U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   Form 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997.

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 FOR

THE TRANSITION PERIOD FROM          TO
                           --------    ---------
                         Commission File Number 0-23952
                                   AVERT, INC.
                 (Name of small business issuer in its charter)

           COLORADO                                     84-1028716
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                   301 REMINGTON, FORT COLLINS, COLORADO 80524
               (Address of principal executive offices0 (Zip Code)

         Issuer's telephone number, including area code: (970) 484-7722


       SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: None
         SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                           COMMON STOCK, No Par Value
                           --------------------------
                                (Title of class)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.

                            Yes [X]    No [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B contained this form, and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this  Form  10-KSB or an
amendment to this Form KSB. [ ]

     The issuer's revenues for the year ended December 31, 1997 were $9,491,000.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the issuer as of March 20, 1998 was $24,227,888.

     As of March 20, 1998, the issuer had outstanding 3,488,125 shares of Common
Stock, No par Value, its only class of Common Stock.

                       DOCUMENT INCORPORATED BY REFERENCE

     The following  document is  incorporated by reference into Part III of this
Annual Report on Form 10-KSB:  Definitive  Proxy Statement for the issuer's 1998
Annual Meeting of Shareholders.

           Transitional Small Business Disclosure Format (Check one):

                            Yes [ ]    No [X]

     This document  consists of a total of 60 pages  including the Exhibit Index
beginning on page 37.


<PAGE>

                                     Part I

     "The Company" or "Avert" is used in this report to refer to Avert, Inc. The
Company may from time to time make written or oral  forward-looking  statements,
including  statements contained in the Company's filings with the Securities and
Exchange   Commission  and  its  reports  to   shareholders.   Item  1  contains
forward-looking   statements  that  are  made  pursuant  to  the  "safe  harbor"
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995.  These
statements include,  without  limitation,  statements relating to Avert's growth
and business  strategies,  regulatory  matters affecting Avert,  other plans and
objectives of Avert, management for future operations and activities,  expansion
and growth of Avert's  operations and other such matters.  The words "believes,"
"expects,"  "intends,"  "strategy,"  "considers"  or  "anticipates"  and similar
expressions identify forward-looking  statements. The Company does not undertake
to update, revise or correct any of the forward-looking information. Readers are
cautioned  that such  forward-looking  statements  should be read in conjunction
with the  Company's  disclosures  under the heading:  "Cautionary  Statement for
Purposes of the `Safe Harbor'  Provisions of the Private  Securities  Litigation
Reform Act of 1995" beginning on page 11.

ITEM 1.  Description of Business.

General

     The Company was organized as a Colorado  corporation in June 1986 under the
name Hire Risk Services  Corporation.  In May 1987, the Company changed its name
to Avert, Inc.

     In June, 1994, the Company  completed an initial public offering ("IPO") of
Units,  each unit consisting of one share of the Company's  Common Stock and one
Redeemable Warrant.  The total net proceeds received by the Company from the IPO
and the exercise of the Redeemable  Warrants was approximately  $4,955,000.  The
net  proceeds  are  currently  intended to be used to acquire  other  companies,
assets,  and/or  product  lines that either  complement  or expand the Company's
existing  business.  None of the net  proceeds  has been  expended to date.  For
additional  information  concerning  the IPO, see "Market for Common Equity" and
related Stockholder Matters, " in Part II, Item 5, below.

     Avert is an information service bureau engaged primarily in the business of
verifying job applicant  background  information  for employers.  The background
checks are made through the use of databases and a national  network of couriers
(engaged on an independent  contractor basis) developed by the Company since its
organization  in June,  1986. The background  information  products and services
currently  provided  by the  Company  consist  of:  criminal  records,  workers'
compensation  histories,  driving records,  reference checks,  credit histories,
social  security  number  use,  and  education  and  credential  validation  and
employment  application  forms.  During the fourth  quarter of 1997, the Company
introduced a self screen drug testing kit as a pilot  marketing  program to it's
customers in Colorado.  Results will be assessed to determine if the kit will be
rolled out nationwide.

     The Company believes that employers increasingly are realizing the benefits
of background checking of employees and verification of employment applications,
not only  because of the desire to help assure a better  quality  employee,  but
also,  in some  industries,  the concern with  negligent  hiring  lawsuits.  The
Company has approximately  9,640 customers located throughout the United States.
During 1997, sales were made in 49 states, and in addition, District of Columbia
and Puerto Rico.  Approximately 63% of total sales were made in 7 states (Texas,
Colorado,  Missouri, Oregon, Illinois,  Florida, and North Carolina), with Texas
sales  representing  approximately  18%  of  total  sales,  and  Colorado  sales
representing  approximately 15% of total sales. The Company's  business strategy
is to accelerate market presence throughout the United States.



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<PAGE>

Avert also intends to enhance its existing  products and to use the net proceeds
received  from the IPO to  develop  new ones and  pursue  acquisitions  of other
companies,  assets  and/or  product  lines that either  complement or expand its
existing business.

Markets

     The  Company  markets  its  employment  background  checking  products  and
services throughout the United States.  Although any company with employees is a
potential  customer of Avert,  the Company believes that companies or businesses
with one or more of the following  characteristics  benefit most from background
checking:

o    High risk of liability for negligent hiring lawsuits relating to the action
     or inaction of employees;

o    Physically demanding jobs;

o    Employees with access to goods and cash of employers;

o    High employee turnover; and

o    Desire for better quality  employees,  not only with respect to competence,
     but also integrity.

     Industries  in which one or more of these  characteristics  exist  include:
construction;  retail; manufacturing;  property management, including commercial
office  buildings,  apartments  and hotels;  medical,  including  nursing homes,
hospitals and in-home health care  providers;  and city and county  governments,
including schools.

Products and Services

     General.  The  Company's  products  and services are designed to verify job
applicant background  information for employers and consist of database searches
through the use of the Company's  in-house  computer system and manual retrieval
and copying of public records by Avert's network courier system. Avert customers
may request and receive records by telephone,  mail or by facsimile, or by using
a modem-equipped  personal  computer or terminal to access the Company's on-line
network.  This network is available 24 hours per day,  seven days a week.  Avert
does not sell or license software to its customers.

     The price to Avert's  customers of the reports prepared by the Company vary
in price from $4.00 to $50.00 per report depending upon the type and location of
background check requested by the customer.  The reports may be viewed on screen
or printed in either Avert's or the customer's offices.  The reports remain in a
computer file in Avert's host computer system for two years and are available to
the customer at no additional  cost during that period.  New Avert customers are
required  to pay a $50  set up fee to  open an  account  and to sign a  Consumer
Report User Agreement ("User Agreement"). If an existing account is inactive for
12 consecutive months, the account will be closed or put on inactive status.

     The Company's  computer host system consists of two Digital Equipment Alpha
processors  with 28  gigabytes  of  storage  configured  to operate in a cluster
environment.  The dual processor  cluster provides backup for data and operating
integrity.  In addition, the Company operates its internet-based  customer order
entry system with dual processor Micro servers so that it has complete backup of
its order entry system.

     During 1996 The Company budgeted  approximately $1.5 million to develop new
software and upgrade its existing software, of which approximately  $450,000 was
expended in 1996,  and  approximately  $1,000,000.  was  expended  in 1997.  The
upgrade is expected to be completed in 1998.  The total cost of the upgrade will
exceed the $1.5 budget.  The amount of the excess is not known at this time. The
Company  expects the new software and upgrade of its existing  software to allow
the Company to: (1) manage its higher volume with a lower cost per  transaction;
(2)  introduce  new products and services at a much quicker  pace;  (3) directly


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<PAGE>

integrate the Company's information  technology systems with strategic partners,
suppliers,  and large  customers;  and (4)  maintain the  Company's  competitive
position  and provide  leading  edge,  but safe and proven,  technology  for its
customers.

     As part of the first phase of its software development  project,  Automated
Systems for Applicant  Processing (ASAP), the Company introduced AvertNet 1.0 in
January of 1997. In November  1997,  Avert  announced  AvertNet 1.4, which was a
major upgrade to the AvertNet order entry system that extended Avert's access to
a  substantial  base of  customers  through  the  integration  with  Microsoft's
Internet Explorer.

     AvertNet is a Virtual  Private Data Network that  provides a fully  secured
and  encrypted  business  environment  for Avert's  customers  to conduct  their
pre-employment  screening  transactions  over the Internet or through  their own
internal network  environment.  AvertNet uses HTML and JAVA scripting to provide
Avert customers with a windows style environment.

     The Company's  network  courier  system  consists  currently of persons and
small companies variously located throughout the United States. The couriers are
engaged as  independent  contractors  by written  agreements  which provides for
payment  of a fee on a per  document,  per day or monthly  basis.  The number of
couriers  in each state  depends on the size of the state,  population  density,
number of counties within the state,  and the  organization of the court systems
within the state.

     Products and Services.  The Company currently offers the following products
and services:

          Criminal  Histories--Searches  selected  geographical  areas  for  the
presence  of  a  criminal  record.  This  background  information  is  available
statewide  from 32 states or from all 3,300  counties in the United  States on a
county-by-county  basis.  The  remaining  18  states  do not have an  accessible
statewide depository for this type of information. This information is retrieved
by Avert through its network courier  system,  computer access directly into the
states and certain  counties or, in some  instances,  by  facsimile,  mail,  and
telephone.

          Workers'  Compensation  Histories--Used to confirm on-the-job injuries
in compliance  with the Americans  with  Disabilities  Act of 1990  (referred to
herein  as  the  "ADA").   Avert  has  been  collecting  and  storing   workers'
compensation  data since the  Company's  inception.  The Company  currently  has
approximately  6.3 million workers'  compensation  records in its database,  and
believes that it was the first  information  service bureau to compile this type
of data on a nationwide  basis and offer this  background  service to employers.
Avert also  believes  that it has the largest  number of  workers'  compensation
records,  and the largest  network of  workers'  compensation  histories  in the
United States.  Avert can currently  provide workers'  compensation  information
from 42 states through the use of its database and network courier system.  Such
information from the remaining eight states is not currently  available  because
of state law prohibiting the release of the  information,  refusal by the states
to release the information or inadequate state record retrieval systems.

          Education/Credential   Confirmation--Confirms   date  of   attendance,
college degrees earned, or association credentials.  This background information
is obtained by Avert  personnel  directly from the  educational  institutions or
associations through the use of the telephone, fax or mail.

          Reference  Check--Provides  four types of  references to meet specific
needs. The four types (Basic, Standard,  Narrative, and Personal) give employers
a wide range of reference choices. This background  information is also obtained
by Avert personnel by telephone, fax or mail directly from previous employers or
personal references.

          First  Check--Confirms  that the  applicant  is  using a valid  social
security number and is not a fugitive from justice.


                                       4
<PAGE>


          Motor  Vehicle  Driving   Reports--Confirms   driving  records.   This
background information is retrieved by Avert through a nonaffiliated third party
and is available from all 50 states,  all Canadian  provinces,  and Puerto Rico.
This same information  could be obtained directly by the Company from the source
or from other nonaffiliated third parties.  These reports and the credit reports
discussed below are the only two products for which Avert serves as a broker.

          Credit  Link--Confirms  certain credit  information.  This  background
information  is a  special  form  of  a  common  "credit  report"  designed  for
employment  purposes  only. The report  complies with current  provisions of the
Fair Credit  Reporting Act, as amended  ("FCRA").  See  "Government  Regulation"
below in this Item 1.  Avert  serves as a broker  for this  information  for all
three of the major credit bureaus  (Equifax,  TRW and  TransUnion) and retrieves
the information  from these credit bureaus through  software  purchased by Avert
from a nonaffiliated  third party.  Avert customers may order any combination of
the three credit bureaus.

          Name  Link--Reports  use of a social security number.  This product or
service  identifies  names associated with a social security number and, in some
cases,  addresses  used by those  persons.  This  information  is obtained  from
insurance  records,  credit records and death records  accessed  through Avert's
database.

          Employment  Application   Forms--These   employment  forms  have  been
developed  by Avert and, in Avert's  judgment,  if used  properly by  employers,
comply with current provisions of the ADA and Title VII requirements.  The forms
contain a universal  release form for those states which require an  applicant's
signature  and include the required IRS Form W-4 and the  Department  of Justice
Employment Eligibility Verification (I-9). The forms also include an affirmative
action  questionnaire  and a  conditional  job offer  form.  All forms have been
updated  to  ensure   compliance   with  the  new  Fair  Credit   Reporting  Act
requirements.  The application portion of the form sets forth the questions in a
manner which, together with company policy, will permit an employer to conduct a
background search.

          Test-cup - OnTrak  TesTcup5 is a resale product  contracted from Roche
Diagnostic  Systems.  Test-cup  provides an  integrated  collection  and testing
device for easy, quick, safe, and affordable on-site drug testing.

     In addition to the foregoing products and services,  Avert will confirm the
validity of the social  security  number of each subject of a background  check,
provided that the customer  provides the Company with the number.  If the social
security  number is valid,  Avert will provide the customer  with the state name
and year of issuance.  This service is currently rendered for no additional cost
to the customer in  conjunction  with  another  Avert  product  purchased by the
customer and regardless of the type of search.

     In July 1996,  the Company began  offering  customers  the Avert  Advantage
customer  subscription  service.  This service provides instant access to hiring
process  information.  Advantage  customers also receive a discount based on the
number of months they have been a customer.  A $10.00  monthly fee is  collected
for each Advantage customer.  The Company has obtained  approximately 2,025 such
customers through December 31, 1997.

Business Strategy

     Avert's primary  objective is to position the Company as one of the highest
quality,  most innovative background checking companies in the United States and
ultimately  to expand  into the  international  market.  The basic  elements  of
Avert's strategies are as follows:



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<PAGE>


o    Accelerated Market Presence.  Avert intends to continue the acceleration of
     its market presence  throughout the United States by further  expanding and
     refining  sales and marketing  techniques  used by it over the past several
     years,  including:  (1) face-to-face  selling with  prospective  customers,
     primarily  larger  companies;   (2)  in-house   telemarketing  to  existing
     customers  and to  prospective  customers  who have  shown an  interest  in
     purchasing Avert's products and services;  (3) independent  resellers;  (4)
     public  relations;  (5)  participation  in trade  shows and  seminars;  (6)
     advertising  in  trade  publications;  (7)  maintaining  a web  page on the
     Internet;  and (8) mailing of quarterly news releases to existing customers
     and to prospective customers.  See "Marketing and Sales" below in this Item
     1.

o    Development of New Revenue.  As a general matter,  many of Avert's products
     and services have been developed and added to the Company's product line as
     a result of requests or suggestions from existing or prospective customers.
     For this reason,  the Company will  continue to listen to its  customers or
     prospective  customers for new product and service ideas. In addition,  the
     Company intends to develop new or additional  revenue from: (1) repackaging
     of its existing  products,  such as packaged pricing and price  guaranties;
     (2) development of new products;  and (3) enhancement of existing products,
     including   database   updates,   acquisition   of  workers'   compensation
     information from additional states, when and if available,  and speeding up
     delivery times. Furthermore,  the Company is seeking customer relationships
     with companies  having a large customer base of their own, which can resell
     Avert's  products  and services as an add on to their own  products.  Avert
     also seeks strategic relationships with companies in other industries.  See
     "Marketing and Sales" below in this Item 1.

o    Acquisitions  of Other  Companies  and/or  Product  Lines.  The  Company is
     pursuing the  acquisition of other  companies,  assets and/or product lines
     that  either  complement  or  expand  Avert's  existing  business.   Target
     companies are regional or state background  checking companies or companies
     with complementary products such as drug testing,  skills testing or safety
     and security  products.  The Company may use cash or stock or a combination
     of stock and cash to effect any such acquisitions. The Company has had, and
     will  continue  to  have,  discussions  from  time-to-time  with  potential
     acquisition  candidates,  but  no  acquisition  has  been  made  nor is any
     considered  probable as of the date of this  Report.  No  assurance  can be
     given that the Company will be successful in these efforts.

o    Long-term  Customer  Relationships.  The Company is  committed to providing
     quality  products and services to its customers.  Management  believes that
     the  Company's  emphasis  on  building  long-term  relationships  with  its
     customers  has played a  significant  role in Avert's  success.  Management
     further  believes  that  these  relationships  are  important  not  only to
     generate  additional sales from existing  customers,  but also for customer
     referrals. A large percentage of the Company's sales have been generated by
     referrals  from  customers.  The  Company  intends to  continue to (1) send
     monthly newsletters to existing customers, (2) monitor its larger customers
     daily and (3) contact  each of its  customers  on a regular  basis  through
     tele-sales and executive  briefings at the Company's  headquarters  in Fort
     Collins, Colorado.

o    Quality Customer Service and Support.  In order to offer customers  quality
     service and support,  Avert has  developed  and will  continue to enhance a
     client service and support program which includes:  (1) the availability of
     a customer service  representative twelve hours a day Monday through Friday
     and eight hours on Saturday;  (2) in-house training of all customer service
     representatives  on Avert  products;  (3) quality  control checks for Avert
     products;  and (4) minimum acceptable performance guidelines for employees.
     In addition,  Avert realizes the  importance of long-term  employees to the
     success of its  operations  and,  therefore,  strives to provide a positive
     work environment and benefits package for employees.


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<PAGE>

o    Technological.  Avert will  continue to monitor its  computer  and delivery
     systems  for  enhancements  for  quality of service to, and ease of use by,
     Avert  customers.  The Company is in process of developing new software and
     upgrading  its existing  software.  See  "Products and Services - General,"
     below in this  Item 1. A total of  approximately  $1,000,000  was  spent in
     1997.

o    Ultimate  International  Market  Development.   Currently,   revenues  from
     international  sales are not significant.  Although the Company's  ultimate
     goal is to  expand  internationally,  Avert  will  not do so  until  it has
     significantly  increased  its sales and  marketing  presence  in the United
     States.  International  possibilities  include  Canada,  since  Canada most
     closely  resembles the United  States  market,  sales to foreign  companies
     hiring Americans and the European market.

Marketing and Sales

     The Company's  marketing  program consists of direct marketing  activities,
advertising,   exhibitions  at  trade  shows,  the  Internet,  public  relations
activities  and  in-house  telemarketing.  All of the leads  generated  by these
marketing activities are referred to new customer tele-sales representatives for
follow-up and, if applicable,  obtaining the documentation  (including  executed
User Agreements) needed to open new customer accounts.

     Avert  employs  a direct  marketing  model for lead  generation,  marketing
communication and market development.  There are 13.5 employees at the companies
headquarters in Fort Collins, Colorado, who are involved in marketing activities
and are managed by a Director  of  Marketing  and  Planning.  Additionally,  the
Company has established a reseller  distribution  channel to develop and convert
leads to sales and to implement territory development programs.

     A significant  portion of the Company's  marketing  budget is used for lead
generation  programs.  Various  forms of  direct  marketing  techniques  such as
broadcast fax, direct mail and target  advertising are used to generated  leads.
Qualified   leads  are   distributed   to  the   Company's   independent   sales
representatives  or handled by an in-house  telemarketing  expert. The Company's
marketing programs for territory development include,  advertising,  co-branding
with franchise customers, exhibitions at trade shows and public relations.

     The indirect sales channel includes  resellers who value-add to and private
label  Avert  products  and  independent  sales  representatives  who  are  paid
commissions for selling Avert products.  Currently there are  approximately  174
resellers.

Customers

     The Company currently has approximately  9,640 customers located throughout
the United States. During 1997, sales were made in 49 states, with approximately
63% of total sales  having  been made in 7 states  (Texas,  Colorado,  Missouri,
Oregon,  Illinois,  Florida, and North Carolina),  with Texas sales representing
approximately 18% of total sales, and Colorado sales representing  approximately
15% of total sales.  No single customer of Avert accounted for more than 7.3% of
total Avert sales during 1997.

     Historically,  the Company experiences a seasonal slow down in its business
in the  fourth  quarter  due to  decreased  hiring  by  retailers,  starting  in
mid-November  and  continuing  through the  holiday  season,  and by  industries
affected by inclement weather.


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<PAGE>

Government Regulation

     The Company is a  "consumer  reporting  agency"  within the meaning of that
term as used in, and therefore is subject to, the provisions of the FCRA, and is
regulated  by the Federal  Trade  Commission  ("FTC")  under the  Federal  Trade
Commission  Act. Under the provisions of the FCRA, a consumer  reporting  agency
may  furnish a  "consumer  report" to a customer  (other  than a consumer  or in
response to a court order) only if such agency has reason to believe that, among
other matters,  the customer  intends to use the  information  for a permissible
purpose,  including  in  connection  with a  credit  transaction  involving  the
consumer on whom the  information is to be furnished or the review or collection
of an account of the consumer or the customer  otherwise  has a legitimate  need
for the  information in connection  with a business  transaction  concerning the
consumer.  The  background  checking  reports of Avert are consumer  reports for
purposes  of the FCRA.  In  addition,  certain of Averts  consumer  reports  are
"investigative consumer reports" within the meaning of that term under the FCRA.
The  FCRA  also  prohibits  disclosure  of  obsolete  information  concerning  a
consumer.  Obsolete  information  generally means information which is more than
seven years old.

     The FCRA  requires  a  consumer  reporting  agency to  maintain  reasonable
procedures  designed  to ensure  that the  proscriptions  on the use of obsolete
information are not violated,  and that the information  contained in a consumer
credit report is used for a proper purpose.  In addition,  a consumer  reporting
agency must  follow  reasonable  procedures  to assure  maximum  accuracy of the
information   concerning  the  consumer  about  whom  the  report  relates.  See
subcaption "Legal Considerations" below in this Item 1. The FCRA also requires a
consumer  reporting  agency,  upon  request  from a consumer,  to  disclose  all
information  about that consumer in a consumer report,  together with the source
and the recipients of the information.  In some cases,  this information must be
delivered  to the consumer at no cost,  and, in others,  the agency may charge a
reasonable fee. Avert historically has not charged such a fee.

     The Consumer Credit  Reporting  Reform Act (CCRRA) of 1996 amended the FCRA
and added new requirements on consumer  reporting  agencies  providing  consumer
reports for employment purposes.  The requirements include:  providing customers
with  a  notification  of  their  responsibilities  under  the  FCRA,  obtaining
certifications  from customers that they are performing certain specific actions
as required by the FCRA, providing the subject of the report with a free copy of
the report if adverse action is taken by an employer based on information in the
consumer report, and providing a copy of a Summary of Your Rights under the Fair
Credit Reporting Act with each consumer report.

     The CCRRA also placed new requirements on the resale of consumer reports. A
consumer  reporting  agency  providing  consumer  reports to a reseller must now
obtain the  identify  of the end user of the  information  for each  report.  In
addition,  the  consumer  reporting  agency  must  receive  certifications  from
resellers that their  customers are performing the same specific  actions as are
required of the consumer  reporting  agency's direct customers,  and ensure that
reports are being resold only for permissible purposes.

     The FCRA provides that an investigative consumer report may not be prepared
on any consumer unless (1) such consumer  receives notice thereof in writing not
later than  three  days after the date on which the report was first  requested,
which must include a statement, among others, that the consumer has the right to
request  complete  disclosure  of the  nature  and  scope  of the  investigation
requested. The FCRA further provides that if the consumer requests disclosure of
the  information,  the consumer  reporting  agency must make such  disclosure in
writing  not  later  than five days  after  the date on which  the  request  for
disclosure was received.  A consumer reporting agency may not be held liable for
any violation of the FCRA provisions relating to investigative  consumer reports
if that agency shows by  preponderance  of the evidence  that at the time of the
violation such agency maintained reasonable procedures to assure compliance with
those  provisions.  Of  the  Company's  current  products,  education/credential
confirmations  and  reference  checks are  investigative  consumer  reports  for
purposes of the FCRA.

                                       8
<PAGE>


     The  FCRA  provides  for  civil  liability  sanctions  against  a  consumer
reporting agency by a consumer for willful or negligent  noncompliance  with the
FCRA and criminal sanctions against officers and directors thereof who knowingly
and willfully  disclose  information  in a report to a person not  authorized to
receive the information.

     The ADA makes it unlawful to discriminate in employment against a qualified
individual  with a  disability.  The ADA does not directly  apply to  businesses
conducted by consumer reporting companies such as the Company. It does, however,
apply to employers  with 15 or more  employees and prohibits such employers from
making inquiries of a prospective  employee as to medical and injury  inquiries,
job-related  or not,  until after a  conditional  job offer has been made.  This
means,  among other matters,  that inquiries by an employer as to prior workers'
compensation  claims and injuries  cannot be made until after a conditional  job
offer has been made.

     State laws also impact the Company's business. There are a number of states
which have laws  similar to the FCRA,  and some states  which have human  rights
laws more strict than the ADA. In addition,  to the Company's knowledge at least
four states require companies  engaged in the type of business  conducted by the
Company to be licensed in order to conduct  business  within those  states.  See
discussion below. A large number of states also regulate the type of information
which can be made  available  to the  public  and/or  impose  conditions  to the
release of the  information.  For example,  some state laws  prohibit  access to
certain  types  of  information,  such as  workers'  compensation  histories  or
criminal  histories,  while others restrict access without a signed release from
the subject of the report. In addition,  many privacy and consumer advocates and
federal regulators have become  increasingly  concerned with the use of personal
information,  particularly  credit  reports.  Attempts  have  been made and will
continue to be made by these groups to adopt new or additional federal and state
legislation  to regulate the use of personal  information.  Federal and/or state
laws relating to consumer  reporting  agencies and/or access and use of personal
information, in particular, and privacy and civil rights, in general, amended or
enacted in the future could materially adversely impact Avert's operations.

     To the  Company's  knowledge,  at least  eleven  states of the 49 states in
which the Company sold its products  and services  during 1997 require  consumer
reporting agencies, such as the Company, to obtain a license to conduct business
within those states.  The Company has obtained the necessary licenses in four of
those states,  and is in process of obtaining  licenses in the  remaining  seven
states.  In addition,  the Company is in process of  reviewing  the laws of four
other states to determine if  licensing  is required.  Though  requirements  can
change,  the  Company  believes  that  the  remaining  36  states  do not have a
licensing  requirement  for the Company.  Although the Company  believes that it
will be able to obtain the licenses from the other seven  states,  the inability
to do so could have an adverse impact on the Company's operations.  Operation of
an unlicensed  business is a misdemeanor under the laws of many states generally
punishable  by fines  and/or  imprisonment  and could be grounds for denial of a
license, if required.

Legal Considerations

     Under general legal concepts and, in some instances,  by specific state and
federal  statute,  the Company  could be held liable to customers  and/or to the
subjects of background  checking  reports prepared by the Company for inaccurate
information  or misuse of the  information.  The FCRA contains  civil  liability
provisions for willful and negligent  noncompliance  with its requirements.  The
FCRA  further  provides  in effect  that,  except for  liability  for willful or
negligent  noncompliance  with the FCRA and  false  information  furnished  with
malice or willful  intent to injure a  consumer,  neither a  consumer  reporting
agency,  any user of information  nor any person who furnishes  information to a
consumer  reporting  agency  will be  liable  to the  consumer  for  defamation,
invasion  of  privacy  or  negligence  based on  information  disclosed  to such
consumer under the provisions of the FCRA.

                                       9
<PAGE>

     The Company has developed and  implemented  internal  policies  designed to
help ensure that background information retrieved by it concerning a consumer is
accurate and that it otherwise  complies  with the  provisions  of the FCRA.  In
addition,  each customer of Avert is required to sign a User Agreement,  wherein
such customer agrees,  among other matters,  to accept  responsibility for using
information provided by Avert in accordance with the provisions of the FCRA, the
ADA, and all other applicable  federal and state laws and regulations  including
federal  and  state  equal  opportunity  laws and  regulations.  Avert  also has
internal  checks in place  regarding  access and  release  of such  information.
Additionally,  Avert requires that all employees  sign a written  acknowledgment
covering the proper procedures for handling confidential information.

     Avert is in the process of  obtaining  errors and  omissions  insurance  tp
cover claims by the  customers or the subject of reports for alleged  inaccurate
or misuse  of  information.  Previously,  the  Company  has not had this type of
insurance..  To date, the Company has been named as a co-defendant in only three
lawsuits  alleging  violations of the FCRA,  all of which have been dismissed by
the court.

Competition

     The background  checking industry is highly  fragmented.  The Company faces
both direct and indirect competition for its products and services. In addition,
many companies perform employee background checking in-house.

     Direct  Competition.  There are a large number of companies  engaged in the
sale of one or more of the background checking products sold by the Company, and
the Company  believes that this number will  increase.  A significant  number of
these  competitors are small  companies  operating on a local or regional basis;
while some are large  companies  operating on a national scale. To the Company's
knowledge,  the  background  checking  portion of the  businesses  of its larger
direct  competitors  is currently a small portion of their  overall  operations.
Unlike many of its direct  competitors,  the Company serves as a broker for only
two if its products,  credit  reports and motor  vehicle  driving  records,  and
obtains the data for the remainder of its products from the source.  The Company
believes  that this helps to give it a  competitive  advantage as to price.  The
Company  also  believes  that it has a  competitive  advantage  over many of its
competitors  because  of the  wide  variety  of  products  that it can  offer to
customers,  and because of it's newly developed order entry and report retrieval
system. Many of the Company's  competitors,  however, have substantially greater
financial and personnel resources than the Company. In addition,  it is possible
that one or more of the Company's larger direct  competitors  could expand their
background checking product line in the future.

     Indirect Competition.  The Company faces indirect competition from a number
of companies  engaged in, among  others,  drug,  aptitude and attitude  testing,
handwriting analysis and on-the-job trial employment  (employee leasing).  These
procedures,  though often used with  background  checking,  compete with Avert's
products and services. Most of these competitors operate on a national scale and
have substantially  greater financial and personnel  resources than the Company.
In addition,  it is possible that one or more of these  competitors could expand
their product lines in the future to include  background  checking  products and
services.

Employees

     The Company has a total of 74  employees,  of which 12 are part-time and 62
are full-time employees.  Of these 74 employees,  13 full-time and one part-time
employee are involved in sales and marketing,  eight full-time employees and two
part-time employee are involved in finance and  administration,  seven full-time
employees  are  involved  in  programming/information  system  and 34  full-time
employees and nine part-time employees are involved in data  processing/customer
service.  None of the Company's  employees is  represented by labor unions or is
subject to collective  bargaining  arrangements.  Avert  considers its relations
with its employees to be good.

                                       10
<PAGE>


Item 2.  Description of Property.

     The Company owns and is sole occupant of an approximate  14,600 square foot
office  building,  located in downtown  Fort  Collins,  Colorado.  The building,
located on a 29400 square foot parcel of land, was constructed by the Company in
March,  1996 at a  total  cost of  approximately  $1.2  million.  The  land  and
construction  costs were paid entirely from  internal  funds of the Company.  No
portion of the proceeds of the Company's IPO was used for these purposes.

Item 3.  Legal Proceedings.

     None.

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

     None.
                           --------------------------

             CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
       PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     The  Company  is  including  the  following  cautionary  statement  to take
advantage of the "safe harbor" provisions of the Private  Securities  Litigation
Reform Act of 1995 for any  forward-looking  statement made by, or on behalf of,
the Company.  The factors identified in this cautionary  statement are important
factors (but not  necessarily  all of the  important  factors)  that could cause
actual results to differ materially from those expressed in any  forward-looking
statement made by, or on behalf of, the Company.  Where any such forward-looking
statement  includes a statement  of the  assumptions  or bases  underlying  such
forward-looking  statement,  the Company  cautions that,  while it believes such
assumptions  or bases to be  reasonable  and makes them in good  faith,  assumed
facts or bases  almost  always vary from  actual  results,  and the  differences
between  assumed  facts or bases and actual  results can be material,  depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its  management,  expresses an expectation  or belief as to the future  results,
such  expectation  or belief is  expressed  in good faith and believed to have a
reasonable  basis,  but  there  can  be  no  assurance  that  the  statement  of
expectation  or belief will result or be achieved or  accomplished.  Taking into
account the  foregoing,  the following are  identified as important risk factors
that could cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, the Company:

     Possible Acquisitions of Companies and/or Product Lines;  Associated Risks.
A business strategy of the Company is to use the net proceeds of the IPO and any
the  exercise of the  Redeemable  Warrants to acquire  other  companies,  assets
and/or  product lines that either  complement  or expand its existing  business.
Implementation  of these strategies  could involve a number of risks,  including
diversion  of  management  time and Company  financial  resources  to  increased
marketing  efforts,  review of acquisition  candidates and  assimilation  of the
acquired  intangible  assets.  The impact of these  strategies  on the Company's
operations,  both long-term and short-term,  remains unknown, but because of the
foregoing  factors,  among others,  the  Company's  growth rate for at least the
short term  could be  adversely  impacted.  In  addition,  no portion of the net
proceeds  of the IPO has  been  allocated  for any  specific  acquisition,  and,
although the Company has  identified  and has held,  and will  continue to hold,
discussions  from  time-to-time  with  potential  acquisition   candidates,   no
acquisition has been made and none is considered probable as of the date of this
Report.  Accordingly, no assurance can be given that Avert will be successful in
acquiring other companies, assets or product lines.

                                       11
<PAGE>


     Government Regulation.  The Company is a "consumer reporting agency" within
the meaning of the term as used in the FCRA and, therefore, must comply with the
various  consumer  credit  disclosure  requirements  of  the  FCRA.  Willful  or
negligent  noncompliance  would  result in civil  liability  to the  subjects of
reports.  Also,  the ADA  contains  pre-employment  inquiry and  confidentiality
restrictions  designed  to  prevent   discrimination  against  individuals  with
disabilities  in the hiring  process.  Although  the  Company's  business is not
directly  regulated by the ADA, the use by its customers of certain  information
sold to them is regulated,  both in respect to the type of  information  and the
timing of its use.  State laws also impact the Company's  business.  There are a
number of states which have laws similar to the FCRA, and some states which have
human  rights  laws more  strict than the ADA.  In  addition,  to the  Company's
knowledge,  at least  eleven  states  require  companies  engaged in the type of
business  conducted  by the Company to be licensed in order to conduct  business
within those states.  See  "Licensing  Requirements,"  below in this section.  A
large number of states also regulate the type of  information  which can be made
available  to  the  public  and/or  impose  conditions  to  the  release  of the
information.  For example,  some state laws prohibit  access to certain types of
information,  such as workers'  compensation  histories  or criminal  histories,
while others  restrict  access  without a signed release from the subject of the
report. In addition,  many privacy and consumer advocates and federal regulators
have  become  increasingly  concerned  with  the  use of  personal  information,
particularly  credit  reports.  Attempts  have been made and will continue to be
made by these groups to adopt new or additional federal and state legislation to
regulate the use of personal information.  Federal and/or state laws relating to
access and use of personal  information,  in  particular,  and privacy and civil
rights, in general,  amended or enacted in the future could materially adversely
impact Avert's operations.

     Licensing Requirements.  To the Company's knowledge, at least eleven states
of the 49 states in which the Company sold its products and services during 1997
require consumer reporting agencies, such as the Company, to obtain a license to
conduct  business  within those  states.  The Company has obtained the necessary
licenses in four of those states, and is in process of obtaining licenses in the
remaining seven states. In addition,  the Company is in process of reviewing the
laws of four  other  states  to  determine  if  licensing  is  required.  Though
requirements  can change,  the Company  believes that the remaining 36 states do
not have a licensing requirement for the Company.  Although the Company believes
that it will be able to obtain the  licenses  from the other seven  states,  the
inability  to do so could have an adverse  impact on the  Company's  operations.
Operation  of an  unlicensed  business is a  misdemeanor  under the laws of many
states  generally  punishable by fines and/or  imprisonment and could be grounds
for denial of a license, if required.

     Legal Considerations.  Under general legal concepts and, in some instances,
by specific  state and  federal  statute,  the  Company  could be held liable to
customers and/or to the subjects of background  checking reports prepared by the
Company for  inaccurate  information or misuse of the  information.  The Company
maintains internal policies designed to help ensure that background  information
retrieved by it is accurate and that it otherwise  complies with the  provisions
of the FCRA. Avert,  however, does not currently maintain liability insurance to
cover claims by  customers or the subjects of reports.  The Company has explored
the  possibility and  feasibility of liability  insurance for this purpose.  The
Company  intends to continue its efforts to obtain  insurance  coverage for such
claims,  and plans to obtain coverage by the end of first quarter 1998. To date,
the  Company  has  been  named as a  co-defendant  in  three  lawsuits  alleging
violations of the FCRA. All three lawsuits have been dismissed by the court.  No
assurance can be given that claims made against the Company in the future can be
successfully  defended.  Uninsured losses from claims could adversely impact the
operations and financial condition of the Company.

                                       12
<PAGE>

     Reliance  on Key  Personnel.  The success of the  Company  continues  to be
dependent upon the efforts of the key personnel of Avert,  particularly  Dean A.
Suposs, its President. The loss of Mr. Suposs' services could have a detrimental
effect on the Company.  The Company  maintains for Avert's  benefit a $1 million
key man life insurance policy on Mr. Suposs.

     Competition.  Avert  faces both  direct and  indirect  competition  for its
products  and  services.   Direct  competitors  are  other  background  checking
companies.  Indirect  competitors are companies engaged in, among others,  drug,
aptitude  and attitude  testing,  handwriting  analysis,  and  on-the-job  trial
employment  (employee  leasing).  The  Company  believes  that there are a large
number of direct  competitors.  A significant  number of these  competitors  are
small  companies  operating on a local or regional  basis,  while some are large
companies  operating on a national  scale.  The Company also believes that there
are a number of indirect competitors,  with most of them operating on a national
basis. Many of the Company's  competitors have financial and personnel resources
substantially  greater than those of the Company.  Avert  believes that it has a
competitive advantage over many of its direct competitors because it has a wider
variety of products  and  services to offer to  customers.  In  addition,  Avert
believes  that it has a price  advantage  over  many of its  direct  competitors
because,  unlike  these  competitors,  Avert  obtains  substantially  all of its
background information directly from the source rather than through the purchase
of information from other companies for resale to its customers.  Currently, the
information  for only three of the Company's ten existing  products is purchased
from other companies.  As more companies enter the market, and if larger, direct
competitors  place more emphasis on the employment  background  segment of their
operations  and/or  indirect  competitors  expand  their  businesses  to include
background  checking products and services,  the competition within the industry
could  become more  intense.  Accordingly,  no  assurance  can be given that the
Company will be able to continue to compete favorably in this industry.







                                       13
<PAGE>


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder  Matters.

     The Company's  Common Stock is traded on the NASDAQ  National  Market under
the symbol AVRT and began trading on December 7, 1994. The following  table sets
forth  the high  and low  sales  prices  of the  Common  Stock  for the  periods
indicated as reported by the NASDAQ  National  Market.  The  quotations  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

                                                 High              Low
                                                 ----              ---
     1996:

         First quarter....................       5-1/4            4-1/8
         Second quarter...................       6-1/2            4-1/8
         Third quarter....................       6-1/8            5-1/8
         Fourth quarter...................       8                5-3/8

     1997:

         First quarter....................       9                5-15/16
         Second quarter...................       8-7/8            6-1/8
         Third quarter....................      10-1/2            8-3/8
         Fourth quarter...................      11-1/8            7-1/2

     There  were  approximately  223  holders  of  record  (approximately  1,364
beneficial holders) of the Company's Common Stock on March 3, 1998.

     On February 26, 1998,  Avert  declared a special cash  dividend of $.10 per
common share  payable on March 23, 1998 to  shareholders  of record on March 16,
1998. No other cash  dividends had been paid by the Company since the year ended
December  31,  1993.  The Company  generally  intends to retain its  earnings to
support  the  operations  and growth of its  businesses.  Any other  future cash
dividends would depend on future earnings,  capital requirements,  the Company's
financial condition and other factors deemed relevant by the Board of Directors.

     The  following   subparagraphs  set  forth  information  concerning  equity
securities sold during 1996 that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):

     (a)  In July  1997,  options  to  purchase  a total  of 663  shares  of the
          Company's  Common  Stock were  granted  under the Amended and Restated
          Avert,  Inc. 1994 Stock Incentive Plan (the "Stock Incentive Plan") to
          one key  employee of the Company.  The  exercise  price for the shares
          underlying the options is $7.625 per share, for a total exercise price
          under these  options of $5,055.00 The options have a ten-year term and
          vest at a rate of 20% per year  beginning  one year after the dates of
          the   respective   grants.   No   underwriter   was  involved  in  the
          transactions,  and no sales commissions, fees, or similar compensation
          were paid to any person in connection with the grant of these options.
          The Company  believes that the grant of the options and the continuing
          offer of the shares  underlying the options was and is exempt from the
          registration requirements of Section 5 of the Securities Act by virtue
          of Section 4(2)  thereof,  as  transactions  not  involving any public
          offering.  More  specifically,  the  optionee is a key employee of the
          Company  and is able to fend for herself  with  access to  information
          upon which an investment decision can be made.

                                       14
<PAGE>


     (b)  During May and June, 1997, options to purchase a total of 3,000 shares
          (1,000 shares each) of The Company's  Common Stock were  automatically
          granted under the Avert, Inc. Non Employee Directors Stock Option Plan
          to Stephen D. Joyce,  D.  Michael  Vaughan,  and Stephen C.  Fienhold,
          three of the  Company's  directors.  The exercise  price for the 1,000
          shares underlying the options granted to Mr. Joyce is $6.375 per share
          and the  exercise  price  of the  2,000  shares  (1,000  shares  each)
          underlying  the options  granted to Messrs.  Vaughan  and  Fienhold is
          $8.00 per share,  for a total  exercise  price under these  options of
          $22,375.00.  The options have a five-year term and vest one year after
          the dates of the respective grants. No underwriter was involved in the
          transactions,  and no sales commissions, fees, or similar compensation
          were paid to any person in  connection  with the grant of the options.
          The Company  believes that the grant of the options and the continuing
          offer of the shares  underlying the options was and is exempt from the
          registration requirements of Section 5 of the Securities Act by virtue
          of Section 4(2)  thereof,  as  transactions  not  involving any public
          offering.  More  specifically,  each of the optionees is a director of
          the Company and is able to fend for himself with access to information
          upon which an investment decision can be made.

     On June 29, 1994,  the Company  completed  an IPO of 1,000,000  Units at an
initial  public  offering  price of $5.25  per Unit  (total  gross  proceeds  of
$5,250,000).  Each Unit consisted of one share of the Company's Common Stock and
one Redeemable Warrant. The IPO was made pursuant to a Registration Statement on
Form SB-2 (SEC File No.  33-76726-D)  declared  effective by the  Securities and
Exchange  Commission  on June 22, 1994.  Neidiger/Tucker/Bruner,  Inc.,  Denver,
Colorado, served as Representative of the Underwriters.

     Two Redeemable Warrants entitled the holder to purchase one share of Common
Stock at a price of $6.50  per  share.  The  expiration  date of the  Redeemable
Warrants was  initially  December 22, 1995,  but was extended to April 30, 1996,
and further  extended to April 30, 1997, at which date they expired.  A total of
176,250 Redeemable  Warrants were exercised  resulting in the issuance of 88,125
shares of Common  Stock and receipt of gross  proceeds  totalling  approximately
$572,800.  The  total  expenses  incurred  by the  Company  for its  account  in
connection  with the issuance and  distribution of the Units sold in the IPO and
pursuant to the  exercise of the  Redeemable  Warrants,  including  underwriting
discounts and  commissions,  expenses paid to or for the  Underwriters and other
expenses,  were approximately $909,200 ($867,900 for the IPO and $41,300 for the
exercise of the Redeemable  Warrants).  None of such expenses were paid directly
or  indirectly  to  directors  or  officers  of the  Company  or  any  of  their
associates,  to  persons  owning  10% or more of any  class of  security  of the
Company or to affiliates  of the Company.  The net proceeds from the IPO and the
exercise of the Redeemable Warrants (a total of $4,913,600  ($4,382,100 from the
IPO and $531,500 from the exercise of the  Redeemable  Warrants))  are currently
intended to be used to acquire other companies, assets and/or product lines that
either  complement or expand the Company's  existing  business.  None of the net
proceeds has been expended to date.


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

     This Item 6 contains  forward-looking  statements that are made pursuant to
the "safe harbor" provisions of the Private Securities  Litigation Reform Act of
1995. These  statements  include,  without  limitation,  statements  relating to
growth in sales,  liquidity,  Avert  expectations  regarding  new  software  and
software  upgrades and related  funding,  impact of inflation on operations  and
other such matters. The words "expected,"  "believes,"  "expects" or "estimates"
and similar expressions identify  forward-looking  statements.  The Company does
not  undertake  to  update,   revise  or  correct  any  of  the  forward-looking
information.  Readers are cautioned that such forward-looking  statements should
be read in  conjunction  with  the  Company's  disclosures  under  the  heading:
"Cautionary  Statement  for  Purposes  of the `Safe  Harbor'  Provisions  of the
Private Securities Litigation Reform Act of 1995" beginning on page 11.

                                       15
<PAGE>


Results of Operations

Comparison of years ended December 31, 1997 and December 31, 1996

     Net revenues  increased  from  $8,032,500  in 1996 to $9,490,800 in 1997 or
18.2%.  This increase was primarily due to the continued  overall  growth of the
customer base and, and increased sales on products having quick turnaround, such
as  referencing  checks,  credit and name links.  The breakdown of net revenues,
exclusive of product  discounts  and other  miscellaneous  income  items,  is as
follows:

<TABLE>
<CAPTION>
                                                     Year Ended                    Year Ended
                                                  December 31, 1997             December 31, 1996
                                                ----------------------        -----------------------
                                                                % of                           % of           Percent of
                                                Revenues      Revenues        Revenues       Revenues    Increase/(Decrease)
                                                --------      --------        --------       --------    ------------------
<S>                                           <C>             <C>            <C>             <C>          <C>
Products:
   Workers' compensation
         histories .........................  $1,114,200        11.7%        $1,240,700        15.4%           (10.2%)
   Criminal history reports ................  $4,754,300        50.1%        $4,078,900        50.8%            16.6%
   Reference Checking/credit
         reports ...........................  $1,223,800        12.9%        $  904,300        11.3%            35.3%
   Motor vehicle driving records ...........  $1,000,000        10.5%        $  954,100        11.9%             4.8%
   Other products/services: ................  $  986,900        10.4%        $  412,100         5.1%           139.5%
         Education/Credential
           verification
         Social security number
           check
         Name Link
         Employment application
           forms
         Service sales
   Interest income .........................  $  315,200         3.3%        $  314,700         3.9%            0.16%
   Net Revenues ............................  $9,490,800                     $8,032,500                         18.2%
</TABLE>

     Moderate growth  continued  during 1997 on all products of the Company with
one  exception,  workers'  compensation  histories.  Net revenues  from workers'
compensation  histories  continue  to  decrease  as a  percentage  of total  net
revenues, workers' compensation histories, and represent the third largest line,
approximately   11.7%  of  total  net  revenues  in  1997.   Sales  of  workers'
compensation  histories  are  expected  to  continue  to  decline  in total  net
revenues,  but the Company continues to educate customers and continues workers'
compensation marketing campaigns.

     In  total  dollars,  criminal  history  reports  contributed  the  most net
revenues,  representing  approximately  $4,754,300  in net  revenues  in 1997 as
compared to $4,078,900  in net revenues in 1996.  The criminal  history  reports
product line  contributed  approximately  50.1% of total net revenues in 1997 as
compared  to  approximately  50.8% of total net  revenues  in 1996.  The Company
believes there is a continuing trend nationwide to check prospective  employees'
criminal records. The Company continues to focus on obtaining the quickest, most
accurate data available.

     Net revenues  generated in the area of  reference  checking/credit  reports
increased from  approximately  $904,300 in 1996 to  approximately  $1,223,800 in
1997,  representing an increase of  approximately  35.3%.  The Company  believes
growth in these product lines to be attributable to their quick turnaround time.
These products represented approximately 12.9% of total net revenues in 1997, as
compared to approximately 11.3% of total net revenues in 1996.

                                       16
<PAGE>
     Other  Products  and  Services  had the  greatest  percentage  increase  in
revenues of 139%. The product contributing the most revenue in this category was
Name Link, a product  linking  names,  addresses  and social  security  numbers,
increased from $168,900 in 1996 to $203,800 in 1997.  Service  sales,  which are
not itemized in the chart above,  increased from $257,200 in 1996 to $520,100 in
1997. Service sales include Avert Advantage membership,  start-up fees, extended
criminal history fees, and order entry fees charged to clients.

     Search  and  product  expenses,   depreciation  expenses  and  general  and
administrative  expenses increased as a percentage of total net revenues,  while
marketing and software  development  expenses decreased as a percentage of total
net revenues. A breakdown of expenses is as follows:

<TABLE>
<CAPTION>
                                              Year Ended                 Year Ended
                                           December 31, 1997          December 31, 1996
                                          ------------------         -------------------            Increase (Decrease)
                                                      % of                        % of                 % of Revenue
                                          Expenses   Revenue         Expenses    Revenue             1997 over 1996
                                          --------   -------         --------    -------            ------------------

<S>                                    <C>           <C>          <C>            <C>             <C>
Search and product ...................  $4,182,100     44.1%       $3,292,700      41.0%                  3.1%
Marketing ............................   1,435,800     15.1%        1,318,900      16.4%                 (1.3)%
General and administrative ...........   1,246,300     13.1%        1,109,800      13.8%                 (0.7)%
Software development .................     364,100      3.8%          352,800       4.4%                 (0.6)%
Depreciation and amortization ........     404,500      4.3%          185,200       2.3%                  2.0%
                                         ---------    -----         ---------     -----                 -----
   Expenses ..........................  $7,632,800     80.4%       $6,259,400      77.9%                  2.5%
</TABLE>

     The  increase in 1997 over 1996 of search and product  fees as a percentage
of total  net  revenues  was due to  increased  direct  costs to the  state  and
counties  providing  criminal  history  information.   In  addition,  there  was
additional staff added,  especially in the area of reference checks,  which is a
very labor intensive  product,  to accommodate  the  substantial  growth in that
area.  There was a slight  decrease  in  general  and  administrative  expenses,
expressed as a percentage  of total net revenues  from 13.8% in 1996 to 13.1% in
1997.

     Marketing expenses,  as a percentage of total net revenues,  decreased from
approximately   16.4%  in  1996  to  approximately   15.1%  in  1997  due  to  a
reorganization  of marketing staff, an on-going  marketing  campaign designed to
target lead generation,  marketing communication and market development for both
current customers and new customers,  via both independent sales representatives
and in-house marketing personnel.

     There was a decrease in software  development  expressed as a percentage of
total net revenues  from  approximately  4.4% in 1996 to  approximately  3.8% in
1997.  The  Company  continues  to focus on  improving  its  computer  link with
customers,  partners and  suppliers.  Such costs are expensed in  operations  as
incurred.  In addition,  as discussed in "Liquidity and Capital Resources" below
in this Item,  the Company is developing new software and upgrading its existing
software.  These costs are being  capitalized.  After completion of this project
(which at present is  expected  to occur in early  1998),  the  Company  expects
amortization costs to increase due to the capitalized cost of this software.

     There was an  increase  in  depreciation  and  amortization  expenses  when
expressed as a percentage of total net revenues, from approximately 2.3% in 1996
to approximately 4.3% in 1997. The increase was due to the software  development
project discussed in "Liquidity and Capital Resources".

                                       17
<PAGE>

     Income before income taxes  increased from $1,774,000 in 1996 to $1,858,000
or  approximately  4.8% and represented  approximately  22.1% of net revenues in
1996 compared to approximately 19.6% in 1997.

     The  combined  federal and state  income tax rate for 1997 and 1996 was 34%
and 40%, respectively, resulting in net income of $1,218,000, or $.35 per share,
on 3,461,000  (weighted average shares plus common stock  equivalents) for 1997,
as  compared  to net  income of  $1,065,600  or $0.31 per  share,  on  3,450,000
(weighted  average  shares plus common  stock  equivalents)  for 1996.  This tax
decrease was  primarily a result of an  adjustment  of  prior-year  state income
taxes, realized in the current year.

Comparison of years ended December 31, 1996 and December 31, 1995

         Net revenues increased from $6,064,600 in 1995 to $8,032,500 in 1996 or
32.4%.  This increase was due to the continued  overall  growth of the Company's
customer base, the implementation of the Avert Advantage  program,  the addition
of various services,  and expanded reference checking product.  The breakdown of
net  revenues,  exclusive of product  discounts and other  miscellaneous  income
items, is as follows:

<TABLE>
<CAPTION>
                                                     Year Ended                    Year Ended
                                                  December 31, 1996             December 31, 1995
                                                ----------------------        -----------------------
                                                                % of                           % of           Percent of
                                                Revenues      Revenues        Revenues       Revenues    Increase/(Decrease)
                                                --------      --------        --------       --------    ------------------
<S>                                           <C>             <C>            <C>             <C>          <C>
Products:
   Workers' compensation
         histories ...........................  $ 1,240,700     15.4%         $ 1,256,300      20.7%          (1.2%)
   Criminal history reports ..................  $ 4,078,900     50.8%         $ 2,929,400      48.3%          39.2%
   Reference Checking/credit
         reports .............................  $   904,300     11.3%         $   554,900       9.1%          63.0%
   Motor vehicle driving records .............  $   954,100     11.9%         $   762,200      12.6%          25.2%
   Other products/services: ..................  $   412,100      5.1%         $   279,500       4.6%          47.4%
         Education/Credential
           verification
         Social security number
           check
         Name Link
         Employment application
           forms
         Service sales
Interest income ..............................  $   314,700      3.9%         $   369,300       6.1%         (14.8)%
Net Revenues .................................  $ 8,032,500                   $ 6,064,600                     32.4%
</TABLE>

     Moderate to strong  growth  continued  during  1996 on all  products of the
Company  with one  exception,  workers'  compensation  histories.  Although  net
revenues  from  workers'  compensation  histories  continue  to  decrease  as  a
percentage of total net revenues,  workers' compensation histories are still the
second  largest  product  line  representing  approximately  15.4% of total  net
revenues  in 1996.  Sales of workers'  compensation  histories  are  expected to
continue to be a viable  product as the Company  continues to educate  customers
and continues workers' compensation marketing campaigns.

     In  total  dollars,  criminal  history  reports  contributed  the  most net
revenues and the largest  increase in net revenues,  representing  approximately
$1,149,500 of the approximately $1,967,900 increase in net revenues in 1996 over
1995. The criminal history reports product line contributed  approximately 50.8%
of total net  revenues in 1996 as compared to  approximately  48.3% of total net
revenues in 1995. The Company believes there is a continuing trend nationwide to
check prospective  employees' criminal records. To take advantage of this trend,
the Company  continues to focus on obtaining  the  quickest,  most accurate data
available.

                                       18
<PAGE>

     The  increase  in net  revenues  from  motor  vehicle  driving  records  of
approximately  $191,900  in 1996  over 1995  represented  an  approximate  25.2%
increase in net revenues  for this product  line.  The  percentage  of total net
revenues  derived from sales of this product line decreased  from  approximately
12.6% in 1995 to approximately 11.9% in 1996.

     Net revenues  generated in the area of  reference  checking/credit  reports
increased from approximately $554,900 in 1995 to approximately $904,300 in 1996,
representing an increase of approximately  63.0%. The reference checking product
was expanded to include four types of references designed to meet specific needs
of  customers.  These  products  represented  approximately  11.3% of total  net
revenues in 1996,  as compared to  approximately  9.1% of total net  revenues in
1995.

     There   were   also   increased   revenues   generated   in  the  areas  of
education/credential  verification,  which  increased  from  $41,600  in 1995 to
$96,400  in 1996,  and Name  Link,  which  increased  from,  $95,200  in 1995 to
$168,900 in 1996.

     Service  sales,  which are not itemized in the chart above,  increased from
$69,600 in 1995 to  $257,200  in 1996.  This is  primarily  attributable  to the
implementation  of the Avert Advantage program in July 1996, which accounted for
$54,500  in 1996,  and start up fee  income  increased  from  $33,600 in 1995 to
$84,300. In addition, staff entry fees accounted for $49,700 of service sales in
1996. These fees were  incorporated in product sales in 1995, but are in service
sales in 1996. In addition,  a variety of services that were not offered in 1995
were  offered in 1996 and  produced  approximately  $39,100 in revenues in 1996.
These  products  and  services  accounted  for the  majority  portion  of "other
products/services" in the above table.

     Income before income taxes  increased from $1,371,000 in 1995 to $1,774,000
in 1996 or  approximately  29.4%  and  represented  approximately  22.1%  of net
revenues in 1996 compared to approximately 22.6% in 1995. Search and product and
general and  administrative  expenses  decreased  as a  percentage  of total net
revenues.  Marketing,  software  development and  depreciation  and amortization
expenses  increased  as a  percentage  of total net  revenues.  A  breakdown  of
expenses is as follows:

<TABLE>
<CAPTION>
                                              Year Ended                 Year Ended
                                           December 31, 1996          December 31, 1995
                                          ------------------         -------------------            Increase (Decrease)
                                                      % of                        % of                 % of Revenue
                                          Expenses   Revenue         Expenses    Revenue             1996 over 1995
                                          --------   -------         --------    -------            ------------------

<S>                                    <C>           <C>          <C>            <C>               <C>
Search and product ...................   $3,292,700    41.0%        $2,522,700     41.6%                  (0.6)%
Marketing ............................    1,318,900    16.4%           890,600     14.7%                   1.7 %
General and administrative ...........    1,109,800    13.8%           930,600     15.3%                  (1.5)%
Software development .................      352,800     4.4%           245,500      4.0%                   0.3 %
Depreciation and
   amortization ......................      185,200     4.4%           104,300      1.7%                   0.6 %
                                         ----------    ----          ---------     ----                   ----
   Expenses ..........................   $6,259,400    77.9%        $4,693,700     77.4%                   0.5 %
</TABLE>

     The  decrease in 1996 over 1995 of search and product  fees as a percentage
of total net revenue was due to a continued internal focus on the development of
existing  couriers  and  addition  of  new  couriers  and  improved  methods  of
management  of those  entities  used  primarily  in the  retrieval  of  criminal
records.

                                       19
<PAGE>


     Marketing expenses,  as a percentage of total net revenues,  increased from
approximately  14.7% in 1995 to  approximately  16.4% in 1996 due to an on-going
marketing campaign designed to target lead generation,  marketing  communication
and market  development for both current  customers and new customers,  via both
independent sales representatives and in-house marketing personnel.

     The  decrease  in  general  and  administrative  expenses,  expressed  as a
percentage of total net revenues from 15.3% in 1995 to 13.8% in 1996 was largely
due to revenues increasing at a greater rate than expenses in this category.

     The increase in software development expressed as a percentage of total net
revenues from  approximately  4.0% in 1995 to approximately 4.4% in 1996 and was
primarily  due to the  addition of  management  for the  information  technology
department as well as  consulting  services.  The Company  continues to focus on
improving its computer link with customers,  partners and suppliers.  Such costs
are expensed in operations as incurred.  In addition, as discussed in "Liquidity
and  Capital  Resources"  below in this  Item,  the  Company is  developing  new
software and upgrading its existing software. These costs are being capitalized.
After  completion of this project (which at present is expected to occur in late
1997 or early 1998), the Company expects  amortization  costs to increase due to
the  capitalized  cost of this  software.  However,  these  increased  costs are
expected to be offset by revenues generated by the improvements.

     The increase in depreciation  and amortization as a percentage of total net
revenues  from  approximately  1.7% in 1995 to  approximately  2.3% in 1996  was
primarily  due to $673,000 in computer  hardware and  $375,000 of furniture  and
equipment purchased for the new office facility and placed in service in 1996.

     The  combined  federal and state  income tax rate for 1996 and 1995 was 40%
and 37%, respectively, resulting in net income of $1,065,600, or $.31 per share,
on 3,450,000  (weighted average shares plus common stock  equivalents) for 1996,
as compared to net income of $857,200 or $0.25 per share, on 3,450,000 (weighted
average shares plus common stock equivalents) for 1995.

Liquidity and Capital Resources

     The Company's financial position at December 31, 1997, remained strong with
working  capital at that date of  $7,543,000  compared to $6,375,000 at December
31,  1996.  Cash and cash  equivalents  at December  31, 1997 were  $579,500 and
increased from $360,300 at December 31, 1996. Net cash provided from  operations
for the year ended December 31, 1997, was $988,000,  and consisted  primarily of
net income of $1,218,000 plus a $536,000 increase in trading investments,  and a
$378,000  net  increase  in  accounts   receivable.   The  Company  had  capital
expenditures  of $1,300,000 for the year ended December 31, 1997, as compared to
$1,317,000  for 1996.  The majority of the expenses were  attributable  to costs
associated with the software development project described below.

     The Company  expects the new software and upgrade of its existing  software
to allow the  Company  to: (1) manage  its higher  volume  with a lower cost per
transaction; (2) introduce new products and services at a much quicker pace; (3)
directly integrate the Company's  information  technology systems with strategic
partners,  suppliers,  and  large  customers;  and (4)  maintain  the  Company's
competitive  position and provide leading edge, but safe and proven,  technology
for its customers.  Development  and upgrade of the software will be financed by
available  cash  derived  from past or  continued  operations.  Development  and
upgrading  of the  software  presently is expected to be complete in early 1998,
with scheduled  software  releases  occurring prior to that time. As part of the
first phase of its software development project, the Company introduced AvertNet
1.0 in January of 1997. In November,  1997, Avert announced  AvertNet 1.4, which
was a major  upgrade to the AvertNet  order entry system that  extended  Avert's
access  to  a  substantial  base  of  customers  through  the  integration  with
Microsoft's Internet Explorer.

                                       20
<PAGE>

Inflation

     The Company  believes that the results of its  operations are not dependent
upon or affected by inflation.

Year 2000 Issue

     The  Company  believes  it has  fully  addressed  the  Year  2000  issue in
connection  with its  internal  computer  software.  The Year 2000  problem is a
result of computer programs being written using two digits, rather than four, to
define the  applicable  year.  Any programs  that have time  sensitive  data may
recognize  a date using "00" as the year 1900,  rather  than the year 2000.  The
Company has  re-written  its internal  programs and believes  that the Year 2000
will not create any major future system failure or miscalculation.

     The Year 2000  problem may impact  other  entities,  with which the Company
transacts  business,  and the  Company  cannot  predict  the effect of Year 2000
problems on such entities.

Item 7.  Financial Statements.

     Financial  Statements are filed as a part of this report at the end of Part
III hereof  beginning at page F-1, Index to Consolidated  Financial  Statements,
and are incorporated herein by this reference.

Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure.

     None.


                                    PART III

     The  information  required by Part III is omitted from this report  because
the Company will file a definitive Proxy Statement for the Company's 1998 Annual
Meeting of Shareholders  (the "Proxy  Statement")  pursuant to Regulation 14A of
the Securities Exchange Act of 1934 not later than 120 days after the end of the
fiscal year covered by this Form  10-KSB.  Certain  information  included in the
aforementioned definitive Proxy Statement is incorporated herein by reference.



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

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

Item 10. Executive Compensation.

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

Item 12. Certain Relationships and Related Transactions.

     The information  required by this Item is incorporated  herein by reference
to the Proxy Statement.

                                       21
<PAGE>


Item 13. Exhibits and Reports on Form 8-K.

     (a)  Exhibits.

3.1    Articles of Incorporation, as amended, of the Registrant. (2)

3.2    Bylaws, as amended, of the Registration. (2)

4.1    Excerpt from Articles of Incorporation of the Registrant Regarding Common
       Stock and Preferred Stock. (2)

10.1   Form of Consumer Report User Agreement between Registrant and customer of
       Registrant. (1)

10.1.2 Form of Consumer Report User Agreement-Employment  between Registrant and
       customer of Registrant.

10.1.3 Form of Consumer Report User Agreement-Non  Employment between Registrant
       and customer of Registrant.

10.2   Employment  Agreement dated as of January 1, 1994, between the Registrant
       and Dean A. Suposs. (2)

10.3   Employer Report Subscriber  Agreement,  dated March 29, 1991, between the
       Registrant and TRW, Inc. (1)

10.3.1 Reseller  Service  Agreement,  dated  September  25,  1997,  between  the
       Registrant and TRW, Inc.

10.3.2 Credit  Bureau  Service  Agreement,  dated  March 30,  1992,  between the
       Registrant And TransUnion. (1)

10.4   Amended and Restated 1994 Stock Incentive Plan.(3)

10.5   Non-Employee Directors' Stock Option Plan.

10.6   Letter  Agreements,  Dated March 24, 1995, with Ace Hardware  Corporation
       and Loss Prevention  Services  relating  to  sales  of  the  Registrant's
       Products.(4)

10.7   Amended and Restated 1994 Stock Incentive Plan and Incentive Stock Option
       Agreement between Leonard Koch and the Registrant.(6)

10.8   Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement, dated June 10, 1996, between Jerry Thurber and the Registrant.
       (6)

10.9   Amended and Restated 1994 Stock  Incentive  Plan  Incentive  Stock Option
       Agreement,  dated  July 1, 1996, between Jamie Burgat and the Registrant.
       (6)
-------------------------

     (1) Filed as an Exhibit to the  initial  Registration  Statement  (File No.
         33-76726-D) filed with the Securities and Exchange  Commission on March
         21, 1994.
     (2) Filed as an Exhibit to Amendment  No. 1 to the  Registration  Statement
         (File No. 33-76726-D) filed with the Securities and Exchange Commission
         on April 26, 1994.
     (3) Filed as an Exhibit to Amendment  No. 2 to the  Registration  Statement
         (File No. 33-76726-D) filed with the Securities and Exchange Commission
         on May 24, 1994.
     (4) Filed  as  an  Exhibit  to  Post-Effective   Amendment  No.  1  to  the
         Registration  Statement (File No. 33-76726-D) filed with the Securities
         and Exchange Commission on May 4, 1995.
     (5) Filed as an Exhibit to Form 10-KSB for the year ended December 31, 1995
         filed with the Securities and Exchange Commission on March 9, 1996.
     (6) Filed  as  an  Exhibit  to  Post-Effective   Amendment  No.  2  to  the
         Registration  Statement (File No. 33-76726-D) filed with the Securities
         and Exchange Commission on October 23, 1996.

                                       22
<PAGE>

     (b)  Reports on Form 8-K.

          (i)  Form 8-K dated October 8, 1997,  announcing third quarter revenue
               less than analyst estimates.

          (ii) Form 8-K dated November 12, 1997,  announcing  third quarter 1997
               and nine-month results.

          (iii)Form 8-K dated  November  24,  1997,  announcing  the  release of
               AvertNet 1.4.



                                       23
<PAGE>

                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                        AVERT, INC.


Date:  March 30, 1997                   By:   /s/    Dean A. Suposs
                                            ------------------------------------
                                            Dean A. Suposs
                                            President and Chairman of the Board


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following  persons on behalf of the Registrant and in the
capacities indicated as of March 30, 1997.


           Signature                                   Title
           ---------                                   -----

/s/    Dean A. Suposs                       Chairman of the Board; and President
-------------------------------------
       Dean A. Suposs
(Principal Executive Officer)


/s/    Jamie M. Burgat                      Vice President of Operations;
-------------------------------------       Treasurer; and Assistant Secretary
       Jamie M. Burgat
(Principal Financial and Accounting Officer)


/s/    D. Michael Vaughan                   Director
-------------------------------------
       D. Michael Vaughan


/s/    Stephen C. Fienhold                  Director
-------------------------------------
       Stephen C. Fienhold


/s/    Stephen D. Joyce                     Secretary; and Director
-------------------------------------
       Stephen D. Joyce



                                       24
<PAGE>


                                   Avert, Inc.


                              Financial Statements
                                December 31, 1997




















































                                       F-1
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT




Board of Directors
Avert, Inc.
Fort Collins, Colorado



We have audited the accompanying balance sheet of Avert, Inc. as of December 31,
1997, and the related statements of income,  shareholders' equity and cash flows
for the years ended December 31, 1997 and 1996.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Avert, Inc. as of December 31,
1997,  and the results of its  operations and its cash flows for the years ended
December 31, 1997 and 1996, in conformity  with  generally  accepted  accounting
principles.



/s/ Hein + Associates LLP

HEIN + ASSOCIATES LLP

Denver, Colorado
February 24, 1998


                                       F-2
<PAGE>

<TABLE>
<CAPTION>
                                   AVERT, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 1997

   ASSETS
   ------

<S>                                                                                  <C>
CURRENT ASSETS:

        Cash and cash equivalents ................................................   $   580,000

        Marketable securities ....................................................     6,113,000

        Accounts receivable, net of allowance of $106,000 ........................     1,135,000

        Prepaid expenses and other ...............................................       304,000
                                                                                     -----------
                Total current assets .............................................     8,132,000

PROPERTY AND EQUIPMENT, net ......................................................     3,399,000
                                                                                     -----------
TOTAL ASSETS .....................................................................   $11,531,000
                                                                                     ===========

   LIABILITIES AND SHAREHOLDERS' EQUITY
   ------------------------------------

CURRENT LIABILITIES:

        Accounts payable .........................................................   $   388,000

        Accrued expenses .........................................................       201,000
                                                                                     -----------
                Total current liabilities ........................................       589,000

DEFERRED INCOME TAXES ............................................................       507,000

COMMITMENTS (NOTE 5)

SHAREHOLDERS' EQUITY:

        Preferred stock, no par value, authorized 1,000,000 shares; none outstanding        --

        Common stock, no par value, authorized 9,000,000 shares; 3,488,000 shares iss  5,276,000
            outstanding

        Retained earnings ........................................................     5,159,000
                                                                                     -----------
                Total shareholders' equity .......................................    10,435,000
                                                                                     -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......................................   $11,531,000
                                                                                     ===========
</TABLE>

   See accompanying notes to these financial statements.

                                       F-3
<PAGE>

<TABLE>
<CAPTION>
                                   AVERT, INC.

                              STATEMENTS OF INCOME

                                                                                                         FOR THE YEARS ENDED
                                                                                                            DECEMBER 31,
                                                                                                  -------------------------------
                                                                                                  1997                       1996
                                                                                                  ----                       ----
<S>                                                                                          <C>                        <C>
NET REVENUES:

        Search and product fees ..............................................               $ 9,071,000                $ 7,698,000

        Interest and other income ............................................                   420,000                    335,000
                                                                                             -----------                -----------
                                                                                               9,491,000                  8,033,000

EXPENSES:

        Search and product costs .............................................                 4,182,000                  3,293,000

        Marketing ............................................................                 1,436,000                  1,319,000

        General and administrative ...........................................                 1,246,000                  1,109,000

        Software development .................................................                   364,000                    353,000

        Depreciation .........................................................                   405,000                    185,000
                                                                                             -----------                -----------
                                                                                               7,633,000                  6,259,000
                                                                                             -----------                -----------

INCOME BEFORE INCOME TAXES ...................................................                 1,858,000                  1,774,000

        Income tax expense ...................................................                  (640,000)                  (708,000)
                                                                                             -----------                -----------
NET INCOME ...................................................................               $ 1,218,000                $ 1,066,000
                                                                                             ===========                ===========

NET INCOME PER COMMON SHARE:

        Basic ................................................................               $        35                $       .31
                                                                                             ===========                ===========

        Diluted ..............................................................               $       .34                $       .31
                                                                                             ===========                ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

        Basic ................................................................                 3,461,000                  3,450,000
                                                                                             ===========                ===========

        Diluted ..............................................................                 3,593,000                  3,470,000
                                                                                             ===========                ===========
</TABLE>

   See accompanying notes to these financial statements.

                                       F-4
<PAGE>

<TABLE>
<CAPTION>
                                   AVERT INC.

                        STATEMENT OF SHAREHOLDERS' EQUITY
                 FROM JANUARY 1, 1996 THROUGH DECEMBER 31, 1997


                                                                   COMMON STOCK                                            TOTAL
                                                         --------------------------------            RETAINED          SHAREHOLDERS'
                                                           SHARES                AMOUNT              EARNINGS             EQUITY
                                                           ------                ------              --------
<S>                                                      <C>                <C>                   <C>                  <C>
BALANCES, January 1, 1996 ...................            3,442,000          $  4,960,000          $  2,875,000         $  7,835,000

       Shares repurchased ...................              (42,000)             (215,000)                 --               (215,000)

       Net income ...........................                 --                    --               1,066,000            1,066,000
                                                      ------------          ------------          ------------         ------------

BALANCES, December 31, 1996 .................            3,400,000             4,745,000             3,941,000            8,686,000

       Warrants exercised ...................               88,000               531,000                  --                531,000

       Net income ...........................                 --                    --               1,218,000            1,218,000
                                                      ------------          ------------          ------------         ------------

BALANCES, December 31, 1997 .................            3,488,000          $  5,276,000          $  5,159,000         $ 10,435,000
                                                      ============          ============          ============         ============
</TABLE>





   See accompanying notes to these financial statements



                                       F-5
<PAGE>

<TABLE>
<CAPTION>
                                   AVERT, INC.

                            STATEMENTS OF CASH FLOWS

                                                                                                            FOR THE YEARS ENDED
                                                                                                                DECEMBER 31,
                                                                                                         -------------------------
                                                                                                          1997               1996
                                                                                                          ----               ----

<S>                                                                                                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income ...........................................................................       $ 1,218,000        $ 1,066,000
        Adjustments to  reconcile  net income to net cash  provided by operating
            activities:
                Depreciation .................................................................           405,000            185,000
                Bad debt expense .............................................................            31,000             31,000
                Deferred income taxes ........................................................           290,000            192,000
                Loss (gain) on sale of asset .................................................             6,000             (8,000)
                Changes in operating assets and liabilities:
                      (Increase) decrease in:
                          Trading investments, net ...........................................          (536,000)           390,000
                          Accounts receivable ................................................          (378,000)          (211,000)
                          Prepaid expenses and other current assets ..........................             5,000             24,000
                          Income taxes receivable ............................................           (33,000)
                          Other assets .......................................................              --                3,000
                      Increase (decrease) in:
                          Accounts payable ...................................................           (65,000)           (56,000)
                          Accrued expenses ...................................................            45,000            175,000
                          Income taxes payable ...............................................              --              (17,000)
                          Deferred revenue and deposits ......................................              --              (59,000)
                                                                                                     -----------        -----------
                Net cash provided by operating activities ....................................           988,000          1,715,000

CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property and equipment ...................................................        (1,300,000)        (1,317,000)
        Proceeds from sale of property and equipment .........................................             1,000             17,000
                                                                                                     -----------        -----------
                Net cash used in investing activities ........................................        (1,299,000)        (1,300,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
        Purchase of shares outstanding .......................................................              --             (215,000)
        Proceeds from exercise of warrants ...................................................           531,000               --
                                                                                                     -----------        -----------
                Net cash provided by (used in) financing activities ..........................           531,000           (215,000)
                                                                                                     -----------        -----------

INCREASE IN CASH AND CASH EQUIVALENTS ........................................................           220,000            200,000

CASH AND CASH EQUIVALENTS, beginning of year
                                                                                                         360,000            160,000
                                                                                                     -----------        -----------
CASH AND CASH EQUIVALENTS, end of year .......................................................       $   580,000        $   360,000
                                                                                                     ===========        ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -
            Income taxes paid ................................................................       $   282,000        $   533,000
                                                                                                     ===========        ===========
</TABLE>

   See accompanying notes to these financial statements.


                                       F-6
<PAGE>

                                   AVERT, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        Organization  and Nature of  Operations - Avert,  Inc. (the Company) was
        incorporated  in  Colorado in 1986 to develop  the use of  databases  to
        accumulate and provide  information for sale relating to an individual's
        workers' compensation claims,  criminal history,  driving record, credit
        rating,  education,  and previous employment.  The Company provides this
        service to a diverse group of customers throughout the United States.

        Cash and Cash Equivalents - For purposes of the statement of cash flows,
        all highly liquid debt  instruments  with  original  maturities of three
        months or less are considered to be cash equivalents.

        Marketable  Securities -  Marketable  securities  consist of  government
        backed  debt  securities  which  mature  within  one year or  less.  The
        securities  are  classified  as  trading  securities  and are  stated at
        market, which approximates cost at December 31, 1997.

        Concentration  of Credit  Risk and  Financial  Instruments  -  Financial
        instruments  which  potentially  expose the Company to concentrations of
        credit  risk,  as  defined by  Financial  Accounting  Standards  Board's
        Statement  No.  105,   "Disclosure   of  Information   about   Financial
        Instruments with  Off-Balance-Sheet  Risk and Financial Instruments with
        Concentration  of Credit Risk," consist  primarily of cash  equivalents,
        short-term  investments  and  accounts  receivable  with  the  Company's
        various customers.

        The Company's cash  equivalents  and short-term  investments  consist of
        money  market  funds and  government  backed debt  securities  issued by
        various institutions. As of December 31, 1997, approximately $576,000 of
        cash  equivalents  and  short-term  investments  were not covered by the
        FDIC's  basic  depository  insurance.  The  Company's  credit  policy is
        designed to limit the  Company's  exposure to  concentrations  of credit
        risk.  Accordingly,  the Company's accounts receivable include a variety
        of organizations  throughout the United States. The Company estimates an
        allowance for uncollectible  amounts based upon a percentage of revenue,
        and when specific  credit problems  arise.  Management's  estimates have
        been  more than  adequate  during  historical  periods,  and  management
        believes  that all  significant  credit  risks have been  identified  at
        December 31, 1997.

        Property  and  Equipment - Property  and  equipment  are stated at cost.
        Depreciation  is  calculated  using the  straight-line  method  over the
        estimated useful lives of the assets,  which is generally five years. In
        1995,  the  Company  began  construction  on a new  building,  which was
        completed in early 1996. Depreciation on this building commenced in 1996
        and will be over 30 years.

        The Company incurs costs for computer software development for enhancing
        and maintaining its data base system and to provide  "on-line"  services
        to its  customers.  During 1997, the Company  capitalized  $1,000,000 of
        internal  software  costs,  consisting  principally of payments to third
        parties.  These  capitalized  software costs generally will be amortized
        over five years once the project is  completed,  which is expected to be
        in early 1998.


                                       F-7
<PAGE>



        Impairment of Long-Lived Assets - Effective January 1, 1996, the Company
        adopted Financial Accounting Standards Board Statement 121 (FAS 121). In
        the event that facts and circumstances  indicate that the cost of assets
        or other assets may be impaired,  an evaluation of recoverability  would
        be  performed.  If an  evaluation  is  required,  the  estimated  future
        undiscounted  cash flows  associated with the asset would be compared to
        the asset's carrying amount to determine if a write-down to market value
        or  discounted  cash flow value is required.  Adoption of FAS 121 had no
        effect on the December 31, 1997 financial statements.

        Income Taxes - The Company accounts for income taxes under the liability
        method,   which   requires   recognition  of  deferred  tax  assets  and
        liabilities for the expected future tax consequences of events that have
        been  included in the financial  statements  or tax returns.  Under this
        method,  deferred tax assets and liabilities are determined based on the
        difference between the financial  statements and tax bases of assets and
        liabilities  using enacted tax rates in effect for the year in which the
        differences are expected to reverse.

        Net Income Per Share - Net income per share is presented  in  accordance
        with the provisions of Statement of Financial  Accounting Standards No.,
        128,  Earnings Per Share (SFAS 128). SFAS 128 replaced the  presentation
        of  primary  and  fully  diluted  earnings  per  share  (EPS),   with  a
        presentation  of basic EPS and diluted  EPS.  Under SFAS 128,  basic EPS
        excludes  dilution  for common  stock  equivalents  and is  computed  by
        dividing income or loss available to common shareholders by the weighted
        average  number common shares  outstanding  for the period.  Diluted EPS
        reflects the potential  dilution that could occur if securities or other
        contracts to issue common stock were  exercised or converted into common
        stock and  resulted in the issuance of common  stock.  In 1997 and 1996,
        diluted common and common equivalent shares outstanding includes 132,000
        and 20,000 common equivalent shares,  respectively,  consisting of stock
        options and warrants, determined using the treasury stock method.

        Stock-Based  Compensation  - In October 1995,  the Financial  Accounting
        Standards   Board  issued  a  new  statement   titled   "Accounting  for
        Stock-Based  Compensation" (FAS 123). The new statement is effective for
        fiscal years beginning after December 15, 1995. FAS 123 encourages,  but
        does not require, companies to recognize compensation expense for grants
        of stock, stock options, and other equity instruments to employees based
        on fair  value.  Companies  that do not adopt the fair value  accounting
        rules must  disclose  the impact of adopting the new method in the notes
        to the financial  statements.  Transactions in equity  instruments  with
        non-employees  for goods or services  must be accounted  for by the fair
        value  method.  The  Company  has  elected  not to adopt the fair  value
        accounting prescribed by FAS 123 for employees, and will be subject only
        to the disclosure requirements prescribed by FAS 123.

        Impact of Recently Issued Accounting  Standards - Statement of Financial
        Accounting Standards 130 Reporting Comprehensive Income and Statement of
        Financial  Accounting  Standards 131  Disclosures  About  Segments of an
        Enterprise and Related  Information were recently issued.  Statement 130
        establishes standards for reporting and display of comprehensive income,
        its components and accumulated balances. Comprehensive income is defined
        to include all changes in equity except those resulting from investments
        by  owners  and  distributions  to  owners.   Among  other  disclosures,
        Statement 130 requires that all items that are required to be recognized
        under current accounting standards as components of comprehensive income
        be  reported  in a  financial  statement  that  displays  with  the same
        prominence  as other  financial  statements.  Statement  131  supersedes
        Statement of Financial  Accounting  Standards 14 Financial Reporting for
        Segments of a Business Enterprise.  Statement 131 establishes  standards


                                      F-8
<PAGE>

        on the way that public  companies  report  financial  information  about
        operating segments in annual financial statements and requires reporting
        of selected  information  about operating  segments in interim financial
        statements  issued to the  public.  It also  establishes  standards  for
        disclosures regarding products and services, geographic areas, and major
        customers.  Statement 131 defines operating  segments as components of a
        company about which separate financial  information is available that is
        evaluated  regularly by the chief  operating  decision maker in deciding
        how to allocate resources and in assessing performance.

        Statements  130 and 131  are  effective  for  financial  statements  for
        periods  beginning  after  December  15,  1997 and  require  comparative
        information  for  earlier  years to be  restated.  Because of the recent
        issuance  of  these  standards,  management  has  been  unable  to fully
        evaluate  the  impact,  if any,  the  standards  may have on the  future
        financial  statement  disclosures.  Results of operations  and financial
        position,  however,  will  be  unaffected  by  implementation  of  these
        standards.

        Use of Estimates - The preparation of the Company's financial statements
        in conformity with generally accepted accounting principles requires the
        Company's  management to make estimates and assumptions  that affect the
        amounts reported in these financial  statements and accompanying  notes.
        Actual results could differ from those estimates.


2  PROPERTY AND EQUIPMENT:

        Property and equipment consist of the following at December 31, 1997:

              Land                                             $    210,000
              Building                                            1,214,000
              Computer hardware and software                      2,332,000
              Furniture and equipment                               598,000
                                                                 ----------
                                                                  4,354,000

              Less accumulated depreciation                        (955,000)
                                                                  ---------
                                                               $  3,399,000
                                                                  =========
3.     INCOME TAXES:

       Income tax expense (benefit) consists of the following:

                                                            December 31,
                                                     --------------------------
                                                       1997              1996
                                                       ----              ----

                Current                            $  350,000         $  516,000

                Deferred                              290,000            192,000
                                                   ----------         ----------
                Total income tax expense           $  640,000         $  708,000
                                                   ==========         ==========



                                      F-9
<PAGE>

        Total income tax expense  differed from the amounts computed by applying
        the  Federal  income  tax rate of 34% to  income  before  income  taxes,
        primarily as a result of an adjustment of state income taxes realized in
        the current year.

        Temporary  differences  between the financial statement carrying amounts
        and tax  basis of  assets  and  liabilities  that  give  rise to the net
        deferred tax liability  related  primarily to differences in capitalized
        software costs.


4  SHAREHOLDERS' EQUITY:

        Stock Option Plan - In 1994, the Company  adopted a stock incentive plan
        that authorizes the issuance of up to 366,337 shares of common stock. In
        1997, the Company  increased the number of authorized shares to 525,000.
        Pursuant to the plan,  the Company may grant  "incentive  stock options"
        (intended to qualify under  Section 422 of the Internal  Revenue Code of
        1986, as amended), non-qualified stock options and restricted stock or a
        combination thereof.

        Incentive  and  non-qualified  stock  options  may not be  granted at an
        exercise price of less than the fair market value of the common stock on
        the date of grant  (except for holders of more than 10% of common stock,
        whereby  the  exercise  price must be at least  110% of the fair  market
        value at the date of grant for incentive stock options). The term of the
        options may not exceed ten years.  At December 31, 1997, the Company had
        granted  options under the plan to purchase  364,000  shares  (including
        200,000 shares to the Company's  President) of which 190,132 options are
        vested and the balance will vest over one to five years. No options have
        been exercised.  Options  outstanding for this plan at December 31, 1997
        have exercise prices that range from $5.00 to $7.63.

        In 1994, the Company  adopted the Non Employee  Directors'  Stock Option
        Plan (Outside  Directors'  Plan),  which provides for the grant of stock
        options to non-employee directors of the Company and any subsidiary.  An
        aggregate  of 30,000  shares of common  stock are  reserved for issuance
        under the Outside  Directors'  Plan.  The exercise  price of the options
        will be the fair market value of the stock on the date of grant. Outside
        directors are  automatically  granted  options to purchase  1,000 shares
        initially and an additional  1,000 shares for each  subsequent year that
        they serve, up to a maximum of 5,000 shares per director. Each option is
        exercisable  one year  after the date of grant and  expires  four  years
        thereafter.  No options  have been  exercised.  Exercise  prices for the
        directors' options  outstanding at December 31, 1997 range from $5.25 to
        $8.00.

        The following is a table of activity under these plans.

<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                           Stock                Non-employee          Average
                                                           Incentive            Directors Stock       Exercise
                                                           Option Plan          Option Plan           Price
                                                           -----------          ---------------       --------
<S>                                                          <C>                    <C>               <C>
        OPTIONS OUTSTANDING, January 1, 1996                 230,000                5,000             $5.26

                Options granted                              133,000                3,000             $5.64
                                                          ----------           ----------             -----
        OPTIONS OUTSTANDING, December 31, 1996               363,000                8,000             $5.40

                Options granted                                1,000                3,000             $7.49
                                                          ----------           ----------             -----
        OPTIONS OUTSTANDING, December 31, 1997               364,000               11,000             $5.42
                                                          ==========           ==========             =====
</TABLE>

                                     F-10
<PAGE>


        For all options  granted  during  1997 and 1996,  the  weighted  average
        market  price  of the  Company's  common  stock  on the  grant  date was
        approximately equal to the weighted average exercise price. The weighted
        average  remaining  contractual  life for all options and warrants as of
        December 31, 1997 was  approximately  7.82 years.  At December 31, 1997,
        options  for  198,132  shares  were  exercisable  and  options  for  the
        remaining  shares  become  exercisable  pro rata  through  2002.  If not
        previously  exercised,  options  outstanding at December 31, 1997,  will
        expire as follows:

                                                                        Weighted
                                                                        Average
                                                       Number of        Exercise
                Year                                   Shares           Price
                ----                                   ---------        --------


                1999                                   2,000            $5.25

                2000                                   3,000            $6.17

                2001                                   3,000            $5.58

                2002                                   3,000            $7.46

                2004                                 230,000            $5.25

                2006                                  60,000            $5.00

                2007                                  73,000            $6.17

                2008                                   1,000            $7.63
                                                     -------
                                                     375,000
                                                     =======

       Pro Forma Stock-Based  Compensation Disclosures - The Company applies APB
       Opinion  25 and  related  interpretations  in  accounting  for its  stock
       options and  warrants  which are granted to  employees.  Accordingly,  no
       compensation  cost has been recognized for grants of options and warrants
       to employees  since the exercise prices were not less than the fair value
       of the Company's common stock on the grant dates.  Had compensation  cost
       been  determined  based on the fair  value at the grant  dates for awards
       under those plans  consistent  with the method of FAS 123, the  Company's
       net  income and  earnings  per share  would have been  reduced to the pro
       forma amounts indicated below.

                                                         Year Ended December 31,
                                                        ------------------------
                                                          1997            1996
                                                          ----            ----

     Net income applicable to common stockholders:
            As reported                               $ 1,218,000    $ 1,066,000
            Pro forma                                 $ 1,117,000    $   965,000

     Net income per common share - basic:
            As reported                               $ .35          $ .31
            Pro forma                                 $ .32          $ .28

     Net income per common share - diluted:
            As reported                               $ .34          $ .31
            Pro forma                                 $ .31          $ .28


                          F-11
<PAGE>



       The fair value of each  employee  option and warrant  granted in 1997 and
       1996  was  estimated  on  the  date  of  grant  using  the  Black-Scholes
       option-pricing model with the following weighted average assumptions:

                                                       Year Ended December 31,
                                                       ----------------------
                                                        1997           1996
                                                        ----           ----

          Expected volatility                           50.1%          55.0%

          Risk-free interest rate                        6.5%           6.5%

          Expected dividends                               -              -

          Expected terms (in years)                      7.82           9.9


        Public Offering - In June 1994, the Company completed its initial public
        offering of 1,000,000  units and  received  net proceeds of  $4,382,300.
        Each unit sold for $5.25 and  consisted of one share of common stock and
        one redeemable  warrant.  Two redeemable warrants entitles the holder to
        purchase one share of common stock for $6.50 through April 1997,  unless
        further  extended by the  Company.  The warrants  are  redeemable  under
        certain  circumstances by the Company. In connection with this offering,
        the underwriter  received a redeemable warrant to purchase 100,000 units
        at $6.30 per unit. This redeemable  warrant is exercisable  through June
        1999. During 1997,  176,250 warrants were exercised for 88,125 shares of
        common  stock at $6.50  per  share and the  remaining  warrants  expired
        unexercised. The Company received net proceeds of $530,800.

        Preferred  Stock  - The  Company  has  authorized  1,000,000  shares  of
        preferred stock. Such shares are issuable in such series and preferences
        as may be determined by the Board of Directors.


5 COMMITMENTS:

        Employee Bonus - In 1994, the Company formalized a five-year  employment
        agreement whereby the Company president receives a bonus of 6% of income
        before taxes and bonus, but after deducting investment income. The total
        bonus expense for 1997 and 1996 was  approximately  $92,000 and $93,000,
        respectively.

        401(k)  Savings  - In 1995,  the  Company  implemented  a 401(k)  profit
        sharing  plan  (the  Plan).   Eligible   employees  may  make  voluntary
        contributions to the Plan, which are matched by the Company equal to 50%
        of the employee's  contribution up to a maximum of $1,500. The amount of
        employee  contributions  is limited as  specified  in the Plan.  Company
        contributions to the Plan in 1997 and 1996 was insignificant.


6  SUBSEQUENT EVENT (UNAUDITED):

On February 26, 1998, the Company  declared a cash dividend of $.10 per share of
common  stock to be paid March 23,  1998 to those  shareholders  of record as of
close of business March 16, 1998. Total cash dividend to be paid is $349,000.


                                     F-12
<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

Exhibit
Number  Document Description                                                           Page No.
------- --------------------                                                           -------
<S>     <C>                                                                           <C>
3.1     Articles of Incorporation, as amended, of the Registrant. (2)                    N/A

3.2     Bylaws, as amended, of the Registration. (2)                                     N/A

4.1     Excerpt  from  Articles  of  Incorporation  of  the Registrant Regarding
        Common Stock and Preferred Stock. (2)                                            N/A

10.1    Form  of  Consumer Report User Agreement between Registrant and customer
        of Registrant. (1)                                                               N/A

10.1.2  Form of Consumer Report User Agreement-Employment between Registrant and
        customer of Registrant.

10.1.3  Form of Consumer Report User Agreement-Non Employment between Registrant
        and customer of Registrant.

10.2    Employment Agreement dated as of January 1, 1994, between the Registrant
        and Dean A. Suposs. (2)                                                          N/A

10.3    Employer Report Subscriber Agreement,  dated March 29, 1991, between the
        Registrant and TRW, Inc. (1)                                                     N/A

10.3.1  Reseller  Service  Agreement, dated  September  25,  1997,  between  the
        Registrant and TRW, Inc.

10.3.2  Credit Bureau  Service  Agreement,  dated  March 30,  1992,  between the
        Registrant And TransUnion. (1)                                                   N/A

10.4    Amended and Restated 1994 Stock Incentive Plan.(3)                               N/A

10.5    Non-Employee Directors' Stock Option Plan.

10.6    Letter Agreements,  Dated March 24, 1995, with Ace Hardware  Corporation
        and Loss Prevention Services  relating  to  sales  of  the  Registrant's
        Products.(4)                                                                     N/A

10.7    Amended  and  Restated  1994  Stock  Incentive  Plan and Incentive Stock
        Option Agreement between Leonard Koch and the Registrant.(6)                     N/A

10.8    Amended and Restated 1994 Stock Incentive  Plan  Incentive  Stock Option
        Agreement,   dated   June  10,  1996,  between  Jerry  Thurber  and  the
        Registrant. (6)                                                                  N/A

10.9    Amended and Restated 1994 Stock Incentive  Plan  Incentive  Stock Option
        Agreement, dated  July 1, 1996, between Jamie Burgat and the Registrant.
        (6)                                                                              N/A
</TABLE>
-------------------------
     (1) Filed as an Exhibit to the  initial  Registration  Statement  (File No.
         33-76726-D) filed with the Securities and Exchange  Commission on March
         21, 1994.
     (2) Filed as an Exhibit to Amendment  No. 1 to the  Registration  Statement
         (File No. 33-76726-D) filed with the Securities and Exchange Commission
         on April 26, 1994.
     (3) Filed as an Exhibit to Amendment  No. 2 to the  Registration  Statement
         (File No. 33-76726-D) filed with the Securities and Exchange Commission
         on May 24, 1994.
     (4) Filed  as  an  Exhibit  to  Post-Effective   Amendment  No.  1  to  the
         Registration  Statement (File No. 33-76726-D) filed with the Securities
         and Exchange Commission on May 4, 1995.
     (5) Filed as an Exhibit to Form 10-KSB for the year ended December 31, 1995
         filed with the Securities and Exchange Commission on March 9, 1996.
     (6) Filed  as  an  Exhibit  to  Post-Effective   Amendment  No.  2  to  the
         Registration  Statement (File No. 33-76726-D) filed with the Securities
         and Exchange Commission on October 23, 1996.