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 June 30, 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, SUITE 1710                               60603
        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 June 30, 2001


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

   Common Stock, $.01 par value                            10,142,076


<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES

                                      INDEX





PART I    FINANCIAL INFORMATION                                             PAGE

Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets - June 30, 2001                         1
          (unaudited) and December 31, 2000

          Consolidated Statements of Operations - For the                     3
          Periods Ended June 30, 2001 and 2000 (unaudited)

          Consolidated Statements of Cash Flows - For the                     4
          Periods Ended June 30, 2001 and 2000 (unaudited)

          Notes to Consolidated Financial Statements                          5

Item 2.   Management's Discussion and Analysis of Financial                  10
          Condition and Results of Operations

PART II   OTHER INFORMATION

Item 2.   Changes in securities                                              15

Item 6.   Exhibits and Reports on Form 8-K                                   16




<PAGE>
<TABLE>
<CAPTION>
               ITEM 1. AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                                            ------------------------------------
                                                                                                 JUNE 30,         DECEMBER 31,
                                         ASSETS                                                  2001               2000
                                                                                            -----------------  -----------------
                                                                                              (Unaudited)
Current assets:
<S>                                                                                         <C>                 <C>
   Cash and cash equivalents                                                                $      2,820,720    $     6,719,888
   Trade accounts and notes receivable, net of allowance for doubtful accounts of $242,901           705,410          1,414,249
   Advance payment receivables                                                                     2,240,367          1,797,634
   Other receivables                                                                                 423,783            210,227
   Deferred tax asset                                                                                547,211            565,562
   Other current assets                                                                              122,595             29,661
   Net current assets of discontinued operations                                                           -            669,620
                                                                                               --------------    ---------------
         Total current assets                                                                      6,860,086         11,406,841
                                                                                               --------------    ---------------
Property and equipment:
   Computer equipment and software                                                                 1,303,322          1,282,988
   Furniture and fixtures                                                                            322,823            322,023
   Accumulated depreciation and amortization                                                        (927,964)          (784,168)
                                                                                               --------------    ---------------
         Total property and equipment, net                                                           698,181            820,843
                                                                                               --------------    ---------------
Other assets:
   Goodwill, net of accumulated amortization of $1,132,577 and $1,001,725, respectively            2,623,040          2,753,892
   Investments                                                                                     2,104,485          1,519,000
   Net long-term assets of discontinued operations                                                         -          7,746,836
   Deposits                                                                                        2,876,167          2,759,604
   Purchased contracts, net of accumulated amortization of $334,111
    and $328,225, respectively                                                                        20,152             26,038
   Notes receivable due from related parties                                                       5,308,772          4,046,772
   Capitalized acquisition costs                                                                     290,622                  -
   Other                                                                                               2,206              1,819
                                                                                               --------------    ---------------
         Total other assets                                                                       13,225,444         18,853,961
                                                                                               --------------    ---------------
         Total assets                                                                       $     20,783,711    $    31,081,645
                                                                                               ==============    ===============
</TABLE>

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

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

                                                                                            -----------------  -----------------
                                                                                                 JUNE 30,         DECEMBER 31,
                           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                         2001                2000
                                                                                            -----------------  -----------------
                                                                                              (Unaudited)
Current liabilities:
<S>                                                                                          <C>                <C>
   Current notes payable                                                                     $         6,667    $         6,667
   Trade accounts payable                                                                          3,476,451          4,117,671
   Accrued liabilities                                                                             2,708,322          3,323,874
   Income taxes payable                                                                              584,129            314,547
   Deposits and other payables related to customers                                               11,481,417         14,033,186
                                                                                               --------------    ---------------
         Total current liabilities                                                                18,256,986         21,795,945
                                                                                               --------------    ---------------
Long-term notes payable due to related parties                                                       337,615            333,475
                                                                                               --------------    ---------------
Redeemable preferred stock:
   Series A; $0.01 par value, 391,667 shares authorized,  issued and outstanding
      at June 30, 2001 and December 31, 2000 (liquidation preference
      of $391,667 at June 30, 2001 and December 31, 2000)                                            391,667            391,667
   Series B; $0.01 par value, 390,000 shares authorized, issued and
      outstanding at June 30, 2001 and December 31, 2000 (liquidation preference                     390,000            390,000
      of $390,000 at June 30, 2001 and December 31, 2000)
   Series C; $0.01 par value,  40,000 shares authorized,  issued and outstanding
      at June 30, 2001 and December 31, 2000, (liquidation preference
      of $40,000 at June 30, 2001 and December 31, 2000)                                              40,000             40,000
   Series D; $0.01 par value, 1,500,000 authorized, issued and
      outstanding at June 30, 2001 and December 31, 2000 (liquidation preference                   1,500,000          1,500,000
      of $1,500,000 at June 30, 2001 and December 31, 2000)
   Series E;  $0.01 par  value,  0 and  350,000  shares  authorized,  issued and
      outstanding  at  June  30,  2001  and  December  31,  2000,   respectively
      (liquidation  preference of $0 and  $350,000 at June 30, 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 June  30,  2001  and  December  31,  2000,
         respectively (liquidation preference of $21,505 and $71,269 at June 30,
         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 June 30, 2001 and December 31, 2000, respectively (liquidation
         preference of $1,600,000 and $0 at June 30, 2001 and December 31, 2000, respectively)        16,000                  -
      Series I; $0.01 par value, 500,000 and  0 shares authorized, issued and
         outstanding at June 30, 2001 and December 31, 2000, respectively (liquidation
         preference of $500,000 and $0 at June 30, 2001 and December 31, 2000, respectively)           5,000                  -
   Common stock: $0.01 par value, 20,000,000 shares authorized, 12,541,230 and
      12,461,230 shares issued at June 30, 2001 and December 31, 2000, respectively                  125,412            124,613
   Additional paid-in capital                                                                     10,114,066         15,752,226
   Accumulated deficit                                                                            (6,091,694)        (6,539,013)
   Treasury stock, 2,399,154 and 1,215,216 shares at June 30, 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)                                                        (132,557)         6,280,558
                                                                                               --------------    ---------------
         Total liabilities and stockholders' equity (deficit)                               $     20,783,711    $    31,081,645
                                                                                               ==============    ===============
</TABLE>

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

                                     - 2 -
<PAGE>
<TABLE>
<CAPTION>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
                                   (UNAUDITED)
                                                                  ------------------------------ -------------------------------
                                                                         THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                            June 30,                        June 30,
                                                                  ------------------------------ -------------------------------
                                                                      2001            2000            2001            2000
                                                                  -------------  --------------- --------------- ---------------

<S>                                                               <C>            <C>             <C>             <C>
Revenues                                                          $  8,135,849   $    8,867,854  $   16,600,460  $   17,777,419

Cost of revenues                                                    (5,830,411)      (6,344,788)    (11,666,801)    (12,851,939)
                                                                   ------------    -------------   -------------   -------------

     Gross profit                                                    2,305,438        2,523,066       4,933,659       4,925,480

Operating expenses                                                  (1,485,807)      (1,519,760)     (3,206,996)     (2,830,140)
                                                                   ------------    -------------   -------------   -------------

     Operating income                                                  819,631        1,003,306       1,726,663       2,095,340
                                                                   ------------    -------------   -------------   -------------

Other income (expense):
   Interest expense                                                    (19,702)         (14,722)        (34,447)        (35,776)
   Option buyback costs                                                      -                -         (88,378)              -
   Other, net                                                           76,727          116,258         182,472         171,662
                                                                   ------------    -------------   -------------   -------------

     Total other income, net                                           (57,025)         101,536         (59,647)        135,886
                                                                   ------------    -------------   -------------   -------------
Income from continuing  operations before
    provision for income taxes and discontinued operations             876,656        1,104,842       1,786,310       2,231,226
Income tax expense                                                    (302,865)        (232,293)       (733,732)       (762,571)
                                                                   ------------    -------------   -------------   -------------
Income from continuing operations                                      573,791          872,549       1,052,578       1,468,655
Loss from discontinued operations (less applicable income
   tax benefit of $667,716 for the three months ended
   June 30, 2000 and  $311,799 and $750,367 for the six months
   ended June 30, 2001 and 2000,  respectively)                              -         (509,135)       (605,259)     (1,798,894)
                                                                   ------------    -------------   -------------   -------------

     Net income (loss)                                            $    573,791   $      363,414  $      447,319  $     (330,239)
                                                                   ============    =============   =============   =============
Per share data:
Basic net income (loss) per share:
Continuing operations                                             $       0.04   $         0.08  $         0.08  $         0.15
Discontinued operations                                                      -            (0.06)          (0.06)          (0.21)
                                                                   ------------    -------------   --------------  -------------
Net income (loss)                                                 $       0.04   $         0.02  $         0.02  $        (0.06)
                                                                   ============    =============   ==============  =============
Diluted net income (loss) per share:
Continuing operations                                             $       0.03   $         0.06            0.06            0.10
Discontinued operations                                                      -            (0.03)          (0.04)          (0.12)
                                                                   ------------    -------------   -------------   -------------
Net income (loss)                                                 $       0.03   $         0.03  $         0.02  $        (0.02)
                                                                   ============    =============   =============   =============
Weighted average number of common shares outstanding:
   Basic common shares                                              10,115,262        8,750,771      10,285,055       8,719,013
                                                                   ============    =============   =============   =============
   Diluted common shares                                            17,236,714       14,772,089      16,986,204      15,612,516
                                                                   ============    =============   =============   =============
</TABLE>


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

                                     - 3 -
<PAGE>
<TABLE>
<CAPTION>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  FOR THE PERIODS ENDED JUNE 30, 2001 AND 2000
                                   (UNAUDITED)

                                                                                      --------------------------------------
                                                                                                 SIX MONTHS ENDED
                                                                                                     JUNE 30,
                                                                                      --------------------------------------
                                                                                             2001                2000
                                                                                      -------------------  -----------------
<S>                                                                                   <C>                  <C>
Cash flows from operating activities:
   Net income (loss)                                                                  $          447,319   $       (330,239)
   Loss from discontinued operations                                                             605,259          1,798,894
   Adjustments to reconcile net income (loss) to cash provided by
       (used in) operating activities from continuing operations:
     Bad debt expense                                                                                  -             36,000
     Amortization of loan discounts                                                                4,140              4,140
     Deferred income taxes                                                                        18,351                  -
     Depreciation and amortization                                                               280,533            289,546
     Treasury stock received in settlement                                                             -            (54,802)
     Option buyback costs                                                                         88,378                  -
     Change in  operating assets and liabilities:
       Trade accounts receivable                                                                 708,839             64,082
       Advance payment receivables                                                              (442,732)         4,731,212
       Other current assets                                                                     (306,490)           376,736
       Deposits                                                                                 (116,563)        (1,309,744)
       Trade accounts payable and accrued liabilities                                         (1,256,772)         1,287,900
       Income taxes payable                                                                      269,582           (255,673)
       Deposits and other payables related to customers                                       (2,551,769)         3,013,261
       Other assets                                                                                 (387)            17,649
                                                                                        -----------------    ---------------
           Net cash provided by (used in) continuing operations                               (2,252,312)         9,668,962
           Net cash provided by (used in) discontinued operations                                275,271           (464,965)
                                                                                        -----------------    ---------------
           Net cash provided by (used in) operations                                          (1,977,041)         9,203,997
                                                                                        -----------------    ---------------
Cash flows from investing activities:
   Purchase of contracts                                                                               -             (7,500)
   Purchase of property and equipment                                                            (21,134)           (58,594)
   Payment received on notes receivable                                                           13,308                  -
   Amounts loaned for notes receivable                                                        (1,262,000)                 -
   Acquisition costs                                                                            (290,622)                 -
   Purchase of investments                                                                      (585,485)                 -
                                                                                        -----------------    ---------------
           Net cash used in investing activities                                              (2,145,933)           (66,094)
                                                                                        -----------------    ---------------
Cash flows from financing activities:
   Redemption of preferred shares                                                               (350,000)                 -
   Purchase of options for cash                                                                 (215,000)                 -
   Cash paid for treasury stock                                                               (1,207,617)                 -
   Payment of preferred stock dividends                                                         (154,884)          (176,700)
   Issuance of shares of common and preferred stock for cash                                   2,151,307            134,114
                                                                                        -----------------    ---------------
           Net cash provided by (used in) financing activities                                   223,806            (42,586)
                                                                                        -----------------    ---------------
Increase (decrease) in cash                                                                   (3,899,168)         9,095,317
Cash at beginning of period                                                                    6,719,888          5,744,069
                                                                                        -----------------    ---------------
Cash at end of period                                                                 $        2,820,720   $     14,839,386
                                                                                        =================    ===============
Supplemental disclosures:
   Interest paid                                                                      $          114,045   $         41,155
                                                                                        =================    ===============
   Income taxes paid                                                                  $          134,000   $        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 and six month periods ended June 30,
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 net  income  (loss) per share is  computed  by  dividing  the net
income  (loss),  increased  by the  preferred  stock  dividends  of $123,001 and
$70,900 for the three month periods ending June 30, 2001 and 2000, respectively,
and $207,331 and  $142,400  for the six month  periods  ending June 30, 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 basic  income  (loss) per common  share was $0.01 per  weighted
average  common share  outstanding  for the three month periods  ending June 30,
2001 and 2000 and $0.02 per weighted  average common share  outstanding  for the
six month periods ending June 30, 2001 and 2000. Diluted loss per share includes
the effect of all dilutive  options,  warrants and instruments  convertible into
common stock.


         NOTE 3. 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  expectation  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.


         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

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

with revenues and expenses of PSI 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  Primal  or its  subsidiary,  Wireless  Billing
Systems.


         As part of 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, Avery'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 of PSI were as follows:

<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
                                                                                 ======================
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                          2000
                                                                                 ----------------------
<S>                                                                               <C>
    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 January 1, 2001 to February
12, 2001 and for the three and six months ended June 30, 2000 are as follows:


<TABLE>
<CAPTION>
                                                             Period January
                                                              1, 2001 to
                                                              February 12,      Three months ended    Six months ended
                                                                  2001             June 30, 2000        June 30, 2000
                                                            ----------------------------------------------------------
<S>                                                              <C>                  <C>                 <C>
 Operating revenues                                              $ 825,417            $ 2,094,314         $ 4,067,796
 Cost of revenues                                                 (598,792)            (1,087,703)         (2,036,257)
                                                            ----------------------------------------------------------
    Gross profit                                                   226,625              1,006,611           2,031,539
 Selling, general and administrative expenses                   (1,127,751)            (2,119,751)         (4,505,863)
                                                            ----------------------------------------------------------
    Loss from operations                                          (901,126)            (1,113,140)         (2,474,324)
 Other Expense                                                     (15,932)               (63,711)            (74,937)
                                                            ----------------------------------------------------------
    Loss before income tax provision                              (917,058)            (1,176,851)         (2,549,261)
    Income tax benefit                                             311,799                667,716             750,367
                                                            ----------------------------------------------------------
    Net loss                                                    $ (605,259)            $ (509,135)       $ (1,798,894)
                                                            ==========================================================
</TABLE>

         NOTE 4. CERTAIN TRANSACTIONS


         On March 9, 2001, HBS' largest customer, which accounted for 57% of its
call records  processed in 2000 and 65% of all call record  proceeds for the six
months ended June 30, 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 July 31, 2001, the filing has had no material adverse
effect  on HBS'  business  relationship  with this  customer,  and,  based  upon
conversations between the managements of the two

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

companies,  the  Company  does 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 were 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 $126,622 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 $574,000 in 526,500 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 redeemed for $1.00 per share
on the fifth anniversary after the date of issuance.

         The Company  also  advanced an  additional  $1,262,000  to a company in
which it owns  2,558,000  common  shares,  658,000 of these  common  shares were
acquired  during the six months  ended June 30,  2001.  The  related  notes bear
interest at 10% per annum,  are due  December  31, 2001 and are  secured.  These
notes are expected to be converted to equity  during the later half of 2001.  On
May 2, 2001, Avery's board of directors approved the acquisition of this company
subject to certain  conditions (See Note 7). Avery's Chief Executive  Officer is
also a director and officer of this entity.

         NOTE. 5 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.

                  SERIES I

                  The  Company  sold  500,000  shares  of  Series I  convertible
         preferred  stock for $1.00 per share in April  2001.  The holder of the
         Series I 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.

         NOTE 6. 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.

                                     - 8 -
<PAGE>
                   AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


         NOTE 7. PENDING ACQUISITION


         On May 2, 2001,  Avery's board of directors approved the acquisition of
the assets of a company in which it,  through a wholly owned  subsidiary,  has a
note receivable in the amount of $3,162,000 and owns 2,558,000  shares of common
stock in the target company's parent.  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  enterprises  notably  in the  travel  and
hospitality sectors.

         NOTE 8. SUBSEQUENT EVENTS

         On July 26, 2001,  the board of directors  approved a 1-for-20  reverse
split of the Company's  common stock.  An  information  statement  regarding the
reverse  split  was  filed  with the SEC on  August  2,  2001.  It is  presently
anticipated that the reverse split will become effective in late August or early
September.  An affirmative  vote of a majority of the holders of shares entitled
to vote is required to approve the amendment of the Certificate of Incorporation
to effect the reverse stock split.  Controlling  stockholders  have consented in
writing to the amendment and this is sufficient to obtain the  stockholder  vote
necessary  to  approve  the   amendment   without  the  approval  of  any  other
stockholders.  The board of directors believes the reverse stock split may allow
Avery to meet the  listing  criteria  for its  common  stock to be listed on the
Nasdaq  SmallCap  Market,  increasing  the acceptance of its common stock by the
financial community and, accordingly, enhancing stockholder value.

         On August 3, 2001,  the Company,  through its wholly owned  subsidiary,
ACI Communications,  Inc.,  completed the acquisition of certain assets from OAN
Services,  Inc.  ("OAN") which was approved by the U.S.  Bankruptcy Court in Los
Angeles,  California.  OAN  is  located  in  Northridge,  California  and  was a
competitor  to  the  Company's  local  exchange  carrier  billing  clearinghouse
business, HBS Billing Services Company. Under the asset purchase agreement,  ACI
has agreed to pay  approximately  $10.4 million,  consisting of a combination of
assumed liabilities and cash. The assets purchased include  substantially all of
OAN's  customer  base,  cash  deposits  with  the  local  exchange  carriers  of
approximately  $7.2  million,  substantially  all of its  computer  software and
hardware,  all of its furniture and fixtures,  all of its call center assets and
certain other assets.



                                     - 9 -
<PAGE>
                MANAGEMENT'S 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  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 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 and six month  periods
ended  June  30,  2001 and  2000.  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 three and six month  periods ended June 30, 2001
and 2000.


         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  3  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.

                                     - 10 -
<PAGE>
                MANAGEMENT'S 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 Operations:

<TABLE>
<CAPTION>
                                                    --------------------- -----------------------
                                                     THREE MONTHS ENDED      SIX MONTHS ENDED
                                                           June 30,               June 30,
                                                    --------------------- -----------------------
                                                      2001       2000        2001        2000
                                                    --------- ----------- ----------- -----------
                                                       (In Thousands)         (In Thousands)
<S>                                                 <C>        <C>         <C>         <C>
Revenues                                            $  8,136   $   8,868   $  16,600   $  17,777
Cost of revenues                                      (5,830)     (6,345)    (11,667)    (12,852)
                                                     --------   ---------   ---------   ---------
         Gross profit                                  2,306       2,523       4,933       4,925
Operating expenses                                    (1,346)     (1,375)     (2,926)     (2,540)
Depreciation and amortization                           (141)       (145)       (281)       (290)
                                                     --------   ---------   ---------   ---------
         Operating income                                819       1,003       1,726       2,095
Other income, net                                         57         101          60         137
Income tax expense                                      (303)       (232)       (734)       (763)
Discontinued operations loss                               -        (509)       (605)     (1,799)
                                                     --------   ---------   ---------   ---------
         Net income (loss)                          $    573   $     363   $     447   $    (330)
                                                     ========   =========   =========   =========
</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 three  months  ended  June 30,  2001 were $8.1
million,  down 8.3% from the  comparable  prior year  quarter.  Billing  service
revenues  decreased  7.6% to $8.0  million,  from  $8.6  million  in  2000.  The
remaining  revenue is primarily  related to customer service  operations and was
$185,500 for the three months ended June 30, 2001,  down 29.7% from  $264,000 in
the prior year.  Total revenues for the six months ended June 30, 2001 was $16.6
million,  down 6.6% from $17.8  million in the prior year period.  The remaining
revenue is primarily related to customer service operations and was $425,000 for
the six months ended June 30, 2001,  down 21.7% from the $543,100 from the prior
year period. 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.  This  reduction  reflects the overall
condition of the  telecommunication  market  place during this period.  Enhanced
billing services  revenues were up slightly due to increased  volumes at the one
relatively large remaining  enhanced  services  customer.  Telephone call record
volumes were as follows:

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

                       CONDITION AND RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                 ---------------------------------  ---------------------------------
                                                          THREE-MONTHS ENDED                SIX-MONTHS ENDED
                                                             June 30,                           June 30,
                                                 ---------------------------------  ---------------------------------
                                                      2001             2000              2001             2000
                                                 ---------------  ----------------  ---------------  ----------------
                                                  (In Thousands)                     (In Thousands)
<S>                                                      <C>               <C>             <C>               <C>
    Direct dial long distance                            71,404            88,909          144,924           177,924
    Enhanced billing                                        197               171              403               337
</TABLE>


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 decreased slightly from 28.5% to 28.3% from the
prior three month  period  ended June 30,  2000 to the current  year.  The gross
profit  margin  increased  substantially  from 27.7% to 29.7% from the prior six
month period ended June 30, 2000 to the current  year  period.  The  substantial
increase  in gross  profit  percentage  is  primarily  due to  lower  costs as a
percentage of revenue in the billing service area offset by a slight increase in
costs in the customer service departments as compared to 2000.

Operating Expenses

         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 three month periods ended June 30, 2001
and 2000 were $1.3 million and $1.4 million,  respectively,  representing  15.6%
and  15.5% of  revenues,  respectively.  Operating  expenses  for the six  month
periods  ended  June 30,  2001 and 2000  were  $2.9  million  and $2.5  million,
respectively,  representing 17.5% and 14.3% of revenues, respectively. The lower
operating  expenses  for the three  months  ended June 30, 2001 versus 2000 were
primarily  due to lower  legal  expenses  at the  corporate  level.  The  higher
operating  expenses  for the six months  ended June 30,  2001  versus  2000 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 legal and compensation expenses at the corporate level.

Depreciation and Amortization

         Depreciation and  amortization  expense for the three months ended June
30, was $141,000 in 2001,  and  $145,000 in 2000.  For the six months ended June
30,  depreciation and amortization  expense was $281,000 in 2001 and $290,000 in
2000.  The  decrease is primarily  due to lower  amortization  of LEC  contracts
associated with certain LEC contracts becoming fully amortized and fewer new LEC
billing contracts at HBS.

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

                       CONDITION AND RESULTS OFo OPERATIONS

Operating Income from Continuing Operations


         Operating income from continuing  operations for the three months ended
June 30, 2001 was  $820,000,  or 10.0% of revenues,  compared to  $1,003,000  or
11.3% of revenues,  in the comparable  period of 2000.  Operating income for the
six month  period  ending  June 30,  2001 was  $1,727,000,  or 10.4% of revenue,
compared to $2,095,000,  or 11.8% of revenue,  in the comparable period of 2000.
The  decrease  in  operating  income from  continuing  operations  is  primarily
attributable  to the  decrease in the volume of call records  processed  and the
increase in operating expenses and other items previously discussed.


Other Income, Net


         Other income,  net in the three months ended June 30, 2001 decreased to
$57,000 of net income in 2001 from  $102,000  of net income in 2000.  During the
six months ended June 30, 2001,  the other  income,  net decreased to $60,000 of
net income in 2001 from  $136,000 of net income in 2000.  The decrease in income
for the three  months  ended June 30, 2001 is  primarily  due to lower  interest
income associated with lower levels of invested short-term cash. The decrease in
net income for the six months ended June 30, 2001 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


         Income tax expense of $303,000  was recorded for the three months ended
June 30, 2001 and $232,000 was recorded for the prior year quarter.  For the six
months ended June 30, 2001, income tax expense of $734,000 was recorded compared
to $763,000  for the same  period in 2000.  Income tax expense for the three and
six month  periods  ended June 30,  2000 and a portion of income tax expense for
the six month period ending June 30, 2001 are 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  $509,000 for the quarter  ending June 30, 2000
net of tax benefits of $312,000  and $668,000 for the period  January 1, 2001 to
February  12,  2001 and the three  months  ending June 30,  2000,  respectively.
Revenues  from  discontinued  operations  were $825,000 and  $2,094,000  for the
period  January 1, 2001 to February 12, 2001 and for the quarter ending June 30,
2000, respectively. Loss from discontinued operations was $1,799,000 for the six
months ended June 30, 2000 net of tax benefits of $750,000.  PSI was spun-off on
February 12, 2001, as previously discussed.

                                     - 13 -
<PAGE>
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

                       CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

         Avery's cash balance  decreased to $2.8 million at June 30, 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.  In addition,  Bell South,  the LEC through which HBS
processes the most volume,  moved their remittance date back from the end of the
month to the 15th of the following month during the quarter.

         Avery's working capital  position at June 30, 2001 was a negative $11.4
million  compared to a negative  $10.4  million as of  December  31,  2000.  The
decline in working  capital  is  primarily  due to a $4.5  million  decrease  in
current  assets  offset by a $3.5 million  decline in current  liabilities.  The
decline in current assets is primarily due to a $3.9 million decrease in cash, a
$0.7 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 $2.6 million
decrease in deposits and other payables  related to customers and a $1.2 million
decrease in trade accounts payable and accrued liabilities.


         Net  cash  used  in  operating   activities,   excluding   discontinued
operations,  was $2.3  million  for the six  months  ending  June 30,  2001,  as
compared to cash provided by operating  activities of $9.7 million for 2000. The
cash  flow used in  operations  for 2001  results  primarily  from $2.6  million
decrease in deposits  and other  payables  related to  customers,  $1.2  million
decline in trade accounts payable and accrued  liabilities and $0.6 million loss
from discontinued  operations offset by a $0.7 million decline in trade accounts
receivable.  The cash flow  provided by  operations  for 2000  results from $3.0
million  increase in deposits  and other  payables  related to  customers,  $4.7
million decline in advance payment  receivables,  $1.3 million increase in trade
accounts  payable and accrued  liabilities  and a $0.4 million  decline in other
current  assets  somewhat  offset by a $1.3 million  increase in deposits,  $0.3
million decrease in income taxes payable and a net loss of $0.3 million.


         During the six months ended June 30, 2001,  the Company  advanced  $1.3
million for notes receivable,  purchased $0.6 million of an affiliated company's
preferred  stock,  redeemed  $0.4  million  of the  Company's  preferred  stock,
purchased  $0.2 million of Avery's  options,  paid $0.3 million for  acquisition
costs,  paid $0.2 million for  preferred  stock  dividends  and  purchased  $1.2
million of treasury  stock.  This use of cash was  partially  offset by the $2.2
million  received from the issuance of preferred stock and common stock.  During
the six months ended June 30,  2000,  the Company  purchased  $59,000 of capital
equipment and paid $177,000 of preferred  dividends.  The $134,000 received from
the issuance of stock offset this use of cash.


         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 borrowings 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.

ACCOUNTING CHANGES

         In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" which requires
the  purchase  method  of  accounting  for  business  combination   transactions
initiated after June 30, 2001.

         In July 2001, the Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  142  "Goodwill  and Other  Intangible
Assets". The statement requires that goodwill recorded on acquisitions completed
prior  to  July  1,  2001 be  amortized  through  December  31,  2001.  Goodwill
amortization  is  precluded  on  acquisitions  completed  after  June 30,  2001.
Effective  January 1, 2002,  goodwill  will no longer be  amortized  but will be
tested for impairment as set forth in the statement.  We are currently reviewing
the new  standard  and  evaluating  the  effects of this  standard on our future
financial  condition,   results  of  operations,  and  accounting  policies  and
practices.  Amortization  of goodwill  for the first six months of 2001  totaled
$122,000.

                                     - 14 -
<PAGE>

PART II OTHER INFORMATION


Item 2. Changes In Securities

         The  registrant  sold an  aggregate  of  1,600,000  shares  of Series H
convertible  preferred  stock for $1.00 per share in February  2001 to two small
business investment companies. 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  preference,  and conversion of their
preferred stock into common stock on a one for one basis. The sales were made by
the registrant in reliance upon the exemption from the  registration  provisions
of the Securities Act of 1933, as amended (the "Act"), set forth in Section 4(2)
thereof and in reliance upon  Regulation D promulgated  thereunder.  Each of the
purchasers  represented to the registrant that it was an "accredited  investor,"
as  defined  in  Regulation  D. The  sales  were  made in  privately  negotiated
transactions, and neither the offer nor sale of the securities involved any form
of general solicitation or general advertising.  Each purchaser also represented
to the  registrant  that it was acquiring the securities for its own account for
investment  purposes  only,  and  not  with  a  view  to  the  resale  or  other
distribution thereof. Each purchaser was informed and agreed that the securities
had not been  registered  under  the Act and that the  securities  could  not be
transferred  or  sold  without  registration  under  the  Act  or  an  exemption
therefrom,  and the certificates  representing the securities contained a legend
to such effect.

         The registrant  sold 500,000  shares of Series I convertible  preferred
stock for $1.00 per share in April 2001 to an individual who is a stockholder of
the  registrant.  The holders of the Series I  convertible  preferred  stock are
entitled to annual cumulative dividends of $0.12 per share payable quarterly,  a
$1.00 per share liquidation preference,  and conversion of their preferred stock
into common stock on a one for one basis. The sale was made by the registrant in
reliance upon the exemption from the  registration  provisions of the Securities
Act of 1933,  as amended (the "Act"),  set forth in Section  4(2)  thereof.  The
purchaser represented to the registrant that he was an "accredited investor," as
defined  in  Regulation  D.  The  sale  was  made  in  a  privately   negotiated
transaction,  and neither the offer nor sale of the securities involved any form
of general solicitation or general  advertising.  The purchaser also represented
to the  registrant  that he was acquiring the securities for his own account for
investment  purposes  only,  and  not  with  a  view  to  the  resale  or  other
distribution  thereof. The purchaser was informed and agreed that the securities
had not been  registered  under  the Act and that the  securities  could  not be
transferred  or  sold  without  registration  under  the  Act  or  an  exemption
therefrom,  and the certificates  representing the securities contained a legend
to such effect.

                                     - 15 -
<PAGE>

Item 6, Exhibits and Reports on Form 8-K

        (a)     Reports of Form 8-K

                None

        (b)     Exhibits

<TABLE>
<CAPTION>
                     Exhibit No.   Description
                    -------------- ---------------------------------------------------------------------------
<S>                      <C>
                         4.1       Certificate of Designations of Series H Convertible Preferred Stock
                                   (filed herewith)
                         4.2       Certificate of Designations of Series I Convertible Preferred Stock
                                   (filed herewith)
                        10.1       Asset Purchase Agreement among Qorus.com, Inc., TMT Holdings, Inc.,
                                   Aelix, Inc. and Avery Communications, Inc. dated May 29, 2001 (Exhibit
                                   No. 10.37*)
                        10.2       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 & Technology Holdings, Inc.
                                   (Exhibit No. 10.38*)
                        10.3       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 (Exhibit No. 10.39*)
                        10.4       Demand Promissory Note, dated as of April 12, 2001, payable to Thurston
                                   Communications Corporation in the original principal amount of $80,000
                                   (Exhibit No. 10.40*)
                        10.5       Demand Promissory Note, dated as of April 30, 2001, payable to Thurston
                                   Communications Corporation by Aelix, Inc. the original principal amount
                                   of $170,000 (Exhibit No. 10.41*)
                        10.6       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 (Exhibit No. 10.24)
                        10.7       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 (Exhibit No. 10.43*)
                        10.8       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 (Exhibit No. 10.44*)
                        10.9       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 (Exhibit No. 10.45*)
                        10.10      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 (Exhibit No. 10.46*)
                        10.11      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 (Exhibit No. 10.47*)

<FN>
*Incorporated  by reference to the stated Exhibit No. in the Quarterly Report on
Form 10-QSB for the quarter ended June 30, 2001, filed by Qorus.com, Inc.
</FN>
</TABLE>


                                     - 16 -
<PAGE>

                                   SIGNATURES


         In accordance with the requirements of the Exchange Act, the registrant
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 McCormick, Secretary


                                     - 17 -
<PAGE>


                           AVERY COMMUNICATIONS, INC.

                           CERTIFICATE OF DESIGNATIONS
                                       OF
                      SERIES H CONVERTIBLE PREFERRED STOCK

                  Avery  Communications,  Inc.,  a  Delaware  corporation,  DOES
         HEREBY CERTIFY:

         That,  pursuant to authority  conferred  upon the Board of Directors of
said corporation by virtue of its Certificate of Incorporation,  as amended, and
in accordance  with Section 151 of the General  Corporation  Law of the State of
Delaware,  said Board of Directors  has duly adopted a resolution  providing for
the  issuance  of a series  of  Preferred  Stock,  par value  $0.01  per  share,
designated as Series H Convertible  Preferred  Stock,  which resolution reads as
follows:

         "RESOLVED,  that the Board of Directors  (the "BOARD OF  DIRECTORS") of
Avery Communications,  Inc., a Delaware corporation (the "CORPORATION"),  hereby
authorizes the issuance of a series of the  Corporation's  Preferred  Stock, par
value $0.01 per share ("PREFERRED  Stock"),  and fixes its designation,  powers,
preferences  and  relative,  participating,  optional,  voting or other  special
rights, and qualifications, limitations and restrictions thereof, as follows:

         I. SERIES H  CONVERTIBLE  PREFERRED  STOCK.  A series of the  Preferred
Stock, designated the Series H Convertible Preferred Stock (herein the "Series H
                                                                        --------
Preferred Stock"), is hereby established.  The aggregate number of shares of the
---------------
Series H Preferred  Stock shall be 1,600,000;  provided,  that upon  redemption,
repurchase,  conversion  or  other  reacquisition  of  shares  of the  Series  H
Preferred  Stock,  the number of shares of such Series H Preferred Stock and the
number of shares of authorized  Series H Preferred Stock shall  automatically be
reduced  by such  number of  shares  that have  been  redeemed,  repurchased  or
reacquired and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series. The foregoing notwithstanding,  during such period in
which shares of the Corporation's Series H Preferred Stock are outstanding,  the
Corporation  shall not issue other  series of Preferred  Stock  having  dividend
rights  or  preferences  upon  liquidation  that are  superior  to the  Series H
Preferred  Stock.  The  preferences,  powers,  rights  and  privileges  and  the
qualifications, limitations and restrictions of the Series H Preferred Stock are
as follows:

                  a.  DIVIDEND  RIGHTS.  The  holders of the Series H  Preferred
Stock shall be entitled to receive, out of any funds legally available therefor,
dividends  at the rate of $0.12 per share  (the  "Dividend")  per annum from the
                                                  --------
date of issuance  which shall accrue  quarterly in equal  increments of $0.03 on
January 1, April 1, July 1 and October 1 of each year (each a "Dividend  Accrual
Date")  commencing  April 1, 2001,  which Dividend shall be payable on the first
business day that is twenty (20) days following each such Dividend  Accrual Date
                                                          ----------------------
(each  such date being a  "Dividend  Payment  Date")  which  dividends  shall be
                           -----------------------
payable in preference and priority to any payment of any cash dividend on Common
Stock and any shares of any other  class or series of  Preferred  Stock , or any
other class or series of the capital  stock of the  Corporation,  authorized  or
issued after the date on which this Certificate of Designation is filed with the
Secretary  of State of the State of  Delaware,  that is junior to and over which
the Series H  Preferred  Stock has  preference  and  priority  in the payment of
dividends  and in the  payment  of  amounts  in the  event of any  voluntary  or
involuntary  liquidation,  dissolution  or  winding  up of  the  affairs  of the

                                     - 1 -
<PAGE>

Corporation,  other than outstanding  shares of the Company's Series D Preferred
Stock, which have a prior right of payment or other form of capital stock of the
Corporation  (such  Common  Stock  and  other  stock  [other  than the  Series D
Preferred Stock] being collectively  referred to as "Junior Stock"), when and as
                                                     ------------
declared by the Board of  Directors of the  Corporation.  Such  dividends  shall
accrue and be deemed to accrue  whether or not earned or declared,  and shall be
cumulative so that if such  dividends on the Series H Preferred  Stock shall not
have been paid, or declared and set apart for payment,  the deficiency  shall be
fully paid or declared and set apart for payment  before any  dividend  shall be
paid or  declared  or set apart for any  shares of Junior  Stock and  before any
purchase  or  acquisition  of  any  shares  of  Junior  Stock  is  made  by  the
Corporation..

                  b.  LIQUIDATION  RIGHTS.  In the  event  of  the  liquidation,
dissolution or winding up of the Corporation,  whether voluntary or involuntary,
the holders of each share of Series H Preferred Stock then outstanding  shall be
entitled  to be  paid  out  of  the  assets  of the  Corporation  available  for
distribution to its shareholders,  before any payment or declaration and setting
apart for payment of any amount shall be made in respect of the Junior Stock, an
amount  equal to One Dollar  ($1.00)  per  share,  plus all  accrued  and unpaid
dividends and interest on the Series H Preferred Stock (no less and no more). If
the assets of the Corporation  available for  distribution  to its  stockholders
shall be  insufficient  to pay in full all  amounts to which the  holders of the
Series H Preferred  Stock are entitled,  the amount  available for  distribution
shall be shared pro rata by the holders of such series. For the purposes of this
Section  b,  a  merger  or  consolidation  of the  Corporation  with  any  other
corporation or other entity in which the corporation's  shareholders do not have
a  controlling   interest  in  the  surviving   corporation  in  the  merger  or
consolidation,  or the sale,  transfer or lease of all or substantially  all the
Corporation's assets shall constitute and be deemed a liquidation,  dissolution,
or winding up of the Corporation.

                  c.  VOTING  RIGHTS.  In  addition to any other vote or consent
required by the laws of the State of Delaware, the Corporation will not, without
the  affirmative  votes or written  consent of the holders of at least sixty six
and two-thirds percent (66 2/3%) of the outstanding shares of Series H Preferred
Stock (with each share of Series H Preferred Stock being entitled to one vote):

                            (1) In any manner,  including  by  amendment  of its
Certificate of  Incorporation  or By-laws,  alter or change the powers,  rights,
preferences or privileges or the qualifications,  limitations or restrictions of
the Series H Preferred Stock;

                            (2) Create, authorize or issue a new class or series
(or change or reclassify a class or series of shares with junior, subordinate or
inferior rights into a class or series of shares) having rights,  preferences or
privileges  prior or superior with the shares of Series H Preferred Stock in the
payment of dividends or in the payment of amounts in the event of any  voluntary
or  involuntary  liquidation,  dissolution  or winding up of the  affairs of the
Corporation,  or increase the rights,  preferences,  privileges or number of any
class or series having rights, preferences or privileges on dissolution that are
prior, superior or on parity with those of the Series H Preferred Stock;

                            (3)  Increase or decrease  the  aggregate  number of
authorized shares of Series H Preferred Stock, except for any decrease resulting
from any redemption,  repurchase or other  reacquisition;  effect an exchange or
reclassification or create a right of exchange,  of all or

                                     - 2 -
<PAGE>

part of the shares of Series H  Preferred  Stock into  shares of another  class;
effect an exchange or reclassification or create a right of exchange,  of all or
part of the  shares of another  class or series  into the shares of the Series H
Preferred  Stock;  change the  shares of all or part of the  Series H  Preferred
Stock into a different number of shares of Series H Preferred Stock.

                            (4)  Repurchase  redeem  or  otherwise  acquire  any
shares of the  Corporation's  capital  stock  other than the Series H  Preferred
Stock if any  dividends  on the Series H Preferred  Stock which have accrued and
are payable remain outstanding at the time;

                            (5)  Liquidate,  dissolve  or wind-up the affairs of
the Corporation or merge or consolidate the Corporation with any other entity or
sell or encumber all or substantially all of the  Corporation's  assets or issue
in one or a series of related  transactions  shares representing more than fifty
percent  (50%) of the  aggregate  voting  power of all classes and series of the
Corporation's  voting  stock if any  dividends  on the Series H Preferred  Stock
which have accrued and are payable remain outstanding at the time; or

                            (6)   Declare   or  pay  any   dividend   or   other
distribution  with  respect  to Junior  Stock if any  dividends  on the Series H
Preferred  Stock which have accrued and are payable  remain  outstanding  at the
time.

                     d.     CONVERSIONS.  The  holders  of  shares  of  Series H
Preferred Stock shall have the following conversion rights:

                            (1)  Right to  Convert.  Subject  to the  terms  and
                                 -----------------
conditions  of this  paragraph  d, the holder of any share of Series H Preferred
Stock shall have the right,  at its option at any time to convert any such share
of Series H  Preferred  Stock  into one fully  paid and  nonassessable  share of
Common  Stock or,  in case an  adjustment  (an  "Adjustment")  has  taken  place
                                                 ----------
pursuant to the further  provisions  of this  paragraph d, then as last adjusted
and in effect at the date any  share or shares of Series H  Preferred  Stock are
surrendered for conversion.  Such rights of conversion shall be exercised by the
holder  thereof by giving  written  notice  that the holder  elects to convert a
stated  number of shares of Series H Preferred  Stock into  Common  Stock and by
surrender of a certificate or certificates  for the shares so to be converted to
the  Corporation at its principal  office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series H Preferred  Stock) at any time during its usual business hours on
the date set forth in such  notice,  together  with a  statement  of the name or
names (with  address) in which the  certificate  or  certificates  for shares of
Common Stock shall be issued.

                            (2)  Issuance  of   Certificates:   Time  Conversion
                                 -----------------------------------------------
Effected.   Promptly  after  receipt  of  the  written  notice  referred  to  in
--------
subparagraph d.1. and surrender of the certificate or certificates for the share
or shares of Series H Preferred  Stock to be converted,  the  Corporation  shall
issue  and  deliver,  or  cause  to be  issued  and  delivered,  to the  holder,
registered  in such name or names as such holder may direct,  a  certificate  or
certificates  for the number of whole shares of Common Stock  issuable  upon the
conversion  of such share or shares of Series H Preferred  Stock.  To the extent
permitted by law,  such  conversion  shall be deemed to have been effected as of
the close of business on the date on which such  written  notice shall have been
received by the Corporation  and the certificate or certificates  for such share
or shares shall have been surrendered

                                     - 3 -
<PAGE>

as aforesaid,  and at such time the rights of the holder of such share or shares
of Series H Preferred Stock shall cease, and the person or persons in whose name
or names any  certificate  or  certificates  for shares of Common Stock shall be
issuable  upon such  conversion  shall be deemed to have  become  the  holder or
holders of record of the shares represented thereby.

                            (3)   Fractional    Shares;    Dividends;    Partial
                                  ----------------------------------------------
Conversion.  No  fractional  shares shall be issued upon  conversion of Series H
----------
Preferred  Stock into Common  Stock and no payment or  adjustment  shall be made
upon any  conversion on account of any cash dividends on the Common Stock issued
upon such conversion.  Within thirty days after the date of each conversion, the
Corporation shall, at the Corporation's election, pay in cash an amount equal to
all dividends accrued and unpaid on the shares of Series H Convertible Preferred
Stock  surrendered  for  conversion  to the date upon which such  conversion  is
deemed to take place as provided in  subparagraph  d.2. (the  "Accrued  Dividend
                                                               -----------------
Payment").  In case the number of shares of Series H Preferred Stock represented
-------
by the certificate or  certificates  surrendered  pursuant to subparagraph  d.1.
exceeds  the  number of  shares  converted,  the  Corporation  shall,  upon such
conversion,   execute  and  deliver  to  the  holder,  at  the  expense  of  the
Corporation,  a new  certificate  or  certificates  for the  number of shares of
Series  H  Preferred  Stock  represented  by  the  certificate  or  certificates
surrendered  which are not to be converted.  If any  fractional  share of Common
Stock  would,   except  for  the  provisions  of  the  first  sentence  of  this
subparagraph d.3., be delivered upon such conversion,  the Corporation,  in lieu
of delivering such fractional  share,  shall pay to the holder  surrendering the
Series H Preferred Stock for conversion,  an amount in cash equal to the current
market price of such  fractional  share as determined in good faith by the Board
of Directors of the Corporation.

                            (4)  Adjustment  of Price For Stock Splits and other
                                 -----------------------------------------------
Subdivision  and  Combinations.  In  case  the  Corporation  shall  at any  time
------------------------------
subdivide  (by any stock split,  stock  dividend or otherwise)  its  outstanding
shares of Common  Stock  into a greater  number of  shares,  or shall  declare a
dividend  or make  any  other  distribution  upon any  stock of the  Corporation
payable in Common Stock (except for dividends or  distributions  upon the Common
Stock),  or shall  otherwise issue Common Stock for no  consideration,  then the
number of shares of Common Stock into which the Series H Preferred  Stock may be
converted will be adjusted appropriately.

         In case the  Corporation  shall  take a record  of the  holders  of its
Common  Stock for the purpose of  entitling  them to receive a dividend or other
distribution payable in Common Stock then such record date shall be deemed to be
the date of the issue or sale of the shares of Common  Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution  or the  date of the  granting  of such  right of  subscription  or
purchase, as the case may be.

                            (5)  Reorganization  or  Reclassification.   If  any
                                 ------------------------------------
capital   reorganization  or  reclassification  of  the  capital  stock  of  the
Corporation  shall be effected in such a way that  holders of Common Stock shall
be  entitled  to  receive  stock,  securities  or assets  with  respect to or in
exchange  for Common  Stock,  then,  as a condition  of such  reorganization  or
reclassification,  lawful and  adequate  provisions  shall be made  whereby each
holder of a share or shares of Series H Preferred Stock shall thereupon have the
right to  receive,  upon the basis and upon the terms and  conditions  specified
herein  and in  lieu of the  shares  of  Common  Stock  immediately  theretofore
receivable  upon the  conversion  of such share or shares of Series H  Preferred
Stock,

                                     - 4 -
<PAGE>
such  shares of stock,  securities  or assets as may be issued or  payable  with
respect to or in  exchange  for a number of  outstanding  shares of such  Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification  not
taken  place,  and in any such case  appropriate  provisions  shall be made with
respect  to the  rights  and  interests  of  such  holder  to the end  that  the
provisions  hereof  (including  without  limitation  provisions for Adjustments)
shall  thereafter be applicable,  as nearly as may be, in relation to any shares
of stock,  securities or assets thereafter deliverable upon the exercise of such
conversion rights.

                            (6) Notice of Adjustment Upon any  Adjustment,  then
                                --------------------
and in each such case the  Corporation  shall give written  notice  thereof,  by
delivery in person,  certified or registered  mail,  return  receipt  requested,
telecopier  or telex,  addressed  to each holder of shares of Series H Preferred
Stock at the  address of such  holder as shown on the books of the  Corporation,
which notice shall state the adjustment resulting from such Adjustment,  setting
forth in reasonable detail the method upon which such calculation is based.

                            (7) Stock to be Reserved.  The  Corporation  will at
                                --------------------
all times reserve and keep available out of its authorized Common Stock,  solely
for the purpose of issuance upon the  conversion of Series H Preferred  Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding  shares of Series H Preferred  Stock. The
Corporation  covenants  that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and  nonassessable and free from
all taxes, liens and charges with respect to the issue thereof.  The Corporation
will take all such action as may be  necessary to assure that all such shares of
Common  Stock  may be so  issued  without  violation  of any  applicable  law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed.  The Corporation  will not take any action which
results in any  adjustment  if the total number of shares of Common Stock issued
and issuable after such action upon  conversion of the Series H Preferred  Stock
would exceed the total number of shares of Common Stock then  authorized  by the
Articles of Incorporation.

                            (8) No  Reissuance  of  Series  H  Preferred  Stock.
                                -----------------------------------------------
Shares of Series H  Preferred  Stock which are  converted  into shares of Common
Stock as provided herein shall not be reissued.

                            (9) Issue Tax.  The  issuance  of  certificates  for
                                ---------
shares of Common Stock upon conversion of Series H Preferred Stock shall be made
without charge to the holders  thereof for any issuance tax in respect  thereof,
provided that the Corporation  shall not be required to pay any tax which may be
payable in respect of any transfer  involved in the issuance and delivery of any
certificate  in a name other  than that of the holder of the Series H  Preferred
Stock which is being converted.

                            (10) Closing of Books.  The  Corporation  will at no
                                 ----------------
time close its  Transfer  books  against the  transfer of any Series H Preferred
Stock or of any shares of Common Stock issued or issuable upon the conversion of
any shares of Series H Preferred  Stock in any manner which  interferes with the
timely  conversion of such Series H Preferred Stock,  except as may otherwise be
required to comply with applicable securities laws.

                                     - 5 -
<PAGE>

                     e.     DIRECTORS. In addition to the rights specified above
and any other rights  provided in the  Corporation's  By-laws or the laws of the
State of  Delaware,  the holders of the Series H Preferred  Stock shall have the
right  at all  times to elect  one  member  to the  Board  of  Directors  of the
Corporation.  The right to elect one  director  accorded  to the  holders of the
Series H Preferred  Stock may be  exercised  either at a special  meeting of the
holders of Series H Preferred Stock, or at a special meeting of the stockholders
of the  Corporation,  or by written consent of such holders in lieu of a meeting
which  such  holders  shall  have  the  right  to  execute  from  time  to  time
irrespective  of the  call  of any  special  meeting  of the  stockholders.  The
director  to be elected by the  holders of the Series H  Preferred  Stock  shall
serve for terms extending from the date of his election and qualification  until
the time of the next succeeding annual meeting of the stockholders and until his
successor has been elected and qualified. Any Director elected by the holders of
the Series H  Preferred  Stock may be removed  during his or her term of office,
without cause,  by and only by the written  consent or  affirmative  vote of the
holders of the Series H Preferred Stock. Any vacancy in the office of a director
elected by the holders of the Series H  Preferred  Stock may be filled by a vote
or written consent of the holders of the Series H Preferred Stock."

         IN  WITNESS  WHEREOF,  Avery  Communications,   Inc.  has  caused  this
Certificate  of  Designations  to be  signed  by Scot  M.  McCormick,  its  Vice
President, this 21 day of February, 2001.

                                            AVERY COMMUNICATIONS, INC.


                                            By:  /s/  Scot M. McCormick
                                                --------------------------------
                                                Scot M. McCormick
                                                Vice President

                                     - 6 -
<PAGE>

                           AVERY COMMUNICATIONS, INC.

                           CERTIFICATE OF DESIGNATIONS
                                       OF
                      SERIES I CONVERTIBLE PREFERRED STOCK

         Avery Communications, Inc., a Delaware corporation, does hereby certify
that:

         Pursuant to  authority  conferred  upon the Board of  Directors of said
corporation by virtue of its Certificate of  Incorporation,  as amended,  and in
accordance  with  Section  151 of the  General  Corporation  Law of the State of
Delaware,  said Board of Directors  has duly adopted a resolution  providing for
the  issuance  of a series  of  Preferred  Stock,  par value  $0.01  per  share,
designated as Series I Convertible  Preferred  Stock,  which resolution reads as
follows:

         "RESOLVED,  that the Board of Directors  (the "BOARD OF  DIRECTORS") of
Avery Communications,  Inc., a Delaware corporation (the "CORPORATION"),  hereby
authorizes the issuance of a series of the  Corporation's  Preferred  Stock, par
value $0.01 per share ("PREFERRED  STOCK"),  and fixes its designation,  powers,
preferences  and  relative,  participating,  optional,  voting or other  special
rights, and qualifications, limitations and restrictions thereof, as follows:

         1.       DESIGNATION. The distinctive serial designation of said series
of Preferred  Stock shall be "Series I Convertible  Preferred  Stock" ("SERIES I
PREFERRED STOCK").  Each share of Series I Preferred Stock shall be identical in
all respects with all other shares of Series I Preferred Stock.

         2.       NUMBER OF SHARES.  The number of shares of Series I  Preferred
Stock  shall  initially  be  500,000,  which  number  may  from  time to time be
increased or decreased (but not below the total number thereof then outstanding)
by the Board of Directors. Shares of Series I Preferred Stock that are redeemed,
purchased or otherwise  acquired by the Corporation or are converted into Common
Stock (as  defined in Section 3 below)  shall be  canceled  and shall  revert to
authorized but unissued shares of Preferred Stock undesignated as to series.

         3.       DEFINITIONS.  Unless the context otherwise requires, when used
herein the following terms shall have the meaning indicated.

         "AFFILIATE"  means,  with respect to any  specified  Person,  any other
Person which,  directly or  indirectly,  controls,  is controlled by or is under
direct or indirect common control with, such specified Person.  For the purposes
of this definition,  "control," when used with respect to any Person,  means the
power to  direct  the  management  and  policies  of such  Person,  directly  or
indirectly,  whether through the ownership of voting securities,  by contract or
otherwise,  and the terms  "affiliated,"  "controlling,"  and "controlled"  have
meanings correlative to the foregoing.

         "BOARD OF DIRECTORS" means the Board of Directors of the Corporation.

         "BUSINESS DAY" means any day except Saturday,  Sunday and any day which
shall be a legal  holiday  or a day on which  banking  institutions  in New York
City, New York generally are authorized or required by law or other governmental
actions to close.


<PAGE>

         "CERTIFICATE OF INCORPORATION" means the Corporation's  "certificate of
incorporation,"  as  such  term  is  defined  in  Section  104  of  the  General
Corporation Law of the State of Delaware, as amended, or any successor statute.

         "COMMON  STOCK"  means,  except  when used in  Section  7  hereof,  the
Corporation's  common stock,  par value $0.01 per share.  When used in Section 7
hereof, the term "Common Stock" has the meaning ascribed to such term in Section
7(n).

         "EXCHANGE ACT" means the  Securities  Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated thereunder.

         "LIQUIDATION PREFERENCE" is an amount equal to $1.00 per whole share of
Series I Preferred  Stock,  as adjusted for stock  splits,  stock  dividends and
similar transactions.

         "ORIGINAL  ISSUE DATE" means March 29,  2001,  with  respect to 210,000
shares of Series I Preferred  Stock and April 2, 2001,  with  respect to 290,000
shares of Series I Preferred Stock.

         "OUTSTANDING",  when used  with  reference  to  shares of stock,  means
issued and  outstanding  shares,  excluding  shares held by the Corporation or a
Subsidiary of the Corporation.

         "PERSON"  means a natural  person,  a  corporation,  a  partnership,  a
limited liability company, an association,  a joint-stock  company, a trust, any
unincorporated  organization  or other  entity,  a  government,  or a  political
subdivision, agency or instrumentality of a government.

         "SUBSIDIARY"  means,  with  respect to any Person  (the  "OWNER"),  any
corporation or other Person of which  securities or other  interests  having the
power to elect a  majority  of that  corporation's  or other  Person's  board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other  interests  having such power only upon the  happening of a contingency
that has not occurred) are held by the Owner, or by the Owner and one or more of
its Subsidiaries, or by one or more of the Owner's Subsidiaries.

         4.       RANK. The capital stock of the Corporation  shall be deemed to
rank as follows:

                  (A)      DEFINITIONS   OF   "SENIOR    SECURITIES,"    "PARITY
SECURITIES" AND "JUNIOR SECURITIES." Any class or series of the capital stock of
the Corporation shall be deemed to rank:

                           (i)      senior and prior to the  Series I  Preferred
Stock  ("SENIOR  SECURITIES"),  either as to the payment of dividends,  or as to
amounts  payable  or assets  distributable  upon any  voluntary  or  involuntary
liquidation,  dissolution  or winding up of the affairs of the  Corporation,  or
both, if (A) such class or series of stock be the Corporation's  Series D Senior
Cumulative  Convertible  Redeemable Preferred Stock ("SERIES D PREFERRED STOCK")
or the Corporation's  Series H Convertible  Preferred Stock ("SERIES H PREFERRED
STOCK"), (B) an amendment to the Corporation's Certificate of Incorporation or a
certificate of designations for any such class or series of stock shall be filed
in the office of the Secretary of State of the State of Delaware  after the date
and time on which this Certificate of Designations is filed in the office

                                     - 2 -
<PAGE>

of the Secretary of State of the State of Delaware and the holders of such class
or series shall be entitled by the terms of such  certificate of designations to
the receipt of dividends, or to amounts payable or assets distributable upon any
voluntary or involuntary  liquidation,  dissolution or winding up of the affairs
of the Corporation,  or both, in preference or priority to the holders of Series
I Preferred Stock;

                           (ii)     on a  parity  with the  Series  I  Preferred
Stock  ("PARITY  SECURITIES"),  either as to the payment of dividends,  or as to
amounts  payable  or assets  distributable  upon any  voluntary  or  involuntary
liquidation,  dissolution  or winding up of the affairs of the  Corporation,  or
both, whether or not the dividend rates, dividend payment dates or redemption or
liquidation  prices per share  thereof be  different  from those of the Series I
Preferred  Stock, if the holders of the Series I Preferred Stock and the holders
of any  other  such  class or  series of stock  shall be  entitled  by the terms
thereof  to  the  receipt  of  dividends,   or  to  amounts  payable  or  assets
distributable  upon any voluntary or  involuntary  liquidation,  dissolution  or
winding up of the affairs of the  Corporation,  or both,  in proportion to their
respective  amounts of accrued  and unpaid  dividends  per share or  liquidation
preferences  (including,  but not  limited  to,  preferences  as to  payment  of
dividends or as to amounts payable or assets distributable upon any voluntary or
involuntary  liquidation,  dissolution  or  winding  up of  the  affairs  of the
Corporation),  without  preference or priority one over the other and such class
or  series of stock is not a class or  series  of  Senior  Securities  or Junior
Securities (as defined below); and

                           (iii)    junior  to  the  Series  I  Preferred  Stock
("JUNIOR SECURITIES"),  either as to the payment of dividends,  or as to amounts
payable or assets  distributable upon any voluntary or involuntary  liquidation,
dissolution  or winding up of the affairs of the  Corporation,  or both,  if (A)
such class or series of stock be the  Corporation's  Common  Stock,  or (B) such
class  or  series  of  stock be the  Corporation's  Series A Junior  Convertible
Redeemable Preferred Stock ("SERIES A PREFERRED STOCK"),  Corporation's Series B
Junior Convertible  Redeemable Preferred Stock ("SERIES B PREFERRED STOCK"), the
Corporation's Series C Junior Convertible  Redeemable Preferred Stock ("SERIES C
PREFERRED  STOCK"),   or  the  Corporation's   Series  G  Junior   Participating
Convertible  Voting  Preferred  Stock  ("SERIES G PREFERRED  STOCK"),  or (C) an
amendment to the Corporation's  Certificate of Incorporation or a certificate of
designations  for any such class or series of stock shall be filed in the office
of the  Secretary  of State of the State of Delaware  after the date and time on
which this  Certificate of  Designations is filed in the office of the Secretary
of State of the State of  Delaware  and the  holders of the  Series I  Preferred
Stock  shall be  entitled  by the  terms  of the  Corporation's  Certificate  of
Incorporation  or such  certificate of designations to the receipt of dividends,
or to amounts payable or assets  distributable upon any voluntary or involuntary
liquidation,  dissolution  or winding up of the affairs of the  Corporation,  or
both,  in  preference  and  priority  to the  holders of shares of such class or
series of stock.

                  (B)      RANK  OF  DERIVATIVE   SECURITIES.   The   respective
definitions of Senior Securities,  Junior Securities and Parity Securities shall
also  include  any  rights  or  options   exercisable  or  exchangeable  for  or
convertible  into any of the  Senior  Securities,  Junior  Securities  or Parity
Securities, as the case may be.

                  (C)      JUNIOR SECURITIES  PERMITTED.  The Series I Preferred
Stock shall be subject to the creation of Junior Securities.

                                     - 3 -
<PAGE>

                  (D)      PRESUMPTION OF JUNIOR SECURITIES. Any class or series
of the Corporation's  capital stock created,  authorized or designated after the
date and time on which this  Certificate of  Designations is filed in the office
of the Secretary of State of the State of Delaware  shall be Junior  Securities,
and the holders of the Series I Preferred Stock shall be entitled to the receipt
of dividends and to amounts payable or assets  distributable  upon any voluntary
or  involuntary  liquidation,  dissolution  or winding up of the  affairs of the
Corporation in preference or priority to the holders of any such class or series
of  stock,  unless,  in each  case,  either  the  Corporation's  Certificate  of
Incorporation or the Corporation's  certificate of designations  relating to any
such class or series of stock  shall  expressly  provide  that the shares of any
such class or series of stock are Senior Securities or Parity Securities, as the
case may be.

         5.       DIVIDENDS.  The holders of the Series I Preferred  Stock shall
be entitled to receive dividends as follows:

                  (A)      DIVIDEND  RATE AND PAYMENT.  The holders of shares of
Series I Preferred Stock shall be entitled to receive with respect to each share
of Series I Preferred Stock, when, as and if declared by the Board of Directors,
out of funds legally  available  for the payment of dividends,  dividends at the
rate per annum equal to $0.12 per share, payable in accordance with the terms of
this Section 5. Dividends  shall be payable only in cash. All dividends shall be
cumulative  from the  Original  Issue Date  regardless  of when  actually  paid,
whether or not in any  Dividend  Period (as defined  below) or Dividend  Periods
there shall be funds of the  Corporation  legally  available  for the payment of
such  dividends,  and shall be payable  quarterly  in  arrears on the  twentieth
(20th) day following  each January 1, April 1, July 1 and October 1 of each year
(unless such day is not a Business Day, in which event such  dividends  shall be
payable on the next  succeeding  Business Day) (each such date being a "DIVIDEND
PAYMENT DATE" and each such quarterly  period being a "DIVIDEND  PERIOD").  Each
such dividend  shall be payable to the holders of record of shares of the Series
I Preferred Stock as they appear on the share register of the Corporation on the
corresponding  Record Date. As used herein,  the term "RECORD DATE" means,  with
respect to the  dividend  payable  on January 1, April 1, July 1 and  October 1,
respectively,  of each year, the preceding  November 15, February 15, May 15 and
August 15, or such  other  record  date,  not more than 60 days nor less than 10
days  preceding  the payment  dates  thereof,  as shall be fixed by the Board of
Directors.  Accrued and unpaid  dividends for any past  Dividend  Periods may be
declared and paid at any time,  without  reference to any Dividend Payment Date,
to holders of record on such record date,  not more than 45 days  preceding  the
payment date thereof, as may be fixed by the Board of Directors.

                  (B)      QUARTERLY DIVIDEND PAYMENTS.  The amount of dividends
payable  for each  full  Dividend  Period  shall be $0.03  per share of Series I
Preferred  Stock.  The amount of  dividends  payable  for the  initial  Dividend
Period,  or any other period shorter or longer than a full Dividend  Period,  on
the Series I Preferred  Stock  shall be  computed on the basis of twelve  30-day
months and a 360-day  year,  using a rate  calculated  by dividing  $0.12 by the
Liquidation Preference.  No interest, or sum of money in lieu of interest, shall
be  payable  in respect of any  dividend  payment  or  payments  on the Series I
Preferred Stock that may be in arrears.

                  (C)      DIVIDENDS ON PARITY SECURITIES. So long as any shares
of the  Series I  Preferred  Stock  are  outstanding,  no  dividend,  except  as
described  in the next  succeeding

                                     - 4 -
<PAGE>

sentence,  shall be  declared  or paid or set apart for  payment  on any  Parity
Securities, nor shall any Parity Securities be redeemed,  purchased or otherwise
acquired for any  consideration  (or moneys be paid to or made  available  for a
sinking  fund  for the  redemption  of any  shares  of any  such  stock)  by the
Corporation,  directly or indirectly  (except by conversion into or exchange for
Junior Securities),  unless in each case full cumulative  dividends have been or
contemporaneously are declared and paid or declared and consideration sufficient
for the  payment  thereof  set apart for such  payment on the Series I Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the  dividend on such class or series of Parity  Securities  or the  redemption,
purchase or other  acquisition  thereof.  When dividends are not paid in full or
consideration  sufficient for such payment is not set apart,  as aforesaid,  all
dividends declared upon shares of the Series I Preferred Stock and all dividends
declared upon any other class or series of Parity  Securities  shall be declared
ratably in proportion to the  respective  amounts of dividends  accumulated  and
unpaid on the Series I Preferred Stock and accumulated and unpaid on such Parity
Securities.

                  (D)      NO JUNIOR  SECURITIES  DISTRIBUTIONS.  So long as any
shares of the Series I Preferred Stock are outstanding, no dividends (other than
dividends or distributions paid in shares of, or to effectuate a stock split on,
or options,  warrants or rights to subscribe  for or purchase  shares of, Junior
Securities)  shall  be  declared  or paid or set  apart  for  payment  or  other
distribution  declared  or made upon  Junior  Securities,  nor shall any  Junior
Securities  be  redeemed,   purchased  or  otherwise   acquired  (other  than  a
redemption,  purchase or other  acquisition  of shares of Common  Stock made for
purposes of an employee  incentive  or benefit  plan of the  Corporation  or any
subsidiary)  (any such  dividend,  distribution,  redemption  or purchase  being
hereinafter  referred  to  as  a  "JUNIOR  SECURITIES   DISTRIBUTION")  for  any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation,  directly or
indirectly (except by conversion into or exchange for Junior Securities), unless
in each case (i) the full cumulative  dividends on all outstanding shares of the
Series I Preferred  Stock and accrued and unpaid  dividends  on any other Parity
Securities  shall have been paid or set apart for payment for all past  Dividend
Periods  with  respect to the  Series I  Preferred  Stock and all past  dividend
periods with respect to such Parity Securities and (ii) sufficient consideration
shall  have  been  paid or set apart for the  payment  of the  dividend  for the
current  Dividend  Period with  respect to the Series I Preferred  Stock and the
current dividend period with respect to such Parity Securities.

         6.       LIQUIDATION PREFERENCE.  The holders of the Series I Preferred
Stock shall have a preference in the event of any  liquidation,  dissolution  or
winding up of the Corporation as follows:

                  (A)      PAYMENT OF  LIQUIDATION  PREFERENCE.  In the event of
any liquidation, dissolution or winding up of the Corporation, whether voluntary
or  involuntary,  before  any  payment  or  distribution  of the  assets  of the
Corporation  (whether  capital or surplus) shall be made to or set apart for the
holders of Junior  Securities,  the  holders of the shares of Series I Preferred
Stock  shall be  entitled  to  receive  with  respect  to each share of Series I
Preferred  Stock an amount  equal to all  dividends  (whether  or not  earned or
declared)  accrued and unpaid thereon to the date of final  distribution to such
holders plus an amount in cash equal to the Liquidation

                                     - 5 -
<PAGE>

Preference.  If,  upon  any  liquidation,  dissolution  or  winding  up  of  the
Corporation,  the assets of the Corporation, or proceeds thereof,  distributable
among  the  holders  of  the  shares  of  Series  I  Preferred  Stock  shall  be
insufficient to pay in full the  preferential  amount  aforesaid and liquidating
payments on any Parity  Securities,  then such assets,  or the proceeds thereof,
shall be distributed among the holders of shares of Series I Preferred Stock and
any such other  Parity  Securities  ratably in  accordance  with the  respective
amounts that would be payable on such shares of Series I Preferred Stock and any
such other Parity Securities if all amounts payable thereon were paid in full.

                  (B)      DEEMED  LIQUIDATION  EVENTS. For the purposes of this
Section  6,  a  merger  or  consolidation  of the  Corporation  with  any  other
corporation or other entity in which the Corporation's  shareholders do not have
a  controlling   interest  in  the  surviving   corporation  in  the  merger  or
consolidation,  or the sale,  transfer or lease of all or substantially  all the
Corporation's assets shall constitute and be deemed a liquidation,  dissolution,
or winding up of the Corporation.

         7.       CONVERSION RIGHTS. The holders of shares of Series I Preferred
Stock shall have conversion rights as follows (the "CONVERSION RIGHTS"):

                  (A)      RIGHT TO  CONVERT.  Each share of Series I  Preferred
Stock shall be  convertible,  at the option of the holder  thereof,  at any time
after at the office of the  Corporation  or any  transfer  agent for such stock,
into such number of fully paid and  nonassessable  shares of Common Stock of the
Corporation as is determined by dividing $1.00 by the Current  Conversion  Price
applicable to such share,  determined as hereinafter  provided, in effect on the
date the certificate is surrendered  for conversion,  and rounded to the nearest
ten-thousandth  (0.0001).  The price at which  shares of Common  Stock  shall be
deliverable  upon  conversion  of shares of the  Series I  Preferred  Stock (the
"STATED  CONVERSION  PRICE") shall initially be $1.00 per share of Common Stock.
The Stated  Conversion Price shall be adjusted from and after the Original Issue
Date as hereinafter provided.  The Stated Conversion Price at any time in effect
or, in the case of any such  adjustment,  such Stated  Conversion  Price as most
recently so adjusted, is herein called the "CURRENT CONVERSION PRICE."

                  (B)      MECHANICS OF CONVERSION.  Before any holder of Series
I  Preferred  Stock  shall be entitled to convert the same into shares of Common
Stock,  such holder shall surrender the  certificate or  certificates  therefor,
duly  endorsed,  at the office of the  Corporation  or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office that
such holder elects to convert the same and shall state therein the name or names
in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued.  The Corporation  shall, as soon as practicable  thereafter,
issue and deliver at such office to such holder of Series I Preferred  Stock,  a
certificate  or  certificates  for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid.  Such conversion  shall be deemed to
have  been  made  immediately  prior  to the  close of  business  on the date of
surrender  of the shares of Series I Preferred  Stock to be  converted,  and the
Person or Persons  entitled to receive the shares of Common Stock  issuable upon
such  conversion  shall be treated  for all  purposes  as the  record  holder or
holders of such  shares of Common  Stock on such date.  Within  thirty (30) days
after the date of each conversion,  the Corporation  shall, at the Corporation's

                                     - 6 -
<PAGE>
election, pay in cash an amount equal to all dividends accrued and unpaid on the
shares of Series I Preferred  Stock  surrendered for conversion to the date upon
which such  conversion is deemed to have taken place as provided in this Section
7(b).

                  (C)      ADJUSTMENTS  TO  CURRENT  CONVERSION  PRICE FOR STOCK
DIVIDENDS ON COMMON STOCK AND FOR  COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK.
In the event  that the  Corporation  at any time or from time to time  after the
Original Issue Date shall declare or pay, without consideration, any dividend on
the Common Stock payable in Common Stock or in any right to acquire Common Stock
for no consideration, or shall effect a subdivision of the outstanding shares of
Common  Stock into a greater  number of shares of Common  Stock (by stock split,
reclassification  or otherwise  than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common  Stock  shall  be  combined  or  consolidated,   by  reclassification  or
otherwise,  into a lesser  number of shares of Common  Stock,  then the  Current
Conversion Price in effect  immediately prior to such event shall,  concurrently
with the effectiveness of such event, be proportionately decreased or increased,
as appropriate.  In the event that the Corporation shall declare or pay, without
consideration,  any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration,  then the Corporation shall be deemed to have
made a  dividend  payable  in Common  Stock in an amount of shares  equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.

                  (D)      ADJUSTMENTS FOR  RECLASSIFICATION AND REORGANIZATION.
If at any time after the  Original  Issue Date the Common  Stock  issuable  upon
conversion  of the Series I Preferred  Stock shall be changed into the same or a
different  number of shares of any other  class or classes of stock,  whether by
capital  reorganization,  reclassification or otherwise,  the Current Conversion
Price  then  in  effect  shall,  concurrently  with  the  effectiveness  of such
reorganization  or  reclassification,  be  proportionately  adjusted so that the
Series I Preferred  Stock shall be  convertible  into,  in lieu of the number of
shares of Common Stock which the holders would  otherwise  have been entitled to
receive,  a number of shares of such other class or classes of stock  equivalent
to the number of shares of Common  Stock that would have been subject to receipt
by the  holders  upon  conversion  of the Series I Preferred  Stock  immediately
before that change.

                  (E)      ADJUSTMENTS FOR EXTRAORDINARY DISTRIBUTIONS.  In case
the Corporation  shall at any time or from time to time declare,  order,  pay or
make a dividend or other  distribution  on or to the holders of its Common Stock
(including,  without limitation, any distribution,  by way of dividend, spin-off
or split-up, of cash or other property of the Corporation,  any stock, evidences
of  indebtedness  or  other   securities  of  the  Corporation  or  any  of  its
Subsidiaries,  or  rights  or  warrants  to  subscribe  for  securities  of  the
Corporation or any of its  Subsidiaries),  other than ordinary cash dividends as
may be declared from time to time by the  Corporation  and any  distribution  or
dividend of shares of Common  Stock that is referred to in Section  7(c),  then,
and in each such case, the Current  Conversion  Price shall be adjusted to equal
the  number   determined  by  multiplying  (A)  the  Current   Conversion  Price
immediately prior to the record date fixed for the determination of stockholders
entitled to receive  such  dividend or  distribution  by (B)(1) a fraction,  the
numerator  of which shall be the  Current  Market  Price (as defined  below) per
share of  Common  Stock on the first  Trading  Day (as  defined  below) on which
purchasers  of Common

                                     - 7 -
<PAGE>

Stock in regular way trading  would not be entitled to receive such  dividend or
distribution (the "EX-DIVIDEND  DATE") and the denominator of which shall be the
Current  Market Price per share of Common Stock on the last Trading Day on which
purchasers  of Common Stock in regular way trading  would be entitled to receive
such dividend or distribution,  or, (2) at the option of the Board of Directors,
a fraction the numerator of which is the appraised Fair Market Value (as defined
below) of the Corporation as a going concern after giving effect to the dividend
or  distribution  and the denominator of which is appraised Fair Market Value of
the  Corporation  as a going  concern  immediately  prior  to such  dividend  or
distribution; provided, however, that in no event shall such fraction be greater
than  one (1).  An  adjustment  made  pursuant  to this  Section  7(e)  shall be
effective  at the close of business  on the  Ex-Dividend  Date.  As used in this
Section 7(e),  the term "CURRENT  MARKET PRICE" per share of Common Stock on any
date shall be deemed to the closing  price per share of Common Stock on the date
specified.  The closing  price per share of Common  Stock shall be the last sale
price, regular way or, in case no such sale takes place on such day, the average
of the closing bid and asked prices,  regular way, in either case as reported in
the  principal  consolidated   transaction  reporting  system  with  respect  to
securities  listed or admitted to trading on the New York Stock  Exchange or, if
the  Common  Stock is not  listed or  admitted  to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national  securities exchange
on which the Common  Stock is listed or  admitted  to trading  or, if the Common
Stock is not listed or admitted to trading on any national securities  exchange,
the last quoted sale price or, if not so quoted, the average of the high bid and
low asked prices on the OTC Bulletin Board or in the over-the-counter market, as
reported by The Nasdaq Stock Market,  Inc. or such other system then in use, or,
if on any such date the Common Stock is not quoted by any such organization, the
average of the  closing  bid and asked  prices as  furnished  by a  professional
market  maker  making a market  in the  Common  Stock  selected  by the Board of
Directors.  If the Common  Stock is not  publicly  held or so listed or publicly
traded,  "CURRENT  MARKET  PRICE"  shall mean the Fair Market  Value (as defined
below) per share as  determined  in good faith by the Board of  Directors of the
Corporation.  "FAIR MARKET  VALUE" means the amount which a willing  buyer would
pay a willing seller in an arm's-length  transaction as determined in good faith
by the Board of Directors of the Corporation,  unless otherwise provided herein.
"TRADING DAY" means a day on which the principal national securities exchange on
which  the  Common  Stock is  listed  or  admitted  to  trading  is open for the
transaction  of  business  or, if the Common  Stock is not listed or admitted to
trading on any  national  securities  exchange,  any day other than a  Saturday,
Sunday,  or a day on which  banking  institutions  in the  State of New York are
authorized or obligated by law or executive order to close.

                  (F)      MERGERS, CONSOLIDATIONS,  REORGANIZATIONS OR SALES OF
ASSETS.  If at any time or from time to time after the Original Issue Date there
is a capital  reorganization  or  reclassification  of the capital  stock of the
Corporation   (other   than  a   recapitalization,   subdivision,   combination,
reclassification,  exchange or  substitution of shares provided for elsewhere in
this Section 7) or a merger,  consolidation or sale of all or substantially  all
of the assets of the Corporation (other than a merger,  consolidation or sale of
all or  substantially  all of the  assets  of  the  Corporation  deemed  to be a
liquidation as provided in Section 6(b) hereof), as a part of and as a condition
to such capital  reorganization or  reclassification,  merger,  consolidation or
sale of  assets  provision  shall be made so that the  holders  of the  Series I
Preferred  Stock shall  thereafter

                                     - 8 -
<PAGE>

be  entitled to receive  upon  conversion  of the Series I  Preferred  Stock the
number of shares of stock or other  securities or property of the Corporation to
which a holder  of the  number  of  shares  of  Common  Stock  deliverable  upon
conversion  of the Series I  Preferred  Stock  would have been  entitled on such
capital  reorganization or  reclassification,  merger,  consolidation or sale of
assets,  subject to  adjustment  in respect of such stock or  securities  by the
terms thereof.  In any such case,  appropriate  adjustment  shall be made in the
application  of the  provisions  of this Section 7 with respect to the rights of
the  holders  of Series I  Preferred  Stock  after the  capital  reorganization,
merger,  consolidation  or sale of assets to the end that the provisions of this
Section 7 (including  adjustment of the Current  Conversion Price then in effect
and the number of shares  issuable  upon  conversion  of the Series I  Preferred
Stock)  shall be  applicable  after  that event and be as nearly  equivalent  as
practicable.

                  (G)      NO IMPAIRMENT. The Corporation will not, by amendment
of its Certificate of Incorporation or through any  reorganization,  transfer of
assets, consolidation,  merger, dissolution,  issue or sale of securities or any
other voluntary action,  avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed  hereunder by the Corporation,  but
will at all times in good faith assist in the carrying out of all the provisions
of this  Section 7 and in the taking of all such action as may be  necessary  or
appropriate  in order to protect  the  Conversion  Rights of the  holders of the
Series I Preferred Stock against impairment.

                  (H)      CERTIFICATES AS TO  ADJUSTMENTS.  Upon the occurrence
of each adjustment or readjustment of any Current  Conversion  Price pursuant to
this  Section 7, the  Corporation  at its expense  shall  promptly  compute such
adjustment or  readjustment  in accordance with the terms hereof and prepare and
furnish to each holder of Series I Preferred Stock a certificate executed by the
Corporation's President or Chief Financial Officer setting forth such adjustment
or  readjustment  and showing in detail the facts upon which such  adjustment or
readjustment is based.  The Corporation  shall,  upon the written request at any
time of any holder of Series I Preferred Stock, furnish or cause to be furnished
to such  holder  a like  certificate  setting  forth  (i) such  adjustments  and
readjustments,  (ii) the Current  Conversion  Price for such series of Preferred
Stock at the time in effect,  and (iii) the number of shares of Common Stock and
the amount,  if any, of other  property which at the time would be received upon
the conversion of the Series I Preferred Stock.

                  (I)      NOTICES  OF  RECORD  DATE.  In  the  event  that  the
Corporation  shall  propose at any time after the  Original  Issue Date:  (1) to
declare any dividend or  distribution  upon its Common  Stock,  whether in cash,
property, stock or other securities,  whether or not a regular cash dividend and
whether or not out of earnings or earned surplus;  (2) to offer for subscription
pro rata to the  holders  of any class or  series  of its  stock any  additional
shares  of stock of any class or series  or  other,  rights;  (3) to effect  any
reclassification or recapitalization of its Common Stock outstanding involving a
change in the  Common  Stock;  or (4) to merge or  consolidate  with or into any
other  corporation,  or sell,  lease or convey all or  substantially  all of its
assets, or to liquidate, dissolve or wind up; then, in connection with each such
event, the Corporation shall send to the holders of Series I Preferred Stock:

                                     - 9 -
<PAGE>

                           (i)      at least  twenty  (20) days'  prior  written
notice  of the  date on  which a  record  shall  be  taken  for  such  dividend,
distribution  or  subscription  rights  (and  specifying  the date on which  the
holders of Common Stock shall be entitled thereto) or for determining  rights to
vote, if any, in respect of the matters referred to in (3) and (4) above; and

                           (ii)     in the case of the  matters  referred  to in
(3) and (4) above,  at least twenty (20) days' prior written  notice of the date
when the same shall take place (and  specifying the date on which the holders of
Common Stock shall be entitled to exchange  their Common Stock for securities or
other property deliverable upon the occurrence of such event).

                  (J)      ISSUE TAXES.  The  Corporation  shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery of
shares of  Common  Stock on  conversion  of Series I  Preferred  Stock  pursuant
hereto;  provided,  however,  that the Corporation shall not be obligated to pay
any  transfer  taxes  resulting  from any  transfer  requested  by any holder in
connection with any such conversion.

                  (K)      RESERVATION  OF STOCK ISSUABLE UPON  CONVERSION.  The
Corporation  shall at all times reserve and keep available out of its authorized
but unissued  shares of Common  Stock,  solely for the purpose of effecting  the
conversion  of the shares of the Series I  Preferred  Stock,  such number of its
shares of Common  Stock as shall from time to time be  sufficient  to effect the
conversion of all outstanding  shares of the Series I Preferred Stock; and if at
any time the number of authorized but unissued  shares of Common Stock shall not
be sufficient to effect the  conversion  of all then  outstanding  shares of the
Series I Preferred  Stock,  the Corporation  will take such corporate  action as
may, in the opinion of its counsel,  be necessary to increase its authorized but
unissued  shares of Common Stock to such number of shares as shall be sufficient
for such  purpose,  including,  without  limitation,  engaging  in  commercially
reasonable efforts to obtain the requisite stockholder approval of any necessary
amendment to the Certificate of Incorporation of the Corporation.

                  (L)      FRACTIONAL  SHARES.  No  fractional  share  shall  be
issued upon the  conversion of any share or shares of Series I Preferred  Stock.
All  shares  of  Common  Stock  (including   fractions  thereof)  issuable  upon
conversion  of more  than one  share of  Series  I  Preferred  Stock by a holder
thereof shall be aggregated for purposes of  determining  whether the conversion
would  result  in  the  issuance  of  any  fractional   share.   If,  after  the
aforementioned  aggregation,  the  conversion  would result in the issuance of a
fraction of a share of Common Stock,  the Corporation  shall, in lieu of issuing
any fractional  share, pay the holder otherwise  entitled to such fraction a sum
in cash  equal  to the  fair  market  value  of  such  fraction  on the  date of
conversion (as determined in good faith by the Board of Directors).


                  (M)      NOTICES.  Any notice  required by the  provisions  of
this Section 7 to be given to the holders of shares of Series I Preferred  Stock
shall be deemed given if deposited in the United States mail,  postage  prepaid,
or if sent by facsimile or delivered personally by hand or nationally recognized
courier  and  addressed  to each  holder of record at such  holder's  address or
facsimile number appearing in the records of the Corporation.

                                     - 10 -
<PAGE>

                  (N)      MEANING OF "COMMON  STOCK."  For the  purpose of this
Section  7, the term  "Common  Stock"  shall  include  any stock of any class or
series of the Corporation  which has no preference or priority in the payment of
dividends  or in the  distribution  of assets in the event of any  voluntary  or
involuntary liquidation,  dissolution or winding up of the Corporation and which
is not subject to redemption by the Corporation.  However,  shares issuable upon
conversion  of shares of Series I Preferred  Stock shall  include only shares of
the class  designated as Common Stock as of the Original Issue Date of shares of
Series I Preferred  Stock or shares of the  Corporation of any classes or series
resulting from any reclassification or reclassifications  thereof and which have
no preference or priority in the payment of dividends or in the  distribution of
assets in the event of any voluntary or involuntary liquidation,  dissolution or
winding up of the  Corporation  and which are not subject to  redemption  by the
Corporation,  provided  that if at any time  there  shall be more  than one such
resulting  class or series,  the  shares of each such  class and series  then so
issuable  shall be  substantially  in the  proportion  which the total number of
shares of such class and series resulting from all such reclassifications  bears
to the total number of shares of all such classes and series  resulting from all
such reclassifications.

                  (O)      POSTPONEMENT   OF  ADJUSTMENTS;   CALCULATIONS.   Any
adjustment in the conversion  price  otherwise  required by this Section 7 to be
made may be postponed if such adjustment (plus any other  adjustments  postponed
pursuant  to this  paragraph  and not  theretofore  made)  would not  require an
increase or decrease of more than 1% in such price. All  calculations  hereunder
shall be made to the nearest cent or to the nearest  1/100th of a share,  as the
case may be.

                  (P)      TAX ADJUSTMENTS. The Board of Directors may make such
adjustments  in the  conversion  price,  in addition  to those  required by this
Section 7, as shall be  determined  by the Board of Directors to be advisable in
order to avoid  taxation so far as practicable of any dividend of stock or stock
rights or any event  treated  as such for  Federal  income tax  purposes  to the
recipients. The Board of Directors shall have the power to resolve any ambiguity
or correct  any error in this  Section  7, and its  action in so doing  shall be
final and conclusive.

                  (Q)      ADJUSTMENTS  APPLICABLE  TO  NEW  SECURITIES.  In the
event  that  any  time,  as a  result  of an  adjustment  made  pursuant  to the
provisions  hereof,  the  holder  of any  shares  of  Series I  Preferred  Stock
thereafter  surrendered  for  conversion  shall  become  entitled to receive any
shares of capital stock of the Corporation  other than Common Stock,  thereafter
the number of such other shares so receivable  upon conversion of such shares of
Series I Preferred  Stock shall be subject to adjustment  from time to time in a
manner and on terms as nearly  equivalent as practicable to the provisions  with
respect to the Common  Stock  contained  in Section 7 with respect to the Common
Stock shall apply on like terms to any such other shares.

                  (R)      ACCOUNTANTS'  CERTIFICATE.  The  certificate  of  any
independent firm of public  accountants of recognized  standing  selected by the
Board of  Directors  shall be  presumptive  evidence of the  correctness  of any
computation made under this Section 7.

                  (S)      CANCELLATION  OF  SHARES.  All shares of the Series I
Preferred  Stock converted into Common Stock shall be cancelled and shall revert
to authorized but unissued shares of Preferred Stock undesignated as to series.

                                     - 11 -
<PAGE>

         8.       VOTING  RIGHTS.  The holders of the Series I  Preferred  Stock
shall have voting rights as follows:

                  (A)      VOTING RIGHTS LIMITED. Except as required by law, the
Certificate  of   Incorporation  of  the  Corporation  or  this  Certificate  of
Designations, the holders of shares of Series I shall not be entitled to vote on
any  matter  submitted  to the  stockholders  of the  Corporation  for a vote or
approval.

                  (B)      VOTING  WITH  COMMON  STOCK AS A SINGLE  CLASS.  Each
holder of shares of Series I  Preferred  Stock shall be entitled to one vote for
each whole  share of Common  Stock  into which each share of Series I  Preferred
Stock held by such holder is at such time convertible pursuant to the provisions
of  Section  7  hereof  on all  matters  submitted  to the  stockholders  of the
Corporation for vote or approval.  For purposes of this Section 8, all shares of
the Series I Preferred Stock held by any one holder shall be aggregated, and, if
the  aggregate  shares of Series I  Preferred  Stock  held by any one holder are
convertible  into a fraction of a share,  such fractional share shall be rounded
up to the next  whole  share if the  fraction  of a share is equal to or greater
than 0.5000 share,  and in all other case such fractional share shall be rounded
down to the next whole share.  The holders of shares of Series I Preferred Stock
shall  vote with the  holders  of Common  Stock and the other  holders of voting
securities of the Corporation as a single class on all matters  submitted to the
stockholders of the Corporation for vote or approval, and the outstanding shares
of Common Stock,  the outstanding  shares of the other voting  securities of the
Corporation  and the  outstanding  shares of Series I  Preferred  Stock shall be
considered  as a single class in  determining  the presence of a quorum for, and
the votes that shall be  necessary  for,  the  transaction  of any business at a
meeting of stockholders  of the  Corporation.  The outstanding  shares of Common
Stock, the outstanding  shares of the other voting securities of the Corporation
and the outstanding  shares of Series I Preferred Stock shall be considered as a
single  class in  determining  the vote that  shall be  required  for a specific
action or that shall constitute the act of the stockholders of the Corporation.

                  (C)      EVENTS  REQUIRING  THE APPROVAL OF THE HOLDERS OF THE
SERIES I PREFERRED  STOCK. So long as any shares of the Series I Preferred Stock
are  outstanding,  in  addition  to any other vote or  consent  of  stockholders
required  by law or by  the  Corporation's  Certificate  of  Incorporation,  the
consent of the holders of at least sixty six and two-thirds percent (66 2/3%) of
the  shares of the  Series I  Preferred  Stock at the time  outstanding,  voting
together as a single class,  given in person or by proxy,  either by vote at any
meeting  called  for the  purpose  or in  writing  without a  meeting,  shall be
required prior to the Corporation's  taking,  effecting or validating any of the
following actions:

                           (i)      in any manner, including by amendment of its
Certificate of  Incorporation  or By-laws,  alter or change the powers,  rights,
preferences or privileges or the qualifications,  limitations or restrictions of
the Series I Preferred Stock;

                           (ii)     create,  authorize  or issue a new  class or
series  (or  change or  reclassify  a class or series  of  shares  with  junior,
subordinate or inferior  rights into a class or series of shares) having rights,
preferences  or  privileges  prior or  superior  with  the  shares  of  Series I
Preferred  Stock in the payment of dividends or in the payment of amounts in the
event of

                                     - 12 -
<PAGE>

any  voluntary  or  involuntary  liquidation,  dissolution  or winding up of the
affairs of the Corporation, or increase the rights,  preferences,  privileges or
number  of any class or series  having  rights,  preferences  or  privileges  on
dissolution  that are prior,  superior  or on parity  with those of the Series I
Preferred Stock;

                           (iii)    increase or decrease the aggregate number of
authorized shares of Series I Preferred Stock, except for any decrease resulting
from any redemption,  repurchase or other  reacquisition;  effect an exchange or
reclassification or create a right of exchange,  of all or part of the shares of
Series I  Preferred  Stock into shares of another  class;  effect an exchange or
reclassification or create a right of exchange,  of all or part of the shares of
another  class or series  into the shares of the Series I  Preferred  Stock;  or
change  the  shares  of all or part  of the  Series  I  Preferred  Stock  into a
different number of shares of Series I Preferred Stock;

                           (iv)     repurchase  redeem or otherwise  acquire any
shares of the  Corporation's  capital  stock  other than the Series I  Preferred
Stock if any  dividends  on the Series I Preferred  Stock which have accrued and
are payable remain outstanding at the time;

                           (v)      liquidate,  dissolve  or wind-up the affairs
of the Corporation or merge or consolidate the Corporation with any other entity
or sell or encumber  all or  substantially  all of the  Corporation's  assets or
issue in one or a series of related  transactions  shares representing more than
fifty percent  (50%) of the aggregate  voting power of all classes and series of
the Corporation's  voting stock if any dividends on the Series I Preferred Stock
which have accrued and are payable remain outstanding at the time; or

                           (vi)     declare  or  pay  any   dividend   or  other
distribution  with  respect  to Junior  Stock if any  dividends  on the Series I
Preferred  Stock which have accrued and are payable  remain  outstanding  at the
time.

         9.       OTHER RIGHTS. The shares of Series I Preferred Stock shall not
have any  powers,  preferences  or  relative,  participating,  optional or other
special rights, or qualifications,  limitations or restrictions  thereof,  other
than as set forth herein or in the Corporation's Certificate of Incorporation or
as required by law."

         IN  WITNESS  WHEREOF,  Avery  Communications,   Inc.  has  caused  this
Certificate of  Designations  to be signed by the  undersigned  duly  authorized
officer, this 25th day of July, 2001.

                                Avery Communications, Inc.



                                By:  /s/ SCOT M. MCCORMICK
                                   -------------------------------------------
                                   Scot M. McCormick
                                   Vice President and Chief Financial Officer

                                     - 13 -
<PAGE>