from sales of software licenses, which generally do not contain
multiple elements, are recognized upon shipment of the related product if the
requirements of AICPA Statement of Position 97-2, as amended, are met. If the
requirements of AICPA Statement of Position 97-2, including evidence of an
arrangement, client acceptance, a fixed or determinable fee, collectibility or
vendor-specific objective evidence about the value of an element are not met
at the date of shipment, revenue recognition is deferred until such items are
known or resolved. Revenues from service and post-contract customer support is
deferred and recognized ratably over the term of the contract.

 Software Programming and Customization Services

  Revenues are recognized as services are performed under the agreements.

Debt Issuance Costs

  Financial advisory, accounting, legal and other expenses associated with the
debt are amortized by the straight-line method over the term of the loans.

Stock Based Compensation

  The Company measures compensation cost for its stock based compensation
plans under the provisions of Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees. The difference, if any,
between the fair value of the stock on the date of grant over the amount
received for the stock is expensed over the related vesting period. Statement
of Financial Accounting Standard No. 123, Accounting for Stock-Based
Compensation, ("SFAS 123") requires companies electing to continue to use APB
25 to account for its stock-based compensation plan to make pro forma
disclosures of net income (loss) and earnings (loss) per share as if SFAS 123
had been applied.

Net Income (Loss) Per Common Share

  Net income (loss) per common share is computed by dividing the net income
(loss), increased (decreased) by preferred stock dividends of $283,783 and
$287,200 for the years ended December 31, 2000 and 1999, respectively, by the
weighted average number of shares of common stock outstanding during the
respective periods. The effect of the preferred stock dividend on the net
income (loss) per common share was $0.03 per weighted average common share
outstanding for both the years ended December 31, 2000 and 1999. Diluted
earnings per share include the effect of all dilutive options and warrants and
instruments convertible into common stock. During the years ended December 31,
2000 and 1999, the effect of outstanding warrants and options and convertible
securities on the computation of net income (loss) per share was dilutive and,
therefore, was included in the computation of diluted weighted average shares.

Use of Estimates and Assumptions

  Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.

                                      F-9


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Fair Value of Financial Instruments

  The recorded amounts of financial assets and liabilities at December 31,
2000 and 1999 approximate fair value based on the Company's incremental
borrowing rate or due to the relatively short period of time between
origination of the instruments and their expected realization.

2. Discontinued Operations

The Corsair Transaction

  In February 1999, Corsair Communications, Inc. ("Corsair") and its wholly
owned subsidiary, Subscriber Computing, Inc., ("Subscriber") sold
substantially all of the assets relating to Subscriber's Communication
Resource Manager billing system and Intelligent Message Router to Primal
Billing Solutions, a wholly owned subsidiary of Primal Systems, Inc. Primal
Systems, Inc. changed its name to Primal Solutions, Inc. concurrent with its
acquisition by Avery after the close of business on September 30, 1999. As
consideration for Primal Billing Solutions entering into the Corsair
transaction, Corsair paid $1,000,000 cash to Primal Billing Solutions. Corsair
also agreed to loan Primal Billing Solutions the difference between the assets
and liabilities acquired by Primal Billing Solutions, plus $200,000 cash. The
terms of the note were 10% annual interest, five-year amortization, and
payment in full required in May 2001. Avery guaranteed the obligations of
Primal Billing Solutions, including the note payable to Corsair in the amount
of $2,238,242. The Corsair transaction was entered into in contemplation of
Avery's acquisition of Primal Systems, Inc. discussed below. Primal Billing
Solutions recorded the acquisition under the purchase method of accounting,
acquiring assets at fair value of $4,581,889 and assuming liabilities of
$2,343,647 in addition to the note payable to Corsair. There was no goodwill
recorded in connection with this transaction.

  In January 2001, Primal amended the terms of and refinanced the Corsair note
payable originally due in May 2001. Also, certain other liabilities due to
Corsair totaling $50,528 were added to the principal balance of the amended
note. The interest rate of the amended note will increase to 16% starting in
May 2001 and the note is payable in approximately 36 monthly installments,
beginning January 2001, and matures May 2004.

The Primal Acquisition

  In March 1999, Avery entered into a merger agreement with Primal Systems,
Inc. and certain shareholders of Primal Systems, Inc. Pursuant to this
agreement, Primal Systems, Inc. was purchased effective after the close of
business on September 30, 1999. At the time of the merger, Avery issued
3,890,373 shares of Avery's convertible preferred stock in exchange for all of
the issued and outstanding shares of Primal Systems, Inc. Of this amount,
1,945,188 shares was held in escrow, to be issued to Primal Systems, Inc.'s
shareholders based upon the operating performance of Primal Systems, Inc. from
August 1, 1999 through July 31, 2000. Upon meeting certain operating
performance thresholds by Primal Systems, Inc. during this period, the Primal
Systems, Inc. shareholders may have received up to a maximum of 4,000,000
additional shares of Avery convertible preferred stock as additional
consideration for the merger. In addition, upon Primal Systems, Inc.'s
satisfaction of certain operating performance levels during this period,
certain shareholders of Primal Systems, Inc. would have had the right in
September through October, 2000 to require Avery to repurchase up to 1,550,000
shares of Avery common stock issued upon the conversion of Avery preferred
stock received in the merger for the purchase price of $2.50 per share.

  The transaction was accounted for using the purchase method of accounting
with revenues and expenses of Primal Systems, Inc. being included in the
Company's operations from the acquisition date. The stock issued in the merger
was valued at $3,404,076 using the closing price of Avery's common stock on
the acquisition date plus other acquisition costs of $356,845. The Company
acquired assets at fair value of $4,421,356 and assumed liabilities of
$5,393,230. The Company recorded goodwill of $4,732,795 in connection with
this transaction, which includes the expenses incurred to consummate the
transaction.

                                     F-10


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  In August 2000, in accordance with the terms of the Preliminary PSI
Distribution Agreement, the Company issued an additional 3,236,521 shares of
Avery's Series F preferred, which resulted in an additional $3,575,000 of
goodwill.

  Mark J. Nielsen, the Company's former President and Chief Executive Officer,
was the Chairman of the Board and a significant shareholder of Primal Systems,
Inc. at the time of its acquisition by the Company.

The Primal Spin-off

  On August 1, 2000, the Board of Directors of Avery approved the spin-off of
PSI. The decision revised its plan announced February 29, 2000 to spin-off
HBS, its local exchange carrier billing clearinghouse business. The decision
to spin-off PSI instead of HBS was motivated primarily by the expectation that
Avery shareholders would pay less in taxes under a spin-off of PSI than would
have been the case with a spin-off of HBS. Prior filed annual financial
statements reflect HBS as discontinued operations.

  Under the terms of the spin-off agreement with PSI, which became effective
February 12, 2001, each common shareholder of the Company on the payment date
of the spin-off received one share of Primal common stock for each share of
the Company's common stock held on that date. In addition, owners of shares of
Avery's Series A, B, C, D or E convertible preferred stock received Primal
common stock, in the amount of the preferred stock's common stock equivalent
for each share of Avery preferred stock held on the payment date of the spin-
off. The spin-off will be recorded at book value for accounting purposes since
PSI is an ongoing business.

  The board of directors approved the spin-off primarily due to the fact that
it appears that investors will be better able to understand and value the PSI
and HBS businesses in separate entities rather than being combined into one
entity. The exercise and conversion price of outstanding stock warrants,
options and convertible securities was adjusted to reflect the spin-off. The
valuation of the PSI stock to be distributed was determined through an
appraisal of the PSI business. The spin-off is a taxable transaction for
federal income tax purposes. As part of the transaction, the original PSI
owners have received 15% and 32% of Avery and PSI, respectively, on a fully
diluted basis. In addition, the former PSI shareholders have waived their
right for Avery to repurchase 1,550,000 shares of their Avery stock and Avery
has provided $4.0 million in working capital to PSI.

  The financial information contained in these financial statements present
PSI as a discontinued operation due to the spin-off. Accordingly, the amounts
in the statements of operations through the provision for income taxes are
HBS's plus expenses of Avery.

                                     F-11


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  At December 31, 2000 and 1999 the net current assets (liabilities) and net
long-term assets of PSI were as follows:



                                                             December 31,
                                                        -----------------------
                                                           2000        1999
                                                        ----------- -----------

Current assets
                                                              
Cash................................................... $ 1,844,767 $ 1,710,996
Trade accounts receivable..............................   1,770,317     993,406
Other current assets...................................     312,548     366,088
                                                        ----------- -----------
Total current assets...................................   3,927,632   3,070,490
                                                        ----------- -----------

Current liabilities
Current portion of capital lease obligations...........     237,204      89,577
Current portion of notes payable.......................     512,572     473,252
Trade accounts payable.................................     403,872     346,932
Accrued liabilities....................................   1,030,356     852,095
Deferred revenue.......................................   1,074,008   1,023,605
                                                        ----------- -----------
Total current liabilities..............................   3,258,012   2,785,461
                                                        ----------- -----------
Net current assets of discontinued operations.......... $   669,620 $   285,029
                                                        =========== ===========

Property and equipment
Computer equipment and software........................ $ 2,257,142 $ 1,524,626
Furniture and fixtures.................................     115,943     107,650
Accumulated depreciation and amortization..............   (571,665)     (23,431)
                                                        ----------- -----------
Total property and equipment...........................   1,801,420   1,608,845
                                                        ----------- -----------
Other assets and long-term liabilities

                                                              
Goodwill, net.........................................   7,219,072    4,413,559
Capital lease obligations.............................     (75,555)     (62,046)
Notes payable.........................................  (1,219,728)  (1,728,108)
Acquisition costs.....................................         --       150,025
Other.................................................      21,627       61,552
                                                       -----------  -----------
Total other assets, net...............................   5,945,416    2,834,982
                                                       -----------  -----------
Net long-term assets of discontinued operations....... $ 7,746,836  $ 4,443,827
                                                       ===========  ===========



                                      F-12


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  The operating results of PSI for the year ended December 31, 2000 and three
months ended December 31, 1999 are as follows:



                                      Twelve-months ended  Three-months ended
                                       December 31, 2000   December 31, 1999
                                      -------------------  ------------------
                                                     
Operating revenues...................         $ 9,515,805         $ 4,547,703
Cost of revenues.....................          (4,941,567)         (1,069,108)
                                              -----------         -----------
 Gross profit........................           4,574,238           3,478,595
Selling, general and administrative
 expenses............................          (9,509,826)         (1,787,241)
                                              -----------         -----------
 Income (loss) from operations.......          (4,935,588)          1,691,354
Other expense, net...................            (194,869)            (64,786)
                                              -----------         -----------
 Income (loss) before income tax
  provision..........................          (5,130,457)          1,626,568
 Income tax (expense) benefit........           1,429,970            (667,809)
                                              -----------         -----------
 Net income (loss)...................         $(3,700,487)        $   958,759
                                              ===========         ===========


  PSI was acquired effective after the close of business on September 30,
1999, and accordingly the results of operations for the year ended December
31,1999 include only three months of PSI operations.

3. Investments

  The Company invested $1,500,000 in 1,500,000 preferred shares of a company
for which Avery's Chief Executive Officer is also the controlling shareholder
and Chief Executive Officer. The preferred stock earns cumulative dividends at
10% and it is mandatory that they be redeemable for $1.00 per share on the
fifth anniversary after the date of issuance. The first two years of dividends
can be paid in the form of additional preferred stock. The Company also
invested $19,000 to acquire 1,900,000 common shares in another entity. Avery's
Chief Executive Officer is the controlling stockholder and a director of this
entity.

4. Notes Receivable due from Related Parties

  The Company previously advanced $400,000 to an employee. This amount is due
December 9, 2001, bears interest at 9% payable monthly, and is secured by
Avery common stock.

  The Company also loaned $183,272 to employees to fund taxes due on the
exercise of certain options. These amounts bear interest at 6.6%, due in
October 2002, and are unsecured.

  The Company also advanced $1,900,000 to the same entity it owns 1,900,000
common shares discussed above. The related notes bear interest at 10% per
annum are due March 31, 2001 and are unsecured. These notes are expected to be
converted to equity in 2001.

  In connection with the anticipated spin-off of Primal, the Company advanced
certain former PSI stockholders $1,563,500. The notes are non-recourse, bear
interest at 6.6% per annum and are due in August 2002. The loans are secured
by the Company's 2,150,493 shares of Series G preferred stock, which are owned
by the former PSI stockholders.

5. Short-Term Debt Obligations

  The Company had a $10,000,000 revolving note payable-line of credit with a
financial institution. Interest was payable monthly at the prime rate plus
1.5% (10% at December 31, 1999) and the principal, if any, was due March 25,
2000. The note was paid off in September 2000. The note was secured by
substantially all the assets

                                     F-13


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of HBS. The line of credit agreement contained certain covenants that required
the Company to maintain a certain financial ratio related to debt servicing
and to limit capital expenditures and additional indebtedness. During 1999,
the Company was in violation of the capital expenditure limitation and
received a waiver for this violation.

6. Notes Payable

  Notes payable at December 31, 2000 and 1999 are as follows:



                                                                2000      1999
                                                              --------  --------
                                                                  
   Note payable to third party bearing interest at 12% per
    annum, payable quarterly; principal and any unpaid
    interest originally due September 30, 1996, now due on
    demand..................................................  $  6,667  $  6,667
   Note payable to related party bearing interest at 12% per
    annum, principal due December 10, 2002, convertible to
    common stock at a price of $1.25 per share at any time,
    unsecured. Principal at December 31, 2000 and 1999 is
    $350,000 adjusted for a discount for warrants issued in
    connection with the note based on imputed interest rate
    of 20%..................................................   333,475   325,195
                                                              --------  --------
                                                               340,142   331,862
   Less current maturities..................................     6,667     6,667
                                                              --------  --------
   Long-term portion........................................  $333,475  $325,195
                                                              ========  ========

  Principal amounts due on notes payable at December 31, 2000 are as follows:

     2001...................................................  $  6,667
     2002...................................................   350,000
                                                              --------
     Total..................................................   356,667
     Loan discounts.........................................   (16,525)
                                                              --------
     Total..................................................  $340,142
                                                              ========


7. Concentration of Credit Risk and Significant Customers

  At December 31, 2000, five customers represented approximately 91% of trade
receivables and six customers represented 91% of HBS's outstanding advanced
payment receivables. At December 31, 1999, six customers comprised
approximately 92% of trade receivables and five customers accounted for
approximately 93% of HBS's outstanding advanced payment receivables. Credit
risk with respect to trade accounts receivable generated through billing
services is limited as the Company collects its fees through receipt of all
its customers' cash directly from LEC's. The credit risk with respect to the
purchase of accounts receivable is reduced as the Company only advances 50% to
75% of the gross accounts receivable purchased. Management evaluates accounts
receivable balances on an on-going basis and provides allowances as necessary
for amounts estimated to eventually become uncollectible. In the event of
complete non-performance of accounts receivable, the maximum exposure to the
Company is the recorded amount shown on the balance sheet.

  Under its billing contracts with the LEC's, the Company is obligated to pay
refunds due by HBS's customers to the LEC's if they are assessed. Accordingly,
to the extent that the Company is unable to recover refunds from its customers
and to the extent that it is holding insufficient reserves of its customers to
cover these refunds, the Company will be financially responsible for these
refunds.

  The Company is at risk to the extent that cash held at banks exceeds the
Federal Deposit Insurance Corporation insured amounts. Cash in excess of these
limits amounted to approximately $6,416,000 and $5,622,000 at December 31,
2000 and 1999, respectively. The Company minimizes this risk by placing its
cash with high credit quality financial institutions.

                                     F-14


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. Stockholders' Equity (Deficit) and Redeemable Preferred Stock

  The Company had the following series of preferred stock outstanding as of
December 31, 2000 and 1999.

  The preferred stock Series' A, B, C, D and E contain a conditional mandatory
redemption feature and at December 31, 2000 are classified as redeemable
preferred stock in the accompanying Balance Sheet. Beginning in 1998 and
continuing from year to year thereafter, once audited stockholders' equity
increased by $7,000,000, as compared to the December 31, 1996 stockholders'
equity balance of $1,295,437, the Company would redeem the outstanding shares
in each series on or before the first September 30 following that audited
balance sheet date. Each series has a liquidation preference of $1.00 per
share together with all unpaid dividends. Each series also includes a
conversion feature. This feature provides for the preferred stockholder to
convert their shares into common stock at a stated conversion price as
follows: Series A and C $2.50 per share, Series B and E $1.00 per share, and
Series D $2.00 per share. The preferred stock Series D contains additional
mandatory redemption provisions which are enacted based upon the sale of HBS.
Series A, B, C, D and E preferred stock are automatically convertible at the
earlier of 1) a vote of 2/3 of the shares of the respective series
outstanding, or 2) the closing of an initial public offering of at least $5
per share and at least $7,000,000 in aggregate proceeds.

  The preferred stock Series F is participating and convertible. The
participating feature entitles the holders to participate, on a "if converted"
basis, in any and all dividends paid with respect to the common stock. The
conversion feature associated with the Series F provides for the issuance of
one share of common stock for every share of preferred Series F issued. The
Series F preferred stock has a liquidation preference of $0.01 per share. In
accordance with the terms of the Preliminary PSI Distribution Agreement, in
August 2000, an additional 3,236,531 shares of Avery's Series F preferred
stock were issued to the former PSI stockholders. Immediately subsequent to
the issuance of the 3,236,521 shares, the Company exchanged all of the
outstanding shares (7,126,894) of the Company's Series F preferred stock for
7,126,894 shares of the Company's Series G preferred stock, pursuant to the
Preliminary PSI Distribution Agreement.

  The preferred stock Series G is identical to the Series F preferred stock
except that (i) it will have one vote for each share of the Company's common
stock into which it is convertible as a single class, (ii) is not entitled to
participate in the distribution rights by the Company of the shares of the PSI
common stock to the Company's security holders and (iii) is not convertible
into the Company's common stock until the earlier of the date of the
distribution or the termination of the Preliminary PSI Distribution Agreement.

  Dividends are payable, as and if declared by the Board of Directors, at an
annual rate of $0.10 per share (Series A and D) and $0.12 per share (Series B,
C and E), all payable quarterly. There is no dividend for either Series F or
G.

9. Income Taxes

  Income taxes for the years ended December 31, 2000 and 1999 consists of the
following:



                                                            2000       1999
                                                         ----------  ---------
                                                               
Federal.................................................
 Current................................................ $1,190,174  $ 255,673
 Deferred...............................................   (130,292)  (904,246)
                                                         ----------  ---------
  Total.................................................  1,059,882   (648,573)
                                                         ----------  ---------
State...................................................
 Current................................................ $  314,547  $     --
 Deferred...............................................    (61,184)       --
                                                         ----------  ---------
  Total.................................................    253,363        --
                                                         ----------  ---------
Income tax (expense) benefit............................ $1,313,518  $(648,573)
                                                         ==========  =========



                                     F-15


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  A reconciliation of the federal income tax provision (benefit) based on the
U.S. Corporate income tax rate of 34% for the years ended December 31, 2000
and 1999 is as follows:



                                                          2000        1999
                                                       ----------  ----------
                                                             
Income tax provision (benefit) at statutory rate...... $1,236,500  $  363,709
Net operating loss utilized...........................    (57,460)   (67,097)
Change in deferred tax rate...........................        --       89,124
Other.................................................        --       19,144
Change in valuation allowance.........................   (199,195) (1,053,453)
State income taxes....................................    167,220         --
Adjustment to prior year current taxes................   (218,736)        --
Items permanently not deductible for Federal Income
 tax purposes.........................................    385,189         --
                                                       ----------  ----------
Income tax expense (benefit).......................... $1,313,518  $ (648,573)
                                                       ==========  ==========

  Deferred tax assets and liabilities at December 31, 2000 and 1999 are as
follows:


                                                          2000        1999
                                                       ----------  ----------
                                                             
Current deferred tax asset............................ $  565,562  $  573,281
Valuation allowance for current deferred tax asset....        --     (199,195)
                                                       ----------  ----------
Net current deferred tax asset........................ $  565,562  $  374,086
                                                       ==========  ==========


  The current deferred tax asset results primarily from differences in
contingency and valuation reserves for financial and federal income tax
reporting purposes and other amounts not currently deductible for Federal
income tax reporting purposes.

10. Related Party Transactions and Other Events

  In December 1997, the Company entered into a five-year $350,000 note payable
with a company for which its Chief Executive Officer is also a member of the
board. The note bears interest at 12%, is convertible to common stock and
contains warrants for 175,000 shares of common stock at $1.50 exercise price.
The outstanding note balance at December 31, 2000 is $333,475.

  During December 1998, the Company advanced $400,000 to an HBS employee at 9%
interest.

  In December 1998, Avery's Board of Directors authorized Avery to repurchase
any or all of its outstanding warrants for a price of $1.00 per underlying
share. In December 1998, Avery repurchased warrants held by an entity
controlled by its Chief Executive Officer to purchase 100,000 shares of common
stock at an exercise price of $1.50 per share. The $100,000 amount was
recorded as compensation in 1998. During 1999, an additional 621,736 warrants
and options with $1.50 exercise prices were repurchased from entities
controlled by the Company's Chief Executive Officer for a price of $1.00 per
underlying share. $300,000 was recorded as compensation, with $321,736 being
recorded as financing fees.

  At the close of business on September 30, 1999, the Company purchased Primal
Systems, Inc. Mark Nielsen, President and Chief Executive Officer of the
Company, was Chairman of the Board and a significant shareholder of Primal
Systems at the time of the purchase.

  In October 2000, the Company authorized the exercise of all outstanding
options and warrants at $0.50 per underlying share. At the same time, the
Company offered to finance the exercise of the options and certain

                                     F-16


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

warrants with notes receivable, due in 2002 at 6.6% per annum. As a result of
that offer, 764,754 shares of the Company stock were acquired for cash of
$387,000 and 1,674,041 shares were acquired by loans from the Company totaling
$1,092,000.

  The Company invested $1,500,000 in the preferred stock in an entity for
which its Chief Executive Officer is also Chief Executive Officer and
president (see note 3).

  The Company also acquired 1,900,000 common shares and loaned $1,900,000 to
an entity in which Avery's Chief Executive Officer is a director (see notes 3
and 4).

11. Stock Options and Warrants

  Effective September 17, 1999, the Board of Directors approved a qualified
employee stock option plan for the Company (the "Plan"). Under the Plan, the
Company may grant options for up to 1.5 million shares of common stock. The
exercise price of each option may not be less than the fair market value of
common stock at the date of grant, without approval of the Board of Directors.
Options are exercisable according to the terms set out in the option
agreement, not to exceed 10 years. At December 31, 2000 and 1999, there were a
total of 393,000 and 1,148,150 options outstanding under the Plan,
respectively.

  In addition, the Company has issued stock options outside of the Plan to
employees, directors and others as compensation for services provided to the
Company as well as options which are non-compensatory in nature. During 2000,
the Company issued 465,500 options as compensation to employees and directors
and 200,000 options to service providers as compensation for consulting and
other services provided during 2000. In connection with options issued to
employees, a number of which had exercise prices below market value and other
options previously issued that were repriced, the Company has recorded
$848,288 of compensation expense in 2000. The reduction in exercise price was
contingent upon the exercise of the underlying option. In connection with
options issued to service providers as compensation, the Company has
recognized $239,819 of professional service costs in 2000 and $0 in 1999.

  A summary of changes in the Company's compensatory and non-compensatory
options follows:



                            Compensatory       Non Compensatory   Combined Total
                         -------------------- ------------------- --------------
                                     Weighted            Weighted
                                     Average             Average
                                     Exercise            Exercise
                          Options     Price    Options    Price      Options
                         ----------  -------- ---------  -------- --------------
                                                   
Outstanding at
 12/31/98...............  1,985,000   $ --    1,728,552   $ --       3,713,552
Purchase of option......        --      --     (621,736)   1.26       (621,736)
Granted.................  1,257,777    1.56      70,000    1.50      1,327,777
Exercised...............        --      --          --      --             --
Forfeited...............        --      --     (121,666)   1.50       (121,666)
                         ----------           ---------             ----------
Outstanding at
 12/31/99...............  3,242,777           1,055,150              4,297,927
Granted.................    665,500    1.81      29,167    1.50        694,667
Purchase of option......        --      --          --      --             --
Exercised............... (1,770,955)   1.48    (821,008)   1.26     (2,591,963)
Forfeited...............   (369,332)   1.56     (50,000)   3.00       (419,332)
                         ----------           ---------             ----------
Outstanding at
 12/31/00...............  1,767,990    1.91     213,309    1.91      1,981,299
                         ==========           =========             ==========



                                     F-17


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  The following table summarizes information about compensatory options
outstanding at December 31, 2000:



                         Options Outstanding                          Options Exercisable
                     ----------------------------                -----------------------------
        Range of                  Weighted Avg.
        Exercise       Number       Remaining     Weighted Avg.    Number      Weighted Avg.
         Prices      Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
        --------     ----------- ---------------- -------------- ----------- -----------------
                                                              
     $1.50 -- $2.69   1,767,990      5 years          $1.91       1,767,990        $1.91


  The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB25"), in accounting for its compensatory options and has
valued options issued below market value, according to their intrinsic value.
Had employee compensation cost for the Company's stock options been determined
consistent with FASB statement No. 123, "Accounting for Stock Based
Compensation", the Company's net income (loss) and net income (loss) per share
would have been (decreased) increased to the pro forma amounts indicated
below:



                                               Years ended December
                                                       31,
                                              -----------------------
                                                 2000         1999
                                              -----------  ----------
                                                  
     Net income (loss)            As reported $(1,377,238) $2,677,065
                                    Pro forma $(2,553,262) $2,126,579
     Net income (loss) per share  As reported
                                        Basic $     (0.18) $     0.28
                                      Diluted $     (0.09) $     0.23
                                    Pro forma
                                        Basic $     (0.31) $     0.21
                                      Diluted $     (0.22) $     0.19


  The fair value of all compensatory options issued during 2000 and 1999 was
$389,331 (excluding any impact of APB25 recorded compensation in connection
with employees in 2000) and $550,486, respectively. The weighted average fair
value per share of compensatory options issued during 2000 was $0.58.

  The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following assumptions were used
for grants in 2000; dividend yield at 0%, expected volatility at 119%, risk
free interest rate of 6.5%, and an expected life of 1-5 years. The following
assumptions were used for grants in 1999; dividend yield of 0%, expected
volatility of 100%, risk free interest rate of 6%, and an expected life of 2-5
years.

12. 401(k) Plan

  The Company initiated a 401(k) Plan ("Plan") which covers substantially all
of Avery's and HBS's employees. Employees can contribute up to $10,500 for
2000 and $10,000 for 1999. Avery matches contributions to the Plan at $0.50
per dollar up to 4% of employee's compensation and may make additional
discretionary contributions. During 2000 and 1999, $28,582 and $27,670,
respectively was contributed to the Plan for the benefit of the Company's
employees.

                                     F-18


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


13. Commitments and Contingencies

Continuing Operations:

  The Company has entered into various non-cancelable operating leases related
to office space. At December 31, 2000, future minimum lease payments required
under the operating leases are as follows:



      Year ended December 31,
      -----------------------
                                                                     
      2001............................................................. $108,462
      2002.............................................................  108,462
                                                                        --------
        Total minimum lease payments................................... $216,924
                                                                        ========


  Rent expense for the years ended December 31, 2000 and 1999 amounted to
$108,462 for both years.

  HBS is obligated to pay minimum usage charges over the lifetime of most LEC
billing contracts. Each contract has a minimum usage amount that relates to
HBS's customers' sales volume to be processed through the LEC. HBS does not
expect to incur any losses with respect to these minimum usage requirements.
The remaining minimum usage for significant contracts at December 31, 2000 is
as follows:



                                                      Amount        Expires
                                                      ------        -------
                                                         
      Contract 1................................... $2,600,000 March 1, 2001
      Contract 2...................................    300,000 January 1, 2003
      Contract 3...................................    312,000 February 29, 2003
      Others.......................................    830,000 2001 - 2003
                                                    ----------
                                                    $4,042,000
                                                    ==========


  The Company's guarantee of Primal's note payable to Corsair, (see note 2),
which had a remaining balance of $1,645,866 as of December 31, 2000, is still
in effect after the Company's distribution of Primal's common stock to its
security holders.

  HBS files consolidated sales and excise tax returns on behalf of its
customers for the various municipal, state and Federal jurisdictions in which
its customers do business. HBS relies on monthly tax reports it receives from
the LEC's in reporting and remitting such taxes. HBS's customers are
contractually obligated to reimburse HBS for any disputes with taxing
authorities that may arise from filing the sales and excise tax returns on
behalf of their customers. HBS is contingently liable for any such disputes or
assessments if its customers are unable or unwilling to honor the contract
provisions. There were no such disputes at December 31, 2000. HBS is also
contingently liable for charge backs from the LEC's, to the extent such charge
backs exceed HBS's reserves for such charge backs. This contingent liability
is increased when HBS discontinues business with a particular customer.

  In connection with the acquisition of HBS, two of the previous partners of
HBS entered into contingent incentive compensation agreements with HBS under
which a total of 666,664 shares were issuable based on HBS achieving certain
pre-tax income levels (as defined). Prior to 1998, 166,664 shares were earned
pursuant to these compensation agreements. During 2000 and 1999, 83,333 and
416,665 shares, respectively, were earned pursuant to these contingent
incentive compensation agreements. These shares are reflected as compensation
and an increase in stockholders equity, and are included in the increase in
equity of $90,000 and $991,300 as of December 31, 2000 and 1999, respectively,
in the accompanying financial statements. At December 31, 2000, no additional
shares can be earned under these agreements.

                                     F-19


                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  HBS was party to a legal proceeding filed in July 1998. HBS was named in a
complaint for injunctive relief filed by the Federal Trade Commission ("FTC")
against Veterans of America Association ("VOAA"). The suit alleged that VOAA
caused unauthorized charges to appear on end users' bills based on deceptive
marketing programs and sought relief against HBS and others. Several months
prior to the filing of the suit, HBS terminated its contract with VOAA based
on suspicion of the same activities alleged by the FTC in its suit. Since
termination, HBS has voluntarily paid out approximately twice the revenue it
took in from this account in order to reimburse end-users for credits due and
owing. Attorneys for HBS and Avery met with the FTC immediately after suit was
filed and offered full cooperation in its investigation. Without admitting any
liability or complicity in the alleged activities of its former customer, HBS
and Avery agreed to a stipulated preliminary injunction with terms consistent
with existing HBS guidelines as revised before suit was filed. The suit also
sought monetary fines and/or reimbursement to end-users from all parties
jointly and severally. No trial date has been set by the Court, and while
denying liability, HBS has offered to cooperate with the FTC in developing new
standards for the industry designed to better protect end-users. In 1999, HBS
settled with the FTC in the amount of $250,000 and agreed to abide by the
standards set by the FTC.

  From time to time, HBS is party to what it believes is routine litigation
and proceedings that may be considered as part of the ordinary course of its
business. Currently, HBS is not aware of any current or pending litigation or
proceedings that would have a material adverse effect on HBS's business,
results of operations or financial condition.

14. Subscription Notes Receivables

  The Company issued notes receivable to certain option and warrant holders
totaling $1,092,000 in connection with the exercise of their options and
warrants. The notes receivable are secured by the Company's common stock, bear
interest at 6.6% per annum and are due in October 2002. The notes have been
offset against stockholders equity in the accompanying balance sheet.

15. Subsequent Events

  On February 12, 2001, Avery distributed 100% of the outstanding capital
stock of Primal to its security holders. Accordingly, as of such date, Avery
had no further ownership interest in Primal or its subsidiary, Wireless
Billing Systems.

  Of the capital stock distributed, Avery distributed 32% to the seven
original stockholders of Primal at the time of Primal's acquisition in
redemption of 4,976,401 shares of the Company's Series G voting preferred
stock issued to these persons in connection with the Company's acquisition of
Primal. As part of the distribution, the exercise prices of Avery's
outstanding options and the conversion prices of Avery's convertible
securities were adjusted to reflect the distribution. As a result of such
adjustments, on February 12, 2001, Avery had a total of 16,002,540 shares of
common stock outstanding and reserved for issuance upon the exercise of
options and the conversion of convertible securities. Accordingly, the
conversion price of the Series G preferred stock was decreased from $1.00 to
$0.895896, and the 2,150,493 shares of the Series G voting preferred stock
held by the original Primal stockholders became convertible into an aggregate
2,400,381 shares of Avery's common stock, or 15% of the total 16,002,540
shares of Avery' common stock outstanding and reserved for issuance upon the
exercise of options outstanding and the conversion of convertible securities
outstanding on such date.

  On March 9, 2001, HBS Billing Services' largest customer, which accounted
for 57% of its call records processed in 2000, filed a voluntary petition for
protection under Chapter 11 of the U.S. Bankruptcy Code in connection with the
reorganization of its parent company. As of April 2, 2001, the filing has had
no material adverse effect on HBS Billing Services' business relationship with
this customer, and, based upon conversations between the managements of the
two companies, we do not presently anticipate that this filing will materially
adversely affect the relationship with this company in the immediate future.

                                     F-20


                                 EXHIBIT INDEX



 Exhibit
 Number                          Description of Document
 -------                         -----------------------
      
  2.1    Partnership Interest Purchase Agreement dated as of May 3, 1996, by
          and among Avery Communications, Inc., Avery Acquisition Sub, Inc.,
          Hold Billing Services, Ltd., Hold Billing & Collection, L.C., Joseph
          W. Webb, James A. Young, Edward L. Dunn, Philip S. Dunn,
          Harold D. Box, and David W. Mechler, Jr. (filed as Exhibit 2.1 to
          Avery's Registration Statement on Form SB-2 (File No. 333-65133) (the
          "Prior Registration Statement") and incorporated herein by reference
          thereto)

  2.2    First Amendment to Partnership Interest Purchase Agreement by and
          between Avery Communications, Inc., Avery Acquisition Sub, Inc., Hold
          Billing Services, Ltd., Hold Billing & Collection, L.C., Joseph W.
          Webb, James A. Young, Edward L. Dunn, Philip S. Dunn, Harold D. Box
          and David W. Mechler, Jr. (filed as Exhibit 2.2 to the Prior
          Registration Statement and incorporated herein by reference thereto)

  2.3    Partnership Interest Option Agreement dated as of May 3, 1996, by and
          among Avery Communications, Inc., Avery Acquisition Sub, Inc., Harold
          D. Box and David W. Mechler, Jr. (filed as Exhibit 2.3 to the Prior
          Registration Statement and incorporated herein by reference thereto)

  2.4    First Amendment to Partnership Interest Option Agreement dated as of
          October 15, 1996, by and among Avery Communications, Inc., Avery
          Acquisition Sub, Inc., Harold D. Box, and David W. Mechler, Jr.
          (filed as Exhibit 2.4 to the Prior Registration Statement and
          incorporated herein by reference thereto)

  2.5    Agreement and Plan of Merger, dated as of March 19, 1999, by and among
          Avery Communications, Inc., ACI Telecommunications Financial Services
          Corporation, Primal Systems, Inc., Mark J. Nielsen, John Faltys,
          Joseph R. Simrell and David Haynes (the "Primal Merger Agreement")
          (filed as Exhibit 2.5 to the Prior Registration Statement and
          incorporated herein by reference thereto)

  2.6    Amendment No. 1 to the Primal Merger Agreement (filed as Exhibit 2.6
          to the Prior Registration Statement and incorporated herein by
          reference thereto)

  2.7    Amendment No. 2 to the Primal Merger Agreement (filed as Exhibit 2.1
          to the registrant's Current Report on Form 8-K, dated
          September 27, 1999, and incorporated herein by reference thereto)

  2.8    Primal Solutions, Inc. Preliminary Distribution Agreement (the
          "Distribution Agreement"), dated July 31, 2000, by and among Avery
          Communications, Inc., a Delaware corporation, Primal Solutions, Inc.,
          a Delaware corporation, John Faltys, Joseph R. Simrell, David Haynes,
          Mark J, Nielsen, Arun Anand, Murari Cholappadi, Sanjay Gupta,
          Thurston Group, Inc., a Delaware corporation, Patrick J. Haynes, III
          and Scot M. McCormick (filed as Exhibit 2.1 to Avery's Form 8-K dated
          August 31, 2000 (the "Primal Form 8-K") and incorporated by reference
          herein)

  2.9    Form of Non-Recourse Promissory Note, which is attached as Exhibit 5-A
          to the Distribution Agreement (filed as Exhibit 2.2 to the Primal
          Form 8-K and incorporated by reference herein)

  2.10   Form of Pledge Agreement, which is attached as Exhibit 5-B to the
          Distribution Agreement (filed as Exhibit 2.3 to the Primal Form 8-K
          and incorporated by reference herein)

  2.11   Form of Irrevocable Proxy for Thurston Group, Inc., Patrick J. Haynes
          III and their affiliates relating to the common stock of Primal,
          which is attached as Exhibit 9-A to the Distribution Agreement (filed
          as Exhibit 2.4 to the Primal Form 8-K and incorporated by reference
          herein)

  2.12   Form of Irrevocable Proxy for the Old Primal Stockholders relating to
          the common stock of Avery, which is attached as Exhibit 9-B to the
          Distribution Agreement (filed as Exhibit 2.5 to the Primal Form 8-K
          and incorporated by reference herein)





 Exhibit
 Number                         Description of Document
 -------                        -----------------------
      
  2.13   Indemnification Agreement, dated July 31, 2000, by and between Avery
          Communications, Inc., a Delaware corporation, John Faltys, Joseph R.
          Simrell, and David Haynes (filed as Exhibit 2.6 to the Primal Form
          8-K and incorporated by reference herein)
  3.1    Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
          Prior Registration Statement and incorporated herein by reference
          thereto)
  3.2    Amended and Restated Bylaws (filed as Exhibit 3.2 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  3.3    Certificate of Designation of Series A Junior Convertible Redeemable
          Preferred Stock (filed as Exhibit 3.3 to Avery's Registration
          Statement on Form SB-2 (File No. 333-57336) (the "Resale
          Registration Statement") and incorporated herein by reference
          thereto)
  3.4    Certificate of Designation of Series B Junior Convertible Redeemable
          Preferred Stock (filed as Exhibit 3.4 to the Resale Registration
          Statement and incorporated herein by reference thereto)
  3.5    Certificate of Designation of Series C Junior Convertible Redeemable
          Preferred Stock (filed as Exhibit 3.5 to the Resale Registration
          Statement and incorporated herein by reference thereto)
  3.6    Certificate of Designations of Series D Senior Cumulative Convertible
          Redeemable Preferred Stock (filed as Exhibit 3.6 to the Resale
          Registration Statement and incorporated herein by reference thereto)
  3.7    Certificate of Designations of Series E Junior Convertible Redeemable
          Preferred Stock (filed as Exhibit 3.7 to the Resale Registration
          Statement and incorporated herein by reference thereto)
  3.8    Certificate of Designations of Series G Junior Participating
          Convertible Voting Preferred Stock (filed as Exhibit 3.8 to the
          Resale Registration Statement and incorporated herein by reference
          thereto)
  3.9    Certificate of Designations of Series H Convertible Preferred Stock
          (filed as Exhibit 3.9 to the Resale Registration Statement and
          incorporated herein by reference thereto)
  3.10   Certificate of Decrease in Authorized Number of Shares of Series of
          Preferred Stock (filed as Exhibit 3.10 to the Resale Registration
          Statement and incorporated herein by reference thereto)
  4.1    Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  4.2    Form of Warrant Exchange and Exercise Agreement (filed as Exhibit 4.2
          to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.3    Form of Warrant Exercise and Securities Exchange Agreement for
          $800,000 Bridge Loan Notes (filed as Exhibit 4.3 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  4.4    Form of Warrant Exercise and Securities Exchange Agreement for
          $1,050,000 Promissory Note (filed as Exhibit 4.4 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  4.5    Form of Warrant Exercise and Securities Exchange Agreement for
          $340,000 Promissory Notes (filed as Exhibit 4.5 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  4.6    Registration Rights Agreement by and among Avery Communications, Inc.
          and Joseph W. Webb, James A. Young, Edward L. Dunn, Philip S. Dunn,
          Harold D. Box, and David W. Mechler, Jr. dated November 15, 1996
          (filed as Exhibit 4.6 to the Prior Registration Statement and
          incorporated herein by reference thereto)
  4.7    Registration Rights Agreement by and between Avery Communications,
          Inc. and The Franklin Holding Corporation (Delaware) dated May 30,
          1997 (filed as Exhibit 4.7 to the Prior Registration Statement and
          incorporated herein by reference thereto)





 Exhibit
 Number                          Description of Document
 -------                         -----------------------
      
  4.8    Registration Rights Agreement by and between Avery Communications,
          Inc. and Roger Felberbaum dated December 5, 1996 (filed as Exhibit
          4.8 to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.9    Registration Rights Agreement by and between Avery Communications,
          Inc. and Giulio Curiel dated December 31, 1996 (filed as Exhibit 4.9
          to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.10   Registration Rights Agreement by and between Avery Communications,
          Inc. and Sabina International S.A. dated December 31, 1996 (filed as
          Exhibit 4.10 to the Prior Registration Statement and incorporated
          herein by reference thereto)
  4.11   Form of Investor Warrant (filed as Exhibit 4.11 to the Prior
          Registration Statement and incorporated herein by reference thereto)
  4.12   Registration Rights Agreement by and between Avery Communications,
          Inc. and Thomas A. Montgomery dated January 24, 1997 (filed as
          Exhibit 4.12 to the Prior Registration Statement and incorporated
          herein by reference thereto)
  4.13   Registration Rights Agreement by and between Avery Communications,
          Inc. and Thurston Bridge Fund, L.P. dated December 6, 1996 (filed as
          Exhibit 4.13 to the Prior Registration Statement and incorporated
          herein by reference thereto)
  4.14   Registration Rights Agreement by and between Avery Communications,
          Inc. and Eastern Virginia Small Business Investment Corporation dated
          December 23, 1996 (filed as Exhibit 4.14 to the Prior Registration
          Statement and incorporated herein by reference thereto)
  4.15   Securities Exchange Agreement for 1996 HBS Series (filed as Exhibit
          4.15 to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.16   $350,000 Promissory Note payable to Eastern Virginia Small Business
          Investment Corporation dated December 23, 1996 (filed as Exhibit 4.16
          to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.17   $50,000 Promissory Note to Global Capital Resources, Inc. dated
          September 30, 1996 (filed as Exhibit 4.17 to the Prior Registration
          Statement and incorporated herein by reference thereto)
  4.18   Loan and Security Agreement, by and between Hold Billing Services,
          Ltd. and FINOVA Capital Corporation dated March 25, 1997 (filed as
          Exhibit 4.18 to the Prior Registration Statement and incorporated
          herein by reference thereto)
  4.19   Schedule to Loan and Security Agreement, by and between Hold Billing
          Services, Ltd. and FINOVA Capital Corporation dated March 25, 1997
          (filed as Exhibit 4.19 to the Prior Registration Statement and
          incorporated herein by reference thereto)
  4.20   Amendment to Loan and Security Agreement and Schedule to Loan and
          Security Agreement, by and between Hold Billing Services, Ltd. and
          FINOVA Capital Corporation dated February 1998 (filed as Exhibit 4.20
          to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.21   Second Amendment to Loan and Security Agreement and Schedule to Loan
          and Security Agreement, by and between Hold Billing Services, Ltd.
          and FINOVA Capital Corporation dated April 1998 (filed as Exhibit
          4.21 to the Prior Registration Statement and incorporated herein by
          reference thereto)
  4.22   $7,500,000 Secured Revolving Credit Note to FINOVA Capital Corporation
          from Hold Billing Services dated March 25, 1997 (filed as Exhibit
          4.22 to the Prior Registration Statement and incorporated herein by
          reference thereto)





 Exhibit
 Number                          Description of Document
 -------                         -----------------------
      
  4.23   Series H Preferred Stock Purchase Agreement dated February 21, 2001
          (filed as Exhibit 4.23 to the Resale Registration Statement and
          incorporated herein by reference thereto)
  4.24   Registration Rights Agreement by and between Avery Communications,
          Inc. and Jay Geier dated January 4, 2000 (filed as Exhibit 4.24 to
          the Resale Registration Statement and incorporated herein by
          reference thereto)
  4.25   Registration Rights Agreement by and between Avery Communications,
          Inc. and Investor Network Company, LLC dated October 19, 2000 (filed
          as Exhibit 4.25 to the Resale Registration Statement and incorporated
          herein by reference thereto)
  4.26   Registration Rights Agreement by and among Avery Communications, Inc.,
          Waterside Capital Corporation and CapitalSouth Partners Fund I, L.P.
          dated February 21, 2001 (filed as Exhibit 4.26 to the Resale
          Registration Statement and incorporated herein by reference thereto)
 10.1    Employment Agreement by and between Avery Communications, Inc. and
          Patrick J. Haynes, III dated July 1, 1998 (filed as Exhibit 10.1 to
          the Prior Registration Statement and incorporated herein by reference
          thereto)
 10.2    Stock Warrant Certificate to Patrick J. Haynes, III dated July 1, 1998
          (filed as Exhibit 10.2 to the Prior Registration Statement and
          incorporated herein by reference thereto)
 10.3    Employment and Noncompetition Agreement by and between Hold Billing
          Services, Ltd. and Harold D. Box dated November 15, 1996 (filed as
          Exhibit 10.3 to the Prior Registration Statement and incorporated
          herein by reference thereto)
 10.4    Employment Agreement by and between Avery Communications, Inc. and
          Mark J. Nielsen dated December 1, 1998 (filed as Exhibit 10.4 to the
          Prior Registration Statement and incorporated herein by reference
          thereto)
 10.5    Avery Communications, Inc. Stock Option to Mark J. Nielsen dated
          December 1, 1998 (filed as Exhibit 10.5 to the Prior Registration
          Statement and incorporated herein by reference thereto)
 10.6    Investment Agreement by and between The Franklin Holding Corporation
          (Delaware) and Avery Communications, Inc. dated May 30, 1997 (filed
          as Exhibit 10.6 to the Prior Registration Statement and incorporated
          herein by reference thereto)
 10.7    Warrant to the Thurston Group, Inc. dated May 27, 1997 (filed as
          Exhibit 10.7 to the Prior Registration Statement and incorporated
          herein by reference thereto)
 10.8    Avery Communications, Inc. Stock Purchase Warrant to Thurston Bridge
          Fund, L.P. dated December 6, 1996 (filed as Exhibit 10.8 to the Prior
          Registration Statement and incorporated herein by reference thereto)
 10.9    Avery Communications, Inc. Stock Purchase Warrant to Eastern Virginia
          Small Business Investment Corporation dated December 23, 1996 (filed
          as Exhibit 10.9 to the Prior Registration Statement and incorporated
          herein by reference thereto)
 10.10   Avery Communications, Inc. Stock Purchase Warrant to The Franklin
          Holding Corporation (Delaware) dated May 30, 1997 (filed as Exhibit
          10.10 to the Prior Registration Statement and incorporated herein by
          reference thereto)
 10.11   Form of Billing Services Agreement (filed as Exhibit 10.11 to the
          Prior Registration Statement and incorporated herein by reference
          thereto)
 10.12   Form of Supplemental Advance Purchase Agreement (filed as Exhibit
          10.12 to the Prior Registration Statement and incorporated herein by
          reference thereto)
 10.13   Form of Director and Officer Indemnification Agreement (filed as
          Exhibit 10.13 to the Prior Registration Statement and incorporated
          herein by reference thereto)





 Exhibit
 Number                          Description of Document
 -------                         -----------------------
      
 10.14   Avery Communications, Inc. 1999 Flexible Incentive Plan (filed as
          Exhibit 99.1 to Avery's Registration Statement on Form S-8 (File No.
          333-33486) and incorporated herein by reference thereto)
 10.15   Demand Promissory Note, dated December 21, 2000, payable to Thurston
          Communications Corporation by Aelix, Inc. in the original principal
          amount of $650,000 (filed as Exhibit 10.44 to the Form 10-KSB (File
          No. 0-27551) filed by Qorus.com, Inc. (the "Qorus 10-KSB") and
          incorporated herein by reference thereto)
 10.16   Demand Promissory Note, dated February 15, 2001, payable to Thurston
          Communications Corporation by Aelix, Inc. in the original principal
          amount of $150,000 (filed as Exhibit 10.45 to the Qorus 10-KSB and
          incorporated herein by reference thereto)
 10.17   Demand Promissory Note, dated February 28, 2001, payable to Thurston
          Communications Corporation by Aelix, Inc. in the original principal
          amount of $260,000 (filed as Exhibit 10.46 to the Qorus 10-KSB and
          incorporated herein by reference thereto)
 10.18   Amended and Restated Convertible Promissory Note, dated January 1,
          2001, payable to Thurston Communications Corporation by Qorus.com,
          Inc. in the original principal amount of $750,000 (filed as
          Exhibit 10.37 to the Qorus 10-KSB and incorporated herein by
          reference thereto)
 10.19   Convertible Promissory Note, dated October 20, 2000, payable to
          Thurston Communications Corporation by Qorus.com, Inc. in the
          original principal amount of $250,000 (filed as Exhibit 10.38 to the
          Qorus 10-KSB and incorporated herein by reference thereto)
 10.20   Convertible Promissory Note, dated October 30, 2000, payable to
          Thurston Communications Corporation by Qorus.com, Inc. in the
          original principal amount of $250,000 (filed as Exhibit 10.39 to the
          Qorus 10-KSB and incorporated herein by reference thereto)
 10.21   Promissory Note, dated March 16, 2001, payable to Thurston
          Communications Corporation by Qorus.com, Inc. in the original
          principal amount of $160,000 (filed as Exhibit 10.48 to the Qorus
          10-KSB and incorporated herein by reference thereto)
 11.1    Statement Regarding Computation of Earnings per Share (filed as
          Exhibit 11.1 to the Prior Registration Statement and incorporated
          herein by reference thereto)
 16.1    Letter from PricewaterhouseCoopers LLP on change in certifying
          accountant (filed as Exhibit 16.1 to the Prior Registration Statement
          and incorporated herein by reference thereto)
 21.1    Subsidiaries of Registrant (filed as Exhibit 21.1 to the Prior
          Registration Statement and incorporated herein by reference thereto)