UNITED STATES


                       SECURITIES AND EXCHANGE COMMISSION


                             WASHINGTON, D.C. 20549


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


                                   FORM 10-QSB

     (Mark One)

[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
     EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001

                                       Or

[ ]  TRANSACTION  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from to


                        Commission File Number 000-27095
                                  -------------

                           AVERY COMMUNICATIONS, INC.


             (Exact name of registrant as specified in its charter)

                 DELAWARE                                12-2227079
      (State or other jurisdiction of               (IRS Employer ID No.)
      incorporation or organization)
         190 SOUTH LASALLE STREET,                           60603
               SUITE 1710
            CHICAGO, ILLINOIS
(Address and principal executive offices)                 (Zip code)
                                 (312) 419-0077
              (Registrant's telephone number, including area code)

     The number of shares  outstanding of each of the issuer's classes of common
     equity, as of March 31, 2001


                    TITLE OF CLASS                NUMBER OF SHARES OUTSTANDING
                    --------------                ----------------------------

             Common Stock, $.01 par value                  10,062,076


<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                                      INDEX





PART I    FINANCIAL INFORMATION                                             PAGE

Item 1.   Consolidated Financial Statements  (Unaudited)

          Consolidated Balance Sheets - March 31, 2001 (unaudited)             1
          and December 31, 2000

          Consolidated Statements of Operations - For the Three                3
          Months Ended March 31, 2001 and 2000 (unaudited)

          Consolidated Statements of Cash Flows - For the Three                4
          Months Ended March 31, 2001 and 2000 (unaudited)

          Notes to Consolidated Financial Statements                           5

Item 2.   Management's Discussion and Analysis of Financial                    9
          Condition and Results of Operations

PART II.  OTHER INFORMATION

Item 2.   Changes in securities                                               14

Item 6.   Exhibits and Reports on Form 8-K                                    14



<PAGE>

               ITEM 1. AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                     MARCH 31,      DECEMBER 31,
  ASSETS                                                                                                2001            2000
                                                                                                 ---------------  --------------
                                                                                                  (Unaudited)
<S>                                                                                              <C>               <C>
Current assets:
   Cash and cash equivalents                                                                     $    1,150,419    $  6,719,888
   Trade accounts and notes receivable, net of allowance for doubtful accounts of $242,901              599,853       1,414,249
   Advance payment receivables                                                                        1,972,545       1,797,634
   Other receivables                                                                                    410,365         210,227
   Deferred tax asset                                                                                   553,712         565,562
   Other                                                                                                 20,835          29,661
   Net current assets of discontinued operations                                                              -         669,620
                                                                                                    ------------     -----------
         Total current assets                                                                         4,707,729      11,406,841
                                                                                                    ------------     -----------
Property and equipment:
   Computer equipment and software                                                                    1,297,608       1,282,988
   Furniture and fixtures                                                                               322,023         322,023
   Accumulated depreciation and amortization                                                           (855,615)       (784,168)
                                                                                                    ------------     -----------
         Total property and equipment, net                                                              764,016         820,843
                                                                                                    ------------     -----------
Other assets:
   Goodwill, net of accumulated amortization of $1,067,151 and $1,001,725 respectively                2,688,466       2,753,892
   Investments                                                                                        2,014,000       1,519,000
   Net long-term assets of discontinued operations                                                            -       7,746,836
   Deposits                                                                                           2,878,167       2,759,604
   Purchased contracts, net of accumulated amortization of $331,168
     and $328,225, respectively                                                                          23,095          26,038
   Notes receivable due from related parties                                                          4,776,772       4,046,772
   Other                                                                                                  2,012           1,819
                                                                                                    ------------     -----------
         Total other assets                                                                          12,382,512      18,853,961
                                                                                                    ------------     -----------
         Total assets                                                                            $   17,854,257    $ 31,081,645
                                                                                                    ============     ===========
</TABLE>

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

                                     - 1 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS -(Continued)

<TABLE>
<CAPTION>
                                                                                                     MARCH 31,      DECEMBER 31,
                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                     2001            2000
                                                                                                 ---------------  --------------
                                                                                                    (Unaudited)
<S>                                                                                               <C>              <C>
Current liabilities:
   Current notes payable                                                                          $     216,667    $      6,667
   Trade accounts payable                                                                             3,853,854       4,117,671
   Accrued liabilities                                                                                2,180,169       3,323,874
   Income taxes payable                                                                                 421,765         314,547
   Deposits and other payables related to customers                                                   9,701,787      14,033,186
                                                                                                    ------------     -----------
         Total current liabilities                                                                   16,374,242      21,795,945
                                                                                                    ------------     -----------
Long-term notes payable due to related parties                                                          335,545         333,475
                                                                                                    ------------     -----------
Redeemable preferred stock:
   Series A; $0.01 par value, 391,667 shares authorized,  issued and outstanding
      at March 31, 2001 and December 31, 2000 (liquidation preference
      of $391,667 at March 31, 2001 and December 31, 2000)                                              391,667         391,667
   Series B; $0.01 par value, 390,000 shares authorized,  issued and outstanding at
      March 31, 2001 and December 31, 2000 (liquidation preference of $390,000                          390,000         390,000
      at March 31, 2001 and December 31, 2000)
   Series C; $0.01 par value, 40,000 shares authorized,  issued
      and outstanding at March 31, 2001 and December 31, 2000 (liquidation preference
      of $40,000 at March 31, 2001 and December 31, 2000)                                                40,000          40,000
   Series D; $0.01 par value, 1,500,000 authorized, issued and outstanding
      at March 31, 2001 and December 31, 2000 (liquidation preference of $1,500,000                   1,500,000       1,500,000
      at March 31, 2001 and December 31, 2000)
   Series E;  $0.01 par  value,  0 and  350,000  shares  authorized,  issued and
      outstanding  at  March  31,  2001  and  December  31,  2000,  respectively
      (liquidation preference of $0 and  $350,000 at March 31, 2001 and
      December 31, 2000, respectively)                                                                        -         350,000
                                                                                                    ------------     -----------
         Total redeemable preferred                                                                   2,321,667       2,671,667
                                                                                                    ------------     -----------
Commitments and contingencies

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 March  31,  2001 and  December  31,  2000,
         respectively (liquidation preference of $21,505 and $71,269 at March 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 March 31, 2001 and December 31, 2000, respectively (liquidation
         preference of $1,600,000 and $0 at March 31, 2001 and December 31, 2000, respectively)          16,000               -
   Common stock: $0.01 par value, 20,000,000 shares authorized, 12,461,230 shares issued
      at March 31, 2001 and December 31, 2000, respectively                                             124,613         124,613
   Additional paid-in capital                                                                         9,649,016      15,752,226
   Accumulated deficit                                                                               (6,665,485)     (6,539,013)
   Treasury stock, 2,399,154 and 1,215,216 shares at March 31, 2001 and December 31, 2000,
      respectively, at cost                                                                          (3,244,418)     (2,036,801)
   Subscription notes receivable                                                                     (1,078,428)     (1,091,736)
                                                                                                    ------------     -----------
         Total stockholders' equity (deficit)                                                        (1,177,197)      6,280,558
                                                                                                    ------------     -----------
         Total liabilities and stockholders' equity (deficit)                                    $   17,854,257    $ 31,081,645
                                                                                                    ============     ===========
</TABLE>

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

                                     - 2 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                               THREE MONTHS ENDED
                                                                                                    March 31,
                                                                                        -----------------------------------
                                                                                             2001               2000
                                                                                        ----------------  -----------------

<S>                                                                                     <C>               <C>
Revenues                                                                                $     8,464,611   $      8,909,565

Cost of revenues                                                                             (5,836,390)        (6,507,151)
                                                                                          --------------    ---------------

      Gross profit                                                                            2,628,221          2,402,414

Operating expenses                                                                           (1,721,189)        (1,310,380)
                                                                                          --------------    ---------------

      Operating income                                                                          907,032          1,092,034
                                                                                          --------------    ---------------

Other income (expense):
    Interest expense                                                                            (14,745)           (21,054)
    Option buyback costs                                                                        (88,378)                 -
    Other, net                                                                                  105,745             55,404
                                                                                          --------------    ---------------

      Total other income, net                                                                     2,622             34,350
                                                                                          --------------    ---------------
Income from continuing  operations before
     provision for income taxes                                                                 909,654          1,126,384
Income tax expense                                                                             (430,867)          (530,278)
                                                                                          --------------    ---------------
Income from continuing  operations                                                              478,787            596,106
Loss from discontinued operations (less applicable income
    tax benefit of $311,799 and $530,278, respectively)                                        (605,259)        (1,289,759)
                                                                                          --------------    ---------------

      Net loss                                                                          $      (126,472)  $       (693,653)
                                                                                          ==============    ===============
Per share data:
Basic net income (loss) per share:
Continuing operations                                                                   $          0.04   $           0.06
Discontinued operations                                                                           (0.06)             (0.15)
                                                                                          --------------    ---------------
Net income (loss)                                                                       $         (0.02)  $          (0.09)
                                                                                          ==============    ===============
Diluted net income (loss) per share:
Continuing operations                                                                   $          0.02   $           0.04
Discontinued operations                                                                           (0.04)             (0.08)
                                                                                          --------------    ---------------
Net income (loss)                                                                       $         (0.02)  $          (0.04)
                                                                                          ==============    ===============
Weighted average number of common shares:
    Basic common shares                                                                      10,456,718          8,687,257
                                                                                          ==============    ===============
    Diluted common shares                                                                    15,499,112         16,003,515
                                                                                          ==============    ===============
</TABLE>

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

                                     - 3 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE PERIODS ENDED MARCH 31, 2001 AND 2000
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                     THREE MONTHS ENDED
                                                                                                           MARCH 31,
                                                                                              ------------------------------------
                                                                                                    2001               2000
                                                                                              -----------------  -----------------
<S>                                                                                           <C>                <C>
Cash flows from operating activities:
   Net loss                                                                                   $       (126,472)  $       (693,653)
   Loss from discontinued operations                                                                   605,259          1,289,759
   Adjustments to reconcile net loss to net cash provided by (used in)
       operating activities from continuing operations:
     Bad debt expense                                                                                        -             18,000
     Amortization of loan discounts                                                                      2,070              2,070
     Deferred income taxes                                                                              11,850                  -
     Depreciation and amortization                                                                     139,816            144,825
     Treasury stock received in settlement                                                                   -            (54,802)
     Option buyback costs                                                                               88,378                  -
     Change in  operating assets and liabilities:
       Trade accounts receivable                                                                       814,396           (122,341)
       Advance payment receivables                                                                    (174,911)         3,878,962
       Other current assets                                                                           (191,312)           524,817
       Deposits                                                                                       (118,563)          (352,071)
       Trade accounts payable and accrued liabilities                                               (1,407,522)           (57,211)
       Income taxes payable                                                                            107,218            214,929
       Deposits and other payables related to customers                                             (4,331,399)         3,953,492
       Other assets                                                                                       (193)            17,649
                                                                                                ---------------    ---------------

           Net cash provided by (used in) continuing operations                                     (4,581,385)         8,764,425
           Net cash provided by (used in) discontinued operations                                      275,271           (315,368)
                                                                                                ---------------    ---------------
           Net cash provided by (used in) operations                                                (4,306,114)         8,449,057
                                                                                                ---------------    ---------------

Cash flows from investing activities:
   Purchase of property and equipment                                                                  (14,620)           (45,259)
   Payment received on notes receivable                                                                 13,308                  -
   Amounts loaned for notes receivable                                                                (730,000)                 -
   Purchase of investments                                                                            (495,000)                 -
                                                                                                ---------------    ---------------

           Net cash used in investing activities                                                    (1,226,312)           (45,259)
                                                                                                ---------------    ---------------

Cash flows from financing activities:
   Redemption of preferred shares                                                                     (350,000)                 -
   Proceeds from notes payable                                                                         210,000                  -
   Purchas of options for cash                                                                        (215,000)                 -
   Cash paid for treasury stock                                                                     (1,207,617)                 -
   Payment of preferred stock dividends                                                                (74,426)           (71,800)
   Issuance of shares of common and preferred stock for cash                                         1,600,000            133,908
                                                                                                ---------------    ---------------

           Net cash provided by (used by) financing activities                                         (37,043)            62,108
                                                                                                ---------------    ---------------

Increase (decrease) in cash                                                                         (5,569,469)         8,465,906

Cash at beginning of period                                                                          6,719,888          5,744,069
                                                                                                ---------------    ---------------

Cash at end of period                                                                         $      1,150,419   $     14,209,975
                                                                                                ===============    ===============
Supplemental disclosures:
   Interest paid                                                                              $         13,385   $         25,451
                                                                                                ===============    ===============
   Income taxes paid                                                                          $              -   $        453,000
                                                                                                ===============    ===============
</TABLE>

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

                                     - 4 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


         NOTE 1. BASIS OF PRESENTATION

         The   accompanying    unaudited    financial    statements   of   Avery
Communications,  Inc. ("Avery") and subsidiaries  ("Company") have been prepared
in  accordance  with  generally  accepted  accounting   principles  for  interim
financial information and in accordance with the instructions per Item 310(b) of
Regulation  SB.  Accordingly,  they do not  include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.

         In the opinion of  management,  all  adjustments  (consisting of normal
recurring  adjustments)  considered  necessary for a fair presentation have been
included.  Operating results for the three-month period ended March 31, 2001 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended December 31, 2001.

         Certain   reclassifications  have  been  made  to  conform  to  current
classifications.

         NOTE 2. NET INCOME (LOSS) PER COMMON SHARE

         Basic loss per share is computed by dividing the net loss, increased by
the  preferred  stock  dividends of $111,926 and $71,500 for the periods  ending
March 31, 2001 and March 31, 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 basic loss per common share was $0.01 per
weighted  average common share  outstanding for the three months ended March 31,
2001 and  2000.  Diluted  loss per share  includes  the  effect of all  dilutive
options, warrants and instruments convertible into common stock.

         NOTE 3. COMMITMENTS AND CONTINGENCIES

         The Company is involved in various claims, legal actions and regulatory
proceedings arising in the ordinary course of business.  The Company believes it
is unlikely that the final outcome of any of the claims or  proceedings to which
the  Company  is a party will have a material  adverse  effect on the  Company's
financial  position  or  results of  operations;  however,  due to the  inherent
uncertainty of litigation,  there can be no assurance that the resolution of any
particular  claim or proceeding  would not have a material adverse effect on the
Company's  results of operations for the fiscal period in which such  resolution
occurred.

         NOTE 4. DISCONTINUED OPERATIONS

         On August  1,  2000,  the  Board of  Directors  of Avery  approved  the
spin-off  of Primal  Solutions,  Inc.  ("PSI").  The  decision  revised its plan
announced  February 29, 2000 to spin-off HBS Billing  Services  Company ("HBS"),
its local exchange  carrier  billing  clearing house  business.  The decision to
spin-off PSI instead of HBS was  motivated  primarily by the  expectations  that
Avery  shareholders  will pay less in taxes  under a spin-off  of PSI than would
have been the case with a spin-off of HBS.  Accordingly,  prior filed  financial
statements  for the period  ending  March 31, 2000  reflect HBS as  discontinued
operations.

                                     - 5 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         In March  1999,  Avery  entered  into a merger  agreement  with PSI and
certain  shareholders  of PSI.  Pursuant to this  agreement,  PSI was  purchased
effective  as of October 1, 1999.  PSI is a software  development  company  that
designs,  develops  and  supports  an  integrated  suite  of  client/server  and
browser-based  software solutions focusing on customer acquisition and retention
in the communications  industry,  primarily  utilizing decision support software
and Internet technologies.  As part of this merger, Avery also acquired Wireless
Billing  Solutions,  PSI's  subsidiary,  which  sells  and  supports  convergent
billing,  customer care and mediation system software products.  The transaction
was  accounted  for using the purchase  method of  accounting  with revenues and
expenses of Primal being  included in Avery's  operations  from the  acquisition
date.

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


         As part if the formal  distribution,  the seven PSI stockholders at the
time of the  Company's  acquisition  of PSI  redeemed  4,976,401  shares  of the
Company's  Series G voting  preferred stock in exchange for 32% of PSI's capital
stock.  Also,  the  exercise  prices  of  Avery's  outstanding  options  and the
conversion prices of Avery's convertible securities were adjusted to reflect the
distribution.  After the  transaction was completed,  the Company's  outstanding
Series G preferred  stock was reduced to 2,150,493  shares which are held by the
seven original PSI stockholders on a pro-rata basis.

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

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

                                     - 6 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                              2000
                                                                                    ----------------------
<S>                                                                                 <C>
    CURRENT ASSETS
        Cash                                                                        $           1,844,767
        Trade accounts receivable                                                               1,770,317
        Other current assets                                                                      312,548
                                                                                    ----------------------
        Total current assets                                                                    3,927,632
                                                                                    ----------------------
    CURRENT LIABILITIES
        Current portion of capital lease obligations                                              237,204
        Current portion of notes payable                                                          512,572
        Trade accounts payable                                                                    403,872
        Accrued liabilities                                                                     1,030,356
        Deferred revenue                                                                        1,074,008
                                                                                    ----------------------
        Total current liabilities                                                               3,258,012
                                                                                    ----------------------
    NET CURRENT ASSETS OF DISCONTINUED OPERATIONS                                   $             669,620
                                                                                    ======================

    PROPERTY AND EQUIPMENT
        Computer equipment and software                                             $           2,257,142
        Furniture and fixtures                                                                    115,943
        Accumulated depreciation and amortization                                                (571,665)
                                                                                    ----------------------
        Total property and equipment                                                            1,801,420
                                                                                    ----------------------
    OTHER ASSETS AND LONG-TERM LIABILITIES
        Goodwill, net                                                                           7,219,072
        Capital lease obligations                                                                 (75,555)
        Notes payable                                                                          (1,219,728)
        Other                                                                                      21,627
                                                                                    ----------------------
        Total other assets                                                                      5,945,416
                                                                                    ----------------------
    NET LONG-TERM ASSETS OF DISCONTINUED OPERATIONS                                 $           7,746,836
                                                                                    ======================
</TABLE>

         The  operating  results of PSI for the period  from  January 1, 2001 to
February  12, 2001 (the date of  distribution)  and for the three  months  ended
March 31, 2000 are as follows:

<TABLE>
<CAPTION>
                                                                        Period
                                                                  January 1, 2001 to   Three-months ended
                                                                  February 12, 2001       March 31, 2000
                                                                 -----------------------------------------
<S>                                                               <C>                   <C>
        Operating revenues                                        $         825,417     $       1,973,482
        Cost of revenues                                                   (598,792)             (948,554)
                                                                 -----------------------------------------
           Gross profit                                                     226,625             1,024,928
        Selling, general and administrative expenses                     (1,127,751)           (2,386,112)
                                                                 -----------------------------------------
           Loss from operations                                            (901,126)           (1,361,184)
        Other expense                                                       (15,932)              (11,226)
                                                                 -----------------------------------------
           Loss before income tax provision                                (917,058)           (1,372,410)
           Income tax benefit                                               311,799                82,651
                                                                 -----------------------------------------
           Net loss                                               $        (605,259)    $      (1,289,759)
                                                                 =========================================
</TABLE>

                                     - 7 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

         Note 5 CERTAIN TRANSACTIONS:

         On March  9,  2001,  HBS  Billing  Services'  largest  customer,  which
accounted  for 57% of its call  records  processed  in 2000,  filed a  voluntary
petition  for  protection  under  Chapter  11 of the U.  S.  Bankruptcy  Code in
connection with the reorganization of its parent company.  As of April 30, 2001,
the filing has had no material adverse effect on HBS Billing Services'  business
relationship  with this  customer,  and,  based upon  conversations  between the
managements  of the two  companies,  we do not  presently  anticipate  that this
filing will materially  adversely affect the  relationship  with this company in
the immediate future.

         On February 1, 2001, the Company  purchased all of the capital stock of
the Company held by (at the time of the  transaction) a beneficial owner of more
than five percent (5%) of the common stock of the Company,  and all  outstanding
options  and  warrants  to purchase  capital  stock of the  Company  held by two
individuals,  who also former directors of the Company. The total purchase price
for the  transaction  was  $1,787,000.  The  transaction  consisted of 1,183,938
shares of common stock at $1.02 per share (totaling  $1,207,617,  the fair value
at the date of the  transaction),  350,000 shares of Series E preferred stock at
$1.00 per share  (totaling  $350,000,  the  liquidation  value)plus  accrued and
unpaid  dividends and options to purchase  215,000  shares of Avery common stock
for $215,000. The Company recorded the fair value of the options,  calculated by
using the Black  Scholes  model,  at  $126,622.  This amount was  reflected as a
reduction  in  additional  paid-in  capital,  with the balance,  $88,378,  being
charged to the income statement in the other income section.

         The Company invested an additional $495,000 in 495,000 preferred shares
of a company for which Avery's Chief  Executive  Officer is also the controlling
shareholder and Chief Executive  Officer.  The preferred stock earns  cumulative
dividends at 10% and it is mandatory that they be redeemable for $1.00 per share
on the fifth anniversary after the date of issuance.

         The Company also advanced an additional  $730,000 to a company in which
it owns  1,900,000  common  shares.  The related  notes bear interest at 10% per
annum and are due May 31, 2001 and are unsecured. These notes are expected to be
converted to equity in 2001.  Avery's Chief Executive Officer is also a director
and officer of this entity.

         Note 6. PREFERRED STOCK: SERIES H

         The Company sold  1,600,000  shares of Series H  convertible  preferred
stock  for $1.00  per  share in  February  2001.  The  holders  of the  Series H
convertible preferred stock are entitled to annual cumulative dividends of $0.12
per share payable quarterly,  a $1.00 per share liquidation value and conversion
into common  stock on a one for one basis.  One  company,  whose  president is a
director of Avery, holds 1,250,000 shares of the Series H preferred stock.

         Note 7. SUBSEQUENT EVENTS

         On May 2, 2001,  Avery's board of directors approved the acquisition of
the assets of the company in which it, through a wholly owned subsidiary,  has a
note receivable in the amount of $2,980,000 and owns 2,558,000  shares of common
stock in the  aquisition  company's  parent  company.  Avery's  Chief  Executive
Officer is also a  controlling  shareholder  and  chairman  of the  entity.  The
consummation  of this  transaction  will be subject  to a number of  conditions,
including appropriate regulatory approval, the affirmative votes of shareholders
of the selling  company and receipt of fairness  opinions  The company  provides
intelligent  message  communications  services  to  enterprisesm  notably in the
travel and hospitality sectors

                                      - 8 -
<PAGE>
                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

ITEM 2.


         This Quarterly Report on Form 10-QSB contains certain "forward-looking"
statements as such term is defined in the Private  Securities  Litigation Reform
Act of 1995 and information  relating to the Company and its  subsidiaries  that
are based on the beliefs of the Company's management as well as assumptions made
by and information currently available to the Company's management. When used in
this  report,  the  words  "anticipate,"  "believe,"  "estimate,"  "expect"  and
"intend" and words or phrases of similar  import,  as they relate to the Company
or  its   subsidiaries   or  Company   management,   are  intended  to  identify
forward-looking   statements.   Such  statements   reflect  the  current  risks,
uncertainties  and  assumptions  related to certain factors  including,  without
limitations,   competitive  factors,   general  economic  conditions,   customer
relations,   relationships   with  vendors,   the  interest  rate   environment,
governmental  regulation and supervision,  seasonality,  distribution  networks,
product introductions and acceptance,  technological change, changes in industry
practices,  onetime  events  and other  factors  described  herein  and in other
filings made by the company with the Securities and Exchange  Commission.  Based
upon changing conditions, should any one or more of these risks or uncertainties
materialize,  or should  any  underlying  assumptions  prove  incorrect,  actual
results  may  vary  materially  from  those  described  herein  as  anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.

GENERAL

         The following is a discussion of the consolidated  financial  condition
and results of  operations  of the Company for the three  months ended March 31,
2001  and  2000,  respectively.  It  should  be read  in  conjunction  with  the
Consolidated  Financial  Statements of the Company,  the notes thereto and other
financial  information  included  elsewhere  in this report,  and the  Company's
Annual  Report on Form  10-KSB/A  for the year  ended  December  31,  2000.  For
purposes of the  following  discussion,  references to year periods refer to the
Company's  fiscal year ended  December 31 and  references  to quarterly  periods
refer to the Company's fiscal quarter ended March 31.

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

         The  results  on the  "Discontinued  operations"  lines  represent  the
results  of  operations  for the  respective  periods  for PSI,  a wholly  owned
subsidiary  that was spun-off in February 2001. The annual report as of December
31,  1999  and  the  quarterly  report  as of  March  31,  2000  reflect  HBS as
discontinued  operations.  See  Note  4  to  Consolidated  Financial  Statements
discussed  above.  All  discussions  relating  to  revenue,  cost  of  revenues,
operating expenses, etc. pertain only to continuing operations, which consist of
Avery and HBS.

                                     - 9 -
<PAGE>
                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

         RESULTS OF OPERATIONS

         The following table presents certain items in the Company's
Consolidated Statements of Income:

<TABLE>
<CAPTION>
                                                             -----------------------
                                                               THREE MONTHS ENDED
                                                                    March 31,
                                                             -----------------------
                                                                2001        2000
                                                             ----------- -----------
                                                                 (In Thousands)
<S>                                                          <C>         <C>
Revenues                                                     $    8,465  $    8,910
Cost of revenues                                                 (5,836)     (6,508)
                                                             ----------- -----------
           Gross profit                                           2,629       2,402
Operating expenses                                               (1,581)     (1,165)
Depreciation and amortization                                      (140)       (145)
                                                             ----------- -----------
           Operating income                                         908       1,092
Other income, net                                                     3          34
Income tax expense                                                 (431)       (530)
Discontinued operations loss                                       (605)     (1,290)
                                                             ----------- -----------
     Net loss                                                $     (125) $     (694)
                                                             =========== ===========
</TABLE>

Operating Revenues

         The  Company's  revenues are derived  primarily  from the  provision of
billing  clearinghouse and information  management  services to direct dial long
distance  carriers and operator  services  providers  ("Local  Exchange  Carrier
billing" or "LEC billing").  To a lesser extent,  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 the  Company  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 the Company to
local  telephone  companies  for billing and  collection.  Processing  fees also
include any charges  assessed to the Company by local  telephone  companies  for
billing  and  collection  services  that are  passed  through  to the  customer.
Customer  service  inquiry  fees are  assessed as a fee charged for each billing
inquiry made by end users.

         Total  revenues for the quarter ended March 31, 2001 were $8.5 million,
a decrease  of 5.0% from the  comparable  prior year  quarter.  Billing  service
revenues  decreased  4.7% to $8.2  million,  from  $8.6  million  in  2000.  The
remaining  revenue  in each  period is  primarily  related to  customer  service
operations.  The billing service revenue decrease is primarily attributable to a
decrease in the number of telephone call records  processed and billed on behalf
of direct dial long distance customers.  Enhanced billing services revenues were
up slightly for the quarter ending March 31, 2001

                                     - 10 -
<PAGE>
                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

over the same  period  for the prior  year due to  increased  volumes at the one
relatively large remaining  enhanced  services  customer.  Telephone call record
volumes were as follows:

                                                      THREE-MONTHS ENDED
                                                           March 31,
                                               --------------------------------
                                                    2001             2000
                                               ---------------  ---------------
                                                        (In Thousands)
Direct dial long distance                              74,351           89,015
Enhanced billing                                          206              166



Cost of Revenues

         Cost of revenues  includes  billing and collection  fees charged to the
Company 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.  The Company achieves  discounted billing costs due to its aggregated
volumes and can pass these discounts on to its customers.

         The gross profit  margin  increased  from 27.0% to 31.0% from the prior
year quarter ended March 31, 2000 to the current year  quarter.  The increase in
gross profit is primarily  due to lower costs as a percentage of revenue in both
the billing and the customer service departments as compared to 2000.

Operating Expense

         Operating  expenses  are  comprised  of  all  selling,   marketing  and
administrative  costs incurred in direct  support of the business  operations of
the Company. Operating expenses for the first quarter of 2001 and 2000 were $1.6
million  and  $1.2  million,  respectively,  representing  18.7%  and  13.1%  of
revenues.  The higher  operating  expenses were  primarily  attributable  to the
additional costs associated with the PSI spin-off, lower income derived from the
discontinuance of the advanced funding program and higher operating  expenses at
the corporate level.

Depreciation and Amortization

         Depreciation  and  amortization  expense  for  the  first  quarter  was
$140,000 in 2001,  and $145,000 in 2000.  The decrease is primarily due to lower
amortization of LEC contracts associated with fewer new LEC contracts at HBS.

Operating Income from Continuing Operations

         Operating  income from  continuing  operations  in the first quarter of
2001 was  $908,000,  or 10.7% of revenues,  compared to  $1,092,000  or 12.3% of
revenues,  in the comparable  quarter of 2000. The decrease in operating  income
from continuing operations is attributable to the decrease in the volume of call
records  processed  and the  increase  in  operating  expenses  and other  items
previously discussed.

                                     - 11 -
<PAGE>
                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

Other Income, Net

         Other income net in the first quarter decreased to $3,000 of net income
in 2001 from $34,000 of net income in 2000.  The decrease in income is primarily
attributable to the option buyback cost of $88,378  associated with a settlement
agreement with former board members offsetting higher interest income associated
with notes receivable.

Income Taxes

         An income tax expense of $431,000 was  recorded for the quarter  ending
March 31, 2001 and $530,000 was  recorded for the prior  quarter.  An income tax
expense was recorded for continuing  operations  but is effectively  offset on a
consolidated basis by income tax benefit recorded for discontinued operations.

Loss from Discontinued Operations

         Loss from  discontinued  operations was $605,000 for the period January
1, 2001 to February  12, 2001 and  $1,290,000  for the quarter  ending March 31,
2000 net of tax benefits of $312,000 and $530,278 for the period January 1, 2001
to February 12, 2001 and the three months  ending March 31, 2000,  respectively.
Revenues  from  discontinued  operations  were $825,000 and  $1,973,482  for the
period January 1, 2001 to February 12, 2001 and for the quarter ending March 31,
2000,  respectively.  PSI was  spun-off  on February  12,  2001,  as  previously
discussed.


LIQUIDITY AND CAPITAL RESOURCES

         Avery's cash balance  decreased to $1.2 million at March 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.

         Avery's working capital position at March 31, 2001 was a negative $11.7
million  compared to a negative  $10.4  million as of  December  31,  2000.  The
decline in working  capital  is  primarily  due to a $6.7  million  decrease  in
current  assets  offset by a $5.4 million  decline in current  liabilities.  The
decline in current assets is primarily due to a $5.6 million decrease in cash, a
$0.8 million  decrease in trade accounts  receivable and a $0.7 million decrease
in net current assets of continued operations since PSI was spun-off on February
12, 2001. The decrease in current liabilities is primarily due to a $4.3 million
decrease

                                     - 12 -
<PAGE>
                 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

in deposits and other payables  related to customers and a $1.1 million decrease
in accrued liabilities.

         Net  cash  used  in  operating   activities,   excluding   discontinued
operations,  was $4.7  million for the three months  ending  March 31, 2001,  as
compared to cash provided by operating  activities of $8.8 million for 2000. The
cash  flow used in  operations  for 2001  results  primarily  from $4.3  million
decrease in deposits  and other  payables  related to  customers,  $1.4  million
decline in trade accounts payable and accrued  liabilities and $0.6 million loss
from discontinued operations offset by a $0.8 million decline in advance payment
receivable.  The cash flow  provided by  operations  for 2000  results from $4.0
million  increase in deposits  and other  payables  related to  customers,  $3.9
million  decline in advance  payment  receivables  and a $0.5 million decline in
other current assets somewhat offset by a net loss of $0.7 million.

         During the quarter  ended March 31,  2001,  the Company  advanced  $0.7
million  for notes  receivable,  purchased  $0.5  million  of  preferred  stock,
redeemed  $0.4 million of preferred  stock, purchased  $0.2 million  options and
purchased $1.2 million of treasury stock.  This use of cash was partially offset
by the $1.6  million  received  from the  issuance of  preferred  stock and $0.2
million  proceeds from notes  payable.  During the quarter ended March 31, 2000,
the Company purchased $45,000 of capital equipment and paid $72,000 of preferred
dividends.  This use of cash was offset by the $0.1  million  received  from the
issuance of stock.

         Avery's  operating  cash  requirements  consist  principally of working
capital  requirements,  scheduled  payments of preferred  dividends  and capital
expenditures.  The  company  believes  cash  flows  generated  from  operations,
together with borrowing and/or proceeds from the sale of equity  securities will
be  sufficient  to fund capital  expenditures,  working  capital  needs and debt
repayment requirements for the foreseeable future.

                                     - 13 -
<PAGE>
PART II         OTHER INFORMATION

Item 2.         Changes In Securities

         The registrant has previously reported the information required by this
         item.

Item 6,         Exhibits and Reports on Form 8-K

         None


                                     - 14 -
<PAGE>

                                   SIGNATURES


         In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf, thereunto duly authorized.


                                            Avery Communication, Inc.
                                            -------------------------

                                                  (Registrant)

Date___________________________             /s/Patrick J. Haynes III
                                  ----------------------------------------------
                                               Patrick J. Haynes III
                                              Chairman of the Board

Date___________________________                 /s/ Scot McCormick
                                   ---------------------------------------------
                                           /s/ Scot M. McCormick, Vice President
                                               and Chief Financial Officer


                                     - 15 -
<PAGE>