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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

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

                                 FORM 10-KSB/A

                               (Amendment No. 2)
(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, 2001

                                      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)

<TABLE>
<S>                                                            <C>
                          Delaware                                         22-2227079
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

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

                                (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. [_]


<TABLE>
<S>                                                                         <C>
Issuers revenues for the most recent fiscal year........................... $41,915,531
Aggregate market value of the 1,095,754 shares of Common Stock
held by non-affiliates of the registrant at the closing sales price on
March 22, 2002............................................................. $2,081,932
Number of shares of Common Stock outstanding as of the close of business on
March 22, 2002.............................................................  1,190,184
</TABLE>

                     DOCUMENTS INCORPORATED BY REFERENCE:

                                     None.

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                               TABLE OF CONTENTS
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                                                                                                     Page
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<C>      <S>                                                                                         <C>
                                                 PART I

Item 1.  Description of Business....................................................................   1
Item 2.  Description of Properties..................................................................   8
Item 3.  Legal Proceedings..........................................................................   9
Item 4.  Submission of Matters to a Vote of Security Holders........................................   9

                                                 PART II

Item 5.  Market for Common Equity and Related Stockholder Matters...................................  10
Item 6.  Management's Discussion and Analysis or Plan of Operation..................................  10
Item 7.  Financial Statements.......................................................................  16
Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......  16

                                                PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
         of the Exchange Act........................................................................  17
Item 10. Executive Compensation.....................................................................  18
Item 11. Security Ownership of Certain Beneficial Owners and Management.............................  20
Item 12. Certain Relationships and Related Transactions.............................................  22

                                                 PART IV

Item 13. Exhibits and Reports on Form 8-K...........................................................  24
</TABLE>

<PAGE>

                                    PART I

Item 1.  Description of Business

General

   Avery is a telecommunications service company which operates two lines of
business. Through its operating subsidiaries, HBS Billing Services Company and
ACI Billing Services, Inc., Avery provides billing and collection services for
inter-exchange carriers and long-distance resellers, and through its operating
subsidiary, Aelix, Inc., Avery provides intelligent message communication
services to the travel, hospitality and trucking sectors.

Local Exchange Carrier Clearinghouse Business

  General

   Our local exchange carrier billing business consists of HBS Billing Services
Company and ACI Billing Services, Inc. Both businesses are third-party billing
clearinghouses for the telecommunications industry. Local exchange carrier
clearinghouse business customers consist primarily of direct dial long distance
telephone companies. These businesses maintain billing arrangements with
approximately 1,300 telephone companies that provide access lines to, and
collect for services from, end-users of telecommunication services and process
transaction records and collect the related end-user charges from these
telephone companies for their customers.

   The local exchange carrier clearinghouse business customers use us as a
billing clearinghouse for processing records generated by their end-users.
Although such carriers can bill end-users directly, the local exchange carrier
clearinghouse business provides these carriers with a cost-effective means of
billing and collecting residential and small commercial accounts.

   The local exchange carrier clearinghouse business 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, this
line of business 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.

   The local exchange carrier clearinghouse business 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 customers'
sales volume to be processed through the local exchange carrier. The remaining
minimum usage for significant contracts at December 31, 2001, totaled $4.3
million through 2005. As a frame of reference, customers' sales processed by
this line of business relating to all contracts in January, 2002 were
approximately $26.6 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. This line of business has met all such volume commitments in the past
and anticipates exceeding the minimum usage volumes with all of these vendors.

   The local exchange carrier clearinghouse business 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

                                      1

<PAGE>

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 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 our local exchange carrier
clearinghouse business, 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, our local
exchange carrier clearinghouse business provides services to approximately 29
customers in the telecommunications industry.

   Third-party clearinghouses 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, the local exchange carrier clearinghouse business performs
billing clearinghouse services under billing and collection agreements with
local telephone companies. The business 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,
the business 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.

   The local exchange carrier clearinghouse business's customers submit
telephone call record data in batches on a daily to monthly basis, but
typically in weekly intervals. The data are submitted electronically.

   The local exchange carrier clearinghouse business, 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. The business then
submits the relevant billable telephone call records and other transactions to
the appropriate local telephone company for billing and collection. The
business also 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 the local exchange
carrier clearinghouse business 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 the local exchange carrier clearinghouse business is, on average,
approximately 50 days.

   The local exchange carrier clearinghouse business accrues for end-user
customer service refunds, holdback reserves and certain adjustments charged to
it by the local telephone companies. The business 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, the business 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

                                      2

<PAGE>

discontinues doing business with the local exchange carrier clearinghouse
operation and there are insufficient funds being held to cover future refunds
and adjustments, the only recourse is through legal action.

   The local exchange carrier clearinghouse business 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. The business currently submits state and local tax returns
for its customers in over 500 taxing jurisdictions.

   The local exchange carrier clearinghouse business 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 the
operation's customer service call centers. The local exchange carrier
clearinghouse business's customer service telephone number is included in the
local telephone company bill to the end-user, and its respective customer
service representatives are authorized to resolve end-user disputes regarding
such transactions.

   The local exchange carrier clearinghouse business's 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 the operation by
local telephone companies for billing and collection services are also included
in revenues and are passed through to the customer.

  Operations

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

   The local exchange carrier clearinghouse business's 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, the operation
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, the local exchange carrier clearinghouse business's 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.

   The local exchange carrier clearinghouse business 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

   The local exchange carrier clearinghouse business 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

<PAGE>

    .  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.

   The Company's largest customer in 2001 and 2000 was PT-1 Communications,
Inc. ("PT-1"), a telecommunications reseller, which accounted for 47% and 48%
of total revenue in 2001 and 2000, respectively. Since March 9, 2001, PT-1 has
been operating under Chapter 11 of the U.S. Bankruptcy Code in connection with
the reorganization of its parent company. The bankruptcy filing has not had a
material adverse effect on the Company's relationship with PT-1.

   The Company had no other customers in 2001 whose business accounted for more
than 10% of total revenue. In 2000, there was one other customer whose business
accounted for more than 10% of total revenue. That customer, Tel-Save, provided
23% of the Company's revenue.

  Competition

   The local exchange carrier clearinghouse business 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 that Billing Concepts Corp. is presently the
largest participant in the third-party clearinghouse industry in the United
States, followed by us. Billing Concepts has greater name recognition than HBS
Billing Services and ACI Billing Services, and has, or has access to,
substantially greater financial and personnel resources than those available to
us.

   As a large user of local exchange carrier billing services, the local
exchange carrier clearinghouse business enjoys favorable rates and can pass the
benefits of its buying power on to its customers. We believe that the business
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 its local
exchange carrier clearinghouse business.

                                      4

<PAGE>

  Employees

   At December 31, 2001, the local exchange carrier clearinghouse business had
71 full-time employees, including eight executive officers, four sales and
marketing personnel, seven technical and operations personnel, 24 accounting,
administrative and support personnel, and 28 customer service representatives
and related support personnel. These employees are not represented by a union.
We consider relations with our employees to be good.

Intelligent Message Communication Services

General

   Through our subsidiary, Aelix, Inc., which we acquired on November 20, 2001,
we provide intelligent message communications services to enterprises, notably
in the travel, hospitality and trucking sectors. Our services enable users to
improve their customer relationships and their supply and demand chain
management while reducing expenses. Our services enable secure, real time,
bi-directional communications between companies and their customers or other
parties through a number of different media and devices worldwide.

Message Delivery and Notification Services for Large Commercial Enterprises

   We market our products and services to companies which routinely wish to
deliver time-critical information to a large number of customers, employees or
other parties. Our focus is on message delivery services as needed and used by
large commercial enterprises. We specialize in pro-active message services
designed to enhance customer service functions. Examples of the types of
services we offer are the following:

  .   confirm ticket reservations;

  .   confirm hotel reservations; and

  .   broadcast information to large number of people.

   We design solutions intended to meet requirements for communication via
wireline, wireless, Internet, PC or personal digital assitant devices.

Competition

   The electronic message delivery industry is new and rapidly evolving, and
there is no dominant competitor. We expect competition to intensify as the
market grows.

Industry

   The communications industry is undergoing significant change and rapid
growth, particularly the emergence of the Internet as a significant
communications medium.

   The Internet is rapidly maturing into a global communications medium. It is
evolving from passive publishing to an interactive communications and
applications environment. It will continue to play an increasingly important
role in electronic commerce and become the dominant source of information. We
believe it will be the medium of choice for voice, data, and video
communications and that our software-based service will position us to
participate in this growth by enabling us to offer enhanced services.

Government Regulation

   There are few current laws and regulations that apply specifically to access
to, or commerce on, the Internet. Due to the increasing popularity and use of
the Internet, however, it is possible that laws and regulations with respect to
the Internet may be adopted at federal, state, provincial and even local
levels, covering issues such as

                                      5

<PAGE>

user privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. Such future regulations may have a
material adverse effect on our business.

   The growth of the Internet, coupled with publicity regarding Internet fraud,
may lead to the enactment of more stringent consumer protection laws. If we
become subject to claims that we have violated any laws, even if we
successfully defend against these claims, our business could suffer. Moreover,
new laws that impose restrictions on our ability to follow current business
practices or increase our costs of doing business could hurt our business.

   Our electronic message delivery business is not currently subject to direct
regulation by the Federal Communications Commission or any other governmental
agency, other than regulations applicable to businesses in general. In the
future, however, we may become subject to regulation by the FCC or another
regulatory agency. Our business could suffer depending on the extent to which
our activities are regulated or proposed to be regulated.

Employees

   In conjunction with the acquisition of this business on November 20, 2001,
10 people were transferred to our ACI Billing Services facility in Northridge,
California. These employees are working on projects in both the local exchange
carrier clearinghouse business and in the intelligent message delivery services
business. Our employees are not represented by a union. We consider relations
with our employees to be good.

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.

   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, President and Chief Executive Officer 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 approximately 50.5% of our then outstanding voting securities.

   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
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 approximately 37.9% of
our 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
approximately 57.9% of our outstanding voting securities.

                                      6

<PAGE>

                                 RISK FACTORS

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.

Our local exchange carrier clearinghouse business is largely dependent on one
customer that accounted for approximately 55% of our call records processed in
2001. The loss of this customer would materially and adversely affect our
results of operations.

   This customer 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 March 22, 2002, the filing has had no material adverse effect on
the business's 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 competitor in the local exchange carrier billing clearinghouse
industry is Billing Concepts Corp. 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. This competitor
has greater name recognition and has, or has access to, substantially greater
financial and personnel resources than those available to us.

Our local exchange carrier clearinghouse 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 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, periodic
publicity about unauthorized transfers of consumers' long-distance carriers or
unauthorized charges on consumers' local phone bills elevates the visibility of
third-party billing through local exchange carriers.

                                      7

<PAGE>

   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 880,000 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 880,000 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 69%. 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 $493,000 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.

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'
monthly rent is approximately $9,000. HBS Billing Services' lease expires
December 31, 2002.

                                      8

<PAGE>

   ACI Billing Services leases approximately 42,774 square feet of general and
administrative office space in Northridge, California. ACI Billing Services'
monthly rent is approximately $30,852 and the lease expires on July 31, 2005.

   We also paid Thurston Group $96,070 in 2001 for the rental of office space
occupied by our corporate staff in Chicago, Illinois. There is no formal
agreement or lease term governing the arrangement.

Item 3.  Legal Proceedings

   We are not party to any material litigation.

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

   None.

                                      9

<PAGE>

                                    PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

   Our 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 "AVYC." The limited and sporadic trading does not constitute, nor should
it be considered, an established public trading market for our 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.
On December 12, 2001, Avery effected a 1-for-8 reverse stock split. The high
and low closing bid and asked prices in the table below have been adjusted to
give effect to such stock split by multiplying the actual bid and asked price
by eight. At no time prior to the reverse stock split has our common stock
traded higher than $5.00 per share. Such quotations reflect inter-dealer
prices, without retail mark- up, mark-down or commissions, and may not
necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                                                         Closing Bid Closing Asked
                                                                         ----------- -------------
                                                                         High   Low  High    Low
                                                                         ----- ----- -----  -----
<S>                                                                      <C>   <C>   <C>    <C>
Year Ended December 31, 2000
   First Quarter........................................................ 39.00 14.00 40.00  15.00
   Second Quarter....................................................... 25.00 10.75 26.00  11.00
   Third Quarter........................................................ 15.50  7.25 16.50   7.75
   Fourth Quarter....................................................... 13.50  7.50 14.00   8.00
Year Ended December 31, 2001
   First Quarter........................................................ 13.50  5.00 14.50   5.50
   Second Quarter.......................................................  5.60  3.04  5.92   3.28
   Third Quarter........................................................  3.28  2.24  3.68   2.48
   Fourth Quarter (prior to December 12, the effective date of the
     reverse split).....................................................  2.24  1.44  2.64   1.68
   Fourth Quarter (after December 12, the effective date of the reverse
     stock split).......................................................  1.05   .71  1.30    .79
</TABLE>

   As of March 11, 2002, there were approximately 450 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 $123,000 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

   On December 27, 2001, Avery granted options to purchase an aggregate of
106,250 shares of its common stock to five of its directors, Messrs. Haynes,
Isham, Lindauer, Phipps and Smith, at an exercise price of $.71 per share.
These securities were issued in transactions not involving a public offering in
reliance upon the exemption set forth in Section 4(2) of the Securities Act.

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.

                                      10

<PAGE>

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;

    .  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, 2001 and
2000. 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" line represent the results of
operations for Primal for the period from January 1, 2001 to February 12, 2001
(the spin-off date), and the twelve months ended December 31, 2000. Revenue,
cost of revenues, and operating expenses presented in the statements of
operations pertain only to continuing operations, which consist of Avery, HBS
Billing Services, ACI Billing Services and Aelix.

   On November 20, 2001, we completed the acquisition of Aelix. We intend to
broaden our product offerings and use Aelix's technology and personnel to
reduce costs. From the acquisition date through December 31, 2001, revenues and
expenses of Aelix were not material.

   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. 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.

                                      11

<PAGE>

   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 2001. The costs associated with this line
of credit produced the "Advance funding program expenses."

   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.

Results of Operations for the Twelve Months Ended December 31, 2001 and 2000

   The following table sets forth selected income statement lines in actual
dollars. The Statement of Operations Data are derived from Avery's calendar
2001 and 2000 audited financial statements.

Statement of Operations Data:

<TABLE>
<CAPTION>
                                                 Years Ended
                                                December 31,
                                             ------------------
                                               2001      2000
                                             --------  --------
                                               (In Thousands)
               <S>                           <C>       <C>
               Revenues..................... $ 41,916  $ 36,475
               Cost of revenues.............  (29,980)  (25,784)
                                             --------  --------
                      Gross profit..........   11,936    10,691
               Operating expenses...........   (9,546)   (6,771)
               Depreciation and amortization     (869)     (599)
                                             --------  --------
                      Operating income......    1,521     3,321
               Other income (expense), net..   (3,154)      316
               Income tax benefit (expense).     (217)   (1,314)
               Discontinued operations loss.     (666)   (3,700)
                                             --------  --------
                  Net loss.................. $ (2,516) $ (1,377)
                                             ========  ========
</TABLE>

Operating Revenues

   Revenues for 2001 increased $5.4 million or 14.9% compared to calendar 2000.
The revenue increase is largely attributable to the acquisition of ACI Billing
Services in August 2001, offset by a decline in HBS Billing Services' call
record volume. Excluding call records from the acquired company, the volume of
call records declined by 27%.

                                      12

<PAGE>

Cost of Revenues

   We achieved a 28.5% gross profit margin in 2001, compared to 29.3% in 2000.
The decline in margin was largely attributable to a lower level of income
arising from volume discounts and an increase in costs in the customer service
department.

Operating Expenses

   Operating expenses, excluding depreciation and amortization expense,
increased from $6,771,000 in 2000 to $9,546,000 in 2001. The $2.8 million
increase resulted principally from $3.0 million of additional expenses
associated with acquired businesses, the write-off and/or establishment of $0.4
million of principal and interest owned under non-recourse notes receivable
offset by $0.5 million of lower compensation charges and $0.3 million of lower
professional fees.

Advance Funding Program Income and Expense

   In an effort to reduce the inherent risk involved in advancing customers
receivables, we encouraged and participated in placing current customers with
significant financing needs with third party financing companies. Although
internal advance funding is still available, its scope has been reduced.
Advance funding program net income increased to $175,000 in 2001 from $127,000
in 2000.

Depreciation and Amortization

   Depreciation and amortization expense was $869,000 and $599,000 in calendar
2001 and 2000, respectively. The increase was due to the acquisitions of Aelix
and ACI Billing Services and to a lesser degree from the cumulative effect of
capital expenditures in both 2001 and 2000.

Income from Operations

   Operating income was $1,521,000 and $3,322,000 for calendar 2001 and 2000,
respectively.

Other Income (Expense), Net

   Other income (expense), net was a net expense of $3,154,000 during 2001,
compared to net income of $315,000 in 2000. The principal components during
each period are summarized below:

<TABLE>
<CAPTION>
                                                      Income (expense)
                                                   ----------------------
                                                       2001        2000
                                                   -----------  ---------
     <S>                                           <C>          <C>
     Write-off of investment in affiliated company $(2,361,000) $      --
     Reserve for non-recourse notes receivable....    (930,000)
     Interest income..............................     343,000    448,000
     Interest expense.............................     (69,000)  (133,000)
     Other........................................    (137,000)        --
                                                   -----------  ---------
        Total..................................... $ 3,154,000  $ 315,000
                                                   ===========  =========
</TABLE>

   The $2.4 million write-off of the investment in an affiliated company
occurred when the company ceased operations. The $0.8 million of the 0.9
million is a reserve for non-recourse notes receivable relate to notes from
former employees who borrowed funds to purchase shares of Avery and Primal
stock. The decline in the market value of both securities reduced the
likelihood of full recovery under the notes.

Income Taxes

   We recorded an income tax expense from continuing operations of $111,000 for
2001, which is increased by an income tax benefit of $345,000, in discontinued
operations. For the year ended December 31, 2001 total

                                      13

<PAGE>

income tax benefit differs from expected income benefit primarily because of
items permanently not deductible for income tax reporting purposes partially
offset by adjustments to prior year income taxes. We recorded an income tax
expense from continuing operations of $1,314,000 for calendar 2000, which was
offset by an income tax benefit of a $1,430,000 in discontinued operations.

   The Company assesses realizability of deferred tax assets based upon the
likelihood of earning taxable income in future periods. A majority of the
Company's deferred tax assets relate to items deducted for financial reporting
purposes currently but deductible for tax reporting purposes in future periods.
The Company believes that it will generate taxable income during the year
ending December 31, 2002. The ability of the Company to earn taxable income in
future periods is dependent upon a variety of factors, including stability of
the business environment, continuity of customers, control of expenses and
absence of special items arising outside the ordinary course of business.

Discontinued Operations

   The net loss from discontinued operations was $666,000 for the period from
January 1, 2001 through February 12, 2001, net of tax benefit of $345,000,
compared to a net loss of $3,700,000 for the year ended December 31, 2000, net
of a tax provision of $959,000. Revenues from discontinued operations were
$825,000 and $9,516,000 for the period from January 1, 2001 through February
12, 2001 and for the year ended December 31, 2000.

Liquidity

   We have obtained funding for our business from operating cash flow, issuance
of common and preferred stock and credit facilities from lending institutions.
In December 2001, we entered into a new secured credit facility, which allows
us to borrow up to $9.0 million, depending upon the value of accounts
receivable outstanding at the time of the loan.

   Our cash balance decreased to $5.4 million at December 31, 2001, from $6.7
million at December 31, 2000. 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, 2001 was a negative $13.1
million compared to a negative $10.4 million as of December 31, 2000. The $2.7
million decline in working capital is due to a $9.7 million increase in current
liabilities, offset by a $7.0 million increase in current assets. The $9.7
million increase in current liabilities is primarily attributable to a $4.9
million increase in customer deposits and other payables associated with
increased volume, a $1.7 million increase in accounts payable and accrued
liabilities due mainly to the acquisition of ACI Billing Services, and the
addition of $2.6 million of loans. The $7.0 million increase in current assets
is primarily attributable to a $5.4 million increase in the receivable from OAN
relating to the acquisition of ACI Billing Services, a $1.8 million increase in
trade receivables attributable to the acquisition of ACI Billing Services, a
$0.9 million increase in deposits placed with LECs, a $0.4 million increase in
LEC billing and collection fees receivable, a $0.5 million increase in deferred
tax assets offset by a $1.3 million decline in cash balance and a $0.7 million
decline in net current assets of discontinued operations.

   Net cash provided by continuing operations was $1.2 million and $9.9 million
for the years ended December 31, 2001 and 2000, respectively. The cash flow
provided by operations for 2001 resulted principally from $2.4 million of
non-cash charges relating to a write off of investments in affiliates, $1.6
million of non-cash charges relating to provisions for uncollectible related
party notes receivable, a $1.6 million increase in deposits and other payables
related to customers, a $1.6 million increase in trade accounts payable and
accrued liabilities and $0.9 million of depreciation and amortization offset by
a $1.8 million loss from continuing operations, a $1.7 million increase in
trade receivables, a $2.4 million increase in non-trade receivables, a $0.5
million

                                      14

<PAGE>

increase in deferred income taxes and a $0.4 million increase in deposits. The
$9.9 million cash flow provided by operations for 2000 resulted primarily from
$2.3 million net income from continuing operations, a $5.0 million decrease in
advance payments receivable, a $4.1 million increase in customer 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 $3.0 million increase in deposits with local exchange
carriers.

   The $5.0 million of net cash used in investing activities in 2001 included
$3.0 million loaned to affiliates, $1.6 million used to purchase the net assets
of ACI and $0.2 million of capital expenditures. The $2.2 million of cash flows
from financing activities reflected $2.6 million of borrowings under a new
credit agreement and $2.0 million from issuance of common and preferred stock,
offset by $1.2 million of purchases of treasury shares, $0.5 million of
preferred stock dividends and $0.4 million of preferred stock redemption.
During the year ended December 31, 2000, we spent $0.2 million on capital
expenditures, $1.5 million on investments, loaned $3.6 million to affiliated
parties and $0.3 million in payment of preferred dividends. This use of cash
was partially offset by $8.5 million received from the issuance of shares of
stock.

   Our cash requirements consist principally of working capital requirements,
scheduled payments of preferred dividends, and capital expenditures. We believe
cash flows generated from operations, as well as our new $9.0 million line of
credit will be sufficient to fund working capital needs, preferred stock
dividends and capital expenditures for the next twelve months.

Contractual and Commercial Obligations

   The following is a summary of contractual obligations and commercial
commitments:

<TABLE>
<CAPTION>
                                              Payments Due by Period
                                       ------------------------------------
                                                Less
                                               than 1  1-3    4-5   After 5
      Contractual Obligations--$000     Total   year  years  years   years
      -----------------------------    ------- ------ ------ ------ -------
    <S>                                <C>     <C>    <C>    <C>    <C>
    Long-Term Debt.................... $   681     --     -- $  681    --
    Operating Leases..................   1,703 $  594 $  883    226    --
    Unconditional Purchase Obligations   4,277  2,324  1,953     --    --
    Other Long-Term Obligations(1)....   4,215  2,639    636    636  $304
                                       ------- ------ ------ ------  ----
    Total Contractual Cash Obligations $10,876 $5,557 $3,472 $1,543  $304
</TABLE>
--------
(1) Consists of redeemable preferred stock and estimated liability to ACI
    Billing Services' customers based on future billing fees.

<TABLE>
<CAPTION>
                                                    Amount of Commitment
                                                   Expiration Per Period
                                                 --------------------------
                                         Total    Less
                                        Amounts  than 1  1-3    4-5  Over 5
    Other Commercial Commitments--$000 Committed  year  years  years years
    ---------------------------------- --------- ------ ------ ----- ------
    <S>                                <C>       <C>    <C>    <C>   <C>
                Guarantees............  $1,722     --   $1,722  --     --
</TABLE>

New Accounting Standards

   In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes FAS 121, "Accounting for Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("FAS 121") and the accounting and
reporting provisions of the Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." FAS 144 establishes a single accounting model, based
on the framework established by FAS 121, for long-lived assets to be disposed
of by sale and resolved significant implementation issues related to

                                      15

<PAGE>

FAS 121. FAS 144 retains the requirements of FAS 121 to recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable from
its undiscounted cash flows and measure an impairment loss as the difference
from its undiscounted cash flows and measure an impairment loss as the
difference between the carrying amount and the fair value of the asset. FAS 144
excludes goodwill from its scope, describes a probability-weighted cash flow
estimation approach, and establishes a "primary-asset" approach to determine
the cash flow estimation period for groups of assets and liabilities. FAS 144
is effective for fiscal years beginning after December 15, 2001, and interim
periods within those fiscal years, with early application encouraged. Avery
believes the adoption of FAS 144 will not have a material impact on our
financial position or results of operations.

   In July, 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). Under the new
rules, goodwill and intangible assets that are deemed to have indefinite lives
are no longer amortized but are reviewed annually for impairment. The
provisions of FAS 142 are required for fiscal years beginning after December
15, 2001. Avery will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in a decrease
in amortization of goodwill of $158,000 per year ($0.12 per share in 2001).
During 2002, we will perform the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 and have
not yet determined what the effect of these tests will be on our results of
operations or financial position.

   In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and prohibits the use of the
pooling-of-interest method. We adopted SFAS No. 141 in the third quarter of
2001. The adoption of SFAS No. 141 had no material effect on our results of
operations or financial position.

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 $420,000,
which will be funded from working capital. Additional bonuses are at the sole
discretion of Avery's Board of Directors. Avery also maintains 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 26 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.

                                      16

<PAGE>

                                   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.

<TABLE>
<CAPTION>
Name                   Age Position
----                   --- --------
<C>                    <C> <S>
Patrick J. Haynes, III 52  Director, Chairman of the Board, President and Chief Executive Officer
Michael J. Labedz      36  Director, Executive Vice President and Chief Operating Officer
Thomas C. Ratchford    53  Director, Vice President, Chief Financial Officer, Secretary and Treasurer
Norman M. Phipps       41  Director
J. Alan Lindauer       62  Director
Robert T. Isham, Jr.   49  Director
Adm. Leighton W. Smith 62  Director
</TABLE>

   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 now known as e.spire Communications, Inc. 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. 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.

   Michael J. Labedz has served as a director and Executive Vice President and
Chief Operating Officer of Avery since January 2002. Mr. Labedz has also served
as President of ACI Billing Services, Inc., a wholly owned subsidiary of Avery,
since December 2000. Mr. Labedz has been employed by the Thurston Group, Inc.,
a private merchant bank in Chicago since 1998. Previously, he was Vice
President of Operations and Chief Financial Officer for a computer services
company controlled by Michael Milken's Knowledge Universe and a management
consultant with Deloitte Consulting L.P.

   Thomas C. Ratchford has served as a director and Vice President, Chief
Financial Officer, Secretary and Treasurer of Avery since January 2002. Prior
to joining Avery in November 2001, Mr. Ratchford was the Chief Financial
Officer of Qorus.com, Inc. from October 2000. From 1999 to 2000, Mr. Ratchford
was the Director of Finance for the Highway Safety Division of Avery Dennison
Corporation. From 1993 to 1999, Mr. Ratchford was the Chief Financial Oicer of
Stimsonite Corporation, a publicly held manufacturer of highway safety
products, which was purchased by Avery Dennisson Corporation in 1999.

   Norman M. Phipps has served as a director of Avery since November 1995.
Until his resignation in August 2001, Mr. Phipps also served as 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, LLC from January 1994 to December 1997 and CP
Capital Partners from January 1991 to December 1993.

                                      17

<PAGE>

   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.

   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.

   Admiral Leighton Smith was elected as a director on January 10, 2002.
Admiral Smth retired from the U.S. Navy on October 1, 1996. He is currently
serving as a Senior Fellow at the Center for Naval Analysis, is president of
his own consulting firm, Leighton Smith Associates, and is Chairman of the
Board of Trustees of the U.S. Naval Academy Alumni Association. Admiral Smith
was previously the Commander in Chief, U.S. Naval Forces Europe and Commander
in Chief Allied Forces Southern Europe (1994-1996).

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
$20,000 and an annual grant of options to purchase a minimum of 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, 2001, 2000 and 1999 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, 2001, 2000
and 1999 exceeded $100,000.

                     Summary Executive Compensation Table

<TABLE>
<CAPTION>
                                                    Annual Compensation
                                    ---------------------------------------------------
                                    Fiscal                      Other Annual  Awards/
Name And Principal Position          Year  Salary ($) Bonus ($) Compensation Opions (#)
---------------------------         ------ ---------- --------- ------------ ----------
<S>                                 <C>    <C>        <C>       <C>          <C>
PATRICK J. HAYNES, III(1)..........  2001   $278,333  $125,000    $31,720      52,500
 Chairman of the Board, President &  2000   $200,000  $150,000    $25,187      12,500
 Chief Executive Officer             1999   $200,000  $100,000    $36,804      12,500
SCOT M. MCCORMICK(2)...............  2001   $156,000  $      0    $15,214          --
 Vice President, Chief Financial     2000   $143,000  $ 75,000    $11,589          --
 Officer & Secretary                 1999   $130,000  $ 50,000    $12,192      18,750
</TABLE>
--------
(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. Mr. McCormick resigned as an officer and director on
    January 2, 2002.

                                      18

<PAGE>

                       Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                    Individual Grants
-----------------------------------------------------------------------------------------
                           Number Of
                           Securities       % Of Total Options    Exercise Of
                       Underlying Options Granted To Employees In     Base     Expiration
Name                        Granted             Fiscal Year       Price ($/Sh)    Date
----                   ------------------ ----------------------- ------------ ----------
<S>                    <C>                <C>                     <C>          <C>
Patrick J. Haynes, III       52,500                 41%               .71       12/26/11
</TABLE>

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 November 1, 2001, Mr. Haynes entered into an employment agreement
with Avery. Under his employment agreement, Mr. Haynes serves 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 December 31, 2006. Mr. Haynes' initial base salary is $420,000
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.

   Effective January 1, 2000, Scot M. McCormick entered into an employment
agreement with Avery. Under his employment agreement, Mr. McCormick served as
Vice President, Chief Financial Officer and Secretary. The employment agreement
expired December 31, 2001, and Mr. McCormick resigned as an officer and
director of Avery effective January 2, 2002.

                                      19

<PAGE>

            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, 2001,
except for Waterside Capital Corporation, which, to the knowledge of Avery, has
not filed a Form 3 to report its acquisition in February 2001 of 1,250,000
shares of Avery's series h preferred stock that Avery believes may have
resulted in Waterside's becoming the beneficial owner of more than 10% of
Avery's common stock because such shares were immediately convertible into
Avery's common stock. Waterside is a publicly held small business investment
company. Accordingly, Waterside may be relying on an exemption from filing a
Form 3 of which Avery may not be aware, and the inclusion of this information
by Avery herein is not intended to imply, nor should it be inferred, that
Waterside was required to file a Form 3 to report its acquisition of these
shares. Waterside is not listed herein as the beneficial owner of more than 5%
of Avery's voting securities because several series of Avery's preferred stock
vote with the holders of its common stock as a single class and Waterside
beneficially owns less than 5% of the total votes represented by Avery's voting
securities.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

Beneficial Ownership of Avery's Voting Securities

   On March 25, 2002, Avery had 1,190,184 shares of common stock, 1,500,000
shares of series d preferred stock, 2,150,493 shares of series g preferred
stock, 1,600,000 shares of series h preferred stock and 500,000 shares of
series i 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 entitled to 0.139525 vote per share on any matter submitted to Avery's
stockholders for a vote. The holders of the series h and i preferred stock are
entitled to 0.125 vote per share on any matter 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 25, 2002, a total of 3,252,732 shares of Avery's
voting securities were outstanding, all of which constitute a single class of
voting securities.

   The following table sets forth information as of March 25, 2002, for any
person who is known to Avery to be the beneficial owner of more than five
percent of the votes represented by 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;

                                      20

<PAGE>

  .   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.

   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.

<TABLE>
<CAPTION>
                                               Number of Percent
                  Name of Beneficial Owner       Votes   of Class
                  ------------------------     --------- --------
              <S>                              <C>       <C>
              Patrick J. Haynes, III (1)...... 1,947,442   37.9%
              Thurston Group, Inc. (1)........ 1,822,038   35.6%
</TABLE>
--------
(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.

Security Ownership of Management

   The following table sets forth information as of March 25, 2002, 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
1,249,580 shares of common stock outstanding on March 25, 2002. Since these
calculations do not include the four 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.

<TABLE>
<CAPTION>
                                              Common Stock            Preferred Stock
                                          --------------------  ---------------------------
                                            Number
                                              of     Percent of          Number     Percent
    Name of Beneficial Owner                Shares     Class    Series  of Shares   of Class
    ------------------------              -------    ---------- ------ ---------    --------
<S>                                       <C>        <C>        <C>    <C>          <C>
Patrick J. Haynes, III (1)............... 624,525(2)    35.6%     B      100,000(2)   25.6%
                                                                  D    1,500,000(2)  100.0%
                                                                  G    2,150,493(2)  100.0%
Norman M. Phipps (3).....................  13,542        1.1%
J. Alan Lindauer (4).....................  16,380(5)     1.3%
Robert T. Isham, Jr. (1).................  20,573(6)     1.6%     A        8,333       2.1%
Michael J. Labedz (1)....................  18,750(7)     1.5%
Thomas C. Ratchford (1)..................   4,167(7)     0.3%
Leighton W. Smith (1)....................   4,167(7)     0.3%
All directors and executive officers as a
 group (2)(5)(6)(7)...................... 702,104       39.1%
</TABLE>
--------
(1) The business address for this person is 190 South LaSalle Street, Suite
    1710, Chicago, Illinois 60603.
(2) Includes 499,121 shares beneficially owned by the Thurston Group, Inc., of
    which Mr. Haynes is the Senior Managing Director, 114,988 shares
    beneficially owned by Waveland, LLC, of which Mr. Haynes is the owner, and
    10,417 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, 29,238 represent shares that may be
    acquired within 60 days upon the exercise of options or warrants, 477,131
    represent shares that may be acquired within 60 days upon the conversion of
    convertible securities, and 300,048 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 611 Industrial Way West, Eatontown,
    New Jersey 07724. Of Mr. Phipp's shares, 4,167 represent shares that may be
    acquired within 60 days upon the exercise of options.
(4) The business address for this person is 300 East Main Street, Suite 1380,
    Norfolk, Virginia 23510.
(5) These shares do not include the 156,250 votes represented by 1,250,000
    shares of Avery's series h preferred stock that are beneficially owned by
    Waterside Capital Corporation, of which Mr. Lindauer is President and a
    director. Waterside is a publicly held small business investment company,
    and Mr. Lindauer disclaims beneficial ownership of these shares.
(6) Of these shares, 14,130 represent shares that may be acquired within 60
    days upon the exercise of options and warrants, and 694 represent shares
    that may be acquired within 60 days upon the conversion of convertible
    securities.
(7) Represents shares that may be acquired within 60 days upon the exercise of
    options.

                                      21

<PAGE>

Item 12.  Certain Relationships and Related Transactions

   During 2000 and 2001, Avery loaned an aggregate of $4,064,000 to Qorus.com,
Inc. and its wholly owned subsidiary, Aelix, Inc. The notes evidencing those
loans bore interest varying from 10% to 12%. In November 2001, in a transaction
approved with the consent of a majority of the stockholders of Qorus, Avery
purchased substantially all of the assets comprising the intelligent message
communications service business of Qorus and Aelix. We canceled the $4,064,500
of notes payable to us by Qorus and Aelix and agreed to assume certain
liabilities of Qorus and Aelix as consideration for the assets. We also agreed
to pay to Qorus an amount equal to five percent (5%) of the net after-tax
income, if any, generated by the acquired intelligent message communications
service business for a period of five years following the closing date.
Pursuant to an agreement among the parties entered into in March 2002, the
parties agreed to eliminate this royalty obligation in exchange for a cash
payment in the amount of $100,000, the return of all common shares of Qorus
held by Avery or its subsidiaries and the cancellation of all unexercised
options to purchase common shares of Qorus held by Avery or its subsidiaries.

   Qorus is a publicly held company the securities of which are traded on the
OTC Bulletin Board. Patrick J. Haynes, III, a director and the Chairman of the
Board, President and Chief Executive Officer of Avery, beneficially owns
approximately 58.1% of Qorus's common stock, and Robert T. Isham, Jr., a
director of Avery, beneficially owns approximately 5.4% of Qorus's common
stock. Mr. Haynes and Mr. Isham are directors of Avery and the sole directors
of Qorus. Mr. Haynes is the Senior Chairman and a director of Avery, and the
Chairman of the Executive Committee of Qorus. Thomas C. Ratchford is the Chief
Financial Officer of both Avery and Qorus.

   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:

<TABLE>
<CAPTION>
                            Name              Loan Amount
                            ----              -----------
                       <S>                    <C>
                       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
</TABLE>

   Each loan is non-recourse to the borrower, is secured by the common stock
purchased, matures on October 3, 2002, and bears interest at the rate of 6.6%
per annum.

   At various times between December 7, 2000 and December 31, 2001, Thurston
Communications advanced an aggregate of $1,995,000 to Customer Care &
Technology Holdings, Inc. In connection with such advances, Customer Care &
Technology Holdings agreed to issue to Avery 1,995,000 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, a director and the Chairman of the Board, President and Chief Executive
Officer of Avery, is the controlling stockholder and the Chairman of the Board
of Directors, President and Chief Executive Officer of Customer Care &
Technology Holdings. During 2001, this investment became worthless and was
written off.

   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

                                      22

<PAGE>

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 eight basis. J. Alan Lindauer, a director of Avery, is a director
and President and Chief Executive Officer of Waterside Capital Corporation.
Waterside Capital is a publicly held small business investment company.

   In connection with the private placement of an aggregate of $500,000 of
series i convertible preferred stock in April 2001, Avery sold 500,000 shares
of such preferred stock to Russell T. Stern, Jr. for a purchase price of
$1.00 per share. The holder of the series i convertible preferred stock is
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
eight basis. Mr. Stern is a principal of the Thurston Group.

   Effective September 4, 2001, Phipps & Company, LLC entered into a consulting
agreement with Avery. Norman M. Phipps, a director of Avery, is the sole member
of Phipps & Company, LLC Under this consulting agreement, Phipps & Company, LLC
serves as an independent contractor. The consulting agreement expires, unless
earlier terminated pursuant to the consulting agreement, on December 31, 2002.
Phipps & Company, LLC receives $20,000 per month during the term of the
agreement. In addition, Avery will pay Phipps & Company, LLC an additional,
non-accountable expense allowance of $1,000 per month to defray costs of office
equipment, rent, secretarial services and other similar expenses. Avery will
reimburse Phipps & Company, LLC for all out-of-pocket expenses reasonably
incurred by Phipps & Company, LLC, its members, employees, agents and
representatives in connection with consulting services, rendered pursuant to
the consulting agreement. During 2001, Avery paid Phipps & Company an aggregate
of $84,000 pursuant to this consulting agreement.

   Effective May 1, 2001, Robert T. Isham, Jr., a director of Avery, entered
into an consulting agreement with Avery. Under this consulting agreement, Mr.
Isham serves as an independent contractor. The consulting agreement is renewed
monthly and may be terminated by either party upon 10 days written notice.
Mr. Isham receives $20,000 per month during the term of the agreement. In
addition, Avery will reimburse Mr. Isham for all out-of-pocket expenses
reasonably incurred by Mr. Isham in connection with consulting services
rendered pursuant to the consulting agreement. During 2001, Avery paid Mr.
Isham an aggregate of $160,000 pursuant to this consulting agreement.

   In December 2001, Avery executed and delivered to Waterside Capital
Corporation a promissory note in the original principal amount of $680,681. The
note bears interest at 8% per annum, provides for quarterly interest payments
and matures on December 31, 2006. Avery issued the note to Waterside in
exchange for the cancellation of a prior promissory note payable to Waterside
in the amount of $350,000 which was due to mature on December 12, 2002. In
addition, Waterside agreed to surrender for cancellation 54,396 shares of
Avery's common stock, warrants to purchase for $10.00 per share up to 15,000
shares of Avery's common stock and warrants to purchase for $12.00 per share
5,105 shares of Avery's common stock held by it. Alan J. Lindauer, a director
of Avery, is a director and the President and Chief Executive Officer of
Waterside.

   We paid Thurston Group $96,070 in 2001 for the rental of office space
occupied by our corporate staff in Chicago, Illinois. Patrick J. Haynes, III, a
director and the Chairman of the Board, President and Chief Executive Officer
of Avery, is a principal and the Senior Managing Director of Thurston Group.

                                      23

<PAGE>

                                    PART IV

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

   The following reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended December 31, 2001:

   Current Report on Form 8-K dated November 20, 2001, filed December 4, 2001.

   Current Report on Form 8-K/A dated August 3, 2001, filed October 17, 2001.

                                      24

<PAGE>

                                  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.


                                              By:   /s/  THOMAS C. RATCHFORD
                                                  -----------------------------
                                                       Thomas C. Ratchford
                                                         Vice President,
                                                    Chief Financial Officer,
                                                     Secretary and Treasurer

Date:  December 16, 2002

                                      25

<PAGE>

                   CERTIFICATION BY CHIEF EXECUTIVE OFFICER

   I, Patrick J. Haynes, III, Chief Executive Officer of Avery Communications,
Inc. (the "Company"), certify that:

      1.  I have reviewed this annual report of the Company on Form 10-KSB/A;

      2.  Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report; and

      3.  Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly represent in all material
   respects the financial condition, results of operations and cash flows of
   the Company as of, and for, the periods presented in this annual report.

[Items 4, 5 and 6 omitted pursuant to the transition provisions of Release No.
                                  34-46427.]

Date:  December 16, 2002

                                                   /s/  PATRICK J. HAYNES, III
                                                  -----------------------------
                                                     Patrick J. Haynes, III,
                                                     Chief Executive Officer

<PAGE>

                   CERTIFICATION BY CHIEF FINANCIAL OFFICER

   I, Thomas C. Ratchford, Chief Financial Officer of Avery Communications,
Inc. (the "Company"), certify that:

      1.  I have reviewed this annual report of the Company on Form 10-KSB/A;

      2.  Based on my knowledge, this annual report does not contain any untrue
   statement of a material fact or omit to state a material fact necessary to
   make the statements made, in light of the circumstances under which such
   statements were made, not misleading with respect to the period covered by
   this annual report; and

      3.  Based on my knowledge, the financial statements, and other financial
   information included in this annual report, fairly represent in all material
   respects the financial condition, results of operations and cash flows of
   the Company as of, and for, the periods presented in this annual report.

Date:  December 16, 2002

                                                    /s/  THOMAS C. RATCHFORD
                                                  -----------------------------
                                                      Thomas C. Ratchford,
                                                     Chief Financial Officer

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                    Page
                                                                    ----
       <S>                                                          <C>

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

       Financial Statements:

          Consolidated Balance Sheets.............................. F-2

          Consolidated Statements of Operations.................... F-4

          Consolidated Statement of Stockholders' Equity (Deficit). F-5

          Consolidated Statements of Cash Flows.................... F-6

       Notes to Consolidated Financial Statements.................. F-7
</TABLE>

<PAGE>

              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, 2001 and 2000 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 as of and for the year ended
December 31, 2000, which statements reflect total assets of $12,985,492 as of
December 31, 2000, and total revenue of $9,515,805 for the year ended December
31, 2000. 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 auditing standards generally
accepted in the United States. 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, 2001 and 2000 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                                /s/ KING GRIFFIN & ADAMSON P.C.

Dallas, Texas
March 20, 2002

                                      F-1

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   December 31, December 31,
                                     ASSETS                                            2001         2000
                                     ------                                        ------------ ------------
                                                                                     Restated
<S>                                                                                <C>          <C>
Current assets:
   Cash and cash equivalents...................................................... $ 5,422,202  $ 6,719,888
   Trade accounts and notes receivable, net of allowance for doubtful accounts of
     $242,000.....................................................................   3,231,166    1,414,249
   Advance payment receivables....................................................   1,794,352    1,797,634
   LEC billing and collection fees receivable.....................................   4,948,502    4,561,600
   Other receivables..............................................................      94,376      210,227
   Receivable from OAN............................................................   5,360,845           --
   Deferred tax asset.............................................................   1,090,690      565,562
   Deposits with LECs.............................................................     933,618           --
   Other current assets...........................................................      53,354       29,661
   Net current assets of discontinued operations..................................          --      669,620
                                                                                   -----------  -----------
          Total current assets....................................................  22,929,105   15,968,441
                                                                                   -----------  -----------
Property and equipment:
   Computer equipment and software................................................   5,718,172    1,282,988
   Furniture and fixtures.........................................................     500,003      322,023
   Accumulated depreciation and amortization......................................  (1,379,877)    (784,168)
                                                                                   -----------  -----------
          Total property and equipment, net.......................................   4,838,298      820,843
                                                                                   -----------  -----------
Other assets:
   Goodwill, net of accumulated amortization of $1,263,429 and $1,001,725.........   5,577,735    2,753,892
   Investments in affiliates......................................................      30,100    1,519,000
   Deposits with LECs.............................................................   2,236,983    2,746,869
   Purchased contracts, net of accumulated amortization of $339,996 and
     $328,225.....................................................................      14,267       26,038
   Notes receivable due from related parties, net of allowance of $1,210,800 at
     December 31, 2001............................................................     752,700    4,046,772
   Capitalized financing fees.....................................................     718,299           --
   Other assets...................................................................      43,036       14,554
   Net long-term assets of discontinued operations................................          --    7,746,836
                                                                                   -----------  -----------
          Total other assets......................................................   9,373,120   18,853,961
                                                                                   -----------  -----------
          Total assets............................................................ $37,140,523  $35,643,245
                                                                                   ===========  ===========
</TABLE>

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

                                      F-2

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                   CONSOLIDATED BALANCE SHEETS--(Continued)

<TABLE>
<CAPTION>
                                                                                                   December 31, December 31,
                          LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                               2001         2000
                          ----------------------------------------------                           ------------ ------------
                                                                                                     Restated
<S>                                                                                                <C>          <C>
Current liabilities:
   Current notes payable.......................................................................... $        --  $     6,667
   Line of credit.................................................................................   2,607,705           --
   Trade accounts payable.........................................................................   5,144,763    4,117,671
   Accrued liabilities............................................................................   4,306,386    3,323,874
   Current portion of customer cure liability.....................................................     317,701           --
   Income taxes payable...........................................................................     163,994      314,547
   Deposits and other payables related to customers...............................................  23,518,963   18,594,786
                                                                                                   -----------  -----------
         Total current liabilities................................................................  36,059,512   26,357,545
                                                                                                   -----------  -----------
Non-current liabilities:
   Long-term notes payable due to related party...................................................     680,681      333,475
   Customer cure liability - long-term portion....................................................   1,576,021           --
                                                                                                   -----------  -----------
         Total non-current liabilities............................................................   2,256,702      333,475
                                                                                                   -----------  -----------
Redeemable preferred stock:
   Series A; $0.01 par value, 391,667 shares authorized, issued and outstanding (liquidation
    preference of $391,667).......................................................................     391,667      391,667
   Series B; $0.01 par value, 390,000 shares authorized, issued and outstanding (liquidation
    preference of $390,000).......................................................................     390,000      390,000
   Series C; $0.01 par value, 40,000 shares authorized, issued and outstanding (liquidation
    preference of $40,000)........................................................................      40,000       40,000
   Series D; $0.01 par value, 1,500,000 authorized, issued and outstanding (liquidation
    preference of $1,500,000).....................................................................   1,500,000    1,500,000
   Series E; $0.01 par value, 0 and 350,000 shares authorized, issued and outstanding at
    December 31, 2001 and December 31, 2000, respectively (liquidation preference of $0 and
    $350,000 at December 31, 2001 and December 31, 2000, respectively)............................          --      350,000
                                                                                                   -----------  -----------
         Total redeemable preferred stock.........................................................   2,321,667    2,671,667
                                                                                                   -----------  -----------

Commitments and contingencies (Notes 8 and 14)....................................................          --           --

Stockholders' equity (deficit):
   Preferred stock (20,000,000 shares authorized):
      Series G; $0.01 par value, 2,150,493 and 7,126,894 shares authorized, issued and
       outstanding at December 31, 2001 at December 31, 2000, respectively (liquidation
       preference of $21,505 and $71,269 at December 31, 2001 and December 31, 2000
       respectively)..............................................................................      21,505       71,269
      Series H; $0.01 par value, 1,600,000 and 0 shares authorized, issued and outstanding at
       December 31, 2001 and December 31, 2000, respectively (liquidation preference of
       $1,600,000 and $0 at December 31, 2001 and December 31, 2000, respectively)................      16,000           --
      Series I; $0.01 par value, 500,000 and 0 shares authorized, issued and outstanding at
       December 31, 2001 and December 31, 2000, respectively (liquidation preference of
       $500,000 and $0 at December 31, 2001 and December 31, 2000, respecively)...................       5,000           --
Common stock: $0.01 par value, 20,000,000 shares authorized, 1,267,955 and 12,461,230 (prior to 1
 for 8 reverse stock split) shares issued at December 31, 2001 and December 31, 2000,
 respectively.....................................................................................      12,680      124,613
Additional paid-in capital........................................................................   6,639,337   15,752,226
Accumulated deficit...............................................................................  (9,055,012)  (6,539,013)
Treasury stock, 60,271 and 1,215,216 (prior to 1 for 8 reverse stock split) shares at December 31,
 2001 and 2000, respectively, at cost.............................................................     (58,440)  (2,036,801)
Subscription notes receivable.....................................................................  (1,078,428)  (1,091,736)
                                                                                                   -----------  -----------
         Total stockholders' equity (deficit).....................................................  (3,497,358)   6,280,558
                                                                                                   -----------  -----------
         Total liabilities and stockholders' equity (deficit)..................................... $37,140,523  $35,643,245
                                                                                                   ===========  ===========
</TABLE>

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

                                      F-3

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                   For the Year Ended
                                                                                      December 31,
                                                                               --------------------------
                                                                                   2001          2000
                                                                               ------------  ------------
<S>                                                                            <C>           <C>
Revenues...................................................................... $ 41,915,531  $ 36,475,177
Cost of revenues..............................................................  (29,979,882)  (25,783,816)
                                                                               ------------  ------------
       Gross profit...........................................................   11,935,649    10,691,361
                                                                               ------------  ------------
       Operating expenses.....................................................  (10,589,576)   (7,496,469)
       Advance funding program income and costs, net..........................      175,242       126,655
                                                                               ------------  ------------
       Total..................................................................  (10,414,334)   (7,369,814)
                                                                               ------------  ------------
       Operating income.......................................................    1,521,315     3,321,547
                                                                               ------------  ------------
Other income (expense):
   Interest expense...........................................................      (68,812)     (133,120)
   Interest income............................................................      343,278       448,340
   Write-off of investment in affiliate.......................................   (2,361,405)           --
   Write-off of notes receivable from related parties.........................     (930,608)           --
   Other, net.................................................................     (136,786)           --
                                                                               ------------  ------------
       Total other income (expense), net......................................   (3,154,333)      315,220
                                                                               ------------  ------------
Income (loss) from continuing operations before provision for income taxes and
  discontinued operations.....................................................   (1,633,018)    3,636,767
Income tax benefit (expense)..................................................     (216,945)   (1,313,518)
                                                                               ------------  ------------
Income (loss) from continuing operations......................................   (1,849,963)    2,323,249
Loss from discontinued operations (less applicable income tax benefit of
  $345,000 and $1,429,970)....................................................     (666,036)   (3,700,487)
                                                                               ------------  ------------
       Net loss............................................................... $ (2,515,999) $ (1,377,238)
                                                                               ============  ============
Net loss attributable to common stockholders.................................. $ (2,969,714) $ (1,661,021)
                                                                               ============  ============

Per share data:
Basic net loss per share:
Continuing operations income (loss)........................................... $      (1.81) $       1.76
Discontinued operations.......................................................        (0.52)        (3.20)
                                                                               ------------  ------------
Net loss...................................................................... $      (2.33) $      (1.44)
                                                                               ============  ============
Diluted net loss per share:
Continuing operations income (loss)........................................... $      (1.81) $       1.12
Discontinued operations.......................................................        (0.52)        (1.84)
                                                                               ------------  ------------
Net loss...................................................................... $      (2.33) $      (0.72)
                                                                               ============  ============
Weighted average number of common shares outstanding:
   Basic common shares........................................................    1,274,687     1,160,141
                                                                               ============  ============
   Diluted common shares......................................................    1,274,687     2,044,082
                                                                               ============  ============
</TABLE>


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

                                      F-4

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                    Preferred Stock        Common Stock       Additional  Subscription
                                                 --------------------  --------------------    Paid-In       Notes
                                                   Shares     Amount     Shares     Amount     Capital     Receivable
                                                 ----------  --------  ----------  --------  -----------  ------------
<S>                                              <C>         <C>       <C>         <C>       <C>          <C>
Balance at December 31, 1999....................  6,600,373  $ 66,004   9,803,949  $ 98,039  $12,306,164  $        --
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
Granting of warrants for services...............                                                 239,819
Issuance of shares for services.................                           50,000       500       68,250
Treasury stock received in settlement...........
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)
Payment of preferred stock dividend.............                                                (486,905)
Redemption of preferred stock in connection
 with Primal Systems, Inc. spin-off............. (4,976,401)  (49,764)                        (4,926,637)
Record the Primal Solutions, Inc. spin-off......                                              (2,465,547)
Options purchased with cash.....................                                                (126,622)
Preferred stock issued for cash.................  2,100,000    21,000                          1,974,000
Payment on subscription note receivable.........                                                               13,308
Issuance of shares for services.................                           80,000       800       50,508
Purchase of treasury stock for cash.............
Treasury stock cancelled........................                       (2,399,154)  (23,992)  (3,220,427)
Reflect 1 for 8 reverse stock split.............                       (8,874,121)  (88,741)      88,741
Treasury stock received in settlement of notes
 payable........................................
Net loss........................................
                                                 ---------------------------------------------------------------------
Balance at December 31, 2001....................  4,250,493  $ 42,505   1,267,955  $ 12,680  $ 6,639,337  $(1,078,428)
                                                 =====================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                      Treasury Stock
                                                 -----------------------  Accumulated
                                                   Shares       Amount      Deficit       Total
                                                 ----------  -----------  -----------  -----------
<S>                                              <C>         <C>          <C>          <C>
Balance at December 31, 1999....................  1,176,916  $(1,981,999) $(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
Granting of warrants for services...............                                           239,819
Issuance of shares for services.................                                            68,750
Treasury stock received in settlement...........     38,300      (54,802)                  (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....................  1,215,216   (2,036,801)  (6,539,013)   6,280,558
Payment of preferred stock dividend.............                                          (486,905)
Redemption of preferred stock in connection
 with Primal Systems, Inc. spin-off.............                                        (4,976,401)
Record the Primal Solutions, Inc. spin-off......                                        (2,465,547)
Options purchased with cash.....................                                          (126,622)
Preferred stock issued for cash.................                                         1,995,000
Payment on subscription note receivable.........                                            13,308
Issuance of shares for services.................                                            51,308
Purchase of treasury stock for cash.............  1,189,813   (1,217,102)               (1,217,102)
Treasury stock cancelled........................ (2,399,154)   3,244,419                        --
Reflect 1 for 8 reverse stock split.............                                                --
Treasury stock received in settlement of notes
 payable........................................     54,396      (48,956)                  (48,956)
Net loss........................................                           (2,515,999)  (2,515,999)

Balance at December 31, 2001....................     60,271  $   (58,440) $(9,055,012) $(3,497,358)

</TABLE>

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

                                      F-5

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   Year Ended December 31,
                                                                                  ------------------------
                                                                                      2001
                                                                                  -----------
<S>                                                                               <C>
Cash flows from operating activities:                                               Restated
 Net loss........................................................................ $(2,515,999)
 Loss from discontinued operations...............................................     666,036
 Adjustments to reconcile net loss to net cash provided by operating
  activities from continuing operations net of effects of acquisitions:
    Provision for bad debt expense...............................................          --
    Provision for uncollectable related party notes receivable...................   1,627,589
    Amortization of loan discounts...............................................       9,952
    Deferred income taxes........................................................    (525,028)
    Depreciation and amortization................................................     869,184
    Compensation in connection with exercise of options..........................          --
    Warrants issued in connection with services performed........................          --
    Compensation and services paid in stock......................................      51,308
    Treasury stock received in settlement........................................          --
    Option buyback costs.........................................................      88,378
    Write off of investment in affiliate.........................................   2,361,405
    Change in operating assets and liabilities:
       Trade accounts receivable.................................................  (1,732,617)
       Advance payment receivables...............................................       3,282
       Other current assets......................................................     (23,693)
       Deposits..................................................................    (355,349)
       Other receivables.........................................................  (2,431,045)
       Trade accounts payable and accrued liabilities............................   1,693,328
       Income taxes payable......................................................    (150,653)
       Deposits and other payables related to customers..........................   1,575,997
       Other assets..............................................................     (28,482)
                                                                                  -----------
       Net cash provided by continuing operations................................   1,183,593
         Net cash provided by (used in) discontinued operations..................     308,472
                                                                                  -----------
         Net cash provided by operations.........................................   1,492,065
                                                                                  -----------
Cash flows from investing activities:
 Purchase of contracts...........................................................          --
 Purchase of property and equipment..............................................    (200,711)
 Amounts loaned for notes receivable to related parties..........................  (3,025,905)
 Purchase of OAN Services, Inc. net assets.......................................  (1,615,666)
 Purchase of Qorus, Inc. net assets..............................................    (116,708)
 Purchase of investments in affiliates...........................................     (11,100)
                                                                                  -----------
         Net cash used in investing activities...................................  (4,970,090)
                                                                                  -----------
Cash flows from financing activities:
 Redemption of preferred shares from related party...............................    (350,000)
 Proceeds from line of credit....................................................   2,607,705
 Proceeds from notes payable.....................................................     210,000
 Purchase of options for cash from a related party...............................    (215,000)
 Cash paid for financing fees....................................................    (160,000)
 Cash paid for treasury stock....................................................      (9,484)
 Cash paid for treasury stock from related party.................................  (1,207,617)
 Payment on notes payable........................................................    (216,668)
 Payment of preferred stock dividends............................................    (486,905)
 Issuance of shares of common and preferred stock for cash.......................   1,995,000
 Payment received on subscription notes receivable...............................      13,308
                                                                                  -----------
         Net cash provided by financing activities...............................   2,180,339
                                                                                  -----------
Increase (decrease) in cash and cash equivalents.................................  (1,297,686)
Cash and cash equivalents at beginning of year...................................   6,719,888
                                                                                  -----------
Cash and cash equivalents at end of year......................................... $ 5,422,202
                                                                                  ===========
Supplemental disclosures:
 Interest paid................................................................... $    72,427
                                                                                  ===========
 Income taxes paid............................................................... $   560,066
                                                                                  ===========
Schedule of non-cash financing and investing transactions:
 Release of HBS escrow shares--employment and earn-out-agreements................ $        --
                                                                                  ===========
 Issuance of common stock for services........................................... $    51,308
                                                                                  ===========
 Issuance of notes receivable for common stock................................... $        --
                                                                                  ===========
 Issurance of preferred stock in connection with Primal
  Systems, Inc. settlement and related anticipated spin-off...................... $        --
                                                                                  ===========
 Purchase price for Aelix paid with receivable................................... $ 4,064,500
                                                                                  ===========
 Treasury stock received for notes payable....................................... $    48,956
                                                                                  ===========
 Note issued for refinancing, purchase of stock and financing fees............... $   680,681
                                                                                  ===========
 Redemption of preferred stock in connection with Primal Solutions, Inc. spin-off $ 4,926,637
                                                                                  ===========
</TABLE>
<TABLE>
<CAPTION>


                                                                                      2000
                                                                                  -----------
<S>                                                                               <C>
Cash flows from operating activities:
 Net loss........................................................................ $(1,377,238)
 Loss from discontinued operations...............................................   3,700,487
 Adjustments to reconcile net loss to net cash provided by operating
  activities from continuing operations net of effects of acquisitions:
    Provision for bad debt expense...............................................      54,000
    Provision for uncollectable related party notes receivable...................          --
    Amortization of loan discounts...............................................       8,280
    Deferred income taxes........................................................    (191,476)
    Depreciation and amortization................................................     598,506
    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
    Treasury stock received in settlement........................................     (54,802)
    Option buyback costs.........................................................          --
    Write off of investment in affiliate.........................................          --
    Change in operating assets and liabilities:
       Trade accounts receivable.................................................    (654,660)
       Advance payment receivables...............................................   5,012,615
       Other current assets......................................................  (3,048,212)
       Deposits..................................................................      12,000
       Other receivables.........................................................          --
       Trade accounts payable and accrued liabilities............................     495,230
       Income taxes payable......................................................      58,874
       Deposits and other payables related to customers..........................   4,056,305
       Other assets..............................................................      15,830
                                                                                  -----------
       Net cash provided by continuing operations................................   9,932,596
         Net cash provided by (used in) discontinued operations..................  (3,813,087)
                                                                                  -----------
         Net cash provided by operations.........................................   6,119,509
                                                                                  -----------
Cash flows from investing activities:
 Purchase of contracts...........................................................      (7,500)
 Purchase of property and equipment..............................................    (206,393)
 Amounts loaned for notes receivable to related parties..........................  (3,646,772)
 Purchase of OAN Services, Inc. net assets.......................................          --
 Purchase of Qorus, Inc. net assets..............................................          --
 Purchase of investments in affiliates...........................................  (1,519,000)
                                                                                  -----------
         Net cash used in investing activities...................................  (5,379,665)
                                                                                  -----------
Cash flows from financing activities:
 Redemption of preferred shares from related party...............................          --
 Proceeds from line of credit....................................................          --
 Proceeds from notes payable.....................................................
 Purchase of options for cash from a related party...............................          --
 Cash paid for financing fees....................................................          --
 Cash paid for treasury stock....................................................          --
 Cash paid for treasury stock from related party.................................          --
 Payment on notes payable........................................................          --
 Payment of preferred stock dividends............................................    (284,892)
 Issuance of shares of common and preferred stock for cash.......................     520,867
 Payment received on subscription notes receivable...............................          --
                                                                                  -----------
         Net cash provided by financing activities...............................     235,975
                                                                                  -----------
Increase (decrease) in cash and cash equivalents.................................     975,819
Cash and cash equivalents at beginning of year...................................   5,744,069
                                                                                  -----------
Cash and cash equivalents at end of year......................................... $ 6,719,888
                                                                                  ===========
Supplemental disclosures:
 Interest paid................................................................... $   138,508
                                                                                  ===========
 Income taxes paid............................................................... $   174,588
                                                                                  ===========
Schedule of non-cash financing and investing transactions:
 Release of HBS escrow shares--employment and earn-out-agreements................ $    90,000
                                                                                  ===========
 Issuance of common stock for services........................................... $    68,750
                                                                                  ===========
 Issuance of notes receivable for common stock................................... $ 1,091,736
                                                                                  ===========
 Issurance of preferred stock in connection with Primal
  Systems, Inc. settlement and related anticipated spin-off...................... $ 3,575,000
                                                                                  ===========
 Purchase price for Aelix paid with receivable................................... $        --
                                                                                  ===========
 Treasury stock received for notes payable....................................... $        --
                                                                                  ===========
 Note issued for refinancing, purchase of stock and financing fees............... $        --
                                                                                  ===========
 Redemption of preferred stock in connection with Primal Solutions, Inc. spin-off $        --
                                                                                  ===========
</TABLE>
 The accompanying notes are an intergral part of these consolidated financial
                                  statements.

                                      F-6

<PAGE>

                  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"), ACI Billing Services, Inc. ("ABS"), Aelix, Inc. ("Aelix"). Avery
Communications, Inc. and its subsidiaries are collectively referred to as the
"Company."

   HBS provides billing and collection clearinghouse services to its
telecommunications customers. Billing and collection services are performed by
Local Exchange Carriers ("LECs"), 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.

   Avery acquired OAN Services, Inc. effective August 3, 2001 in a purchase
transaction, and its operations are included in the accompanying financial
statements from August 3, 2001. OAN Services, Inc. was a competitor to HBS and
is also in the billing and collections clearinghouse business.

   Avery acquired Aelix effective November 20, 2001 in a purchase transaction,
and its operations are included in the accompanying financial statements from
November 20, 2001. Aelix provides intelligent message communications services
to enterprises, notably in the travel and hospitality sectors. Its services
enable users to improve their customer relationships and their supply and
demand chain management while reducing expenses.

   Avery acquired PSI effective September 30, 2000 in a purchase transaction,
and its operations are included in the accompanying financial statements from
October 1, 2000. 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 and the
operations of PSI are included in the accompanying financial statements through
that date. 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 provided computer software programming, customization, program
maintenance and product marketing for a variety of software languages and
platforms.

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 and amortization of property and equipment
from continuing operations for the years ended December 31, 2001 and 2000 was
$570,403 and $294,633, respectively. Maintenance and repairs are charged to
operations when incurred. Betterments and renewals are capitalized.

                                      F-7

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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. These evaluations include comparing the future
undiscounted cash flows of such assets to the carrying value. If the carrying
value exceeds the future undiscounted cash flows, the assets are written-down
to their fair value.

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 Aelix and subsequent increases to goodwill resulting from earn out
payments for the HBS acquisition. Initial goodwill for HBS 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. The Company will
discontinue amortizing goodwill effective January 1, 2002 in accordance with
FAS 142 (see Recent Accounting Pronouncements). 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 HBS for the years ended December 31, 2001 and
2000 was $244,704 and $251,856, respectively.

Investments

   At December 31, 2001, investments consist of common stock of $30,100 in a
related public company (See Note 4). This investment is recorded at cost which
approximates fair value. The balance as of December 31, 2000 consists primarily
of preferred stock in a related private company recorded at cost adjusted to
fair value.

Purchased Contracts

   The direct costs of acquiring billing and collection contracts with LECs 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, 2001 and 2000 was $11,771 and $52,017, respectively.

Capitalized Financing Fees

   Capitalized financing fees are amortized over the life of the related loans
ranging from three to five years.

Allowance for Doubtful Accounts

   The Company assessed collectibility of receivables on a customer-by-customer
basis and establishes appropriate reserves as necessary. This evaluation
process includes a review of the volume of call records currently being
processed by the Company.

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

                                      F-8

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 LECs 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 LECs, 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 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 net amount advanced to
customers (as Advance payment receivables). Financing charges are assessed
until the Company recoups its initial payment. The Company records a 1% initial
non-refundable fee as income when funds are advanced to the customer. The
Company also records interest income, typically at four percentage points over
prime on outstanding advances. There are no substantial costs incurred in
factoring a customer's receivables, and all costs associated with the
receivable are recognized as incurred. The receivables are typically repaid in
60 days.

   The Company believes that three factors reduce the potential exposure to
credit losses. First, the Company advances funds against customer receivables
at a level which is usually less than 90% of the expected recovery from the
billing LEC. Second, payments from a diversified group of telephone end-users
are being passed through a LEC, which has historically been an A+ credit risk.
Thirdly, the LECs pay the Company directly, so that the Company can deduct any
amounts owed it before remitting funds to the customer. In addition, the
Company typically withholds a portion of payments received from LECs before
remitting the balance due to its customers which minimizes the Company's
exposure to subsequent charges from LECs (see Note 8).

   The Company has no off-balance sheet receivables or exposure to other credit
losses.


                                      F-9

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  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.

Interest Income

   Interest income from factored receivables and notes receivable is recognized
as earned.

Stock Based Compensation

   The Company accounts for common stock issued to employees in accordance with
Accounting Principles Board Opinion No. ("APB 25"), "Accounting for Stock
Issued to Employees." Under APB 25, the Company recognizes compensation expense
as shares are earned under terms of various employment agreements based on the
fair value of the common stock.

   The Company accounts for common stock issued to non-employees using
Financial Accounting Standard No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation," and the provisions of Emerging Issues Task Force No. 96-18
("EITF 96-18"), Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring or in Conjunction with Selling Goods or Services." All
transactions in which goods or services are the consideration received for the
issuance of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is a more reliable measurement. The measurement date of the fair
value of the equity instrument issued is the earlier of the date on which the
counter party's performance is complete or the date on which it is probable
that performance will occur.

   The Company accounts for employee stock options in accordance with APB 25,
under which the Company recognizes no compensation expense related to employee
stock options when options are granted with exercise prices at or above the
estimated fair value of the stock on the date of grant. The Company provides
the supplemental disclosures required by FAS 123 and EITF 96-18 for equity
instruments granted to non-employees.

Net Income Loss Per Common Share

   Net loss per common share is computed by dividing the net loss, increased by
preferred stock dividends earned of $453,715 and $283,783 for the years ended
December 31, 2001 and 2000, 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 loss per common share was $0.36 and
$0.24 per weighted average common share outstanding for the years ended
December 31, 2001 and 2000 respectively. Diluted earnings per share

                                     F-10

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

include the effect of all dilutive options and warrants and instruments
convertible into common stock. During the year ended December 31, 2000, the
effect of outstanding warrants and options and convertible securities on the
computation of net loss per share was dilutive and, therefore, was included in
the computation of diluted weighted average shares. During the year ended
December 31, 2001, the effect of outstanding warrants and options and
convertible securities on the computation of net loss per share was
anti-dilutive and, therefore, was not 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.

Fair Value of Financial Instruments

   The recorded amounts of financial assets and liabilities at December 31,
2001 and 2000 approximate fair value based on the Company's current borrowing
rate or due to the relatively short period of time between origination of the
instruments and their expected realization.

Reclassifications

   During 2001, the Company began recording LEC billing and collection fees as
a receivable. Previously this amount was recorded as an offset to amounts
payable to its customers included under Deposits and other Payables related to
customers. Accordingly at December 31, 2000 the Company has reclassified
$4,561,600 of LEC billing and collection fees which has the effect of
increasing current assets and liabilities by this amount.

Recent Accounting Pronouncements

   In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes FAS 121, "Accounting for Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("FAS 121") and the accounting and
reporting provisions of the Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." FAS 144 establishes a single accounting model, based
on the framework established by FAS 121, for long-lived assets to be disposed
of by sale and resolved significant implementation issues related to FAS 121.
FAS 144 retains the requirements of FAS 121 to recognize an impairment loss
only if the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flows and measure an impairment loss as the difference from
its undiscounted cash flows and measure an impairment loss as the difference
between the carrying amount and the fair value of the asset. FAS 144 excludes
goodwill from its scope, describes a probability-weighted cash flow estimation
approach, and establishes a "primary-asset" approach to determine the cash flow
estimation period for groups of assets and liabilities. FAS 144 is effective
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with early application encouraged. The Company believes the
adoption of FAS 144 will not have a material impact on its financial position
or results of operations.

   In July, 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). Under the new
rules, goodwill and intangible assets that are deemed to have indefinite lives
are no longer amortized but are reviewed annually for impairment. The
provisions of FAS 142 are

                                     F-11

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

required for fiscal years beginning after December 15, 2001. The Company will
apply new rules on accounting for goodwill and other intangible assets
beginning in the first quarter of 2002. Application of the nonamortization
provisions of the Statement is expected to result in a decrease in amortization
of goodwill of $158,000 per year ($0.12 per share in 2001). During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the results of operations
or financial position of the Company.

   In July 2001 the FASB issued SFAS No. 141, Business Combinations. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, and prohibits the use of the
pooling-of-interest method. The Company adopted SFAS No. 141 in the third
quarter of 2001. The adoption of SFAS No. 141 had no material effect on the
Company's results of operations or financial position.

2. Acquisitions

  The OAN Acquisition

   On August 3, 2001, the Company, through its wholly owned subsidiary, ACI
Billing Services, Inc. ("ACI"), completed the acquisition of certain assets
from OAN Services, Inc. ("OAN"). The Company completed the acquisition to
increase the volume of call records processed, which is expected to increase
revenue and profitability. The results of operations of the acquired business
is included in the Company's results of operations from the date of the
acquisition. OAN is located in Northridge, California and was a competitor to
the Company's local exchange carrier billing clearinghouse business, HBS. The
net assets purchased and liabilities assumed as of August 3, 2001 are as
follows:

<TABLE>
      <S>                                                      <C>
      Assets
         LEC billing and collection fee receivable............ $1,343,124
         Fixed assets.........................................  3,401,388
                                                               ----------
             Total assets..................................... $4,744,512
                                                               ==========
      Liabilities
         Accrued LEC billing and collection fees.............. $2,111,567
         Customer bad debt reserves...........................  3,697,938
         Customer termination reserves........................    579,500
         Customer cure liability payble directly to customers.  1,893,722
                                                               ----------
             Total liabilities................................ $8,282,727
                                                               ==========
</TABLE>

   The Company paid $1,615,666 including acquisition costs of $507,000 for the
purchased assets and liabilities assumed. The acquisition of the business was
accounted for using the purchase method of accounting with revenues and
expenses of the business being included in the Company's operations from the
acquisition date.

   The purchase contract additionally provides for the acquisition of up to
$7.2 million of deposits held by the LECs. The Company plans to consummate the
purchase of these deposits for cash when the LECs determine the amounts which
can be conveyed to the Company. As of December 31, 2001, the Company had not
acquired any deposits because the LECs have not yet determined the amount which
can be conveyed to the Company.

   At December 31, 2001, the Company has recorded a receivable from OAN in the
amount of $5.4 million, which is the excess of consideration paid over the
actual assets and liabilities transferred to it by December 31, 2001.

                                     F-12

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   At the time of ACI's purchase of the net assets of OAN, OAN had indicated
that the net bad debt reserve held against customers (a liability which was
assumed by ACI) was $0.7 million. This amount represents a liability for funds
withheld from customers to cover bad debt charges for processed call records.
During the third quarter of 2002, the Company determined, with OAN's
cooperation, that the amount withheld from customers to cover future
obligations of the customers as of the closing date of the purchase was
actually $3.7 million. The Company additionally adjusted post-acquisition bad
debt revenues of the acquired business for other transactions which were
incorrectly reflected with the Company's previously issued financial
statements. Accordingly, the Company has adjusted its reserves and reduced the
purchase price payable to OAN within the accompanying restated balance sheet
and statement of cash flows (see Note 18 to Consolidated Financial Statements).

   The customer cure liability represents estimated amounts payable to
customers acquired by the Company. The liability is based on the ultimate
volume of records which the Company processes on behalf of each customer. The
Company has reflected a portion of this liability as short-term and long-term
based on projected volumes in future periods.

Unaudited pro-forma financial information for the years ended December 31, 2001
and 2000 as though the OAN acquisition had occurred on January 1, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                            2001        2000
                                                        -----------  -----------
<S>                                                     <C>          <C>
Revenues............................................... $47,590,698  $53,403,708
                                                        ===========  ===========
Net income (loss) from continuing operations...........  (3,150,996) $ 1,522,135
                                                        ===========  ===========
Net income (loss) per share from continuing operations:
   Basic............................................... $     (2.83) $      1.07
                                                        ===========  ===========
   Diluted............................................. $     (2.83) $      0.65
                                                        ===========  ===========
</TABLE>

  The Aelix Acquisition

   On November 20, 2001, the Company completed its acquisition of substantially
all of the assets of Aelix an entity 100% owned by Qorus.com Inc. ("Qorus").
The Company's Chief Executive Officer is the controlling stockholder of Qorus
and a director of Qorus. The Company intends to broaden its product offerings
and use Aelix's technology and personnel to reduce costs. The aggregate
purchase price of the assets was approximately $4.2 million. The 4.2 million
consideration includes $4,064,000 of advances previously made to Aelix. Aelix
provides electronic messaging services that enable users to send and receive
secure, real time, bi-directional messages via a number of different media and
devices worldwide. The net assets acquired were as follows:

<TABLE>
    <S>                                                          <C>
    Assets
       Accounts receivable-trade................................ $   84,301
       Deposits.................................................     68,383
       Fixed Assets and software acquired.......................  1,127,773
       Goodwill.................................................  2,968,839
                                                                 ----------
           Total assets.........................................  4,249,296
                                                                 ----------
    Liabilities
       Accrued expenses.........................................     68,088
                                                                 ----------
           Total purchase price including acquisition costs..... $4,181,208
                                                                 ==========
</TABLE>

   Management of Avery perceived attractive economic potential from the Aelix
business. Additionally, the business is expected to provide leverage and
support for Avery's information technology infrastructure. Financial
projections support the expectation that Aelix has the ability to generate
substantial positive cash flows over

                                     F-13

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

time. The Aelix business is a development stage enterprise and has minimal
tangible assets. The purchase price was largely based on the expected future
cash flow of the business and accordingly was in excess of the value of
tangible assets acquired.

   The Company has allocated $900,000 of value to the acquired software. The
Company intends to obtain an independent appraisal of the acquired software
during 2002. The purchase price allocation is subject to change, pending the
appraisal.

   The Company expects the entire amount of goodwill to be deductible for
federal income tax purposes.

Unaudited pro forma financial information for the years ended December 31, 2001
and 2000 as though the Aelix acquisition had occurred on January 1, 2000 is as
follows:

<TABLE>
<CAPTION>
                                                       2001         2000
                                                   -----------  -----------
    <S>                                            <C>          <C>
    Revenues...................................... $42,413,008  $36,673,755
                                                   ===========  ===========
    Net Loss from continuing operations........... $ 6,098,682  $ 4,898,976
                                                   ===========  ===========
    Net loss per share from continuing operations:
       Basic...................................... $     (5.14) $     (4.46)
                                                   ===========  ===========
       Diluted.................................... $     (5.14) $     (2.53)
                                                   ===========  ===========
</TABLE>

3. Discontinued Operations

  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, 2001 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.

   The Company has guaranteed the payment of $1.7 million of 8% notes issued by
Primal Billing Solutions prior to the date that the Company acquired Primal.
During 2001, the amount of the guaranteed obligation

                                     F-14

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

increased by $0.1 million as the result of Primal Billing Solutions' partial
deferral of interest owed under the note. Additionally, the maturity date of
the loan was extended from May 2004 to December 2004.

   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.

   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.

   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
value of the PSI stock to be distributed was determined through an independent
valuation 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.

   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. As a result of
the spin-off, the Company recorded a distribution of $7,441,948.

   The financial information contained in these financial statements present
PSI as a discontinued operation due to the spin-off.

                                     F-15

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   At February 12, 2001 and December 31, 2000 the net current assets
(liabilities) and net long-term assets of PSI were as follows:

<TABLE>
<CAPTION>
                                                            February 12, December 31,
                                                                2001         2000
                                                            ------------ ------------
<S>                                                         <C>          <C>
Current assets
   Cash.................................................... $   847,307  $ 1,844,767
   Trade accounts receivable...............................   1,971,067    1,770,317
   Other current assets....................................     217,799      312,548
                                                            -----------  -----------
       Total current assets................................   3,036,173    3,927,632
                                                            -----------  -----------
Current liabilities
   Current portion of capital lease obligations............     187,615      237,204
   Current portion of notes payable........................     448,669      512,572
   Trade accounts payable..................................     221,321      403,872
   Accrued liabilities.....................................     962,801    1,030,356
   Deferred revenue........................................   1,223,338    1,074,008
                                                            -----------  -----------
       Total current liabilities...........................   3,043,744    3,258,012
                                                            -----------  -----------
       Net current assets of discontinued operations....... $    (7,571) $   669,620
                                                            ===========  ===========
Property and equipment
   Computer equipment and software......................... $ 2,264,531  $ 2,257,142
   Furniture and fixtures..................................     115,943      115,943
   Accumulated depreciation and amortization...............    (651,711)    (571,665)
                                                            -----------  -----------
       Total property and equipment........................   1,728,763    1,801,420
                                                            -----------  -----------
Other assets and long-term liabilities
   Goodwill, net...........................................   7,062,004    7,219,072
   Capital lease obligations...............................     (75,555)     (75,555)
   Notes payable...........................................  (1,277,513)  (1,219,728)
   Other, net..............................................      56,528       21,627
                                                            -----------  -----------
       Total other assets, net.............................   5,765,464    5,945,416
                                                            -----------  -----------
       Net long-term assets of discontinued operations..... $ 7,494,227  $ 7,746,836
                                                            ===========  ===========
</TABLE>

   The operating results of PSI for the year ended December 31, 2000 and the
period from January 1, 2001 to February 12, 2001 (the date of the spin-off) are
as follows:

<TABLE>
<CAPTION>
                                                  Period from
                                                January 1, 2001   Year ended
                                                      to         December 31,
                                               February 12, 2001     2000
                                               ----------------- ------------
  <S>                                          <C>               <C>
  Operating revenues..........................    $   825,417    $ 9,515,805
  Cost of revenues............................       (598,792)    (4,941,567)
                                                  -----------    -----------
     Gross profit.............................        226,625      4,574,238
  Selling, general and administrative expenses     (1,221,729)    (9,509,826)
                                                  -----------    -----------
     Loss from operations.....................       (995,104)    (4,935,588)
  Other Expense...............................        (15,932)      (194,869)
                                                  -----------    -----------
     Loss before income tax provision.........     (1,011,036)    (5,130,457)
     Income tax benefit.......................        345,000      1,429,970
                                                  -----------    -----------
         Net loss.............................    $  (666,036)   $(3,700,487)
                                                  ===========    ===========
</TABLE>

                                     F-16

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4. Investments in affiliates

   During 2001 and 2000, the Company invested $1,995,000 ($1,500,000 in 2001
and $495,000 in 2000) in 1,995,000 preferred shares and $4,905 (in 2001) in
490,500 shares of common stock of a company for which Avery's Chief Executive
Officer is also the controlling shareholder and Chief Executive Officer. During
2001, the investment was written off as worthless when the entity ceased
operations.

   During 2001 and 2000, the Company also invested $30,100 ($11,100 in 2001 and
$19,000 in 2000), to acquire 3,010,000 common shares in Qorus. Avery's Chief
Executive Officer is the controlling stockholder and a director of Qorus (See
Note 17--Subsequent Events).

   The Company's investments in affiliates are carried at the lower of cost or
fair market value.

5. Notes Receivable due from Related Parties

   During prior years, the Company advanced $400,000 to an employee. This
non-recourse loan was due December 9, 2001, bears interest at 9% payable
monthly, and is secured by Avery and Primal common stock. The Company has fully
reserved this loan to a former employee as uncollectible in 2001, based on the
excess of the non-recourse loan amount over the collateral value.

   During 2001, the Company also loaned $183,272 to employees to fund taxes due
on the exercise of certain options. These non-recourse loans bear interest at
6.6%, are due in October 2002 and are secured by Avery and Primal stock. The
Company has fully reserved this amount as uncollectible in 2001, based on the
excess of the non-recourse loan amount over the collateral value.

   During 2001, the Company also advanced $361,500 to a related entity in which
it owns 1,995,000 preferred shares. This amount was written off as worthless
during 2001 when the entity ceased operations.

   During 2001 and 2000, the Company also advanced $4,064,000 ($2,164,000 in
2001 and $1,900,000 in 2000) to Qorus and Aelix a 100% owned subsidiary of
Qorus. These notes were used as a portion of the consideration paid in
connection with Avery's purchase of net assets from Aelix. The notes bore
interest varying from 10% to 12%.

   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 Company intends to
extend the due date of these notes and accordingly the notes are reflected as
long-term in the accompanying December 31, 2001 balance sheet. 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. During 2001, the Company established
a reserve of $810,000 against those notes receivable, due to the excess of the
amount due over the collateral value.

6. Short-Term Debt Obligations

   In December 2001, the Company negotiated an advanced funding program
facility and a working capital facility with a financial institution in the
amounts of $3,000,000 and $6,000,000, respectively. Interest is payable monthly
at the prime rate plus 3% (7.75% at December 31, 2001), and the principal, if
any is outstanding, is due December 2004. At December 31, 2001 $2,607,705 was
outstanding under the working capital facility. There were no amounts drawn on
the advance funding facility at December 31, 2001. The facilities are secured
by substantially all the assets of HBS and ACI. Both agreements contain certain
covenants that require the Company

                                     F-17

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to maintain certain financial ratios related to cash collections and working
capital as defined in the agreement, limit certain payments and transfers to
affiliates and limit additional indebtedness. At December 31, 2001 the Company
was in compliance with these covenants. The Company, its Chief Executive
Officer and a major stockholder, which is an entity controlled by the Company's
Chief Executive Officer guarantee both agreements.

7. Notes Payable

   Notes payable at December 31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                                  2001     2000
                                                                                -------- --------
<S>                                                                             <C>      <C>
Note payable to related party bearing interest at 8% per annum due quarterly,
  principal due December 31, 2006, unsecured................................... $680,681 $     --
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. Principle at December 31, 2000 is $350,000
  adjusted for a discount for warrants issued in connection with the note based
  on imputed interest rate of 20%. Refinanced during 2001......................       --  333,475
Note payable to third party bearing interest at 12% per annum, payable
  quarterly; principle and any unpaid interest originally due September 30,
  1996, now due on demand......................................................       --    6,667
                                                                                -------- --------
                                                                                 680,681  340,142
Less current portion...........................................................       --    6,667
                                                                                -------- --------
Long-term portion.............................................................. $680,681 $333,475
                                                                                ======== ========
Principal amounts due on notes payable at December 31, are as follows:
   2002........................................................................ $     --
   2003........................................................................       --
   2004........................................................................       --
   2005........................................................................       --
   2006........................................................................  680,681
                                                                                --------
       Total................................................................... $680,681
                                                                                ========
</TABLE>

8. Concentration of Credit Risk and Significant Customers

   During 2001, one customer provided 47% of total revenue. The customer was
within the local exchange carrier billing segment.

   During 2000, two customers generated 71% of total revenue. Those two
customers individually generated 48% and 23% of total revenue, and both were
within the local exchange carrier billing segment.

   At December 31, 2001, eight (8) customers represented approximately 58% of
trade receivables and six (6) customers represented 92% of outstanding advanced
payment receivables. At December 31, 2000, five (5) customers comprised
approximately 91% of trade receivables and six (6) customers accounted for
approximately 91% of 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

                                     F-18

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 LECs, the Company is obligated to pay
refunds due customers to the LECs 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 $3,701,000 and $6,416,000 at December 31, 2001
and 2000, respectively. The Company minimizes this risk by placing its cash
with high credit quality financial institutions.

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

   The Company had the following series of preferred stock outstanding as of
December 31, 2001 and 2000.

   The preferred stock Series' A, B, C, D and E contain a conditional mandatory
redemption feature and at December 31, 2001 and 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 (after giving effect to the 1 for 8 stock split and
the Primal spin-off) at a revised conversion price as follows: Series A and C
$12.00 per share, Series B and E $4.80 per share, and Series D $9.60 per share.
The preferred stock Series D contains additional mandatory redemption
provisions that 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 $40 per share and at least $7,000,000 in
aggregate proceeds.

   The preferred stock Series F was participating and convertible. The
participating feature entitled 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 provided for the issuance of
one share of common stock for every share of preferred Series F issued. The
Series F preferred stock had 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) was 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
at a conversion price of $7.17 (after giving effect to the 1 for 8 reverse
stock split and the Primal spin-off).

                                     F-19

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The preferred stock series H and I are convertible and voting. The
convertible feature entitles the holder to convert one share of common stock
for each share of preferred. The voting feature entitles each holder to one
vote for each whole share of common stock. Each share has a liquidation
preference of $1.00 per share together with all unpaid dividends. Holders of
Series H also have the right to elect one member to the Board of Directors of
the Company

   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, E, H and I), all payable quarterly. There is no dividend for either Series F
or G.

   The Company completed a 1 for 8 reverse stock split to stockholders of
record on November 27, 2001. Accordingly, all prior year per share amounts and
the weighted average number of shares outstanding during 2001 and 2000 have
been adjusted on a retroactive basis to reflect the split.

10. Income Taxes

   Income taxes for the years ended December 31, 2001 and 2000 consists of the
following:

<TABLE>
<CAPTION>
                                              2001       2000
                                           ---------  ----------
              <S>                          <C>        <C>
              Federal
                 Current.................. $ 735,226  $1,190,174
                 Deferred.................  (455,881)   (130,292)
                                           ---------  ----------
                     Total................   279,345   1,059,882
                                           ---------  ----------
              State
                 Current..................     6,747     314,547
                 Deferred.................   (69,147)    (61,184)
                                           ---------  ----------
                     Total................   (62,400)    253,363
                                           ---------  ----------
              Income tax expense (benefit) $ 216,945  $1,313,245
                                           =========  ==========
</TABLE>

   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, 2001 and
2000 is as follows:

<TABLE>
<CAPTION>
                                                             2001       2000
                                                          ---------  ----------
<S>                                                       <C>        <C>
Income tax provision (benefit) at statutory rate......... $(555,226) $1,236,500
Net operation loss utilized..............................        --     (57,460)
Change in deferred tax rate..............................        --          --
Other....................................................   (70,429)         --
Change in valuation allowance............................        --    (199,195)
State income taxes.......................................   (62,400)    167,220
Adjustments to prior year current taxes..................  (205,000)   (218,736)
Dicontinued operations...................................   345,000          --
Items permanently not deductible for Federal tax purposes   765,000     385,189
                                                          ---------  ----------
Income tax expense (benefit)............................. $ 216,945  $1,313,518
                                                          =========  ==========
</TABLE>

                                     F-20

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Deferred tax assets and liabilities at December 31, 2001 and 2000 are as
follows:

<TABLE>
<CAPTION>
                                                           2001      2000
                                                        ---------- --------
     <S>                                                <C>        <C>
     Current deferred tax asset........................ $1,090,690 $565,562
     Valuation allowance for current deferred tax asset         --       --
                                                        ---------- --------
     Net current deferred tax asset.................... $1,090,690 $565,562
                                                        ========== ========
</TABLE>

   The deferred tax asset at December 31, 2001 and 2000 was comprised of the
following:

<TABLE>
<CAPTION>
                                                               2001        2000
-                                                           ----------  ----------
<S>                                                         <C>         <C>
Provision for doubtful accounts, notes receivable and other $  919,538  $  436,381
Accrued bonus and vacation.................................    185,185     118,089
Other, net.................................................    (14,033)     11,092
                                                            ----------  ----------
   Total................................................... $1,090,690  $5,565,562
                                                            ==========  ==========
</TABLE>

   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. The Company assesses realizability of deferred
tax assets based upon the likelihood of earning taxable income in future
periods. A majority of the Company's deferred tax assets relate to items
deducted for financial reporting purposes currently but deductible for tax
reporting purposes in future periods. The Company believes that it will
generate taxable income during the year ending December 31, 2002. The ability
of the Company to earn taxable income in future periods is dependent upon a
variety of factors, including stability of the business environment, continuity
of customers, control of expenses and absence of special items arising outside
the ordinary course of business.

11. Related Party Transactions

   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 bore interest at 12%, was convertible to common stock and
contained warrants for 175,000 shares of common stock at $1.50 exercise price.
The outstanding note balance at December 31, 2000 was $333,475 and the note was
exchanged on December 21, 2001, along with other consideration, for a new
$680,681 note. The new note is a five-year $680,681 note payable with a company
for which its Chief Executive Officer is also a member of Avery's board. The
note bears interest at 8% and is unsecured. The outstanding note balance at
December 31, 2001 is $680,681. The note was issued in exchange for the $350,000
note issued in 1997, 54,396 shares of Avery common stock and cancellation of
warrants to purchase 5,000 shares of Avery common stock. The estimated amount
paid in excess of the fair value of the shares and warrants of $288,299 was
capitalized as financing fees.

   During December 1998, the Company advanced $400,000 to an HBS employee at 9%
interest. During 2001, the Company reserved 100% of the receivable due from the
former employee as uncollectible, based on the excess of the amount due under
the non-recourse loan over the collateral value.

   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

                                     F-21

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company's Chief Executive Officer for a price of $1.00 per underlying share.
During 1999, $300,000 was recorded as compensation, with $321,736 being
expensed as financing fees.

   At the close of business on September 30, 1999, the Company purchased Primal
Systems, Inc. Mark Nielsen, who was then President and Chief Executive Officer
of the Company, was also Chairman of the Board and a significant shareholder of
Primal Systems at the time of the purchase. Primal was spun-off to the
Company's shareholders in February 2001.

   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 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 (which includes $685,118 to officers and directors). The
subscriptions receivable amount is presented as a contra to equity in the
accompanying financial statements.

   The Company invested $1,995,000 to purchase 1,995,000 preferred shares and
$4,905 to purchase 490,500 shares of common stock of a company for which
Avery's Chief Executive Officer is also the controlling shareholder and Chief
Executive Officer. During 2001, the investment was written off as worthless
after the entity ceased operations.

   The Company also invested $30,100 to acquire 3,010,000 common shares in
Qorus, an entity in which Avery's Chief Executive Officer is the controlling
stockholder and director. These shares were returned to Qorus in March 2002
(See Note 17--Subsequent Events).

   The Company also advanced $4,064,000 to Qorus and Aelix, a wholly owned
subsidiary of Qorus. These notes were used as consideration in connection with
Avery's purchase of net assets from Aelix.

12. Stock Options and Warrants

   In November 2001, the Company approved a 1 for 8 reverse stock split which
became effective December 13, 2001. For the purposes of the financial
statements, all outstanding options at January 1, 2001 and all options
transactions during 2001 have been re-computed and re-priced in accordance with
the reverse stock split.

   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, 2001 and 2000, there were a total of
4,664 and 53,000 (pre-reverse split) 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 that are non-compensatory in nature. During 2001,
the Company issued 158,750 options as compensation to employees and directors.
All options issued during 2001 were issued with exercise prices equal to or
greater than market value. In connection with options issued to employees
during 2000, a number of which had exercise prices below market value and other
options previously issued that were re-priced, 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

                                     F-22

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

with options issued to service providers as compensation, the Company has
recognized $0 and $239,819 of professional service costs in 2001 and 2000,
respectively, estimated using the Black-Scholes pricing model.

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

<TABLE>
<CAPTION>
                                        Compensatory            Non Compensatory       Combined
                                 -------------------------- ------------------------- ----------
                                                Weighted                  Weighted
                                                Average                   Average
                                   Options   Exercise Price  Options   Exercise Price  Options
                                 ----------  -------------- ---------  -------------- ----------
<S>                              <C>         <C>            <C>        <C>            <C>
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                   213,309                  1,981,299
                                 ==========                 =========                 ==========
Restated for reverse stock split    221,009                    26,669                    247,678
Granted.........................    158,750      $ 0.71         5,105      $12.00        163,855
Purchase of option..............                               (5,105)     $12.00         (5,105)
Exercised.......................                                                              --
Forfeited.......................   (167,595)     $15.48       (16,325)     $12.00       (183,920)
                                 ----------                 ---------                 ----------
Outstanding at 12/31/01.........    212,164                    10,344                    222,508
                                 ==========                 =========                 ==========
</TABLE>

   The following table summarizes information about compensatory options
outstanding at December 31, 2001:

<TABLE>
<CAPTION>
               Options Outstanding                 Options Exercisable
           ---------------------------- -----------------------------------------
 Range of               Weighted Avg.
 Exercise    Number       Remaining     Weighted Avg.    Number    Weighted Avg.
  Prices   Outstanding Contractual Life Exercise Price Exercisable Exercise Price
  ------   ----------- ---------------- -------------- ----------- --------------
<S>        <C>         <C>              <C>            <C>         <C>
  $0.71      158,750      9.92 years        $ 0.71       158,750       $ 0.71
$12-$21.50    53,414       .87 years        $14.56        53,414        14.56
</TABLE>

   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 loss and net loss per share would have been
increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                         Years ended December 31,
                                         ------------------------
                                             2001         2000
                                         -----------  -----------
             <S>                         <C>          <C>
             Net income (loss)
                As reported............. $(2,515,999) $(1,377,238)
                Pro forma...............  (2,628,708) $(1,704,774)
             Net income (loss) per share
                As reported
                    Basic............... $     (2.33) $     (1.44)
                    Diluted............. $     (2.33) $     (0.72)
                Pro forma
                    Basic............... $     (2.42) $     (1.72)
                    Diluted............. $     (2.42) $      (.97)
</TABLE>

                                     F-23

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   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 2001; dividend yield at 0%, expected volatility at 176% risk free
interest rate of 5.5%, and an expected life of 10 years. The following
assumptions were used for grants in 2000; dividend yield of 0%, expected
volatility of 119%, risk free interest rate of 6.5%, and an expected life of
1-5 years.

   The weighted average fair value per share of compensatory options using the
Black-Scholes pricing model issued during 2001 and 2000 was $0.71 and $0.58,
respectively.

13. 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 2001
and 2000. 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 2001 and 2000, $18,939 and $28,582, respectively was contributed to the
Plan for the benefit of the Company's employees.

14.  Commitments and Contingencies

   The Company has entered into various non-cancelable operating leases related
to office space. At December 31, 2001, future minimum lease payments required
under the operating leases are as follows:
<TABLE>
<CAPTION>
                    Year ended December 31,
                    <S>                          <C>
                    2002........................ $  593,978
                    2003........................    495,709
                    2004........................    387,248
                    2005........................    225,894
                                                 ----------

                    Total minimum lease payments $1,702,829
                                                 ==========
</TABLE>

   Rent expense for the years ended December 31, 2001 and 2000 amounted to
$329,855 and $108,462, respectively.

   The Company 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 its customers' sales volume to be processed through the LEC. The
Company does not expect to incur any losses with respect to these minimum usage
requirements. The remaining minimum usage for significant contracts at December
31, 2001 is as follows:

<TABLE>
<CAPTION>
                                 Amount        Expires
                                 ------        -------
                    <S>        <C>        <C>
                    Contract 1 $  540,000  January 13, 2005
                    Contract 2    500,000  January 31, 2004
                    Contract 3    480,000  January 13, 2005
                    Contract 4    432,000  January 13, 2005
                    Contract 5    360,000 December 31, 2004
                    Others....  1,964,633       2002 - 2005
                               ---------- -----------------
                               $4,276,633
                               ==========
</TABLE>

                                     F-24

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company's guarantee of Primal's Billing Solutions', note payable (see
note 3), which had an unpaid balance of $1,722,418 as of December 31, 2001, was
unaffected by the Company's distribution of Primal's common stock to its
security holders.

   The Company 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. The Company relies on monthly tax reports it
receives from the LECs in reporting and remitting such taxes. The Company's
customers are contractually obligated to reimburse the Company for any disputes
with taxing authorities that may arise from filing the sales and excise tax
returns on behalf of their customers. The Company 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,
2001. The Company is also contingently liable for charge backs from the LECs,
to the extent such charge backs exceed customers' reserves for such charge
backs. This contingent liability is increased when the Company discontinues
business with a particular customer.

   On March 9, 2001, our largest customer, which accounted for 55% of the
Company's call records processed in 2001, 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 March 15, 2002, the filing has had
no material adverse effect on HBS Billing Services' business relationship with
this customer, and, based upon conversations between the management of the two
companies, the Company does not presently anticipate that this filing will
materially adversely affect the relationship with this customer in the
immediate future.

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

15.  Subscription Notes Receivables

   The Company has notes receivable to certain option and warrant holders
totaling $1,078,000 and $1,092,000 as of December 31, 2001 and 2000,
respectively, in connection with the exercise of their options and warrants.
The non-recourse 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 (deficit) in the accompanying balance
sheet.

16.  Segments

   The local exchange carrier billing segment represents the third-party
billing clearinghouses for the telecommunications industry. These third party
clearinghouses process telephone call records and other transactions and submit
them to local telephone companies for inclusion in their monthly bills to
end-users. The intelligent message communication services segment, which was
acquired in 2001, represents the intelligent message communications services to
enterprises, notably in the travel, hospitality and trucking sectors.

                                     F-25

<PAGE>

                  AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   A summary of the segments' operating income (loss) and other information as
of and for the year ended December 31, 2001 follows:

<TABLE>
<CAPTION>
                                        Year Ended December 31, 2001
                                --------------------------------------------  ------------
                                                 Intelligent
                                Local Exchange     Message       Corporate
                                Carrier Billing Communications Administration Consolidated
                                --------------- -------------- -------------- ------------
<S>                             <C>             <C>            <C>            <C>
Revenue........................   $41,846,978     $   68,553    $        --   $41,915,531
Depreciation and amortization..      (843,850)       (25,334)            --      (869,184)
Segment profit (loss)..........     3,188,560        (75,701)    (4,962,822)   (1,849,963)
Interest revenue...............       343,278                                     343,278
Interest expense...............                                      68,812        68,812
Income tax expense (benefit)...     1,084,110        (25,738)    (1,275,317)     (216,945)
Non-cash expenses, other than
  depreciation and amortization       (48,000)            --     (3,755,477)   (3,803,477)
Segment assets.................    30,328,656      4,400,162      2,411,705    37,140,523
Capital expenditures by segment        56,507        144,204             --       200,711
</TABLE>

   All revenues were generated from external customers.

   There was only one segment in 2000. Approximately $2,000,000 of Avery's
corporate office and expenses have been allocated to the local exchange carrier
billing segment based on services it performed for the local exchange carrier
billing segment.

17.  Subsequent Event

   In connection with our purchase of assets from Qorus in November 2001, the
Company agreed to pay to Qorus an amount equal to five percent (5%) of the net
after-tax income, if any, generated by the acquired intelligent message
communications service business for a period of five years following the
closing date. Pursuant to an agreement among the parties entered into in March
2002, the parties agreed to eliminate this royalty obligation in exchange for a
cash payment in the amount of $100,000, the return of all common shares of
Qorus held by Avery or its subsidiaries and the cancellation of all unexercised
options to purchase common shares of Qorus held by Avery or its subsidiaries
which at December 31, 2001 is stated in the Company's financial statements at
$30,100.

18.  Restatement of Prior Period Financial Statements

   During the third quarter of 2002, the Company determined, with OAN's
cooperation, that an error was made in the computation of the purchase price
for net assets purchased. It was determined that the liability assumed by the
Company for amounts withheld from customers to cover future obligations of the
customers as of the closing date of the purchase was actually $3.7 million,
rather than the $0.7 million calculated at the time of closing. The Company
additionally adjusted post-acquisition bad debt reserves of the acquired
business for other transactions which were incorrectly reflected within the
Company's previously issued financial statements. Accordingly, the Company has
increased its reserves held against customers and increased its receivable from
OAN. Such adjustments are reflected in the accompanying restated balance sheet
as of December 31, 2001 and the restated statement of cash flows for the year
ended December 31, 2001. The restated figures supersede the information within
the Company's Annual Report on Forms 10-KSB and 10-KSB/A for the year ended
December 31, 2001. The adjustments affect only the balance sheet and statement
of cash flows. There was no impact to the Company's statement of operations.


                                     F-26

<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number                                          Description of Document
------                                          -----------------------
<C>     <S>

  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)

 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)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                          Description of Document
------                                          -----------------------
<C>     <S>

 2.14   Asset Purchase Agreement among Qorus.com, Inc., TMT Holdings, Inc., Aelix, Inc. and Avery
          Communications, Inc. dated May 29, 2001 (filed as Exhibit 10.37 to the Quarterly Report on Form
          10-QSB for the period ended June 30, 2001, filed by Qorus.com, Inc. (the "Qorus 2Q 10-QSB")
          and incorporated herein by reference thereto)

 2.15   First Amendment to Asset Purchase Agreement among Qorus.com, Inc., TMT Holdings, Inc., Aelix,
          Inc. and Avery Communications, Inc. dated October 17, 2001 (filed as Exhibit 10.56 to the
          Quarterly Report on Form 10-QSB for the period ended September 30, 2001, filed by Qorus.com,
          Inc. (the "Qorus 3Q 10-QSB") and incorporated herein by reference thereto)

 2.16   Asset Purchase Agreement among OAN Services, Inc., nTelecom Holdings Inc., OAN Services of
          Florida, Inc. and ACI Communications, Inc. dated May 25, 2001 (filed as Exhibit 2.1 to Avery's
          Current Report on Form 8-K dated August 3, 2001 (filed August 20, 2001) and incorporated herein
          by reference thereto)

 2.17   Management Support and Post-Petition Financing Agreement among OAN Services, Inc., nTelecom
          Holdings Inc., OAN Services of Florida, Inc. and ACI Communications, Inc. dated May 25, 2001
          (filed as Exhibit 2.2 to Avery's Current Report on Form 8-K dated August 3, 2001 (filed on
          August 20, 2001) and incorporated herein by reference thereto)

 2.18   First Amendment to Asset Purchase Agreement among OAN Services, Inc., nTelecom Holdings,
          Inc., OAN Services of Florida, Inc. and ACI Communications, Inc. dated July 27, 2001 (filed as
          Exhibit 2.3 to Avery's Current Report on Form 8-K/A dated August 3, 2001 (filed October 17,
          2001) and incorporated herein by reference thereto)

 2.19   Second Amendment to Asset Purchase Agreement among Qorus.com, Inc., TMT Holdings, Inc.,
          Aelix, Inc. and Avery Communications, Inc. dated March 15, 2002

  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)

 3.11   Certificate of Designations of Series I Convertible Preferred Stock (filed as Exhibit 4.2 to Avery's
          Quarterly Report on Form 10-QSB for the period ended June 30, 2001, and incorporated herein by
          reference thereto)

 3.12   Certificate of Amendment to the Certificate of Incorporation of Avery Communications, Inc.
          providing for a one-for-eight reverse stock split (filed as Appendix A to Avery's Information
          Statement on Schedule 14C filed on November 15, 2001, and incorporated herein by reference
          thereto)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                        Description of Document
------                                        -----------------------
<C>     <S>

  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)

  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)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                         Description of Document
------                                         -----------------------
<C>     <S>

  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)

  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)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                        Description of Document
------                                        -----------------------
<C>     <S>

 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)

*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)

 10.22  Note Extension, Modification and Amendment Agreement dated as of May 31, 2001, among
          Qorus.com, Inc., Aelix, Inc., Thurston Interests, LLC, Apex Investment Fund III, L.P., Apex
          Strategic Partners, LLC, Thurston Communications Corporation and Customer Care and
          Technology Holdings, Inc. (filed as Exhibit 10.38 to the Qorus 2Q 10-QSB and incorporated
          herein by reference thereto)

 10.23  Demand Promissory Note, dated as of March 29, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $160,000 (filed as Exhibit 10.39 to
          the Qorus 2Q 10-QSB)

 10.24  Demand Promissory Note, dated as of April 12, 2001, payable to Thurston Communications
          Corporation in the original principal amount of $80,000 (filed as Exhibit 10.40 to the Qorus 2Q
          10-QSB and incorporated herein by reference thereto)

 10.25  Demand Promissory Note, dated as of April 30, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $170,000 (filed as Exhibit 10.41 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                        Description of Document
------                                        -----------------------
<C>     <S>

 10.26  Demand Promissory Note, dated as of May 11, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $25,000 (filed as Exhibit 10.42 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.27  Demand Promissory Note, dated as of May 15, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $75,000 (filed as Exhibit 10.43 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.28  Demand Promissory Note, dated as of May 31, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $42,000 (filed as Exhibit 10.44 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.29  Demand Promissory Note, dated as of June 15, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $80,000 (filed as Exhibit 10.45 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.30  Demand Promissory Note, dated as of June 28, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $60,000 (filed as Exhibit 10.46 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.31  Demand Promissory Note, dated as of July 12, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $85,000 (filed as Exhibit 10.47 to
          the Qorus 2Q 10-QSB and incorporated herein by reference thereto)

 10.32  Demand Promissory Note, dated as of July 31, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $83,500 (filed as Exhibit 10.48 of
          the Quarterly Report on Form 10-QSB for the period ended September 30, 2001, filed by
          Qorus.com, Inc. (the "Qorus 3Q 10-QSB") and incorporated herein by reference thereto)

 10.33  Demand Promissory Note, dated as of August 14, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $178,000 (filed as Exhibit 10.49 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.34  Demand Promissory Note, dated as of August 30, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $102,500 (filed as Exhibit 10.50 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.35  Demand Promissory Note, dated as of September 13, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $96,000 (filed as Exhibit 10.51 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.36  Demand Promissory Note, dated as of September 28, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $90,500 (filed as Exhibit 10.52 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.37  Demand Promissory Note, dated as of October 1, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $160,000 (filed as Exhibit 10.53 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.38  Demand Promissory Note, dated as of October 12, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $102,000 (filed as Exhibit 10.54 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.39  Demand Promissory Note, dated as of October 16, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $10,000 (filed as Exhibit 10.55 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.40  Demand Promissory Note, dated as of October 30, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $72,000 (filed as Exhibit 10.57 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number                                        Description of Document
------                                        -----------------------
<C>     <S>

 10.41  Demand Promissory Note, dated as of November 5, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $10,000 (filed as Exhibit 10.58 to
          the Qorus 3Q 10-QSB and incorporated herein by reference thereto)

 10.42  Demand Promissory Note, dated as of November 14, 2001, payable to Thurston Communications
          Corporation by Aelix, Inc. in the original principal amount of $77,000

*10.43  Executive Employment Agreement between Avery Communications, Inc. and Patrick J. Haynes, III
          dated November 1, 2001

 10.44  Consulting Agreement between Avery Communications, Inc. and Phipps & Company, LLC dated
          September 1, 2001

 10.45  Consulting Agreement between Avery Communications, Inc. and Robert T. Isham, Jr. dated
          September 1, 2001

*10.46  Nonqualified Stock Option Agreement between Avery Communications, Inc. and Waveland, LLC
          dated December 27, 2001

*10.47  Form of Nonqualified Stock Option Agreement entered into between Avery Communications, Inc.
          and various directors and employees as of December 27, 2001

  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

  99.1  Certificate of Chief Executive Officer dated as of September 3, 2002 pursuant to the Sarbanes-Oxley
          Act of 2002

  99.2  Certificate of Chief Financial Officer dated as of September 3, 2002 pursuant to the Sarbanes-Oxley
          Act of 2002

  99.3  Certificate of the Chief Executive Officer dated as of December 16, 2002 pursuant to the Sarbanes-
          Oxley Act of 2002 (filed herewith)

  99.4  Certificate of the Chief Financial Officer dated as of December 16, 2002 pursuant to the Sarbanes-
          Oxley Act of 2002 (filed herewith)
</TABLE>
--------
* Denotes a management contract or compensatory plan or arrangement.